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the company generated $ 145.8 million in cash provided by operating activities in 2016 versus $ 142.7 million in 2015. the company used $ 117.7 million of net cash in investing activities during 2016 compared to $ 107.9 million during 2015. the company 's fifth amended and restated credit agreement provides a $ 250 million revolving credit facility and expires in march 2020. the facility also has an accordion feature that allows for an additional $ 75 million in availability , subject to lender approval . the facility provides for a libor rate margin range from 112.5 basis points to 225 basis points , base rate margins from minus 12.5 basis points to plus 50 basis points , an unused portion fee from 20 basis points to 30 basis points and letter of credit fees from 112.5 basis points to 225 basis points , in each case based on the company 's leverage ratio . the company used $ 26.7 million of net cash in financing activities during 2016 compared to $ 39.0 million during 2015. the company had a $ 15.9 million decrease in net cash repayments under its revolving credit agreement during 2016 and made scheduled principal payments of senior notes and capital lease obligations of $ 7.1 26 million and $ 8.2 million , respectively , during 2016 . outstanding letters of credit were $ 41.2 million and the cash and cash equivalents balance was $ 1.5 million as of decem ber 31 , 2016 . the company had $ 210.6 million in remaining availability under its revolving c redit a greement , $ 7.1 million outstanding in senior notes and $ 66.7 million in obligations under capital leases at december 31 , 2016. the company was in compliance with the debt covenants under its debt agreements at december 31 , 2016 . see “ financial condition ” for a more complete discussion of these agreements . general the following management 's discussion and analysis describes the principal factors affecting the results of operations , liquidity and capital resources , as well as the critical accounting policies of saia , inc. and its wholly-owned subsidiaries ( together , the company or saia ) . this discussion should be read in conjunction with the accompanying audited consolidated financial statements which include additional information about our significant accounting policies , practices and the transactions that underlie our financial results . saia is a transportation company headquartered in johns creek , georgia that provides regional and interregional less-than-truckload ( ltl ) services through a single integrated organization . while more than 99 % of its revenue historically has been derived from transporting ltl shipments across 34 states , the company also offers customers a wide range of other value-added services , including non-asset truckload , expedited and logistics services across the united states . the chief operating decision maker is the chief executive officer who manages the business , regularly reviews financial information and allocates resources . the company has one operating segment . our business is highly correlated to non-service sectors of the general economy . it also is impacted by a number of other factors as discussed under “ forward looking statements ” and part i , item 1a . “ risk factors. ” the key factors that affect our operating results are the volumes of shipments transported through our network , as measured by our average daily shipments and tonnage ; the prices we obtain for our services , as measured by revenue per hundredweight ( a measure of yield ) and revenue per shipment ; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries , wages and benefits ; purchased transportation ; claims and insurance expense ; fuel and maintenance ; and our ability to match operating costs to shifting volume levels . 27 story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > operating revenue includes fuel surcharge revenue from the company 's fuel surcharge program . that program is designed to reduce the company 's exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel . the company 's fuel surcharge is generally based on the average national price for diesel fuel and is reset weekly . fuel surcharges have remained in effect for several years , are widely accepted in the industry and are a significant component of revenue and pricing . fuel surcharges are an integral part of customer contract negotiations , but represent only one portion of overall customer price negotiations as customers may negotiate increases in base rates instead of increases in fuel surcharges or vice versa . saia revised its fuel surcharge program effective february 2 , 2015 to better align with its competitors . fuel surcharge revenue decreased to 11.7 % of operating revenue for the year ended december 31 , 2015 compared to 16.6 % for the year ended december 31 , 2014 primarily as a result of reductions in the cost of fuel . operating expenses and margin consolidated operating income was $ 90.0 million in 2015 compared to $ 85.7 million in 2014. in summary , the operations were favorably impacted in 2015 by yield management and continued cost optimization initiatives throughout our network , which more than offset the shipment and tonnage decreases and compensation expense increase from 2014 to 2015. the 2015 operating ratio ( operating expenses divided by operating revenue ) was 92.6 percent as compared to 93.3 percent for 2014. salaries , wages and benefit expense increased $ 30.5 million from 2014 to 2015 largely due to wage increases in july 2015 , higher wages associated with increased headcount in 2015 and higher healthcare benefit costs . claims and insurance expense in 2015 was $ 10.7 million lower than 2014 largely due to decreased accident frequency and severity in 2015 along with decreased cargo claims . story_separator_special_tag the company can experience volatility in accident expense as a result of its self-insurance structure and $ 2.0 million retention limits per occurrence . depreciation expense increased $ 6.0 million in 2015 compared to 2014 primarily due to revenue equipment and technology investments in late 2014 and 2015. purchased transportation expense decreased $ 29.0 million in 2015 compared to 2014 primarily due to a decline in fuel costs charged by carriers , favorable carrier rates and mix of transportation modes utilized , and increased utilization of the internal assets . other substantially all non-operating expenses represent interest expense . interest expense in 2015 was $ 0.5 million less than 2014 due to lower borrowings and interest rates in 2015. the effective tax rate was 36.0 percent for the years ended december 31 , 2015 and 2014. the 2015 and 2014 effective tax rates included approximately $ 1.0 million in alternative fuel tax credits . the notes to the consolidated financial statements provide an analysis of the income tax provision and the effective tax rate . 30 working capital/capital expenditures working capital at december 31 , 2015 was $ 17.6 million which decreased from working capital at december 31 , 2014 of $ 39.7 million primarily due to decreases in accounts receivable and income tax receivable and an increase in accounts payable . cash flows from operating activities were $ 142.7 million for 2015 versus $ 102.2 million for 2014 driven by increased profitability and working capital changes . for 2015 , cash used in investing activities was $ 107.9 million versus $ 94.8 million in 2014 primarily due to $ 22.2 million in cash used in business acquisitions during 2015. cash used in financing activities was $ 39.0 million in 2015 versus $ 3.1 million for 2014 due to the net repayment of $ 30.5 million of our revolving credit facility during 2015. outlook our business remains highly correlated to non-service sectors of the general economy and competitive pricing pressures , as well as the success of company-specific improvement initiatives . there remains uncertainty as to the strength of economic conditions . we are continuing initiatives to increase yield , reduce costs and improve productivity . we focus on providing top quality service and improving safety performance . planned revenue initiatives include , but are not limited to , building density in our current geography , targeted marketing initiatives to grow revenue in more profitable segments , expanding our service geography into the northeastern united states , as well as pricing and yield management . on october 3 , 2016 , saia implemented a 4.9 percent general rate increase for customers comprising approximately 20 to 25 percent of saia 's operating revenue . the extent of success of these revenue initiatives is impacted by what proves to be the underlying economic trends , competitor initiatives and other factors discussed under “ forward-looking statements ” and part i , item 1a . “ risk factors. ” effective july 1 , 2016 , the company implemented a salary and wage increase for all of its employees . the cost of the compensation increase is expected to be approximately $ 16 million annually , and the company anticipates the impact will be partially offset by further continued productivity and efficiency gains . the company also anticipates market competitive wage increases in 2017. if the company builds market share , there are numerous operating leverage cost benefits . conversely , should the economy soften from present levels , the company plans to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage . the success of cost improvement initiatives is also impacted by the cost and availability of drivers and purchased transportation , fuel , insurance claims , regulatory changes , successful expansion of our service geography into the northeastern united states and other factors discussed under “ forward-looking statements ” and part i , item 1a . “ risk factors. ” see “ forward-looking statements ” and part i , item 1a . “ risk factors ” for a more complete discussion of potential risks and uncertainties that could materially affect our future performance . new accounting pronouncements not yet adopted in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services . the asu will replace most existing revenue recognition guidance in u.s. generally accepted accounting principles when it becomes effective . in july 2015 , the fasb updated asu no . 2014-09 to defer the effective date by one year . the new standard is effective for the company on january 1 , 2018 , at which point the company plans to adopt this standard . the standard permits the use of either the retrospective or cumulative effect transition method . the company is evaluating the effect that asu no . 2014-09 will have on its consolidated financial statements and related disclosures . the company has not yet selected a transition method nor has it completed its evaluation of the effect of the standard on its ongoing financial reporting . while the company has adopted a timeline for implementation and identified its revenue streams and contracts subject to the standard , the company has not yet completed its evaluation of these . based on the company 's current analysis , it expects the revenue recognition of its non-asset truckload and logistics business to change to upon delivery of the shipment or completion of the services . however , the company does not anticipate a significant change to other areas of its business . 31 in february 2016 , the fasb issued asu 2016-02 , leases ( topic 842 ) , a leasing standard for both lessees and lessors .
| 28 operating revenue includes fuel surcharge revenue from the company 's fuel surcharge program . that program is designed to reduce the company 's exposure to fluctuations in fuel prices by adjusting total freight charges to account for changes in the price of fuel . the company 's fuel surcharge is generally based on th e average national price for diesel fuel and is reset weekly . fuel surcharges have remained in effect for several years , are widely accepted in the industry and are a significant component of revenue and pricing . fuel surcharges are an integral part of cus tomer contract negotiations but represent only one portion of overall customer price negotiations as customer s may negotiate increase in base rates instead of increases in fuel surcharges or vice versa . saia revised its fuel surcharge program effective january 18 , 201 6 to better align with its competitors . fuel surcharge revenue decreased to 9.7 % of operating revenue for the year ended december 31 , 2016 compared to 11.7 % for the year ended december 31 , 2015 primarily as a result of reductions in the cost of fuel . operating expenses and margin consolidated operating income was $ 79.1 million in 2016 compared to $ 90.0 million in 2015. in summary , the operations were unfavorably impacted in 2016 by shipment and tonnage decreases and claims , depreciation and compensation expense increases , which were partially offset by higher yield and continued cost optimization initiatives throughout our network . the 2016 operating ratio ( operating expenses divided by operating revenue ) was 93.5 percent as compared to 92.6 percent for 2015. salaries , wages and benefit expense increased $ 25.9 million largely in 2016 compared to 2015 due to higher wages associated with increased headcount in 2016 and wage increases in july 2015 and 2016 , increased internal driver utilization and higher healthcare benefit costs . fuel , operating expenses and supplies decreased $ 31.0 million during 2016 compared to 2015
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receiving stores will be eligible for inclusion in the same store sales base in the twenty-fourth full month following the account transfer . in addition , due to the severity of the impact of hurricanes , we instituted a change to the same store sales store selection criteria to exclude stores in geographically impacted regions for 18 months . same store revenues increased by $ 82.4 million , or 4.6 % , to $ 1,873.8 million for the year ended december 31 , 2019 , as compared to $ 1,791.4 million in 2018 . the increase in same store revenues was primarily attributable to an improvement in the rent-a-center business segment , as discussed further in the segment performance section below . cost of rentals and fees . cost of rentals and fees consists primarily of depreciation of rental merchandise . cost of rentals and fees for the year ended december 31 , 2019 increased by $ 13.0 million , or 2.1 % , to $ 634.9 million , as compared to $ 621.9 million in 2018 . the increase in cost of rentals and fees was primarily attributable to an increase of $ 31.5 million in the preferred lease segment as a result of higher rentals and fees revenue , partially offset by a decrease of $ 19.9 million in the rent-a-center business segment . cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 28.5 % for the year ended december 31 , 2019 as compared to 27.7 % in 2018 . cost of merchandise sold . cost of merchandise sold represents the net book value of rental merchandise at time of sale . cost of merchandise sold increased by $ 10.1 million , or 3.3 % , to $ 319.0 million for the year ended december 31 , 2019 , from $ 308.9 million in 2018 , primarily attributable to increases of $ 9.3 million and $ 1.0 million in the rent-a-center business and preferred lease segments , respectively . the gross margin percent of merchandise sales decreased to ( 4.7 ) % for the year ended december 31 , 2019 , from ( 1.5 ) % in 2018 . gross profit . gross profit decreased by $ 44.1 million , or 2.6 % , to $ 1,644.1 million for the year ended december 31 , 2019 , from $ 1,688.2 million in 2018 , due primarily to decreases of $ 44.7 million and $ 5.8 million in the rent-a-center business and preferred lease segments , respectively partially offset by increases of $ 3.3 million and $ 3.1 million in the franchising and mexico segments , respectively , in each case as discussed further in the segment performance section below . gross profit as a percentage of total revenue decreased to 61.6 % in 2019 compared to 63.5 % in 2018 . store labor . store labor includes all salaries and wages paid to store-level employees and district managers ' salaries , together with payroll taxes and benefits . store labor decreased by $ 53.3 million , or 7.8 % , to $ 630.1 million for the year ended december 31 , 2019 , as compared to $ 683.4 million in 2018 , primarily attributable to a decrease of $ 53.7 million in the rent-a-center business segment , driven by our cost savings initiatives and lower rent-a-center business store base ( see note m to the consolidated financial statements for additional detail ) . store labor expressed as a percentage of total store revenue was 24.2 % for the year ended december 31 , 2019 , as compared to 26.0 % in 2018 . other store expenses . other store expenses include occupancy , charge-offs due to customer stolen merchandise , delivery , advertising , selling , insurance , travel and other store-level operating expenses . other store expenses decreased by $ 39.8 million , or 6.1 % , to $ 617.1 million for the year ended december 31 , 2019 , as compared to $ 656.9 million in 2018 , primarily attributable to a decrease of $ 55.1 million in the rent-a-center business segment , as a result of lower rent-a-center business store base , partially offset by an increase of $ 13.1 million in the preferred lease segment primarily related to merchandise losses . other store expenses expressed as a percentage of total store revenue decreased to 23.7 % for the year ended december 31 , 2019 , from 25.0 % in 2018 . general and administrative expenses . general and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries , payroll taxes and benefits , stock-based compensation , occupancy , administrative and other operating expenses , as well as salaries and labor costs for our regional directors , divisional vice presidents and executive vice presidents . general and administrative expenses decreased by $ 20.8 million , or 12.7 % , to $ 142.6 million for the year ended december 31 , 2019 , as compared to $ 163.4 million in 2018 , primarily as a result of our cost savings initiatives . general and administrative expenses expressed as a percentage of total revenue decreased to 5.3 % for the year ended december 31 , 2019 , compared to 6.1 % in 2018 . other ( gains ) and charges . other charges decreased by $ 120.0 million , or 202.4 % , to $ ( 60.7 ) million in 2019 , as compared to $ 59.3 million in 2018 . other gains for the year ended december 31 , 2019 were primarily related to receipt of the vintage settlement 22 proceeds and gain recorded on the sale of our corporate headquarters , partially offset by merger termination and other incremental legal and professional fees , legal settlements , state sales tax audit assessments , acquisition transaction fees , and charges related to cost savings initiatives and store closures . see note m to the consolidated financial statements for additional detail regarding these other charges . operating profit . operating profit increased $ 197.8 million , or 352.2 story_separator_special_tag % , to $ 253.9 million for the year ended december 31 , 2019 , as compared to $ 56.1 million in 2018 , primarily due to an increase of $ 114.9 million in the corporate segment primarily due to the other gains discussed above , and an increase of $ 88.2 million in the rent-a-center business segment , as discussed further in the segment performance sections below . operating profit expressed as a percentage of total revenue was 9.5 % for the year ended december 31 , 2019 , as compared to 2.1 % for 2018 . excluding other charges , profit was $ 193.1 million or 7.2 % of revenue for the year ended december 31 , 2019 , compared to $ 115.5 million or 4.3 % of revenue for the comparable period of 2018 . income tax expense . income tax expense for the twelve months ended december 31 , 2019 was $ 50.2 million , as compared to $ 5.3 million in 2018 . the effective tax rate was 22.4 % for the twelve months ended december 31 , 2019 , compared to 38.6 % in 2018 . comparison of the years ended december 31 , 2018 and 2017 store revenue . total store revenue decreased by $ 52.5 million , or 2.0 % , to $ 2,627.9 million for the year ended december 31 , 2018 , from $ 2,680.4 million for 2017. this was primarily due to a decrease of approximately $ 75.4 million in the preferred lease segment , partially offset by an increase of $ 20.3 million in the rent-a-center business segment , as discussed further in the segment performance section below . same store revenue is reported on a constant currency basis and generally represents revenue earned in 2,575 locations that were operated by us for 13 months or more , excluding any store that receives a certain level of customer accounts from another store ( acquisition or merger ) . receiving stores will be eligible for inclusion in the same store sales base in the twenty-fourth full month following the account transfer . in addition , due to the severity of the hurricane impacts , we instituted a change to the same store sales store selection criteria to exclude stores in geographically impacted regions for 18 months . same store revenues increased by $ 74.8 million , or 4.7 % , to $ 1,653.4 million for the year ended december 31 , 2018 , as compared to $ 1,578.6 million in 2017. the increase in same store revenues was primarily attributable to an improvement in the rent-a-center business segment , as discussed further in the segment performance section below . cost of rentals and fees . cost of rentals and fees consists primarily of depreciation of rental merchandise . cost of rentals and fees for the year ended december 31 , 2018 decreased by $ 3.5 million , or 0.6 % , to $ 621.9 million , as compared to $ 625.4 million in 2017. this decrease in cost of rentals and fees was primarily attributable to a decrease of $ 8.1 million in the rent-a-center business segment as a result of lower rentals and fees revenue , partially offset by an increase of $ 3.8 million in the preferred lease segment . cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 27.7 % for the year ended december 31 , 2018 as compared to 27.6 % in 2017. cost of merchandise sold . cost of merchandise sold represents the net book value of rental merchandise at time of sale . cost of merchandise sold decreased by $ 13.7 million , or 4.3 % , to $ 308.9 million for the year ended december 31 , 2018 , from $ 322.6 million in 2017 , primarily attributable to a decrease of $ 18.8 million in the preferred lease segment , partially offset by an increase of $ 5.1 million in the rent-a-center business segment . the gross margin percent of merchandise sales decreased to ( 1.5 ) % for the year ended december 31 , 2018 , from 2.6 % in 2017. gross profit . gross profit decreased by $ 30.3 million , or 1.8 % , to $ 1,688.2 million for the year ended december 31 , 2018 , from $ 1,718.5 million in 2017 , due primarily to a decrease of $ 60.4 million in the preferred lease segment , partially offset by an increase of $ 23.6 million and $ 4.6 million in the rent-a-center business and franchising segments , respectively , as discussed further in the segment performance section below . gross profit as a percentage of total revenue decreased to 63.5 % in 2018 compared to 63.6 % in 2017. store labor . store labor includes all salaries and wages paid to store-level employees and district managers ' salaries , together with payroll taxes and benefits . store labor decreased by $ 49.1 million , or 6.7 % , to $ 683.4 million for the year ended december 31 , 2018 , as compared to $ 732.5 million in 2017 , primarily attributable to a decrease of $ 29.4 million and $ 19.8 million in the preferred lease and rent-a-center business segments , respectively , driven by cost savings initiatives and lower rent-a-center business store base . store labor expressed as a percentage of total store revenue was 26.0 % for the year ended december 31 , 2018 , as compared to 27.3 % in 2017. other store expenses . other store expenses include occupancy , charge-offs due to customer stolen merchandise , delivery , advertising , selling , insurance , travel and other store-level operating expenses .
| in addition , we increased dividend payments by $ 13.7 million during the twelve months ended december 31 , 2019 . liquidity requirements . our primary liquidity requirements are for rental merchandise purchases . other capital requirements include expenditures for property assets , debt service , and dividends . our primary sources of liquidity have been cash provided by operations . should we require additional funding sources , we maintain a five-year asset-based revolving credit facility ( the `` abl credit facility '' ) , with commitments of $ 300 million , provided for under the asset based loan credit agreement , entered into on august 5 , 2019 ( the `` able credit agreement '' ) . we utilize our abl credit facility for the issuance of letters of credit , as well as to manage normal fluctuations in operational cash flow caused by the timing of cash receipts . in that regard , we may from time to time draw funds under the abl credit facility for general corporate purposes . amounts are drawn as needed due to the timing of cash flows and are generally paid down as cash is generated by our operating activities . we believe cash flow generated from operations and availability under our abl credit facility , will be sufficient to fund our operations during the next 12 months . at february 21 , 2020 , we had approximately $ 36.2 million in cash on hand , and $ 168.2 million available under our abl credit agreement at december 31 , 2019 . deferred taxes . certain federal tax legislation enacted during the period 2009 to 2017 permitted bonus first-year depreciation deductions ranging from 50 % to 100 % of the adjusted basis of qualified property placed in service during such years . the depreciation benefits associated with these tax acts are now reversing . the protecting americans from tax hikes act of 2015 ( `` path '' ) extended the 50 % bonus depreciation to 2015 and through september 26 , 2017 ,
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loss from discontinued operations , net of taxes loss from discontinued operations in 2012 relates to the sale of our postproduction audio business in 2012. loss from discontinued operations in 2011 relates to activities connected with businesses classified as discontinued operations in previous years in addition to the postproduction audio business . segment results of operations – 2012 vs. 2011 we evaluate the operating performance of our segments based on financial measures such as revenues and adjusted operating income before depreciation and amortization ( “ adjusted oibda ” ) . adjusted oibda is defined as revenues less costs of revenues and selling , general and administrative expenses excluding : ( i ) mark-to-market equity-based compensation , ( ii ) depreciation and amortization , ( iii ) amortization of deferred launch incentives , ( iv ) exit and restructuring charges , ( v ) certain impairment charges , and ( vi ) gains ( losses ) on business and asset dispositions . we use this measure to assess the operating results and performance of our segments , perform analytical comparisons , identify strategies to improve performance , and allocate resources to each segment . we believe adjusted oibda is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses . we exclude mark-to-market equity-based compensation , exit and restructuring charges , certain impairment charges , and gains and losses on business and asset dispositions from the calculation of adjusted oibda due to their volatility . we also exclude the depreciation of fixed assets and amortization of intangible assets and deferred launch incentives as these amounts do not represent cash payments in the current reporting period . adjusted oibda should be considered in addition to , but not a substitute for , operating income , net income 30 and other measures of financial performance reported in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . additionally , certain corporate expenses are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives . additional financial information for our segments and geographical areas in which we do business is discussed in note 21 to the accompanying consolidated financial statements included in item 8 , “ financial statements and supplementary data ” in this annual report on form 10-k. total consolidated adjusted oibda was calculated as follows ( in millions ) . replace_table_token_6_th ( a ) selling , general and administrative expenses exclude mark-to-market equity-based compensation , restructuring charges and gains ( losses ) on dispositions . ( b ) amortization of deferred launch incentives are included as a reduction of distribution revenue for reporting in accordance with gaap but are excluded from adjusted oibda . replace_table_token_7_th 31 u.s. networks the table below presents , for our u.s. networks segment , revenues by type , certain operating expenses , contra revenue amounts , adjusted oibda and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_8_th revenues distribution revenue increased $ 42 million . distribution revenue increased $ 52 million driven by annual contractual rate increases and increases in paying subscribers , principally for networks carried on the digital tier . this increase was offset by the impact of agreements to extend and expand the license of selected library titles in the prior year . advertising revenue increased $ 119 million driven by increased pricing and delivery . other revenue decreased $ 32 million due to a change in the classification of service charges to certain of our equity method investees from other revenue to selling , general and administrative expenses beginning january 1 , 2012 as well as a reduction in revenue for sales representation services provided to third-party networks . costs of revenues costs of revenues were consistent with the prior year due to an increase in content investment and royalty expenses , offset by a decrease in content impairments of $ 30 million . selling , general and administrative selling , general and administrative expenses were consistent with the prior year due to higher personnel costs , offset by a change in the classification of service charges to certain of our unconsolidated equity method investees from other revenue to selling , general and administrative expenses beginning january 1 , 2012. adjusted oibda adjusted oibda increased $ 127 million primarily due to contractual rate increases with our affiliates , and higher advertising sales , partially offset by higher personnel costs . 32 international networks the following table presents , for our international networks segment , revenues by type , certain operating expenses , contra revenue amounts , adjusted oibda , and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_9_th revenues distribution revenue increased $ 94 million . excluding the impact of foreign currency fluctuations , distribution revenues increased 16 % , or $ 135 million , which is attributable to continued growth of pay television services and subscribers in latin america , central and eastern europe , the middle east and africa ( `` ceemea '' ) and asia , as well as decreased amortization of deferred launch incentives . advertising revenue increased $ 66 million . excluding the impact of foreign currency fluctuations , advertising revenues increased 19 % , or $ 93 million , due to improved pricing across most regions and strong growth from new and existing free-to-air networks in western europe . other revenue increased $ 22 million due to revenue from a production company acquired during the fourth quarter of 2011. changes in foreign currency exchange rates did not significantly impact other revenues . costs of revenues costs of revenues increased $ 44 million . excluding the impact of foreign currency fluctuations , costs of revenues increased 12 % , or $ 53 million , due to increased investment in content , higher distribution costs and costs from a production company acquired during the fourth quarter of 2011 , partially offset by cost savings from the vertical integration of sales functions in select markets . story_separator_special_tag selling , general and administrative selling , general and administrative expenses increased $ 31 million . excluding the impact of foreign currency fluctuations , selling , general and administrative expenses increased 14 % , or $ 52 million , attributable to increased personnel and higher marketing costs across all regions . adjusted oibda adjusted oibda increased $ 76 million . excluding the impact of foreign currency fluctuations , adjusted oibda increased 18 % , or $ 117 million , primarily due to the growth of television services , which resulted in higher distribution and advertising revenues , offset by higher content expense and personnel costs . variances due to foreign currency resulted from unfavorable revenue impacts in europe , brazil and india as a result of the strengthening of the u.s. dollar compared to the euro , brazilian real and indian rupee . 33 education the following table presents , for our education segment , revenues by type , certain operating expenses , adjusted oibda , and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_10_th adjusted oibda increased slightly compared with the prior year due to increased revenues offset by higher employee costs for our digital textbook . corporate and inter-segment eliminations the following table presents , for our unallocated corporate amounts , revenues , certain operating expenses , adjusted oibda , and a reconciliation of adjusted oibda to operating loss ( in millions ) . replace_table_token_11_th corporate operations primarily consist of executive management , administrative support services and substantially all of our equity-based compensation . corporate expenses are excluded from segment results to evaluate business segment performance based upon decisions made directly by business segment executives . adjusted oibda decreased $ 26 million due to increased transaction and personnel costs . results of operations – 2011 vs. 2010 discontinued operations on september 17 , 2012 , we sold our postproduction audio business , whose results of operations have been reclassified to discontinued operations for all periods presented . ( see note 3 to the accompanying consolidated financial statements . ) the postproduction audio business was an operating segment combined with education as a reportable segment . 34 items impacting comparability following the contribution of the domestic discovery health network to own on january 1 , 2011 , we no longer consolidate the network . the comparability of our results of operations between 2011 and 2010 has been impacted by the deconsolidation . accordingly , to assist the reader in better understanding the changes in our results of operations , the following table presents the results of operations of the discovery health network for 2010 ( in millions ) . replace_table_token_12_th 35 consolidated results of operations – 2011 vs. 2010 our consolidated results of operations for 2011 and 2010 were as follows ( in millions ) . replace_table_token_13_th revenues distribution revenue increased $ 238 million . excluding the impact of foreign currency fluctuations and the effect of no longer consolidating the discovery health network , distribution revenues increased 12 % , or $ 226 million . during 2011 , we extended and expanded an agreement to license selected library titles . as a result of titles delivered under this and similar agreements , license revenue increased $ 84 million . the remaining distribution revenue increase was attributable to contractual rate increases and growth of pay television services and subscribers . advertising revenue increased $ 207 million . excluding the impact of foreign currency fluctuations and the effect of no longer consolidating the discovery health network , advertising revenues increased 16 % , or $ 253 million . increases were primarily due to worldwide increases in pricing , higher sellouts at u.s. networks , and international expansion and rebranding of networks . advertising revenues also benefited from $ 13 million in non-recurring revenue items at our u.s. networks operating segment . other revenue increased $ 17 million , due to $ 33 million for the growth in services provided to our unconsolidated equity method investees . increases also came from our education business . these increases were partially offset by no longer providing services to the travel channel . changes in foreign currency exchange rates and the effect of no longer consolidating the discovery health network did not significantly impact other revenues . costs of revenues costs of revenues , which consist primarily of content expense , distribution costs , and sales commissions , increased $ 163 million . excluding the impact of foreign currency fluctuations and the effect of no longer consolidating the discovery health network , costs of revenues increased 19 % , or $ 184 million . the increase in costs of revenues was principally related to higher 36 content expense of $ 139 million , which primarily reflects our continued investment in content , the international expansion of tlc , $ 26 million for content impairments and accelerated content amortization , and $ 11 million for charges associated with the licensing of selected library titles . costs of revenues also increased due to higher distribution costs and sales commissions . selling , general and administrative selling , general and administrative expenses , which principally comprise employee costs , marketing costs , research costs , occupancy , and back office support fees , was consistent with the prior year . excluding the impact of foreign currency fluctuations and the effect of no longer consolidating the discovery health network , selling , general and administrative expenses decreased 2 % , or $ 20 million . the decrease in selling , general and administrative expenses was primarily due to decreases of $ 83 million for equity-based compensation . equity-based compensation expense decreased $ 100 million due to a decline in outstanding unit awards and stock appreciation rights ( “ sars ” ) , which are cash-settled awards , partially offset by an increase in expense of $ 17 million for stock options , performance-based restricted stock units ( “ prsus ” ) and service-based restricted stock units ( “ rsus ” ) .
| 28 consolidated results of operations – 2012 vs. 2011 our consolidated results of operations for 2012 and 2011 were as follows ( in millions ) . replace_table_token_5_th not meaningful ( `` nm '' ) revenues distribution revenue is largely dependent on the rates negotiated in the agreements , the number of subscribers that receive our network or content , and the market demand for the content we provide . distribution revenue increased $ 136 million . excluding the impact of foreign currency fluctuations , distribution revenues increased 9 % , or $ 177 million . the increase was attributable to contractual rate increases , growth of pay television subscribers , and decreased amortization of deferred launch incentives . advertising revenue is dependent upon a number of factors , including the stage of development of television markets , the number of subscribers to our channels , viewership demographics , the popularity of our content , and our ability to sell commercial time over a group of channels . advertising revenue increased $ 185 million . excluding the impact of foreign currency fluctuations , advertising revenues increased 12 % , or $ 212 million . the increase was primarily due to increases in pricing at u.s. and international networks , along with growth of our international free-to-air networks . other revenue was consistent with the prior year . we changed the classification of service charges to certain of our equity method investees from other revenue to selling , general , and administrative expenses beginning january 1 , 2012. this change was offset by additional revenue from a production company acquired during the fourth quarter of 2011 and higher revenue from the education segment . changes in foreign currency exchange rates did not significantly impact other revenues . costs of revenues costs of revenues , which consist primarily of content expense , distribution costs , and sales commissions , increased $ 42 million . excluding the impact of foreign currency fluctuations , costs of revenues increased 4 % , or $ 51 million . the increase in costs of revenues was principally related to higher content amortization , distribution and production costs partially offset by
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in the fourth quarter of each year , or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount , we complete the impairment testing of goodwill utilizing a discounted cash flow method . we selected the discounted cash flow methodology because we believe that it is comparable to what would be used by other market participants . we have defined our reporting units and completed the impairment testing of goodwill at the operating segment level , as defined by gaap . determining market values using a discounted cash flow method requires us to make significant estimates and assumptions , including long-term projections of cash flows , market conditions and appropriate discount rates . our judgments are based upon historical experience , current market trends , consultations with external valuation specialists and other information . while we believe that the estimates and assumptions underlying the valuation methodology are reasonable , different estimates and assumptions could result in different outcomes . in estimating future cash flows , we rely on internally generated five-year forecasts for sales and operating profits , including capital expenditures , and , currently , a one to three percent long-term assumed annual growth rate of cash flows for periods after the five-year forecast . we generally develop these forecasts based upon , among other things , recent sales 20 data for existing products , planned timing of new product launches , estimated repair and remodel activity and estimated housing starts . our assumptions included a relatively stable u.s. gross domestic product ranging from 2.4 percent to 2.9 percent and a euro zone gross domestic product ranging from 1.5 percent to 1.8 percent over the five-year forecast . we utilize our weighted average cost of capital of approximately 8.5 percent as the basis to determine the discount rate to apply to the estimated future cash flows . our weighted average cost of capital decreased in 2015 as compared to 2014 , primarily due to less risk associated with our stock in relation to the capital markets . in 2015 , based upon our assessment of the risks impacting each of our businesses , we applied a risk premium to increase the discount rate to a range of 10.5 percent to 12.5 percent for our reporting units . if the carrying amount of a reporting unit exceeds its fair value , we measure the possible goodwill impairment based upon an allocation of the estimate of fair value of the reporting unit to all of the underlying assets and liabilities of the reporting unit , including any previously unrecognized intangible assets ( step two analysis ) . the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill . an impairment loss is recognized to the extent that a reporting unit 's recorded goodwill exceeds the implied fair value of goodwill . in the fourth quarter of 2015 , we estimated that future discounted cash flows projected for all of our reporting units were greater than the carrying values . accordingly , we did not recognize any impairment charges for goodwill . a 10 percent decrease in the estimated fair value of our reporting units at december 31 , 2015 would not have resulted in any additional analysis of goodwill impairment for any reporting unit . we review our other indefinite-lived intangible assets for impairment annually , in the fourth quarter , or as events occur or circumstances change that indicate the assets may be impaired without regard to the business unit . we consider the implications of both external ( e.g. , market growth , competition and local economic conditions ) and internal ( e.g. , product sales and expected product growth ) factors and their potential impact on cash flows related to the intangible asset in both the near- and long-term . in 2015 , we did not recognize any impairment charges for other indefinite-lived intangible assets . employee retirement plans effective january 1 , 2010 , we froze all future benefit accruals under substantially all of our domestic qualified and non-qualified defined-benefit pension plans . accounting for defined-benefit pension plans involves estimating the cost of benefits to be provided in the future , based upon vested years of service , and attributing those costs over the time period each employee works . we develop our pension costs and obligations from actuarial valuations . inherent in these valuations are key assumptions regarding inflation , expected return on plan assets , mortality rates and discount rates for obligations and expenses . we consider current market conditions , including changes in interest rates , in selecting these assumptions . while we believe that the estimates and assumptions underlying the valuation methodology are reasonable , different estimates and assumptions could result in different reported pension costs and obligations within our consolidated financial statements . in december 2015 , our discount rate increased for obligations to an average of 4.0 percent from 3.8 percent . the discount rate for obligations is based upon the expected duration of each defined-benefit pension plan 's liabilities matched to the december 31 , 2015 towers watson rate link curve . the discount rates we use for our defined-benefit pension plans ranged from 2.0 percent to 4.3 percent , with the most significant portion of the liabilities having a discount rate for obligations of 4.0 percent or higher . the assumed asset return was primarily 7.25 percent , reflecting the expected long-term return on plan assets . story_separator_special_tag 21 our net underfunded amount for our qualified defined-benefit pension plans , which is the difference between the projected benefit obligation and plan assets , decreased to $ 401 million at december 31 , 2015 from $ 454 million at december 31 , 2014. our projected benefit obligation for our unfunded non-qualified defined-benefit pension plans was $ 174 million at december 31 , 2015 compared with $ 190 million at december 31 , 2014. the decrease in the projected benefit obligations was primarily due to lower bond rates and a change to the mp 2015 mortality improvement scale issued by the u.s. society of actuaries , which decreased our long-term pension liabilities . our qualified domestic pension plan assets in 2015 had a net loss of 1.8 percent . at december 31 , 2015 , we reported a net liability of $ 575 million , of which $ 174 million was related to our non-qualified , supplemental retirement plans , which are not subject to the funding requirements of the pension protection act of 2006. in accordance with the pension protection act , the adjusted funding target attainment percentage for the various defined-benefit pension plans ranges from 78 percent to 114 percent . we expect pension expense for our qualified defined-benefit pension plans to be $ 24 million in 2016 compared with $ 22 million in 2015. if we assumed that the future return on plan assets was one-half percent lower than the assumed asset return and the discount rate decreased by 50 basis points , the 2016 pension expense would increase by $ 5 million . we expect pension expense for our non-qualified defined-benefit pension plans to be $ 9 million in 2016 , compared to $ 10 million in 2015. we anticipate that we will be required to contribute approximately $ 25 million in 2016 to our qualified and non-qualified defined-benefit plans . refer to footnote m for further information regarding the funding of our plans . income taxes deferred taxes are recognized based on the future tax consequences of differences between the financial statement carrying value of assets and liabilities and their respective tax basis . the future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods . possible sources of taxable income include taxable income in carryback periods , the future reversal of existing taxable temporary differences recorded as a deferred tax liability , tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income . if , based upon all available evidence , both positive and negative , it is more likely than not ( more than 50 percent likely ) such deferred tax assets will not be realized , a valuation allowance is recorded . significant weight is given to positive and negative evidence that is objectively verifiable . a company 's three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable , and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets . in 2010 , we recorded a $ 372 million valuation allowance against our u.s. federal deferred tax assets as a non-cash charge to income tax expense . in reaching this conclusion , we considered the weaker retail sales of certain of our building products and the slower than anticipated recovery in the u.s. housing market which led to u.s. operating losses and significant u.s. goodwill impairment charges , that primarily occurred in the fourth quarter of 2010 , causing us to be in a three-year cumulative u.s. loss position . during 2012 and 2011 , objective and verifiable negative evidence , such as u.s. operating losses and significant impairment charges for u.s. goodwill and other intangible assets , continued to outweigh positive evidence necessary to reduce the valuation allowance . as a result , we recorded increases of $ 65 million and $ 87 million in the valuation allowance related to our u.s. federal deferred tax assets in 2012 and 2011 , respectively . 22 in the third quarter of 2014 , we recorded a $ 517 million tax benefit from the release of the valuation allowance against our u.s. federal and certain state deferred tax assets due primarily to a return to sustainable profitability in our u.s. operations . in reaching this conclusion , we considered the continued improvement in both the new home construction market and repair and remodel activity in the u.s. and our progress on strategic initiatives to reduce costs and expand our product leadership positions which contributed to the continued improvement in our u.s. operations over the past few years . in the fourth quarter of 2014 , we recorded an additional $ 12 million tax benefit from the release of the valuation allowances against certain u.k. and mexican deferred tax assets primarily resulting from a return to sustainable profitability in these jurisdictions . we continue to maintain a valuation allowance on certain state and foreign deferred tax assets as of december 31 , 2015. should we determine that we would not be able to realize our remaining deferred tax assets in these jurisdictions in the future , an adjustment to the valuation allowance would be recorded in the period such determination is made . the need to maintain a valuation allowance against deferred tax assets may cause greater volatility in our effective tax rate . the current accounting guidance allows the recognition of only those income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities . we believe that there is an increased potential for volatility in our effective tax rate because this threshold allows changes in the income tax environment and the inherent complexities of income tax law in a substantial number of jurisdictions to affect the computation of our liability for uncertain tax positions to a greater extent .
| net sales for 2014 were negatively affected by lower sales volume of cabinets and by lower selling prices of paints and stains . net sales for 2013 were positively affected by increased sales volume of north american cabinets ( such increase in cabinets was partially offset by a less favorable product mix ) , plumbing products , paints and stains , builders ' hardware and windows . net sales of international plumbing products and cabinets also increased sales . our gross profit margins were 31.5 percent , 29.4 percent and 29.0 percent in 2015 , 2014 and 2013 , respectively . the 2015 and 2014 gross profit margins were positively affected by increased sales volume as well as a more favorable relationship between selling prices and commodity costs . both 2015 and 2014 reflect the benefits associated with business rationalizations and other cost savings initiatives . selling , general and administrative expenses as a percent of sales were 18.7 percent in 2015 compared with 19.2 percent in 2014 and 19.9 percent in 2013. selling , general and administrative expenses as a percent of sales in 2015 and 2014 reflect increased sales and the effect of cost containment measures . 27 the following table reconciles reported operating profit to operating profit , as adjusted to exclude certain items , dollars in millions : replace_table_token_12_th operating profit margins in 2015 and 2014 were positively affected by increased sales volume , a more favorable relationship between selling prices and commodity costs and the benefits associated with business rationalizations and other cost savings initiatives . operating profit in 2015 was negatively affected by foreign currency translation . other income ( expense ) , net other , net , for 2015 included net gains of $ 6 million from investments in private equity funds and $ 2 million from equity investments . other , net , for 2015 also included realized foreign currency losses of $ 14 million and other miscellaneous items . other , net , for 2014 included net gains of $ 4 million from investments in private equity funds and
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purchase accounting woodward consummated one acquisition during fiscal year 2011 for a total cost of $ 47,161 , which included the acquisition of $ 8,463 in marketable securities , and three acquisitions during fiscal year 2009 for a total cost of $ 768,423. in addition , we sold the f & p product line , which was acquired as part of the 2009 acquisitions , for net proceeds of approximately $ 48,000. significant assumptions and estimates , including projections of future cash flows , affect the carrying value of acquired assets and assumed liabilities , including inventories and other tangible and intangible assets . changes in the carrying amounts of acquired assets and assumed liabilities may change the carrying value of goodwill , which is not amortized for accounting purposes . changes in the carrying amount of acquired assets and assumed liabilities may also impact future costs and may subject the company to risk of future impairment of the recorded fair values of assets acquired , including goodwill . inventory inventories are valued at the lower of cost or market , with cost being determined using methods that approximate a first-in , first-out basis . customer-specific information and contractual terms are considered when evaluating lower of cost or market considerations . the carrying value of inventory as of september 30 , 2011 was $ 381,555. if economic conditions , customer product mix or other factors significantly reduce future customer demand for our products from forecast levels , then future adjustments to the carrying value of inventory may become necessary . we attempt to maintain inventory quantities at levels considered necessary to fill expected orders in a reasonable time frame , which we believe mitigates our exposure to future inventory carrying cost adjustments . postretirement benefits the company provides various benefits to certain employees through defined benefit plans and other postretirement benefit plans . for financial reporting purposes , net periodic benefits expense and related obligations are calculated using a number of significant actuarial assumptions , including anticipated discount rates , rates of compensation increases , long-term return on defined benefit plan investments , and anticipated healthcare cost increases . based on these actuarial assumptions , at september 30 , 2011 our recorded liabilities include $ 25,349 for underfunded defined benefit pension plans and $ 32,923 for unfunded other postretirement benefit plans . changes in net periodic expense or the amounts of recorded liabilities may occur in the future due to changes in these assumptions . estimates of the value of postretirement benefit obligations , and related net periodic benefits expense , are dependent on actuarial assumptions including future interest rates , compensation rates , healthcare cost trends , and returns on defined benefit plan investments . variances from our fiscal year end estimates for these variables could materially affect our recognized postretirement benefit obligation liabilities . on a near-term basis , such changes are unlikely to have a material impact on reported earnings , since such adjustments are recorded to other comprehensive income and recognized into expense over a number of years . significant changes in estimates could , however , materially affect the carrying amounts of benefit obligation liabilities , including accumulated benefit obligations , which could affect compliance with the provisions of our debt arrangements and future borrowing capacity . reviews for impairment of goodwill at september 30 , 2011 , we had $ 462,282 of goodwill , representing 26 % of our total assets . goodwill is tested for impairment on the reporting unit level on an annual basis and more often if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the impairment tests consist of comparing the fair value of reporting units , determined using discounted cash flows , with its carrying amount including goodwill . if the carrying amount of the reporting unit exceeds its fair value , we compare the implied fair value of goodwill with its carrying amount . if the carrying amount of goodwill exceeds the implied fair value of goodwill , an impairment loss would be recognized to reduce the carrying amount to its implied fair value . there was no impairment charge recorded in fiscal years 2011 , 2010 or 2009 . 28 in the fourth quarter of fiscal year 2011 , the company prospectively changed its goodwill testing date from march 31 to july 31 to better align its impairment testing procedures with the completion of its annual financial and strategic planning process as discussed in note 10 , goodwill , to the consolidated financial statements . as a result , during fiscal year 2011 , woodward tested its goodwill for impairment as of march 31 , 2011 and july 31 , 2011 and concluded that there was no impairment of the carrying value of the goodwill . the change in accounting principle related to changing the annual goodwill impairment testing date did not accelerate , delay , avoid , or cause an impairment charge . as of march 31 and july 31 , 2011 , woodward determined its turbine systems , airframe systems and engine systems operating segments represented individual reporting units . woodward determined that its electrical power systems operating segment included three components that represented reporting units as of march 31 , 2011 and four components that represented reporting units as of july 31 , 2011 due to the acquisition of ids . the fair value of each of woodward 's reporting units was determined using a discounted cash flow method . this method represents a level 3 input and incorporates various estimates and assumptions , the most significant being projected revenue growth rates , operating earnings margins , and forecasted cash flows based on the discount rate and terminal growth rate . management projects revenue growth rates , operating earnings margins and cash flows based on each reporting unit 's current operational results , expected performance and operational strategies over a five or ten-year period . story_separator_special_tag these projections are adjusted to reflect current economic conditions and demand for certain products , and require considerable management judgment . forecasted cash flows for the july 31 , 2011 impairment testing were discounted using weighted average cost of capital assumptions from 10.0 % to 10.2 % . the terminal values of the forecasted cash flows were calculated using the gordon growth model and assumed an annual compound growth rate after five or ten years of 4.3 % . forecasted cash flows for the march 31 , 2011 impairment testing were discounted using weighted average cost of capital assumption of 11.3 % and an annual compound growth rate after five years of 4.4 % . these inputs , which are unobservable in the market , represent management 's estimate of what market participants would use in determining the present value of the company 's forecasted cash flows . changes in these estimates and assumptions can have a significant impact on the fair value of forecasted cash flows . woodward evaluated the reasonableness of the reporting units resulting fair values utilizing a market multiple method . the results of woodward 's annual goodwill impairment test performed as of july 31 , 2011 , indicated the estimated fair value of each reporting unit was substantially in excess of its carrying value , and accordingly , no impairment existed . increasing the discount rate by 20 % , decreasing the growth rate by 20 % , or decreasing forecasted cash flow by 20 % , would not have resulted in an impairment charge at july 31 , 2011. see note 21 , segment information , in the consolidated financial statements . as part of the company 's ongoing monitoring efforts , woodward will continue to consider the global economic environment and its potential impact on woodward 's business in assessing goodwill recoverability . there can be no assurance that woodward 's estimates and assumptions regarding forecasted cash flows of certain reporting units , the period or strength of the current economic recovery , or the other inputs used in forecasting the present value of forecasted cash flows will prove to be accurate projections of future performance . income taxes we are subject to income taxes in both the united states and numerous foreign jurisdictions . significant judgment is required in evaluating our tax positions and determining our provision for income taxes . during the ordinary course of business , there are many transactions and calculations for which the ultimate tax determination is uncertain . we establish reserves for tax-related uncertainties based on estimates of whether , and the extent to which , additional taxes will be due . the reserves are established when we believe that certain positions are likely to be challenged and may not be fully sustained on review by tax authorities . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit or refinement of an estimate . although we believe our reserves are reasonable , no assurance can be given that the final outcome of these matters will be consistent with what is reflected in our historical income tax provisions and accruals . to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will impact the provision for income taxes . the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate . as of september 30 , 2011 , unrecognized gross tax benefits for which recognition has been deferred was $ 16,931. significant judgment is also required in determining any valuation allowance recorded against deferred tax assets . in assessing the need for a valuation allowance , we consider all available evidence including past operating results , estimates of future taxable income , and the feasibility of tax planning strategies . in the event we change our determination as to the amount of deferred tax assets that can be realized , we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made . as of september 30 , 2011 , our valuation allowance was $ 3,201 . 29 our effective tax rates differ from the u.s. statutory rate primarily due to the tax impact of foreign operations , adjustments of valuation allowances , research tax credits , state taxes , and tax audit settlements . our provision for income taxes is subject to volatility and could be affected by earnings that are different than anticipated in countries which have lower or higher tax rates ; by changes in the valuation of our deferred tax assets and liabilities ; by transfer pricing adjustments ; by tax effects of share-based compensation ; and or changes in tax laws , regulations , and accounting principles , including accounting for uncertain tax positions , or interpretations thereof . in addition , we are subject to examination of our income tax returns by the u.s. internal revenue service and other tax authorities . we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes . there can be no assurance that the outcomes from these examinations will not have a significant effect on our operating results , financial condition , and cash flows . business environment and trends we serve the aerospace and energy markets . aerospace markets our aerospace products are primarily used to provide energy and motion control in both commercial and military fixed wing and rotary aircraft and in various other defense platforms , including guided weapon systems and combat vehicles . commercial and civil aircraft - in the commercial aerospace markets , global air traffic continued to improve in fiscal year 2011. commercial aircraft production has increased as aircraft operators continue to take delivery of more fuel efficient aircraft and retire older , less efficient aircraft .
| details of the changes in consolidated net external sales are as follows : replace_table_token_11_th 34 the increase in net external sales in fiscal year 2011 was attributable to sales volume increases across both of our segments . customer funded development decreased slightly in the aerospace segment . net external sales for fiscal year 2011 were also impacted by favorable price changes and foreign currency exchange rates . sales for fiscal year 2011 continued the growth trend we began to experience in the second half of fiscal year 2010. in addition , the global supply chain has begun to recover some from capacity constraints introduced as the global economy struggled in the past several years . we remain focused on meeting customer demand on a timely basis , managing our inventory levels , and coordinating with vendors . price changes : increases in selling prices across several products were partially offset by decreases in selling prices for some wind related products . selling price changes are in response to prevailing market conditions . foreign currency exchange rates : our worldwide sales activities are primarily denominated in u.s. dollars ( usd ) , european monetary units ( the euro ) , great britain pounds ( gbp ) , japanese yen ( jpy ) , chinese yuan ( cny ) and swiss francs ( chf ) . as the usd , euro , gbp , jpy , cny , and chf fluctuate against each other and other currencies , we are exposed to gains or losses on sales transactions . if the cny , which the chinese government has not historically allowed to fluctuate significantly against usd , is allowed to fluctuate against usd in the future , we would be exposed to gains or losses on sales transactions denominated in cny . during the fiscal year ended september 30 , 2011 , our net sales were positively impacted by approximately $ 17,998 due to changes in foreign currency exchange rates , compared to the same period of fiscal year 2010 . 2011 costs and expenses compared to 2010 variable compensation expense , which is tied to relative
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we experienced a 1.2 % decrease in volumes in comparing the year ended december 31 , 2014 to the year ended december 31 , 2013 on a same store basis , while the average revenue per contract for the year ended december 31 , 2014 increased 0.6 % compared to the year ended december 31 , 2013 on a same store basis . for the year ended december 31 , 2014 , funeral revenue from preneed commissions and preneed funeral trust earnings was $ 9.5 million compared to $ 9.2 million for the year ended december 31 , 2013 . the percentage of funeral services involving cremations has increased from 43.2 % for the year ended december 31 , 2010 to 47.3 % for the year ended december 31 , 2014 . on a same store basis , the cremation rate has risen from 42.1 % in 2010 to 47.4 % for the year ended december 31 , 2014 . the cremation rate for our acquired funeral home businesses was 67.3 % for the year ended december 31 , 2010 compared to 47.1 % for the year ended december 31 , 2014 . our acquisitions made in 2010 were in states that generally have a high cremation rate which caused the cremation rate for 2010 to be significantly higher than the cremation rate for 2014. cemetery operating results are affected by the size and success of our sales organization . approximately 48.0 % of our cemetery revenues related to preneed sales of interment rights and related merchandise and services for the years ended december 31 , 2013 and 2014 . we believe that changes in the economy and consumer confidence affect the amount of preneed cemetery operating revenues . cemetery revenues from investment earnings on trust funds grew from $ 4.5 million in 2010 to $ 8.1 million in 2014 . changes in the capital markets and interest rates affect this component of our cemetery revenues . our cemetery financial performance from 2010 through 2014 was characterized by varying levels of operating revenues yet increasing field-level cemetery profit margins . cemetery operating revenue increased from $ 37.8 million in 2010 to $ 42.9 million in 2014 and increased 5.9 % over 2013 . our goal is to build broader and deeper teams of sales leaders and counselors in our larger and more strategically located cemeteries in order to focus on growth of our preneed property sales . additionally , a portion of our capital expenditures in 2015 is designed to expand our cemetery product offerings . financial revenue we market funeral and cemetery services and products on a preneed basis . preneed funeral or cemetery contracts enable families to establish , in advance , the type of service to be performed , the products to be used and the cost of such products and services . preneed contracts permit families to eliminate issues of making deathcare plans at the time of need and allow input from other family members before the death occurs . we guarantee the price and performance of the preneed contracts to the customer . preneed funeral contracts are usually paid on an installment basis . the performance of preneed funeral contracts is usually secured by placing the funds collected in trust for the benefit of the customer or by the purchase of a life insurance policy , the proceeds of which will pay for such services at the time of need . insurance policies , intended to fund preneed funeral contracts , cover the original contract price and generally include an element of growth ( earnings ) designed to offset future inflationary cost increases . revenue from preneed funeral contracts , along with accumulated earnings , is not recognized until the time the funeral service is performed . the accumulated earnings from the trust investments and insurance policies are intended to offset the inflation in funeral prices . additionally , we generally earn a commission from the insurance company from the sale of insurance-funded policies reflected as preneed funeral commission income within funeral revenue . the commission income is recognized as revenue when the period of refund expires ( generally one year ) , which helps us defray the costs we incur to originate the preneed contract ( primarily commissions we pay to our sales counselors ) . preneed sales of cemetery interment rights are usually financed through interest-bearing installment sales contracts , generally with terms of up to five years with such earnings reflected as preneed cemetery finance charges within cemetery revenue . in substantially all cases , we receive an initial down payment at the time the contract is signed . in most states , regulations require a portion ( generally 10 % ) of the sale amount of cemetery property and memorials to be placed in a perpetual care trust . we have established a variety of trusts in connection with funeral home and cemetery operations as required under applicable state laws . such trusts include ( i ) preneed funeral trusts ; ( ii ) preneed cemetery merchandise and service trusts ; and ( iii ) perpetual care trusts . these trusts are typically administered by independent financial institutions selected by us . investment management and advisory services are provided either by our wholly-owned registered investment advisor ( csv ria ) or independent financial advisors . at december 31 , 2014 , csv ria provided these services to two institutions , which have custody of 76 % of our trust assets , for a fee based on the market value of trust assets . under state trust laws , we are allowed to charge the trust a fee for advising on the investment of the trust assets and these fees are recognized as income as the advisory services are provided . the investment advisors establish an investment policy that gives guidance on asset allocation , 23 investment requirements , investment manager selection and performance monitoring . story_separator_special_tag the investment objectives are tailored to generate long-term investment returns without assuming undue risk , while ensuring the management of assets is in compliance with applicable laws . preneed funeral trust fund income earned , along with the receipt and recognition of any insurance benefits , are deferred until the service is performed . applicable state laws generally require us to deposit a specified amount ( which varies from state to state , generally 50 % to 100 % of the selling price ) into a merchandise and service trust fund for preneed cemetery merchandise and service sales . the related trust fund income earned is recognized when the related merchandise and services are delivered . in most states , regulations require a portion ( generally 10 % ) of the sale amount of cemetery property to be placed in a perpetual care trust . the income from perpetual care trusts provides a portion of the funds necessary to maintain cemetery property and memorials in perpetuity . perpetual care trust fund income is recognized , as earned , in our cemetery revenues . acquisitions we believe a primary driver of higher revenue and profits in the future is the execution of our strategic acquisition model using strategic ranking criteria to assess acquisition and divestiture candidates . as we execute this strategy over the next five years , we believe we will acquire larger , higher margin strategic businesses . all businesses will be prequalified to be able to perform under our standards operating model . we believe we can execute our acquisition strategy without proportionate incremental investment in our consolidation platform infrastructure or additional fixed regional and corporate overhead . the long-term growth or decline of a local branded business is strongly reflected by the criteria used in our assessment of acquisition candidates . the criteria used in our assessment of acquisition candidates include : size of business ; size of market ; competitive standing ; demographics ; barriers to entry ; and volume and price trends . we use the above criteria to rank the strategic position of each of the acquisition candidates . the valuation of the acquisition candidate is then determined through the application of an appropriate after-tax cash return on investment that exceeds our cost of capital . during 2014 , we acquired six businesses from sci which included four businesses in new orleans , louisiana , consisting of four funeral homes , one of which was a combination funeral home and cemetery , and two funeral businesses in alexandria , virginia for approximately $ 54.9 million . additionally , we acquired real estate for approximately $ 3.0 million to be used for funeral home expansion projects . we completed one acquisition during 2013 consisting of two funeral homes , one in tennessee and one in georgia . the consideration paid for this acquisition was approximately $ 13.7 million . we also purchased land for approximately $ 6.0 million in 2013 to be used for funeral home expansion projects . overview of critical accounting policies and estimates the preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate estimates and judgments , including those related to revenue recognition , realization of accounts receivable , inventories , goodwill , other intangible assets , property and equipment and deferred tax assets and liabilities . we base our estimates on historical experience , third party data and assumptions that we believe to be reasonable under the circumstances . the results of these considerations form the basis for making judgments about the amount and timing of revenues and expenses , the carrying value of assets and the recorded amounts of liabilities . actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change . historical performance should not be viewed as indicative of future performance because there can be no assurance the margins , operating income and net earnings , as a percentage of revenues , will be consistent from year to year . management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is based upon our consolidated financial statements presented herewith , which have been prepared in accordance with united states generally accepted accounting principles ( “ gaap ” ) . our significant accounting policies are more fully described in part ii , item 8 , financial statements and supplementary data , note 1. we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . 24 funeral and cemetery operations we record the sales of funeral and cemetery merchandise and services when the merchandise is delivered or service is performed . sales of cemetery interment rights are recorded as revenue in accordance with the retail land sales accounting principles . this method generally provides for the recognition of revenue in the period in which the customer 's cumulative payments exceed 10 % of the contract price related to the real estate . costs related to the sales of interment rights , which include property and other costs related to cemetery development activities , are charged to operations using the specific identification method in the period in which the sale of the interment right is recognized as revenue . revenues to be recognized and cash flow from the delivery of merchandise and performance of services related to preneed contracts that were acquired in acquisitions are typically lower than those originated by us . allowances for bad debts and customer cancellations are provided at the date that the sale is recognized as revenue and are based on our historical experience and the current economic environment . we also monitor changes in delinquency rates and provide additional bad debt and cancellation reserves when warranted .
| interest expense related to uncertain tax positions decreased $ 0.6 million due primarily to a credit recognized in the third quarter of 2014 related to the settled portion of uncertain tax positions as a result of the finalization of an irs audit for the 2011 tax year . accretion of discount on convertible subordinated notes . for the year ended december 31 , 2014 , we recognized accretion of the discount on our convertible subordinated notes issued in march 2014 of $ 2.5 million . accretion is calculated using the effective interest method based on a stated interest rate of 6.75 % . loss on early extinguishment of debt . in april 2014 , we entered into the fifth amendment . as a result , we recognized a loss of approximately $ 1.0 million to write-off the related unamortized deferred loan costs . loss on redemption of convertible subordinated debentures . in march 2014 , we called for the redemption of all our outstanding convertible junior subordinated debentures due 2029 held by carriage services capital trust and the corresponding tides at a price of $ 50 per $ 50 principal amount of the convertible junior subordinated debentures being redeemed , plus accrued and unpaid interest to the redemption date . as of april 16 , 2014 , all of the tides had been redeemed . for the year ended december 31 , 2014 , we recognized a total loss of $ 3.8 million as a result of the write-off of the related unamortized debt issuance costs of $ 2.9 million and $ 0.9 million for the premium paid on the convertible junior subordinated debentures redeemed . other income . during the year ended december 31 , 2014 , we recognized a net gain of $ 0.6 million as a result of a gain of $ 1.1 million related to the purchase of a funeral home building previously leased under a capital lease in the
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alimera has sublicensed distribution , regulatory and reimbursement matters for iluvien for dme in australia and new zealand in april 2014 , in canada in july 2015 and in italy in august 2015. medidur , our lead development product , is an injectable , micro-insert designed to treat chronic non-infectious uveitis affecting the posterior segment of the eye ( posterior uveitis ) for three years from a single administration . medidur , which is the same micro-insert as iluvien , is in phase iii clinical trials , with the filing of a new drug application ( nda ) anticipated in the first half of 2017. we are developing medidur independently . our fda-approved retisert ® provides sustained release treatment of posterior uveitis for approximately two and a half years . it is licensed to bausch & lomb , and we receive royalties from its sales . our pre-clinical development program is focused on developing products using our core platform technologies , durasert and tethadur , to deliver drugs or biologics to treat wet and dry age-related macular degeneration ( amd ) , glaucoma , osteoarthritis and other diseases . summary of critical accounting policies and estimates the 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 united states generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires that we make certain estimates , judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we base 34 our estimates on historical experience , anticipated results and trends and various other factors 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 available from other sources . by their nature , these estimates , judgments and assumptions are subject to an inherent degree of uncertainty , and management evaluates them on an ongoing basis for changes in facts and circumstances . changes in estimates are recorded in the period in which they become known . actual results may differ from our estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to the accompanying consolidated financial statements , we believe that the following accounting policies are critical to understanding the judgments and estimates used in the preparation of our financial statements . it is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies discussed below . revenue recognition our business strategy includes entering into collaborative license and development agreements for the development and commercialization of product candidates utilizing our technology systems . the terms of these arrangements typically include multiple deliverables by us ( such as granting of license rights , providing research and development services , manufacturing of clinical materials and participating on joint research committees ) in exchange for consideration to us of some combination of one or more of non-refundable license fees , funding of research and development activities , payments based upon achievement of clinical development , regulatory and sales milestones , royalties in the form of a designated percentage of product sales or participation in profits . revenue arrangements with multiple deliverables are divided into separate units of accounting if certain criteria are met , including whether the delivered element has stand-alone value to the collaborative partner and based on the selling price of the deliverables . when deliverables are separable , consideration received is allocated to the separate units of accounting based on the relative selling price method using management 's best estimate of the standalone selling price of deliverables when vendor-specific objective evidence or third-party evidence of selling price is not available . allocated consideration is recognized as revenue upon application of the appropriate revenue recognition principles to each unit . the assessment of multiple deliverable arrangements requires judgment in order to determine the appropriate units of accounting , the estimated selling price of each unit of accounting , and the points in time that , or periods over which , revenue should be recognized . for the year ended june 30 , 2015 , we reported $ 25.4 million of collaborative research and development revenue . revenue is recognized when there is persuasive evidence that an arrangement exists , delivery has occurred , the price is fixed and determinable and collection is reasonably assured . we concluded that our deliverables under the restated pfizer agreement are conducting the research and development program for the latanoprost product through completion of phase ii clinical trials ( the r & d program ) and participation on a joint steering committee ( jsc ) . we treat these as a single deliverable , having concluded that the jsc does not have standalone value separate from the r & d program . the total arrangement consideration of the restated pfizer agreement totaled $ 10.05 million , which consisted of $ 7.75 million of deferred revenue on our balance sheet at the effective date plus the $ 2.3 million upfront payment . the difference between the total arrangement consideration and the estimated selling price of the combined deliverables , or $ 3.3 million , was recognized as collaborative research and development revenue in the quarter ended june 30 , 2011 , the period of the modification . the remaining balance is being recognized as revenue using the proportional performance method over the estimated period of our performance obligations under the r & d program . story_separator_special_tag application of the proportional performance method in any fiscal period would result in an increase or decrease in revenue recognized to the extent that the aggregate projected costs to conduct the r & d program decreases or increases , respectively , compared to the previous period . 35 recognition of expense in outsourced clinical trial agreements we recognize research and development expense with respect to outsourced agreements for clinical trials with contract research organizations ( cros ) as the services are provided , based on our assessment of the services performed . we make our assessments of the services performed based on various factors , including evaluation by the third-party cros and our own internal review of the work performed during the period , measurements of progress by us or by the third-party cros , data analysis with respect to work completed and our management 's judgment . we have agreements with two cros to conduct the phase iii clinical trial program for medidur for posterior uveitis . our financial obligations under the agreements are determined by the services that we request from time to time under the agreements . the actual amounts owed under the agreements and the timing of those obligations will depend on various factors , including changes to the protocols and or services requested , the number of patients to be enrolled and the rate of patient enrollment , achievement of pre-defined direct cost milestone events and other factors relating to the clinical trials . as of june 30 , 2015 , our cro agreements provided for two phase iii clinical trials and a utilization study of our proprietary inserter at an aggregate remaining cost of approximately $ 16.4 million . we can terminate the agreements at any time without penalty , and if terminated , we would be liable only for services through the termination date plus non-cancellable cro obligations to third parties . during fiscal 2015 , we recognized approximately $ 6.1 million of research and development expense attributable to our medidur phase iii clinical trial program . changes in our estimates or differences between the actual level of services performed and our estimates may result in changes to our research and development expenses in future periods . story_separator_special_tag the fasb issued accounting standards update no . 2014-09 , revenue from contracts with customers ( topic 606 ) ( asu 2014-09 ) , which requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the transfer of promised goods or services to customers . the standard will replace most existing revenue recognition guidance in u.s. gaap . in august 2015 , the fasb issued asu 2015-14 , which officially deferred the effective date of asu 2014-09 by one year , while also permitting early adoption . as a result , asu 2014-09 will become effective on july 1 , 2018 , with early adoption permitted on july 1 , 2017. the standard permits the use of either the retrospective or cumulative effect transition method . we are evaluating the impact this standard will have on our financial statements . in august 2014 , the fasb issued asu 2014-15 , presentation of financial statementsgoing concern . asu 2014-15 provides guidance around 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 footnote disclosures . for each reporting period , management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company 's ability to continue as a going concern within one year from the date the financial statements are issued . the new standard is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2016. early adoption is permitted . we are evaluating the potential impact of adopting this standard on our financial statements . liquidity and capital resources during fiscal 2012 through fiscal 2015 , we financed our operations primarily from the receipt of license fees , milestone payments , research and develop funding and royalty income from our collaboration partners , and from proceeds of sales of our equity securities . at june 30 , 2015 , our principal sources of liquidity consisted of cash , cash equivalents and marketable securities totaling $ 28.5 million . our cash equivalents are invested in an institutional money market fund , and our marketable securities are invested in investment-grade corporate debt with maturities at june 30 , 2015 ranging from 0.5 to 8.5 months . with the exception of net income in fiscal 2015 resulting from the $ 25.0 million iluvien fda approval milestone , we have generally incurred operating losses since inception and , at june 30 , 2015 , we had a total accumulated deficit of $ 270.7 million . we do not currently have any assured sources of future revenue and we generally expect negative cash flows from operations on a quarterly basis unless and until such time as we receive sufficient revenues from iluvien for dme or one or more of our other product candidates achieve regulatory approval and provide us sufficient revenues . we believe that our capital resources of $ 28.5 million at june 30 , 2015 , together with expected cash inflows under existing collaboration agreements , will enable us to fund our operations as currently planned into early calendar year 2017. this estimate excludes any potential net 39 profits receipts under our alimera collaboration agreement . our ability to fund our planned operations beyond then , including completion of clinical development of medidur , is expected to depend on the amount and timing of cash receipts from iluvien net profits participation , as well as proceeds from any future collaboration or other agreements and or financing transactions .
| we currently expect costs of our ongoing medidur clinical development program to increase by approximately $ 600,000 , or 10 % , during fiscal 2016 over fiscal 2015. general and administrative general and administrative increased by $ 588,000 , or 8 % , to $ 8.1 million for fiscal 2015 from $ 7.5 million for fiscal 2014 , primarily attributable to a $ 530,000 increase in professional fees and a $ 390,000 increase in stock-based compensation . other income other income totaled $ 22,000 in fiscal 2015 compared to $ 5,000 in fiscal 2014 , primarily due to interest income on higher average balances of marketable securities investments . income tax ( expense ) benefit income tax expense of $ 96,000 in fiscal 2015 compared to an income tax benefit of $ 130,000 in fiscal 2014. during fiscal 2015 , we paid $ 263,000 of federal alternative minimum taxes based upon u.s. taxable income for calendar year 2014 , which was primarily attributable to the $ 25.0 million iluvien fda-approval milestone . refundable foreign research and development tax credits totaled $ 167,000 in fiscal 2015 compared to $ 130,000 in fiscal 2014 . 37 years ended june 30 , 2014 and 2013 replace_table_token_7_th revenues collaborative research and development revenue increased to $ 2.2 million in fiscal 2014 , a 176 % increase from $ 780,000 in fiscal 2013 , primarily due to recognition of $ 1.5 million of arrangement consideration upon resolution of a contingency associated with completion of a feasibility study agreement . royalty income , predominantly related to retisert , decreased by $ 45,000 , or 3 % , to $ 1.3 million in fiscal 2014 compared to $ 1.4 million in fiscal 2013. research and development research and development totaled $ 9.6 million in fiscal 2014 , an increase of $ 2.6 million , or 37 % , compared to $ 7.0 million in fiscal 2013. a $ 3.3 million increase in cro costs for the first medidur phase iii clinical trial was partially offset by a $ 665,000 decrease in personnel costs , including stock-based compensation . general and administrative general and administrative increased by
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because we now believe the construction-in-progress associated with the kosmotras launch services will no longer be used or further developed , we wrote-off the full amount previously paid to kosmotras , by recording accelerated depreciation expense of $ 36.8 million , in the fourth quarter of 2017. credit facility in october 2010 , we entered into a credit facility with a syndicate of bank lenders , which we amended and restated in may 2014. we refer to this amended and restated credit facility , as further amended to date , as the credit facility . ninety-five percent of our obligations under the credit facility are insured by bpiae . the credit facility consists of two tranches , with draws and repayments applied pro rata in respect of each tranche : tranche a – $ 1,537,500,000 at a fixed rate of 4.96 % ; and tranche b – $ 262,500,000 at a floating rate equal to libor , plus 1.95 % . in connection with each draw made under the credit facility , we borrowed an additional amount equal to 6.49 % of such draw to cover the premium for the bpiae insurance . we also paid a commitment fee of 0.80 % per year , in semi-annual installments , on any undrawn portion of the credit facility . funds drawn under the credit facility were used to pay 85 % of each invoice issued by thales under the fsd until the credit facility was fully drawn in february 2017. scheduled semi-annual principal repayments will begin april 3 , 2018. the credit facility will mature seven years after the start of the principal repayment period . during this repayment period , we will pay interest on the same date as the principal repayments in cash . prior to the repayment period , interest payments were due on a semi-annual basis in april and october . interest incurred during the year ended december 31 , 2017 was $ 114.4 million , including amortization of deferred financing fees , all of which was capitalized and $ 15.0 million was accrued at year end . following the completion of the iridium next constellation , we may prepay the borrowings subject to the payment of interest makeup costs . we may not subsequently borrow any amounts that we repay . we must repay the loans in full upon a delisting of our common stock , a change in control of our company or our ceasing to own 100 % of any of the other obligors , or the sale of all or substantially all of our assets . we must apply all or a portion of specified capital raise proceeds , insurance proceeds , condemnation proceeds and proceeds from the disposal of any interests in aireon to the prepayment of the loans . the credit facility includes customary representations , events of default , covenants and conditions precedent to our drawing of funds . under the terms of the credit facility , we are required to maintain a dsra , and the minimum amount required to be in the dsra was $ 102.0 million as of december 31 , 2017 , which is classified as restricted cash on our consolidated balance sheet . this minimum dsra cash reserve requirement will increase to $ 189.0 million in 2019 , subject to reduction as permitted by the anticipated agreement with our credit facility lenders as described above . in addition to the minimum debt service reserve levels , financial covenants under the credit facility include : an available cash balance of at least $ 25 million ; a debt-to-equity ratio , which is calculated as the ratio of total net debt to the aggregate of total net debt and total stockholders ' equity , of no more than 0.7 to 1 , measured each june 30 and december 31 ; specified maximum levels of annual capital expenditures ( excluding expenditures on the construction of iridium next satellites ) through the year ending december 31 , 2024 ; specified minimum levels of consolidated operational earnings before interest , taxes , depreciation and amortization , or operational ebitda , for the 12-month periods ending each june 30 and december 31 through december 31 , 2017 ; 50 specified minimum cumulative cash flow requirements from customers who have hosted payloads on our satellites measured each december 31 and june 30 from june 30 , 2017 through december 31 , 2019 ; a debt service coverage ratio , measured during the repayment period , of not less than 1 to 1.5 ; specified maximum leverage levels during the repayment period that decline from a ratio of 7.53 to 1 for the twelve months ending june 30 , 2018 to a ratio of 2.36 to 1 for the twelve months ending december 31 , 2024 ; and a requirement that we receive at least $ 50,000,000 in hosting fees from aireon by september 30 , 2018. our available cash balance , as defined by the credit facility , was $ 291.9 million as of december 31 , 2017. our debt-to-equity ratio was 0.5 to 1 as of december 31 , 2017. we were also in compliance with the operational ebitda covenant , the annual capital expenditure covenant and the cumulative cash flow requirements from customers who have hosted payloads covenant , which were the only other applicable covenants , as of december 31 , 2017. the covenants regarding capital expenditures , operational ebitda and hosted payload cash flows are calculated in connection with a measurement , which we refer to as available cure amount , that is derived using a complex calculation based on overall cash flows , as adjusted by numerous measures specified in the credit facility . in a period in which our capital expenditures exceed , or our operational ebitda or hosted payload cash flows falls short of , the amount specified in the respective covenant , we would be permitted to allocate available cure amount , if any , to prevent a breach of the applicable covenant . story_separator_special_tag as of december 31 , 2017 , we had an amount of $ 8.1 million in available cure , although it was not necessary for us to apply any available cure amount to maintain compliance with the covenants . the available cure amount has fluctuated significantly from one measurement period to the next , and we expect that it will continue to do so . the covenants also place limitations on our ability and that of our subsidiaries to carry out mergers and acquisitions , dispose of assets , grant security interests , declare , make or pay dividends , enter into transactions with affiliates , incur additional indebtedness , or make loans , guarantees or indemnities . if we are not in compliance with the financial covenants under the credit facility , after any opportunity to cure such non-compliance , or we otherwise experience an event of default under the credit facility , the lenders may require repayment in full of all principal and interest outstanding under the credit facility . it is unlikely we would have adequate funds to repay such amounts prior to the scheduled maturity of the credit facility . if we fail to repay such amounts , the lenders may foreclose on the assets we have pledged under the credit facility , which include substantially all of our assets and those of our domestic subsidiaries . as discussed in `` overview of our business '' above , we believe we have reached an agreement in principle with our credit facility lenders to modify the credit facility as described therein . boeing insourcing agreement from our inception until late 2016 , boeing operated and maintained our satellite constellation under an operations and maintenance agreement . pursuant to this agreement , boeing provided personnel services in support of the development of iridium next and agreed to operate and maintain iridium next , including a transitional period that began on january 1 , 2015 , during which boeing supported a hybrid operations mode involving network elements from both the first-generation iridium system and the iridium next system . boeing provided these services on a time-and-materials fee basis . in november 2016 , we restructured our relationship with boeing . we entered into an insourcing agreement , pursuant to which we hired , as of january 3 , 2017 , the majority of the boeing team that performed the operations and maintenance on our system . we now are able to directly manage our network and optimize operational expenses . as part of this arrangement , we agreed to pay boeing a fee of $ 5.5 million , of which one-half was paid in december 2016 and the remainder was paid in december 2017. in addition , we entered into a separate development services contract with boeing , which will dedicate key boeing personnel to continue the design and additional support required for bringing new services and capabilities to the iridium next network . 51 material trends and uncertainties our industry and customer base has historically grown as a result of : demand for remote and reliable mobile communications services ; increased demand for communications services by disaster and relief agencies , and emergency first responders ; a broad wholesale distribution network with access to diverse and geographically dispersed niche markets ; a growing number of new products and services and related applications ; improved data transmission speeds for mobile satellite service offerings ; regulatory mandates requiring the use of mobile satellite services ; a general reduction in prices of mobile satellite services and subscriber equipment ; and geographic market expansion through the ability to offer our services in additional countries . nonetheless , we face a number of challenges and uncertainties in operating our business , including : our ability to complete the deployment of iridium next ; our ability to develop and launch new and innovative products and services for iridium next ; our ability to generate sufficient internal cash flows , including cash flows from hosted payloads , to fund a portion of the remaining costs associated with iridium next and to support our ongoing business ; our ability to raise additional capital when needed , including through a planned issuance of debt securities ; aireon llc 's ability to successfully deploy and market its space-based ads-b , global aviation monitoring service to be carried as a hosted payload on the iridium next system ; aireon 's ability to raise sufficient funds to pay hosting fees to us ; our ability to maintain the health , capacity , control and level of service of our first-generation satellites through the completion of iridium next ; changes in general economic , business and industry conditions , including the effects of currency exchange rates ; our reliance on a single primary commercial gateway and a primary satellite network operations center ; competition from other mobile satellite service providers and , to a lesser extent , from the expansion of terrestrial-based cellular phone systems and related pricing pressures ; market acceptance of our products ; regulatory requirements in existing and new geographic markets ; rapid and significant technological changes in the telecommunications industry ; reliance on our wholesale distribution network to market and sell our products , services and applications effectively ; reliance on single-source suppliers for the manufacture of most of our subscriber equipment and for some of the components required in the manufacture of our end-user subscriber equipment and our ability to purchase 52 parts that are periodically subject to shortages resulting from surges in demand , natural disasters or other events ; and reliance on a few significant customers , particularly agencies of the u.s. government , for a substantial portion of our revenue , as a result of which the loss or decline in business with any of these customers may negatively impact our revenue and collectability of related accounts receivable .
| at december 31 , 2017 , we had approximately 969,000 billable subscribers worldwide , an increase of 119,000 , or 14 % , from approximately 850,000 billable subscribers at december 31 , 2016. we have a diverse customer base , including end users in the following lines of business : land mobile ; internet of things , or iot ; maritime ; aviation ; and government . we recognize revenue from both the provision of services and the sale of equipment . service revenue represented 78 % and 77 % of total revenue for the years ended december 31 , 2017 and 2016 , respectively . voice and data and iot data service revenue have historically generated higher gross margins than subscriber equipment revenue . we are currently devoting a substantial part of our resources to develop iridium next , our next-generation satellite constellation , along with the development of new product and service offerings , upgrades to our current services , and hardware and software upgrades to maintain our ground infrastructure . we estimate the aggregate costs associated with the design , build and launch of iridium next and related ground infrastructure upgrades through 2018 to be approximately $ 3 billion . we expect to fund the costs of iridium next with the substantial majority of the funds from our $ 1.8 billion loan facility , or the credit facility , which was fully drawn in february 2017 , as well as cash on hand and internally generated cash flows , including cash flows from hosted payloads . we may also raise additional funds through the incurrence of indebtedness , as discussed below . while the contracted cash flows from our primary hosted payload customer , aireon , are interest-bearing if not paid on time , we expect those hosted payload payments to continue to be delayed . aireon is working to secure additional contracts with air navigation service providers , or ansps , including the faa , for the sale of aireon 's space-based automatic dependent surveillance-broadcast , or ads-b , services . aireon is currently seeking to raise the capital it will need to fund its continued operations and its hosted payload payments to us . aireon 's ability to make its hosted
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in november 2010 , the license agreement was amended to expand the license territory to include asia and other international markets . we paid clavis $ 10.0 million for the territory expansion and recognized that payment as acquired in-process research and development expense . as part of the amendment to the license agreement , clavis agreed to reimburse up to $ 3.0 million of our research and development costs for certain co-101 development activities subject to our incurring such costs . we are responsible for all remaining development and commercialization costs of the compound . on november 12 , 2012 , the company reported results from a pivotal study of co-101 versus gemcitabine in metastatic pancreatic cancer , which failed to demonstrate a difference in overall survival between the two study arms . based on the results of the study , the company has ceased development of co-101 . co-1686 in may 2010 , we entered into a worldwide license agreement with avila ( now part of celgene corporation ) to discover , develop and commercialize a covalent inhibitor of mutant forms of the egfr gene product . co-1686 was identified as the lead inhibitor candidate developed by avila under the license agreement . we are responsible for all preclinical , clinical , regulatory and other activities necessary to develop and commercialize co-1686 . we made an up-front payment of $ 2.0 million to avila upon execution of the license agreement and an additional $ 4.0 million milestone payment in the first quarter of 2012 upon the acceptance by the u.s. food and drug administration , or fda , of our investigational new drug , or ind , application for co-1686 . we recognized both payments as acquired in-process research and development expense . we are obligated to pay royalties on net sales of co-1686 , based on the volume of annual net sales achieved . celgene has the option to increase royalty rates by electing to reimburse a portion of our development expenses . this option must be exercised within a limited period of time after celgene is notified by us of our intent to pursue regulatory approval of co-1686 in the united states or the european union as a first-line treatment . we may be required to pay up to an additional aggregate of $ 115.0 million in additional development and regulatory milestone payments if certain clinical study objectives and regulatory filings , acceptances and approvals are achieved . in addition , we may be required to pay up to an aggregate of $ 120.0 million in sales milestone payments if certain annual sales targets are achieved . 42 rucaparib in june 2011 , we entered into a license agreement with pfizer to acquire exclusive global development and commercialization rights to pfizer 's drug candidate pf-01367338 , also known as rucaparib . this drug candidate is a small molecule parp inhibitor which we are developing for the treatment of selected solid tumors . pursuant to the terms of the license agreement , we made an up-front payment by issuing pfizer $ 7.0 million principal amount of a 5 % convertible promissory note due in 2012 , which was subsequently converted to common stock immediately prior to our initial public offering . we are responsible for all development and commercialization costs of rucaparib and , if approved , we will be required to pay pfizer royalties on sales of the product . in addition , we may be required to pay pfizer up to an aggregate of $ 259.0 million in milestone payments if certain development , regulatory and sales milestones are achieved . in april 2012 , the company entered into a license agreement with astrazeneca uk limited to acquire exclusive rights associated with rucaparib under a family of patents and patent applications that claim methods of treating patients with parp inhibitors in certain indications . the license enables the development and commercialization of rucaparib for the uses claimed by these patents . pursuant to the terms of the license agreement , the company made an up-front payment of $ 250,000 upon execution of the agreement , which was recognized as acquired in-process research and development expense . the company may be required to pay up to an aggregate of $ 0.7 million in milestone payments if certain regulatory filings , acceptances and approvals are achieved . if approved , astrazeneca will also receive royalties on any sales of rucaparib . drug discovery collaboration agreement in july 2012 , the company entered into a drug discovery collaboration agreement with array biopharma inc. for the discovery of a novel kit inhibitor targeting resistance mutations for the treatment of gist , a gastrointestinal cancer . under the terms of the agreement , the company is responsible to fund all costs of the discovery program , as well as costs to develop and commercialize any clinical candidates discovered . if any clinical candidates are discovered and the company seeks to pursue clinical development of such clinical candidates , the company may be required to pay array up to an aggregate of $ 192.0 million in milestone payments if certain development and regulatory objectives and annual net sales targets are achieved . financial operations overview revenue to date , we have not generated any revenues . in the future , we may generate revenue from the sales of product candidates that are currently under development . based on our current development plans , we do not expect to generate significant revenues for the foreseeable future . if we fail to complete the development of our product candidates and , together with our partners , companion diagnostics or obtain regulatory approval for them , our ability to generate future revenue , and our results of operations and financial position , will be adversely affected . story_separator_special_tag research and development expenses research and development expenses consist of costs incurred for the development of our product candidates and companion diagnostics , which include : license fees and milestone payments related to the acquisition of in-licensed products , which are reported on our statements of operations as acquired in-process research and development ; employee-related expenses , including salaries , benefits , travel and share-based compensation expense ; expenses incurred under agreements with cros and investigative sites that conduct our clinical trials and preclinical studies ; the cost of acquiring , developing and manufacturing clinical trial materials ; costs associated with preclinical activities and regulatory operations ; and activities associated with the development of companion diagnostics for our product candidates . research and development costs are expensed as incurred . license fees and milestone payments related to in-licensed products and technology are expensed if it is determined that they have no alternative future use . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or information provided to us by our vendors . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later stage clinical trials . we plan to increase our research and development expenses for the foreseeable future as we seek to expand our clinical and companion diagnostic development activities for our co-1686 and rucaparib product candidates and perform drug discovery activities for a novel kit inhibitor targeting resistance mutations for the treatment of gist . 43 the following table identifies research and development costs and acquired in-process research and development costs on a program-specific basis for our product candidates in-licensed through december 31 , 2012 , their companion diagnostics , and the kit inhibitor drug discovery program . personnel-related costs , depreciation and share-based compensation are not allocated to specific programs as they are deployed across multiple projects under development and , as such , are separately classified as personnel and other expenses in the table below . replace_table_token_4_th general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance , business development , legal , investor relations and information technology functions . other general and administrative expenses include facility costs , communication expenses , corporate insurance , and professional fees for legal , consulting and accounting services . we anticipate that our general and administrative expenses will increase due to increased personnel expenses to support the growth in research and development activities . other income and expense other income is comprised of interest income earned on cash , cash equivalents and available for sale securities , gain on the sale of available for sale securities , and a federal grant awarded to us under the qualifying therapeutic discovery project program in 2010. other expense includes interest expense associated with the convertible notes payable outstanding during 2011. in addition , we hold cash balances at financial institutions denominated in currencies other than the u.s. dollar to fund research and development activities performed by various third-party vendors . the translation of these currencies into u.s. dollars results in foreign currency gains or losses , depending on the change in value of these currencies against the u.s. dollar . these gains and losses are included in other income and expense . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and share-based compensation . we base our estimates on historical experience , known trends and events and various other factors 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 . 44 our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report on form 10-k. we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary .
| in addition , $ 3.8 million of the increase was the result of discovery , formulation development , manufacturing , and the commencement of preclinical activities associated with co-1686 , a compound that was in-licensed in may 2010. the remaining increase of $ 4.5 million was due primarily to an increase in salaries , benefits and personnel-related costs resulting from additional headcount hired to support the expanding development activities of co-101 , co-1686 and rucaparib . general and administrative expenses . general and administrative expenses for the years ended december 31 , 2012 , 2011 and 2010 were as follows : replace_table_token_7_th the increase in general and administrative expenses for the year ended december 31 , 2012 over 2011 was primarily attributable to increased personnel , professional services , facilities and information system costs associated with being a publicly traded company . additionally , share-based compensation increased by $ 1.8 million due to the increase in the value of stock options granted in 2012. the increase in general and administrative expenses for the year ended december 31 , 2011 over 2010 was primarily attributable to a full year 's lease expense in 2011 associated with office space in san francisco , california and cambridge , england where the leases commenced in may 2010 and august 2010 , respectively , as well as legal fees associated with patent review and analysis activities for two of our product candidates , and increased personnel , travel and information system costs to support company growth . additionally , stock compensation expense increased by $ 701,000 relative to the increase in the valuation of our common stock in 2011 . 47 acquired in-process research and development expenses . acquired in-process research and development expenses for the years ended december 31 , 2012 , 2011 and 2010 were as follows : replace_table_token_8_th the decrease in acquired in-process research and development expenses for the year ended december 31 , 2012 in comparison to 2011 was due to a reduction in
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controls and procedures disclosure controls and procedures disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time period specified in the sec 's rules and forms . disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed in the reports filed under the exchange act is accumulated and communicated to management , including the chief executive officer and chief financial officer , as appropriate , to allow timely decisions regarding required disclosure . as of the end of the period covered by this report , the company carried out an evaluation , under the supervision and with the participation of the company 's management , including the chief executive officer and chief financial officer , of the effectiveness of the design and operation of the company 's disclosure controls and procedures . based upon and as of the date of that evaluation , the chief executive officer and chief financial officer concluded that the company 's disclosure controls and procedures are effective . 14 management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( as such term is defined in rules 13a-15 ( f ) and 15d-15 ( f ) under the exchange act ) for the company . with the participation of the chief executive officer and the chief financial officer , management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework and the criteria established in internal control — integrated framework , issued by the committee of sponsoring organizations of the treadway commission . based on this evaluation , management has concluded that internal control over financial reporting was effective as of march 31 , 2013. the company 's internal control system was designed to provide reasonable assurance to the company 's management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements in accordance with gaap . all internal control systems , no matter how well designed , have inherent limitations . therefore , even those systems determined to be effective can provide only a reasonable , rather than absolute , assurance that the company 's financial statements are free of any material misstatement , whether caused by error or fraud . changes in internal control over financial reporting the company 's management , with the participation of the company 's chief executive officer and chief financial officer , conducted an evaluation of the company 's internal control over financial reporting as required by rule 13a-15 ( d ) under the exchange act and , in connection with such evaluation , determined that no changes occurred during the company 's fourth fiscal quarter ended march 31 , 2013 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . part iii item 10. directors , executive officers and corporate governance the information with respect to the company 's directors and executive officers will be set forth in the company 's proxy statement for the annual meeting of stockholders to be held in 2013 ( the `` proxy statement '' ) under the captions `` proposal 1 – election of directors '' and “ executive officers ” and is incorporated herein by reference . the information with respect to item 405 of regulation s-k will be set forth in the proxy statement under the caption `` section 16 ( a ) beneficial ownership reporting compliance '' and is incorporated herein by reference . the information with respect to item 406 of regulation s-k will be set forth in the proxy statement under the caption “ code of business conduct and ethics ” and is incorporated herein by reference . the information with respect to item 407 of regulation s-k will be set forth in the proxy statement under the captions “ board committees and meetings ” and “ report of the audit committee ” and is incorporated herein by reference . item 11. executive compensation the information set forth under the caption `` executive compensation '' in the proxy statement is incorporated herein by reference . 15 item 12. security ownership of certain beneficial owners and management and related stockholder matters the information set forth under the caption `` security ownership of certain beneficial owners and management '' in the proxy statement is incorporated herein by reference . securities authorized for issuance under equity compensation plans the table below sets forth information regarding shares of the company 's common stock that may be issued upon the exercise of options , warrants and other rights granted to employees , consultants or directors under all of the company 's existing equity compensation plans as of march 31 , 2013. plan category number of securities to be issued upon exercise of outstanding options , warrants and rights weighted-average exercise price of outstanding options , warrants and rights number of securities remaining available for future issuance under equity compensation plans equity compensation plans approved by security holders : 2006 omnibus incentive plan 145,000 $ 5.23 523,750 item 13. certain relationships and related transactions , and director independence the information set forth under the captions “ director independence ” and `` certain relationships and related transactions '' in the proxy statement is incorporated herein by reference . item 14. principal accountant fees and services the information set forth under the caption “ proposal 2 – ratification of appointment of independent auditor ” in the proxy statement is incorporated herein by reference . part iv item 15. exhibits and financial statement schedules ( a ) ( 1 ) . financial statements the following consolidated financial statements of the company are filed with this report story_separator_special_tag controls and procedures disclosure controls and procedures disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time period specified in the sec 's rules and forms . disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed in the reports filed under the exchange act is accumulated and communicated to management , including the chief executive officer and chief financial officer , as appropriate , to allow timely decisions regarding required disclosure . as of the end of the period covered by this report , the company carried out an evaluation , under the supervision and with the participation of the company 's management , including the chief executive officer and chief financial officer , of the effectiveness of the design and operation of the company 's disclosure controls and procedures . based upon and as of the date of that evaluation , the chief executive officer and chief financial officer concluded that the company 's disclosure controls and procedures are effective . 14 management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( as such term is defined in rules 13a-15 ( f ) and 15d-15 ( f ) under the exchange act ) for the company . with the participation of the chief executive officer and the chief financial officer , management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework and the criteria established in internal control — integrated framework , issued by the committee of sponsoring organizations of the treadway commission . based on this evaluation , management has concluded that internal control over financial reporting was effective as of march 31 , 2013. the company 's internal control system was designed to provide reasonable assurance to the company 's management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements in accordance with gaap . all internal control systems , no matter how well designed , have inherent limitations . therefore , even those systems determined to be effective can provide only a reasonable , rather than absolute , assurance that the company 's financial statements are free of any material misstatement , whether caused by error or fraud . changes in internal control over financial reporting the company 's management , with the participation of the company 's chief executive officer and chief financial officer , conducted an evaluation of the company 's internal control over financial reporting as required by rule 13a-15 ( d ) under the exchange act and , in connection with such evaluation , determined that no changes occurred during the company 's fourth fiscal quarter ended march 31 , 2013 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . part iii item 10. directors , executive officers and corporate governance the information with respect to the company 's directors and executive officers will be set forth in the company 's proxy statement for the annual meeting of stockholders to be held in 2013 ( the `` proxy statement '' ) under the captions `` proposal 1 – election of directors '' and “ executive officers ” and is incorporated herein by reference . the information with respect to item 405 of regulation s-k will be set forth in the proxy statement under the caption `` section 16 ( a ) beneficial ownership reporting compliance '' and is incorporated herein by reference . the information with respect to item 406 of regulation s-k will be set forth in the proxy statement under the caption “ code of business conduct and ethics ” and is incorporated herein by reference . the information with respect to item 407 of regulation s-k will be set forth in the proxy statement under the captions “ board committees and meetings ” and “ report of the audit committee ” and is incorporated herein by reference . item 11. executive compensation the information set forth under the caption `` executive compensation '' in the proxy statement is incorporated herein by reference . 15 item 12. security ownership of certain beneficial owners and management and related stockholder matters the information set forth under the caption `` security ownership of certain beneficial owners and management '' in the proxy statement is incorporated herein by reference . securities authorized for issuance under equity compensation plans the table below sets forth information regarding shares of the company 's common stock that may be issued upon the exercise of options , warrants and other rights granted to employees , consultants or directors under all of the company 's existing equity compensation plans as of march 31 , 2013. plan category number of securities to be issued upon exercise of outstanding options , warrants and rights weighted-average exercise price of outstanding options , warrants and rights number of securities remaining available for future issuance under equity compensation plans equity compensation plans approved by security holders : 2006 omnibus incentive plan 145,000 $ 5.23 523,750 item 13. certain relationships and related transactions , and director independence the information set forth under the captions “ director independence ” and `` certain relationships and related transactions '' in the proxy statement is incorporated herein by reference . item 14. principal accountant fees and services the information set forth under the caption “ proposal 2 – ratification of appointment of independent auditor ” in the proxy statement is incorporated herein by reference . part iv item 15. exhibits and financial statement schedules ( a ) ( 1 ) . financial statements the following consolidated financial statements of the company are filed with this report
| 10 marketing and administrative expenses : marketing and administrative expenses for fiscal year 2013 increased in amount and as a percentage of net sales as compared with fiscal year 2012 primarily due to an increase of $ 706,000 in overall compensation costs , which was offset by a decrease of $ 241,000 in advertising costs . interest expense and income : interest expense decreased by $ 148,000 in fiscal year 2013 as compared to fiscal year 2012 due to lower balances on the company 's credit facility . also , the company and its lender , cit group/commercial services , inc. ( “ cit ” ) , amended the company 's financing agreement effective as of april 2 , 2012 to provide for the payment by cit to the company of interest on daily cash balances held at cit at the rate of prime minus 1 % , which was 2.25 % during fiscal year 2013. the company earned $ 61,000 during fiscal year 2013 in interest income on its daily cash balances held at cit , compared with earning no interest income during fiscal year 2012. income tax expense : the company 's provision for income taxes on continuing operations decreased slightly to 36.3 % during fiscal year 2013 from 36.4 % in fiscal year 2012. the decline in the effective tax rate is primarily due to an increase in the current year in the amount of certain expenses that are deductible for tax purposes but not book purposes . inflation : the company has endeavored to increase its prices to offset inflationary increases in its raw materials and other costs , but there can be no assurance that the company will be successful in maintaining such price increases or in effecting such price increases in a manner that will provide a timely match to the cost increases . known trends and uncertainties the company 's financial results are closely tied to sales to the company 's top three customers , which represented approximately 65 % of the company 's gross sales in fiscal year 2013. a significant downturn experienced by any or all of these customers could lead
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concurrent with the series b preferred stock offering and subsequently in july 2014 , we paid a total of $ 4.3 million to induce the conversion of 3,527 shares , or 352,732 depositary shares , of our 6 % series a convertible perpetual preferred stock , or the series a preferred stock . a total of 5.9 million shares of our common stock were issued in connection with the induced conversion of the series a preferred stock . 31 results of operations production the following tables set forth a summary of our total and daily production volumes by product and geographic region for the periods presented ( certain results in the tables below may not calculate due to rounding ) : replace_table_token_15_th 1 comprised of : ( i ) our three active marcellus shale wells in pennsylvania , ( ii ) for periods through july 2014 , our divested selma chalk assets in mississippi , and ( iii ) for periods through july 2012 , our divested appalachian natural gas properties in west virginia , kentucky and virginia . 2014 vs. 2013. total production increased during the year ended december 31 , 2014 compared to 2013 due primarily to production from the continued expansion of our eagle ford development program in south texas . the increase was partially offset by natural production declines in our east texas , mid-continent and mississippi regions , as well as the effect of the sale of our mississippi properties in july 2014. approximately 73 percent of total production during 2014 was attributable to oil and ngls , which represents an increase of approximately 30 percent over 2013. during 2014 , our eagle ford production represented approximately 74 percent of our total production compared to approximately 60 percent from this play during 2013 . 32 2013 vs. 2012. total production increased during 2013 compared to 2012 due primarily to the ef acquisition and the continued expansion of our development program in the eagle ford . the increase was partially offset by the effect of production declines in our east texas and mid-continent regions and the sale of our appalachian properties in july 2012. approximately 65 % of total production during 2013 was attributable to oil and ngls , which represents an increase of approximately 41 % over 2012. during 2013 , our eagle ford production represented approximately 60 percent of our total production compared to approximately 36 percent during 2012. product revenues and prices the following tables set forth a summary of our revenues and prices per unit of volume by product and geographic region for the periods presented : replace_table_token_16_th 33 the following table provides an analysis of the changes in our revenues for the periods presented : replace_table_token_17_th effects of derivatives in 2014 and 2013 , respectively , we paid $ 7.4 million and $ 1.0 million , and in 2012 , we received $ 28.3 million from cash settlements of oil and gas derivatives . the following table reconciles crude oil and natural gas revenues to realized prices , as adjusted for derivative activities , for the periods presented : replace_table_token_18_th gain ( loss ) on sales of property and equipment in 2014 , we recognized a gain of $ 63.0 million in connection with the sale of rights to construct a crude oil gathering and intermediate transportation system and a gain of $ 57.1 million on the sale of our natural gas gathering and gas lift assets in south texas , including $ 56.7 million recognized upon the closing of the sale and $ 0.4 million attributable to the deferred portion of the gain . in 2013 , we recognized losses of $ 0.3 million related primarily to certain post-closing adjustments for asset sales that occurred in prior years . in 2012 , we recognized gains of $ 3.9 million attributable to the sale of substantially all of our appalachian natural gas assets as well as certain undeveloped marcellus shale acreage in pennsylvania . in addition , we recognized several individually insignificant gains and losses on the sale of property , equipment , tubular inventory and well material during all periods presented . other revenues 2014 vs. 2013. other revenues , which includes gathering , transportation , compression , water supply and disposal fees that we charge to other parties , net of marketing and related expenses and accretion of our unused firm transportation obligation , increased during 2014 from 2013 due primarily to income related to water supply and disposal which began in april 2014. the increase was partially offset by the effect of a $ 1.6 million gain in 2013 attributable to the sale of certain proprietary seismic data . 2013 vs. 2012. net revenues from gathering , transportation and compression decreased during 2013 from 2012 due to lower production by other parties in our east texas ami . in addition , we recognized a full year of accretion expense , or $ 1.7 million , in 2013 on our unused firm transportation obligation as compared to one quarter in 2012. these decreases were partially offset by a $ 1.6 million gain on the sale of certain proprietary seismic data in 2013 . 34 production and lifting costs replace_table_token_19_th 2014 vs. 2013. lease operating expense increased on an absolute and per-unit basis during 2014 compared to 2013 due primarily to higher production volume during 2014. most volume-based costs , including chemical , water disposal and labor costs increased on an absolute basis , but decreased on a per-unit basis . as discussed in key developments , we sold our natural gas gathering and gas lift assets in the south texas region and entered into an agreement with the buyer to provide us natural gas gathering , compression and gas lift services . we began incurring costs for these services in february 2014. finally , we also experienced higher workover and subsurface maintenance costs in both south and east texas in 2014 compared to 2013 . story_separator_special_tag 2013 vs. 2012. lease operating expense increased during 2013 compared to 2012 due primarily to higher subsurface maintenance costs for wells located in east texas . in addition , we incurred subsurface maintenance costs for certain wells in the ef acquisition in which we had to remove submersible pumps and replace them with rod pumps . we also incurred higher water disposal and chemical costs associated with our increased oil production . these increases were partially offset by the effect of the sale of our higher-cost appalachian gas properties in july 2012. replace_table_token_20_th 2014 vs. 2013. gathering , processing and transportation charges increased during 2014 compared to 2013 due primarily to additional gathering and compression charges for natural gas and ngl production in the south texas region attributable to the new gathering , compression and gas lift services agreement discussed above , partially offset by the effect of lower natural gas and ngl production volume in our east texas and mid-continent regions as well as the effect of lower natural gas production following the sale of our mississippi assets in july 2014 . 2013 vs. 2012. gathering , processing and transportation charges decreased during 2013 compared to 2012 due primarily to the effect of the sale of our higher-cost appalachian properties in july 2012 , partially offset by an increase in processing costs related to expanded natural gas production in the eagle ford . production and ad valorem taxes replace_table_token_21_th 2014 vs. 2013. production taxes increased during 2014 compared to 2013 due primarily to increased crude oil production in the south texas region , which carries a higher severance tax rate than our other operating areas , partially offset by severance tax audit refunds for natural gas production in mississippi attributable to periods prior to the sale of those properties . 2013 vs. 2012. production and ad valorem taxes increased during 2013 compared to 2012 due primarily to our increased activities in the eagle ford . in addition , we recognized approximately $ 4 million of non-recurring credits in 2012 for severance tax rebates on certain horizontal and ultra-deep natural gas wells in oklahoma and texas . 35 general and administrative replace_table_token_22_th 2014 vs. 2013. our total general and administrative expenses decreased on both an absolute and per unit basis during 2014 compared to 2013 , reflecting lower incentive compensation costs partially offset by higher employee benefits and occupancy costs . liability-classified share-based compensation is attributable to our performance-based restricted stock units , or pbrsus , and represents mark-to-market charges associated with the increase in fair value of the 2012 through 2014 pbrsu grants . the increase in the fair value of the pbrsus is attributable to our common stock performance relative to a defined peer group . equity-classified share-based compensation charges attributable to stock options and restricted stock units , which represent non-cash expenses , decreased during 2014 compared to 2013 due primarily to fewer employees receiving grants and the elimination of retirement age-eligible , or grant-date vesting provisions . in 2014 , we incurred certain costs not eligible for capitalization , including post-implementation support and training with respect to our recently completed erp system replacement . similar charges incurred during 2013 include preliminary project analysis and other non-capitalizable costs . in 2013 , we incurred transaction costs associated with the ef acquisition , including advisory , legal , due diligence and other professional fees . in 2014 , we incurred costs including legal and litigation support fees attributable to our arbitration with mhr . 2013 vs. 2012. general and administrative expenses increased in 2013 compared to 2012 due primarily to higher compensation , benefits and cash-based incentive charges resulting from higher employee headcount as our operations and support organization expanded commensurate with our focus in the eagle ford . the mark-to-market charges attributable to our pbrsus were higher in 2013 compared to 2012 due to a combination of our common stock performance as well as the fact that 2013 included grants for two years while 2012 included only one . equity-classified share-based compensation was lower during 2013 compared to 2012 due to a narrowing of the employee distribution base for such awards . as referenced above , we incurred certain costs in 2013 attributable to the ef acquisition as well as those related to the implementation of a new erp system . in 2012 we incurred restructuring charges including employee termination benefits and a provision for lease costs attributable to exit activities in connection with the sale of our appalachian assets . exploration the following table sets forth the components of exploration expenses for the periods presented : replace_table_token_23_th 2014 vs. 2013. unproved leasehold amortization decreased during 2014 compared to 2013 due primarily to the classification of our unproved property in the eagle ford as a “ significant leasehold ” effective july 1 , 2013. accordingly , our 36 unproved acreage in this region is no longer subject to systematic amortization . geological and geophysical costs increased due to higher seismic data acquisition costs attributable primarily to our development program in the south texas region . we incurred a charge during the fourth quarter of 2014 in connection with the early termination of a drilling rig contract that was to expire later in 2015 under the terms of the original agreement . delay rentals increased due primarily to a larger inventory of undeveloped acreage in the south texas region . 2013 vs. 2012. unproved leasehold amortization declined during 2013 compared to 2012 as costs related to successful eagle ford wells were transferred to proved properties as well as aforementioned classification of our unproved eagle ford property as a “ significant leasehold ” in 2013. geological and geophysical costs increased during 2013 due primarily to the purchase of seismic data for the south texas region .
| since our initial acquisition in this region in 2010 and through february 20 , 2015 , we have added a total of 280 gross wells , including 246 gross wells that are operated by us and 34 gross wells that are operated by our partners . we are currently operating a total of three drilling rigs , all in the eagle ford . our capital program , which is substantially dedicated to this play , is being financed with a combination of cash from operating activities and borrowings under the revolver . to mitigate the volatile effect of commodity price fluctuations , we have a comprehensive hedging program in place . the financial condition discussion that follows and note 5 to the consolidated financial statements provide a detailed summary of our open commodity derivative positions as well as the historical results of our hedging program for the years ended december 31 , 2014 , 2013 and 2012. key developments the following general business developments and corporate actions in 2014 had or are expected to have a significant impact on our results of operations , financial position and cash flows : ( i ) significant decline in commodity prices and the addition of crude oil hedge contracts for calendar year 2015 and 2016 , ( ii ) drilling results and future development plans in the eagle ford , ( iii ) an increase in our borrowing base under the revolver , ( iv ) the acquisition of additional eagle ford acreage , ( v ) the sale of our mississippi assets , south texas oil gathering rights and south texas natural gas gathering and gas lift assets , ( vi ) the resolution of arbitration related to the ef acquisition and ( vii ) our recent preferred stock offering . significant decline in commodity prices and addition of crude oil hedge contracts for calendar years 2015 and 2016 in the second half of 2014 , commodity prices , particularly crude oil , began to decline from recent high levels . the decline became precipitous late
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as a result , we are increasingly investing in our international operations and we intend to expand our footprint in international markets . operating in international markets requires significant resources and management attention and will subject us to regulatory , economic and political risks that are different from those in the united states . because of our limited experience with international operations , our international expansion efforts may not be successful in creating additional demand for our platform outside of the united states or in effectively selling subscriptions to our platform in any or all of the international markets we enter . recent business developments in august 2018 , we completed the acquisition of the technology assets of dcr workforce inc. ( `` dcr '' ) , a provider of contingent workforce management and services procurement software , for aggregate cash consideration of $ 25.0 million paid at closing ( of which $ 3.8 million is being held back until the second anniversary of the closing of the acquisition ) and contingent stock consideration that may be earned and issued in the future . the maximum contingent stock consideration that may be earned and issued is up to 668,740 shares of coupa 's common stock . the payout of the contingent stock consideration is determined based on the achievement of distinct revenue performance targets for each of three separate measurement periods that continue through december 31 , 2022. the fair value of the contingent stock consideration was determined to be $ 27.2 million , resulting in a total purchase consideration of $ 52.2 million . during the year ended january 31 , 2019 , the revenue performance target for the first measurement period ending october 31 , 2019 was fully met , and therefore we issued 291,602 shares of our common stock to the shareholders of dcr in the fourth quarter ending january 31 , 2019. in october 2018 , we completed the acquisition of vinimaya , inc. , a real-time supplier catalog search company , which conducted business as aquiire . we paid aggregate consideration of approximately $ 49.5 million , comprised of $ 30.5 million in cash ( of which $ 3.8 million is being held in escrow for 18 months after the transaction closing date ) and 300,560 shares of coupa 's common stock with fair value of approximately $ 19.0 million ( of which 37,570 shares are being held back by coupa for 18 months after closing of the acquisition ) . in december 2018 , we completed the acquisition of hiperos , llc , a leading third-party risk management provider . we paid aggregate consideration of approximately $ 94.8 million in cash ( of which $ 8.6 million is being held in escrow for 18 months after the transaction closing date ) . the hiperos acquisition extended coupa 's capability to manage third-party risk and compliance including advanced risks such as information security , bribery and corruption , and demanding new data privacy regulations like the general data protection regulation . our business model our business model focuses on maximizing the lifetime value of a customer relationship , and we continue to make significant investments in order to grow our customer base . due to our subscription model , we recognize subscription revenues ratably over the term of the subscription period . as a result , the profitability of a customer to our business in any particular period depends in part upon how long a customer has been a subscriber on our platform . in general , the associated upfront costs with respect to new customers are higher in the first year than the aggregate revenues we recognize from those new customers in the first year . we believe that , over time , as our customer base grows and a relatively higher percentage of our subscription revenues are attributable to renewals versus new customers or upsells to existing customers , associated sales and marketing expenses and other allocated upfront costs as a percentage of revenues will decrease , subject to investments we plan to make in our business . over the lifetime of the customer relationship , we also incur sales and marketing costs to manage the account , renew or upsell the customer to more modules and more users . however , these costs are significantly less than the costs 45 initially incurre d to acquire the customer . we calculate the lifetime value of our customers and associated customer acquisition costs for a particular year by comparing ( i ) gross profit from net new subscription revenues for the year multiplied by the inverse of the estim ated subscription renewal rate to ( ii ) total sales and marketing expense incurred in the preceding year . on this basis , we estimate that for each of fiscal 2019 , 2018 and 2017 , the calculated lifetime value of our customers has exceeded six times the assoc iated cost of acquiring them . key metrics we review the following key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans and make strategic decisions : replace_table_token_8_th cumulative spend under management cumulative spend under management represents the aggregate amount of money that has been transacted through our core coupa platform for all of our customers collectively since we launched our core platform . we calculate this metric by aggregating the actual transaction data for purchase orders , invoices and expenses from customers on our core coupa platform . cumulative spend under management does not include spending data associated with modules from acquired companies . the cumulative spend under management metrics presented above do not directly correlate to our revenue or results of operations because we do not generally charge our customers based on actual usage of our core platform . however , we believe the cumulative spend under management metrics do illustrate the adoption , scale and value of our platform , which we believe enhances our ability to maintain existing customers and attract new customers . story_separator_special_tag backlog and deferred revenue backlog represents future non-cancellable amounts to be invoiced under our agreements . we generally sign multiple-year subscription contracts and invoice an initial annual amount at contract signing followed by subsequent annual invoices . at any point in the contract term , there can be amounts that we have not yet been contractually able to invoice . until such time as these amounts are invoiced , they are not recorded in our consolidated financial statements , and are considered by us to be backlog . we expect backlog to fluctuate up or down from period to period for several reasons , including the timing and duration of customer contracts , varying billing cycles and the timing and duration of customer renewals . in addition , our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenues as of the end of a reporting period . we generally sign multiple year subscription contracts for our platform and invoice an initial amount at contract signing followed by subsequent annual invoices . the majority of our deferred revenue balance consists of subscription revenues that are recognized ratably over the contractual period . together , the sum of deferred revenue and backlog represents the total billed and unbilled contract value and provides visibility into future revenue streams . 46 total customers we define a customer as a separate and distinct buying entity , such as a company , an educational or government institution , or a distinct business unit of a large corporation that has an active contract with us or our partner to access our services . we believe the number of total customers is a key indicator of our market penetration , growth and future revenues . our ability to attract new customers is primarily affected by the effectiveness of our marketing programs and our direct sales force . accordingly , we have aggressively invested in and intend to continue to invest in our direct sales force . in addition , we are continuing to pursue additional partnerships with global systems integrators and other strategic partners . components of results of operations revenues we offer subscriptions to our cloud-based bsm platform , including procurement , invoicing and expense management . we derive our revenues primarily from subscription fees and professional services fees . subscription revenues consist primarily of fees to provide our customers access to our cloud-based platform , which includes routine customer support at no additional cost . professional services fees include deployment services , optimization services , and training . subscription revenues are a function of renewal rates , the number of customers , the number of users at each customer , the number of modules subscribed to by each customer , and the price of our modules . generally , subscription fees are recognized ratably as revenues over the contract term beginning on the date the application is made available to the customer . our new business subscriptions typically have a term of three years , although some customers commit for longer or shorter periods . we generally invoice our customers in annual installments at the beginning of each year in the subscription period . amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period . amounts that will be invoiced and recognized as revenue in future periods are reflected as remaining performance obligations within our notes to our consolidated financial statements . professional services revenues consist primarily of fees associated with the implementation and configuration of our subscription service . professional services are generally sold on a time-and-materials or fixed-fee basis . revenue for both time-and-material and fixed-fee arrangements are recognized over-time as the services are performed . we have the ability to reasonably measure progress toward complete satisfaction of the professional services arrangement . for fixed-fee arrangements , we recognize revenue on the basis of performed hours relative to the total estimated hours to complete satisfaction of the professional service arrangement . our professional services engagements typically span from a few weeks to several months . for this reason , our professional services revenues may fluctuate significantly from period to period . the terms of our typical professional services arrangements provide that our customers pay us within 30 days from the invoice date . fixed-fee services arrangements are generally invoiced in advance . we have made significant investments in our professional services business that are designed to ensure customer success and adoption of our platform . we are continuing to invest in expanding our professional services partner ecosystem to further support our customers . as the professional services practices of our partner firms continue to develop , we expect them to increasingly contract directly with our subscription customers and we incentivize our sales force to further this objective . cost of revenues subscription services cost of subscription services consists primarily of expenses related to hosting our service and providing customer support . significant expenses are comprised of data center capacity costs ; personnel and related costs directly associated with our cloud infrastructure and customer support , including salaries , benefits , bonuses and stock-based compensation ; allocated overhead ; amortization of developed technology and capitalized software development costs . 47 professional services and other cost of revenues cost of professional services and other cost of revenues consist primarily of personnel and related costs directly associated with our professional services and training departments , including salaries , benefits , bonuses and stock-based compensation ; the costs of contracted third-party vendors ; and allocated overhead . these costs are generally expensed in the period incurred . professional services associated with the implementation and configuration of our subscription platform are performed directly by our services team , as well as by contracted third-party vendors . in cases in which third party vendors invoice us for services performed for our customers , those fees are accrued over the requisite service period .
| subscription services revenues were $ 164.9 million , or 88 % of total revenues , for the fiscal year ended january 31 , 2018 , compared to $ 117.8 million , or 88 % of total revenues , for the fiscal yea r ended january 31 , 2017. this increase in absolute dollars was primarily due to the acquisition of new customers , the sale of additional users or modules to existing customers , and to a lesser extent , new revenues generated by the acquisitions completed d uring the fiscal year ended january 31 , 2018. professional services revenues were $ 21.9 million for the fiscal year ended january 31 , 2018 , compared to $ 16.0 million for the fiscal year ended january 31 , 2017. this increase of $ 5.9 million , or 37 % , was pri marily due to an increase in customers and a favorable impact from the timing of completion of various projects for which revenue was recognized under the completed performance method of accounting . cost of revenues replace_table_token_12_th cost of subscription services was $ 53.2 million for the fiscal year ended january 31 , 2019 , compared to $ 36.5 million for the fiscal year ended january 31 , 2018 , an increase of $ 16.7 million , or 46 % . the increase in cost of subscription services was primarily due to an increase of $ 6.8 million in hosting fees to accommodate our increased customer footprint and increased consumption by our recent acquisitions , an increase of $ 6.0 million in employee compensation costs related to higher headcount , including stock-based compensation costs , an increase of $ 2.6 million in amortization of intangible assets due to acquisitions completed during the fourth quarter ended january 31 , 2018 and the fiscal year ended january 31 , 2019 , and an increase of $ 2.4 million related to allocated facilities and other costs driven by our overall growth . these increases were offset by a $ 1.1 million decrease in amortization of capitalized software development costs during the year . cost of subscription services was $ 36.5 million for the fiscal year ended january 31 , 2018 , compared to $ 25.1 million for
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compensation expense increased $ 19.5 million , information technology expense increased $ 7.7 million , realized foreign exchange losses increased $ 5.7 million , marketing expenses increased $ 4.5 million , legal expenses increased $ 3.5 million , travel expenses increased $ 3.3 million and dealer fees increased $ 2.2 million . offsetting these increases was a $ 23.9 million decrease in consulting expenses and decreases in other miscellaneous expenses . compensation increased due to an increase in headcount from new employees hired to support the company post-acquisition of his . information technology expense increases were due to the his post-acquisition needs to stand up the company . realized foreign exchange losses increased due to changes in the rate and increased foreign monetary account balances . marketing expenses increased primarily due to the continued integration of his and the post-acquisition operational activity . legal expenses increased due to the continued integration of his and legal services needed to support a larger business . travel expense increased as a result of the operational needs of the company . dealer fees increased due to the increase in revenue . consolidated sg & a expense increased $ 214.6 million in 2017 , as compared to 2016 , primarily due to the impact of the his acquisition . compensation increased $ 83.7 million , accounting and information technology fees increased $ 72.4 million , depreciation expense increased $ 16.0 million , computer hardware and software increased $ 11.5 million , travel and related expenses increased $ 5.8 million and rent expense increased $ 3.3 million . compensation increased primarily due to an increase in headcount related to the his acquisition , and from new employees hired to support the company post-acquisition . accounting and information technology fees increased due to the expenses incurred under the transition services agreement with pfizer . depreciation expense increased due to the depreciation of the his assets acquired . computer hardware and software increases were due to the post-acquisition needs to stand up the company . travel and related expenses increased primarily due to the integration of the his acquisition and the post-acquisition operational activity . rent expense increased due to the operating leases assumed on acquired his properties . 39 research and development ( `` r & d '' ) expenses the following table summarizes our total r & d expenses ( in millions , except percentages ) : replace_table_token_16_th in 2018 , as compared to 2017 , r & d expenses increased due to post-acquisition operational activity attributable to a larger business and 2017 includes approximately eleven months of r & d expense from the point of closing of the transaction to the end of the year . in 2017 , as compared to 2016 , r & d expenses increased due to the acquisition of his . restructuring and strategic transaction expenses restructuring and strategic transaction expenses were $ 105.4 million , $ 78.0 million and $ 15.3 million in 2018 , 2017 and 2016 , respectively . restructuring charges in 2018 , restructuring charges were $ 4.5 million . these charges were related to ( i ) severance costs from the reduction in our workforce as a result of the continued integration of his . all material charges in regard to these restructuring activities have been paid as of december 31 , 2018. in 2017 , restructuring charges were $ 18.8 million . these charges were related to ( i ) severance costs from the reduction in our workforce needed to eliminate duplicative positions created as a result of the his acquisition and ( ii ) we closed our dominican republic manufacturing facility and incurred expenses associated with the closure and transfer of assets and production to our costa rica and mexico manufacturing facilities . we have $ 0.9 million in unpaid restructuring charges related to the year-ended december 31 , 2017. in 2016 , restructuring charges were $ 1.0 million . these charges were primarily related to residual expenses for the closure of our slovakian manufacturing facility and we incurred $ 0.2 million related to other restructuring activities . strategic transaction and integration expenses in 2018 , we incurred $ 100.9 million in strategic transaction and integration expenses primarily related to our continued integration of the his business and it systems . in 2017 , we incurred $ 59.2 million in strategic transaction and integration expenses primarily related to our acquisition of the his business . in 2016 , we incurred $ 14.3 million in strategic transaction expenses related to our acquisitions , primarily the acquisition of the his business . change in fair value of contingent earn-out in 2018 , the fair value revaluation of our his contingent earn-out liability resulted in a change in fair value of $ 20.4 million . in 2017 , the fair value revaluation of our his contingent earn-out liability resulted in a loss of $ 8.0 million . contract settlement in 2018 , we incurred a $ 41.6 million charge related to the resolution of a dispute with a product partner , which resulted in a redefinition of our contractual arrangement and in the rights and remedies determined under such arrangement . 40 impairment of assets held-for-sale during 2016 , we completed the closure of our slovakia manufacturing facility and sold the land and building held-for-sale for $ 3.3 million , net of costs to sell , resulting in an additional impairment loss of $ 0.7 million . bargain purchase gain in 2017 , in connection with the his acquisition , we recognized a bargain purchase gain of $ 70.9 million . the bargain purchase gain represented the excess of the estimated fair market value of the identifiable tangible and intangible assets acquired and liabilities assumed , net of deferred tax liabilities over the total purchase consideration . story_separator_special_tag we determined that the bargain purchase gain was primarily attributable to expected restructuring costs as well as a reduction to the initially agreed upon transaction price caused primarily by revenue shortfalls across all market segments of the his business , negative manufacturing variance due to the drop in revenue and higher operating and required stand up costs , when compared to forecasts of the his business at the time that the purchase price was agreed upon . in 2016 , we recognized a bargain purchase gain of $ 1.5 million in connection with the tangent acquisition . the bargain purchase gain represented the excess of the estimated fair market value of the identifiable tangible and intangible assets acquired and liabilities assumed , net of deferred tax assets over the total purchase consideration . the bargain purchase was driven by our ability to realize acquired deferred tax assets . interest expense interest expense was $ 0.7 million , $ 2.0 million and $ 0.1 million in 2018 , 2017 and 2016 , respectively . in 2018 , the interest expense was related to amortization of the financing cost incurred in 2017 in connection with the five-year revolving credit facility and a related per annum commitment fee charged on the unused portion of the revolver under such credit facility ( see note 11 : long-term obligations in our accompanying consolidated financial statements for additional information ) . in 2017 , the interest expense was related to ( i ) the $ 75 million seller note from pfizer as part of the his business acquisition and ( ii ) the per annum commitment fee charged on the unused portion of our revolver under the five-year $ 150 million credit facility . the three-year interest only seller note bore interest based on the london interbank offered rate ( `` libor '' ) plus ( i ) 2.25 % per year for the first 12 months , and ( ii ) 2.50 % per annum thereafter . on november 8 , 2017 , we fully repaid the $ 75 million in outstanding principal under the senior note payable to pfizer . the per annum commitment fee is based on consolidated total leverage ratio in effect and can range between 0.15 % to 0.30 % on the unused portion of the credit facility . other ( expense ) income other ( expense ) income was $ 1.5 million , $ ( 2.5 ) million and $ 0.9 million in 2018 , 2017 and 2016 , respectively . in 2018 , other ( expense ) income included $ 5.4 million of interest income primarily related to our banking and investment accounts offset by $ 3.9 million loss on disposal of or write-off of property , plant and equipment . income taxes income taxes were accrued at an estimated annual effective tax rate of ( 29 % ) , ( 34 % ) and 26 % in 2018 , 2017 and 2016 , respectively . the effective tax rate in 2018 differs from the federal statutory rate of 21 % because of the effect of the mix of foreign and state incomes , state taxes and tax credits . the effective tax rate for 2018 also included a material tax benefit of $ 12.6 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period . 41 on december 22 , 2017 , the tax act was enacted into law , which includes a broad range of provisions affecting businesses . the tax act significantly revises how companies compute their u.s. corporate tax liability by , among other provisions , reducing the corporate tax rate from 35 % to 21 % for tax years beginning after december 31 , 2017. as of december 31 , 2018 , our accounting for the tax act is complete . as noted at 2017 year-end , we were able to reasonably estimate certain effects and , therefore , recorded provisional adjustments associated with the toll charge on undistributed foreign earnings and profits and revaluation of deferred taxes . measurement-period adjustments for the toll charge and revaluation of deferred taxes recognized during the year ended december 31 , 2018 did not have a material impact on our consolidated financial statements . the effect of the measurement-period adjustments on the 2018 effective tax rate was approximately a three percentage point increase . we continue to evaluate various international provisions included in the tax act due to the lack of treasury regulations and ongoing guidance . these provisions were effective for us beginning on january 1 , 2018 , and may materially impact our effective tax rate in future years . for the year ended december 31 , 2018 , we recorded an income tax expense of $ 2.4 million for the global intangible low-taxed income ( gilti ) provisions . for further discussion , see note 12 to the consolidated financial statements in part ii , item 8 of this form 10-k. the effective tax rate for 2017 differs from the federal statutory rate of 35 % because of the effect of the mix of foreign and state incomes , state taxes , tax credits , and impact of the gain on bargain purchase . the tax effect of the gain on bargain purchase is treated as a discrete item part of purchase accounting and is not a component of the income tax provision . the effective tax rate during 2017 also included a tax benefit of $ 20.8 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period .
| product development or acquisition efforts may not succeed , and even if we do develop or acquire additional products , there is no assurance that we will achieve profitable sales of such products . increased expenditures for sales and marketing and product acquisition and development may not yield desired results when expected , or at all . while we have taken steps to control these risks , there are certain risks that may be outside of our control , and there is no assurance that steps we have taken will succeed . seasonality/quarterly results there are no significant seasonal aspects to our business . we can experience fluctuations in net sales as a result of variations in the ordering patterns of our largest customers , which may be driven more by production scheduling and their inventory levels , and less by seasonality . our expenses often do not fluctuate in the same manner as net sales , which may cause fluctuations in operating income that are disproportionate to fluctuations in our revenue . significant acquisitions on february 3 , 2017 , we acquired 100 % interest in pfizer 's his business for total consideration of approximately $ 260.0 million in cash ( net of estimated working capital adjustments paid at closing ) and the issuance of 3.2 million shares of our common stock . as of december , 31 , 2018 , pfizer has sold all of their shares of our common stock . we partially funded the cash portion of the consideration paid with a $ 75 million three-year interest-only seller note . the fair value of the common shares issued to pfizer was determined based on the closing price of our common shares on the issuance date , discounted to reflect a contractual lock-up period whereby pfizer can not transfer the shares , subject to certain exceptions , until the earlier of ( i ) the expiration of pfizer 's services to us in the related transitional services agreement or ( ii ) eighteen months . pfizer also may be entitled
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since uhs comprised approximately 31 % of our consolidated revenues during the year ended december 31 , 2019 , and since a subsidiary of uhs is our advisor , you are encouraged to obtain and review the disclosures contained in the legal proceedings section of universal health services , inc. 's forms 10-q and 10-k , as publicly filed with the securities and exchange commission . those filings are the sole responsibility of uhs and are not incorporated by reference herein ; failure of uhs or the other operators of our hospital facilities to comply with governmental regulations related to the medicare and medicaid licensing and certification requirements could have a material adverse impact on our future revenues and the underlying value of the property ; the potential unfavorable impact on our business of deterioration in national , regional and local economic and business conditions , including a worsening of credit and or capital market conditions , which may adversely affect our ability to obtain capital which may be required to fund the future growth of our business and refinance existing debt with near term maturities ; a deterioration in general economic conditions which could result in increases in the number of people unemployed and or insured and likely increase the number of individuals without health insurance ; as a result , the operators of our facilities may experience decreases in patient volumes which could result in decreased occupancy rates at our medical office buildings ; a worsening of the economic and employment conditions in the united states could materially affect the business of our operators , including uhs , which may unfavorably impact our future bonus rentals ( on the uhs hospital facilities ) and may potentially have a negative impact on the future lease renewal terms and the underlying value of the hospital properties ; real estate market factors , including without limitation , the supply and demand of office space and market rental rates , changes in interest rates as well as an increase in the development of medical office condominiums in certain markets ; the impact of property values and results of operations of severe weather conditions , including the effects of hurricanes ; government regulations , including changes in the reimbursement levels under the medicare and medicaid programs ; the issues facing the health care industry that affect the operators of our facilities , including uhs , such as : changes in , or the ability to comply with , existing laws and government regulations ; unfavorable changes in the levels and terms of reimbursement by third party payors or government programs , including medicare ( including , but not limited to , the potential unfavorable impact of future reductions to medicare reimbursements resulting from the budget control act of 2011 , as discussed below ) and medicaid ( most states have reported significant budget deficits that have , in the past , resulted in the reduction of medicaid funding to the operators of our facilities , including uhs ) ; demographic changes ; the ability to enter into managed care provider agreements on acceptable terms ; an increase in uninsured and self-pay patients which unfavorably impacts the collectability of patient accounts ; decreasing in-patient admission trends ; technological and pharmaceutical improvements that may increase the cost of providing , or reduce the demand for , health care , and ; the ability to attract and retain qualified medical personnel , including physicians ; pending limits for most federal agencies and programs aimed at reducing budget deficits by $ 917 billion between 2012 and 2021 , according to a report released by the congressional budget office . among its other provisions , the law established a bipartisan congressional committee , known as the joint select committee on deficit reduction ( the “ joint committee ” ) , which was tasked with making recommendations aimed at reducing future federal budget deficits by an additional $ 1.5 trillion over 10 years . the joint committee was unable to reach an agreement by the november 23 , 2011 deadline and , as a result , across-the-board cuts to discretionary , national defense and medicare spending were implemented on march 1 , 2013 resulting in medicare payment reductions of up to 2 % per fiscal year with a uniform percentage reduction across all medicare programs . the bipartisan budget act of 2015 , enacted on november 2 , 2015 , 32 continued the 2 % reductions to medicare reimbursement imposed under the 2011 act . we can not predict whether congress will restructure the implemented medicare payment reductions or what other federal budget deficit reduction initiatives may be proposed by congress going forward . we also can not predict the effect these enactments will have on the operators of our properties ( including uhs ) , and thus , our business ; an increasing number of legislative initiatives have been passed into law that may result in major changes in the health care delivery system on a national or state level . legislation has already been enacted that has eliminated the penalty for failing to maintain health coverage that was part of the original legislation . president trump has already taken executive actions : ( i ) requiring all federal agencies with authorities and responsibilities under the legislation to “ exercise all authority and discretion available to them to waiver , defer , grant exemptions from , or delay ” parts of the legislation that place “ unwarranted economic and regulatory burdens ” on states , individuals or health care providers ; ( ii ) the issuance of a final rule in june , 2018 by the department of labor to enable the formation of association health plans that would be exempt from certain legislation requirements such as the provision of essential health benefits ; ( iii ) the issuance of a final rule in august , 2018 by the department of labor , treasury , and health and human services to expand the availability of short-term , limited duration health insurance , ( iv ) eliminating cost-sharing reduction payments to insurers that would otherwise story_separator_special_tag offset deductibles and other out-of-pocket expenses for health plan enrollees at or below 250 percent of the federal poverty level ; ( v ) relaxing requirements for state innovation waivers that could reduce enrollment in the individual and small group markets and lead to additional enrollment in short-term , limited duration insurance and association health plans ; ( vi ) the issuance of a final rule in june , 2019 by the departments of labor , treasury , and health and human services that would incentivize the use of health reimbursement arrangements by employers to permit employees to purchase health insurance in the individual market , and ; ( vii ) directing the issuance of federal rulemaking by executive agencies to increase transparency of healthcare price and quality information . the uncertainty resulting from these executive branch policies has led to reduced exchange enrollment in 2018 and 2019 and is expected to further worsen the individual and small group market risk pools in future years . it is also anticipated that these and future policies may create additional cost and reimbursement pressures on hospitals , including ours . in addition , while attempts to repeal the entirety of the affordable care act ( “ aca ” ) have not been successful to date , a key provision of the aca was repealed as part of the tax cuts and jobs act and on december 14 , 2018 , a federal u.s. district court judge in texas ruled the entire aca is unconstitutional . that ruling was stayed and has been appealed . on december 18 , 2019 , the 5 th circuit court of appeals voted 2-1 to strike down the aca individual mandate as unconstitutional and sent the case back to the u.s. district court in texas to determine which aca provisions should be stricken with the mandate . it is likely this matter will ultimately be appealed to the u.s. supreme court . we are unable to predict the final outcome of this matter which has caused greater uncertainty regarding the future status of the aca . if all or any parts of the aca are ultimately found to be unconstitutional , it could have a material adverse effect on the business , financial condition and results of operations of the operators of our properties , and , thus , our business ; there can be no assurance that if any of the announced or proposed changes described above are implemented there will not be negative financial impact on the operators of our hospitals , which material effects may include a potential decrease in the market for health care services or a decrease in the ability of the operators of our hospitals to receive reimbursement for health care services provided which could result in a material adverse effect on the financial condition or results of operations of the operators of our properties , and , thus , our business ; competition for properties include , but are not limited to , other reits , private investors and firms , banks and other companies , including uhs . in addition , we may face competition from other reits for our tenants ; the operators of our facilities face competition from other health care providers , including physician owned facilities and other competing facilities , including certain facilities operated by uhs but the real property of which is not owned by us . such competition is experienced in markets including , but not limited to , mcallen , texas , the site of our mcallen medical center , a 370-bed acute care hospital , and riverside county , california , the site of our southwest healthcare system-inland valley campus , a 130-bed acute care hospital ; changes in , or inadvertent violations of , tax laws and regulations and other factors than can affect reits and our status as a reit ; should we be unable to comply with the strict income distribution requirements applicable to reits , utilizing only cash generated by operating activities , we would be required to generate cash from other sources which could adversely affect our financial condition ; our ownership interest in five llcs/lps in which we hold non-controlling equity interests . in addition , pursuant to the operating and or partnership agreements of the four llcs/lps in which we continue to hold non-controlling ownership interests , the third-party member and the trust , at any time , potentially subject to certain conditions , have the right to make an offer ( “ offering member ” ) to the other member ( s ) ( “ non-offering member ” ) in which it either agrees to : ( i ) sell the entire ownership interest of the offering member to the non-offering member ( “ offer to sell ” ) at a price as 33 determined by the offering member ( “ transfer price ” ) , or ; ( ii ) purchase the entire ownership interest of the non-offering member ( “ offer to purchase ” ) at the equivalent proportionate transfer price . the non-offering member has 60 to 90 days to either : ( i ) purchase the entire ownership interest of the offering member at the transfer price , or ; ( ii ) sell its entire ownership interest to the offering member at the equivalent proportionate transfer price . the closing of the transfer must occur within 60 to 90 days of the acceptance by the non-offering member ; fluctuations in the value of our common stock , and ; other factors referenced herein or in our other filings with the securities and exchange commission . given these uncertainties , risks and assumptions , you are cautioned not to place undue reliance on such forward-looking statements . our actual results and financial condition , including the operating results of our lessees and the facilities leased to subsidiaries of uhs , could differ materially from those expressed in , or implied by , the forward-looking statements . forward-looking statements speak only as of the date the statements are made .
| our revolving credit agreement . total revenues increased $ 1.0 million , or 1.3 % , during 2019 as compared to 2018. the increase was due primarily to : ( i ) a $ 563,000 increase in the bonus rental revenue generated on the uhs hospital facilities ; ( ii ) a $ 718,000 increase resulting from the increased rental rate in connection with a short-term lease covering the period of june 1 , 2019 through september 30 , 2019 on a hospital facility located in evansville , indiana , that was vacated on september 30 , 2019 ( see hospital leases below ) , and ; ( iii ) a $ 428,000 decrease resulting from the june 1 , 2019 lease expiration and tenant vacancy at a hospital facility located in corpus christi , texas , ( see hospital leases below ) . included in our other operating expenses are expenses related to the consolidated medical office buildings and two vacant hospital facilities ( as discussed herein ) , which totaled $ 19.1 million and $ 18.6 million for the years ended december 31 , 2019 and 2018 , respectively . our operating expenses for 2019 include expenses associated with the lease expirations at two of our hospital facilities , which are currently vacant , of approximately $ 370,000 in the aggregate for the year ended december 31 , 2019. a large portion of the expenses associated with our consolidated medical office buildings is passed on directly to the tenants either directly as tenant reimbursements of common area maintenance expenses of included in base rental amounts . tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses are incurred and are included as tenant reimbursement revenue in our consolidated statements of income . during 2019 , we had a total of 62 new or renewed leases related to the medical office buildings as indicated in item 2. properties , in which we have significant investments , some of which are
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our truckload service offering provides truckload freight services as a medium- to long-haul common carrier . we have provided truckload services since our inception , and we derive the largest portion of our revenues from these services . · dedicated freight . our dedicated freight service offering is a variation of our truckload service , whereby we agree to make our equipment and drivers available to a specific customer for shipments over particular routes at specified times . in addition to serving specific customer needs , our dedicated freight service offering also aids in driver recruitment and retention . strategic capacity solutions . our scs operating segment consists of our freight brokerage service offering which matches customer shipments with available equipment of authorized carriers and provides services that complement our trucking operations . we provide these services primarily to our existing trucking customers , many of whom prefer to rely on a single carrier , or a small group of carriers , to provide all of their transportation needs . to date , a majority of the customers of scs have also engaged us to provide services through one or more of our trucking service offerings . intermodal . intermodal shipping is a method of transporting freight using multiple modes of transportation between origin and destination , with the freight remaining in a trailer or special container throughout the trip . our rail intermodal service offering provides our customers cost savings over truckload with a slightly slower transit speed , while allowing us to reposition our equipment to maximize our freight network yield . during august 2010 , we entered into a long-term agreement with bnsf railway to lease 53 ' domestic intermodal containers . prior to the agreement , the majority of intermodal 's revenue was derived from trailer-on-flat-car service . because of the lack of lane density , we reduced the number of our leased containers from 500 to approximately 125. our container contract with bnsf expired on december 31 , 2012. accordingly , we are scheduled to return the remaining leased containers to bnsf during the first quarter and plan to transition profitable intermodal freight to other sources of capacity throughout 2013 . 19 story_separator_special_tag the next several years , or that any necessary additional financing will be available , if at all , in amounts required or on terms satisfactory to us , especially in light of our net loss for 2012 . 21 note regarding presentation by agreement with our customers , and consistent with industry practice , we add a graduated surcharge to the rates we charge our customers as diesel fuel prices increase above an agreed upon baseline price per gallon . the surcharge is designed to approximately offset increases in fuel costs above the baseline . fuel prices are volatile , and the fuel surcharge increases our revenue at different rates for each period . we believe that comparing operating costs and expenses to total revenue , including the fuel surcharge , could provide a distorted comparison of our operating performance , particularly when comparing results for current and prior periods . therefore , we have used base revenue , which excludes the fuel surcharge revenue , and instead taken the fuel surcharge as a credit against the fuel and fuel taxes and purchased transportation line items in the table setting forth the percentage relationship of certain items to base revenue below . we do not believe that a reconciliation of the information presented on this basis and corresponding information comparing operating costs and expenses to total revenue would be meaningful . data regarding both total revenue , which includes the fuel surcharge , and base revenue , which excludes the fuel surcharge , is included in the consolidated statements of operations included in this report . base revenues from our scs operating segment , consisting entirely of base revenues from our freight brokerage service offering , have fluctuated in recent periods . this service offering typically does not involve the use of our tractors and trailers . therefore , an increase in these revenues tends to cause expenses related to our operations that do involve our equipment—including fuel expense , depreciation and amortization expense , operations and maintenance expense , salaries , wages and employee benefits and insurance and claims expense—to decrease as a percentage of base revenue , and a decrease in these revenues tends to cause those expenses to increase as a percentage of base revenue with a related change in purchased transportation expense . since changes in scs revenues generally affect all such expenses , as a percentage of base revenue , we do not specifically mention it as a factor in our discussion of increases or decreases in the other expenses presented in the consolidated statements of operations in the period-to-period comparisons below . fiscal year ended december 31 , 2012 compared to fiscal year ended december 31 , 2011 results of operations – combined services total base revenue decreased 0.6 % from $ 411.0 million to $ 408.7 million . we reported a net loss for all service offerings of $ 17.7 million ( $ 1.71 per share ) , as compared to a net loss of $ 10.8 million ( $ 1.05 per share ) . our effective tax rate increased from 31.5 % to 35.2 % . income tax expense varies from the amount computed by applying the federal tax rate to income before income taxes primarily due to state income taxes , net of federal income tax effect , adjusted for permanent differences , the most significant of which is the effect of the per diem pay structure for drivers . due to the partially nondeductible effect of per diem payments , our tax rate will vary in future periods based on fluctuations in earnings and in the number of drivers who elect to receive this pay structure . 22 results of operations – trucking relationship of certain items to base trucking revenue the following table sets forth the percentage relationship of certain items to base revenue of our trucking operating segment for the periods indicated . story_separator_special_tag fuel and fuel taxes are shown net of fuel surcharges . replace_table_token_5_th key operating statistics : replace_table_token_6_th ( 1 ) total miles include both loaded and empty miles . ( 2 ) the empty mile factor is the number of miles traveled for which we are not typically compensated by any customer as a percent of total miles traveled . ( 3 ) tractors include company-operated tractors in-service plus tractors operated by independent contractors . ( 4 ) average miles per trip is based upon loaded miles divided by the number of trucking shipments . ( 5 ) operating ratio is based upon total operating expenses , net of fuel surcharge revenue , as a percentage of base revenue . base revenue from our trucking operating segment decreased from $ 321.3 million to $ 297.6 million . the decrease was primarily the result of : · our total miles and our average miles per tractor per week decreased 7.2 % and 2.0 % , respectively . · the size of our fleet decreased 5.6 % . · the total number of loads dispatched decreased 9.1 % . · our empty mile factor increased 3.6 % . 23 the operating ratio for our trucking operating segment deteriorated by 4.0 percentage points of base trucking revenue to 110.0 % due to the following factors : · salaries , wages and employee benefits increased 3.7 percentage points of base trucking revenue due in large part to a 7.4 % reduction in base trucking revenue and a 28.9 % reduction in the percentage of our tractor fleet comprised of independent contractors . as the percentage of our fleet comprised of independent contractors decreases , the percentage of our fleet comprised of company drivers increases , along with the associated salaries , wages and benefits for such company drivers . during 2012 , we continued to see evidence of a tightening market of eligible drivers related to the implementation of csa , which caused our total driver compensation costs to increase 4.2 % on a per mile basis as we needed to offer sign-on bonuses to attract new drivers , we increased non-mileage pay to help us retain drivers , and we raised driver pay for new drivers with less than one year experience . new hours-of-service rules scheduled to go into effect in 2013 may further reduce the pool of eligible drivers and may lead to increases in driver related expenses that would increase salaries , wages and employee benefits . we also have experienced an increase in the frequency and severity of workers ' compensation claims , which have increased by approximately $ 2.0 million or 69.1 % . in addition to the above , medical payments made under our employee benefits plan increased approximately $ 1.1 million or 23.7 % . · fuel and fuel taxes expense , net of fuel surcharge , remained flat as a percentage of base trucking revenue . tractor utilization was 2.0 % lower during 2012 as compared to 2011 , which caused fuel and fuel taxes as a percentage of revenue to increase as trucks spent more time idling . while fuel costs generally have been higher in 2012 , improved fuel purchasing and fuel surcharge collections as compared to 2011 lowered our net fuel cost per gallon ( fuel cost per gallon minus fuel surcharge collections per gallon ) by approximately $ 0.06. additionally , our fuel economy improved 1.2 % as we added new , more fuel efficient trucks to the fleet . we anticipate fuel costs will continue to be affected in the future by price fluctuations , the terms and collectability of fuel surcharge revenue , fuel efficiency and the percentage of total miles driven by independent contractors . · purchased transportation , which is comprised of independent contractors ' compensation and fees paid to mexican carriers , decreased 1.6 percentage points of base trucking revenue . this decrease was the result of a reduction of 43 independent contractors , or 28.9 % , included in our fleet . over the longer term , we expect our purchased transportation expense to increase if we achieve our goal to grow our independent contractor fleet and our cross-border mexico business . in the event that we are unable to recruit and retain independent contractors , this expense could continue to fall , causing a corresponding increase in fuel and fuel taxes expense and salaries , wages and employee benefits expense . · depreciation and amortization decreased 0.2 percentage points of base trucking revenue primarily due to an overall decrease in the size of our tractor and trailer fleets . as of december 31 , 2012 , we reduced our total tractor count by 42 units as compared to december 31 , 2011 , representing units shut down due to high mileage and trade life cycles . we also reduced our trailer count by 227 year over year as part of our plan to reduce the number of trailers because of our investment in trailer tracking devices . as a result of our plan to reduce the age of our fleet and the increased costs of new equipment , we expect depreciation and amortization expense to increase as a percentage of base trucking revenue in future periods . absent offsetting improvements in average revenue per tractor or growth in our independent contractor fleet and non-asset based operations , our expense in this category as a percentage of revenue could increase going forward if equipment prices continue to inflate . · operations and maintenance expense increased 1.3 percentage points of base trucking revenue primarily due to a 10.0 % increase in direct repair costs related to new engine emissions requirements mandated by the epa , various requirements imposed by california 's air resources board , the higher mileage equipment remaining in our fleet and the increase in the cost of parts and tires . our average tractor age at december 31 , 2012 was 32 months compared to 28 months at december 31 , 2011 , whereas our average trailer age was 77 months and 71 months , respectively .
| pricing typically falls at longer lengths-of-haul , so the fact that we grew both simultaneously indicates improving lane flow ( directionality , density , and market selection ) . we realigned our customer base during the fourth quarter , including the replacement of four of our top 25 trucking shippers , while reducing concentration with our largest shippers . we expect some of our new customers to grow into our top 25 customer list in the first half of 2013. the improved freight mix and the better operational execution helped us to increase miles per seated tractor per week by 1.3 % to 1,931 miles . the heightened empty mile factor ( up 92 basis points to 12.0 % ) suggests that we still need additional freight volume to better utilize our equipment . we are executing a detailed strategy that we believe will grow volumes in specific markets and lanes during this winter 's freight bidding season . perhaps our largest accomplishment during the fourth quarter involved cutting our unseated tractor count by more than 50 % , to 92 from 213 sequentially versus the third quarter of 2012. the seated tractor count growth was made possible primarily by lower driver turnover , which improved throughout the fourth quarter to an annualized rate of 83 % in december 2012 , compared to 107 % in december 2011. we attribute the improvement to enhanced company-wide focus on driver retention , freight better suited to our network , and more consistent miles . the combination of our seated tractor count and greater miles per seated tractor led to a 5.5 % improvement in overall tractor utilization to 1,850 miles per in-service tractor per week . the key operating metric charts below ( miles per seated tractor per week , loaded revenue per mile , unseated tractors , and base revenue per tractor per week ) reflect the results we have experienced for the periods indicated . 20 our scs segment continued to deliver strong performance , growing base revenue by 17.6 % and operating income by 13.4 % in the fourth quarter . gross margin expanded by
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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 . in recent years , we have been successful at keeping over 97 % of our land subject to grazing leases . our revenue from easements is generated from easement contracts covering activities such as oil and gas pipelines and subsurface wellbore easements . the majority of our easements have a ten-year term . we also enter into agreements with operators and mid-stream companies to lease land from us , primarily for facilities and roads . in prior years , we entered into agreements with energy companies and oilfield service businesses to allow such companies to explore for water , drill water wells , construct water-related infrastructure and purchase water sourced from land that we own . energy businesses use water for their oil and gas projects while non-energy businesses ( i.e . water management service companies ) operate water facilities to produce and sell water to energy businesses . we collect revenue from royalties and water sales under these legacy agreements . demand for water solutions is expected to grow as drilling and completion activity in the permian basin continues to rise . in response to that anticipated demand , the trust announced the formation of tpwr in june 2017. for more information about tpwr , see item 1 . “ business ” in this annual report on form 10-k. tpwr , a single member llc and wholly owned subsidiary of the trust , focuses on providing full-service water offerings to operators in the permian basin . these services include brackish water sourcing , produced-water gathering/treatment/recycling , infrastructure development/construction , disposal , water tracking , analytics and well testing services . tpwr is committed to sustainable water development with significant focus on the large-scale implementation of recycled water operations . 10 story_separator_special_tag new roman ' , times , serif ; font-size:10pt ; margin:0pt ; text-align : left ; text-indent:36pt ; '' > water service and operations segment revenues increased $ 23.2 million , or 285.2 % , to $ 31.3 million for the year ended december 31 , 2017 as compared with revenues of $ 8.1 million for the comparable period of 2016. water sales and royalties . water sales and royalty revenues for the year ended december 31 , 2017 of $ 25.5 million were more than three times the amount of revenue for the comparable period of 2016. this increase is due primarily to the trust 's decision to develop water well fields on its own land along with an increase in the royalties received from existing agreements . easements and sundry income . easements and sundry income for the water service and operations segment includes pipeline easement royalties , commercial lease royalties and income from temporary permits . for the year ended december 31 , 2017 , the combined revenue from these revenue streams was $ 5.8 million . there was no such revenue for the year ended december 31 , 2016. net income . net income for the water service and operations segment was $ 18.8 million for the year ended december 31 , 2017 compared to $ 5.2 million for the year ended december 31 , 2016. as discussed above , revenues for the water service and operations segment increased $ 23.2 million for the year ended december 31 , 2017 compared to the same period of 2016. expenses for the water service and operations segment were $ 2.0 million for the year ended december 31 , 2017 while depreciation was the only expense for the year ended december 31 , 2016. the increase in expenses during 2017 is directly related to the formation of tpwr . 12 other financial data — consolidated taxes , other than income taxes . taxes , other than income taxes , were $ 3.2 million for the year ended december 31 , 2017 compared to $ 1.8 million for the comparable period of 2016. oil and gas production taxes were $ 2.9 million for the year ended december 31 , 2017 compared to $ 1.6 million for the same period of 2016. the increase in oil and gas production taxes was directly related to the increase in oil production and gas volume for the year ended december 31 , 2017 over the year ended december 31 , 2016 as discussed above . additionally , payroll taxes increased approximately $ 0.1 million for the year ended december 31 , 2017 compared to the same period of 2016 due to an increase in the number of employees during 2017. salaries and related employee benefits . salaries and related employee benefits were $ 3.2 million for the year ended december 31 , 2017 compared to $ 1.2 million for the comparable period of 2016. the increase in salaries and related employee benefits is directly related to the increase in the number of employees from eight employees as of december 31 , 2016 to 26 as of december 31 , 2017. general and administrative expense s . general and administrative expenses increased $ 0.8 million to $ 1.8 million for the year ended december 31 , 2017 from $ 1.0 million for the same period of 2016. approximately $ 0.4 million of the increase is related to an increase in insurance expenses which are partially attributable to the increase in the number of employees during 2017. travel expenses , office rent and other general expenses increased as a result of the opening of an additional office in midland, texas for our tpwr operations . story_separator_special_tag water service-related expenses . water service-related expenses of $ 0.5 million for the year ended december 31 , 2017 , include expenses for equipment rental , propane and fuel and other equipment-related expenses associated with tpwr . the trust did not incur water service-related expenses during 2016. legal and professional expenses . legal and professional fees increased $ 2.7 million to $ 3.5 million for the year ended december 31 , 2017 from $ 0.8 million for the comparable period of 2016. the increase is principally related to legal and consulting fees related to the formation of tpwr as well as consulting fees related to a strategic review of the trust . year ended december 31 , 2016 compared to year ended december 31 , 2015 revenues . revenues for the year ended december 31 , 2016 aggregated $ 59.9 million , a decrease of $ 19.5 million , or 24.6 % , from the $ 79.4 million recorded in the same period of 2015. this decrease resulted primarily from decreases in land sales and , to a lesser extent , easements and sundry income . these decreases were partially offset by an increase in oil and gas royalties . the following is an analysis of our operating results for the comparable periods by reportable segment ( in thousands ) : replace_table_token_7_th 13 land and resource management land and resource management segment revenues decreased $ 22.8 million , or 30.6 % , to $ 51.8 million for the year ended december 31 , 2016 as compared with revenues of $ 74.6 million for the comparable period of 2015. oil and gas royalties . oil and gas royalty revenue for the year ended december 31 , 2016 was $ 30.0 million compared to $ 24.9 million for the same period of 2015 , an increase of 20.7 % . oil royalty revenue was $ 22.0 million and gas royalty revenue was $ 8.0 million for the year ended december 31 , 2016. crude oil production , subject to the trust 's royalty interest , increased 48.3 % for the year ended december 31 , 2016 compared to the same period of 2015. this increase in production was offset by a 20.3 % decrease in the average price per royalty barrel of crude oil received during the year ended december 31 , 2016 compared to the same period of 2015. total gas production subject to the trust 's royalty interest increased 36.8 % , and the average price of gas received decreased by 6.1 % for the year ended december 31 , 2016 compared to the comparable period of 2015. easements and sundry income . easements and sundry income for the year ended december 31 , 2016 was $ 18.3 million compared to $ 26.6 million for the same period of 2015 , a decrease of 31.1 % . this decrease resulted primarily from a decrease in the amount of pipeline easement income to $ 9.7 million for the year ended december 31 , 2016 compared to $ 18.2 million for the same period of 2015. during 2016 , the trust changed its historical policy of allowing perpetual easements in favor of term easements . term easements require that revenue from the easements be recognized over the term of the agreement , which is generally 10 years . as a result , $ 7.8 million of easement income received for the year ended december 31 , 2016 was deferred and therefore not reflected in the statements of income and total comprehensive income in the current year . the decrease in pipeline easement income was partially offset by an increase in sundry lease rental income and sundry income . easements and sundry income is unpredictable and may vary significantly from period to period . land sales and other income . land sales and other income for the year ended december 31 , 2016 was $ 3.4 million compared to $ 23.1 million for the same period of 2015 a decrease of $ 19.7 million , or 85.1 % . a total of approximately 774.6 acres were sold during the year ended december 31 , 2016 at an average price of $ 3,803 per acre , compared to 20,941 acres during the year ended december 31 , 2015 at an average price per acre of $ 1,080. net income . net income for the land and resource management segment was $ 32.0 million for the year ended december 31 , 2016 compared to $ 46.9 million for the year ended december 31 , 2015. net income for the year ended december 31 , 2015 included $ 22.6 million of revenue generated by land sales ( pre-tax ) while net income for the year ended december 31 , 2016 only included land sales ( pre-tax ) of $ 2.9 million . this decrease was partially offset by increased oil and gas royalties for the year ended december 31 , 2016 over the same period of 2015. water service and operations water sales and royalties . water sales and royalty revenues for the years ended december 31 , 2016 and 2015 were $ 8.1 million and $ 4.8 million , respectively . the increase of $ 3.3 million for the year ended december 31 , 2016 over the comparable period of 2015 is generally attributable to an increase in royalties received from existing agreements with operators . net income .
| oil and gas royalty revenue was $ 61.3 million for the year ended december 31 , 2017 compared to $ 30.0 million for the year ended december 31 , 2016. oil royalty revenue was $ 38.8 million for the year ended december 31 , 2017 compared to $ 22.0 million for the comparable period of 2016. this increase in oil royalty revenue is principally due to the combined effect of a 43.8 % increase in crude oil production , subject to the trust 's royalty interest , and a 22.6 % increase in the average price per royalty barrel of crude oil during the year ended december 31 , 2017 compared to the same period in 2016. gas royalty revenue was $ 14.8 million for the year ended december 31 , 2017 , an increase of 85.3 % over the year ended december 31 , 2016 when gas royalty revenue was $ 8.0 million . this increase in gas royalty revenue resulted from a volume increase of 59.8 % for the year ended december 31 , 2017 as compared to the same period of 2016 , and a 16.0 % increase in the average price received . additionally , oil and gas royalties for the year ended december 31 , 2017 included $ 7.7 million related to an arbitration settlement with chevron u.s.a. , inc. see part i , item 1. business for additional information . no such settlements were received for the year ended december 31 , 2016 . 11 easements and sundry income . easements and sundry income was $ 39.0 million for the year ended december 31 , 2017 , an increase of 112.6 % compared to $ 18.3 million for the year ended december 31 , 2016. this increase resulted primarily from increases in pipeline easement income , temporary permit income , material sales of caliche and , to a lesser extent , sundry lease rental income . pipeline easement income increased 140.7 % to $ 41.5 million ( before deferral of term easements ) for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. during the year ended december 31 , 2017 , $ 26.0 million of easement income was deferred compared to $ 7.8 million for the same period of 2016. material sales increased 481.1 % to $ 7.1 million for the year ended december 31 , 2017 compared to the same period of 2016. easements and sundry income is unpredictable
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our average realized ngl price decreased 4 % . prices we receive are determined by prevailing market conditions . regional and worldwide economic and geopolitical activity , weather and other factors influence market conditions , which often result in significant volatility in commodity prices . the following table presents our average realized commodity prices . realized prices do not include settlements of our commodity hedging contracts . replace_table_token_17_th 29 on an energy equivalent basis , 50 % of our 2013 aggregate production was natural gas . a $ 0.10 per mcf change in our average realized gas sales price would have resulted in a $ 12.5 million change in our gas revenues . similarly , 50 % of our production was crude oil and ngls . a $ 1.00 per barrel change in our average realized sales prices would have resulted in a $ 21.3 million change in our oil and ngl revenues . see results of operations below for a discussion of the impact changes in realized prices had on our 2013 revenues . production and other operating expenses costs associated with finding and producing oil and gas are substantial . some of these costs vary with commodity prices , some trend with the type and volume of production and others are a function of the number of wells we own . at the end of 2013 , we owned interests in 12,079 gross wells . production expense generally consists of costs for labor , equipment , maintenance , salt water disposal , compression , power , treating and miscellaneous other costs . production expense also includes well workover activity necessary to maintain production from existing wells . transportation and other operating costs include expenditures to prepare and transport production from the wellhead to a specified sales point . these costs will vary by region and will fluctuate with increases or decreases in production volumes and changes in fuel and compression costs . depreciation , depletion and amortization ( dd & a ) of our producing properties is computed using the units-of-production method . the economic life of each producing well depends upon the estimated proved reserves for that well , which in turn depend upon the assumed price for future sales of production . therefore , fluctuations in oil and gas prices will impact the level of proved reserves used in the calculation . higher prices generally have the effect of increasing reserves which reduces depletion expense . conversely , lower prices generally have the effect of decreasing reserves , which increases depletion expense . the cost of replacing production also impacts our dd & a rate . in addition , changes in estimates of reserve quantities , estimates of operating and future development costs , and reclassifications of properties from unproved to proved will impact depletion expense . we use the full cost method of accounting for our oil and gas properties . accounting rules require us to perform a quarterly ceiling test calculation to test our oil and gas properties for possible impairment . the primary components impacting this analysis are commodity prices , reserve quantities added and produced , overall exploration and development costs , depletion expense , and tax effects . if the net capitalized cost of our oil and gas properties subject to amortization ( the carrying value ) exceeds the ceiling limitation , the excess would be expensed . the ceiling limitation is equal to the sum of ( a ) the present value discounted at 10 % of estimated future net cash flows from proved reserves , ( b ) the cost of properties not being amortized , ( c ) the lower of cost or estimated fair value of unproven properties included in the costs being amortized , and ( d ) all related tax effects . at december 31 , 2013 , the calculated value of the ceiling limitation exceeded the carrying value of our oil and gas properties subject to the test , and no impairment was necessary . however , a decline of 3 % or more in the value of the ceiling limitation would have resulted in an impairment . if pricing conditions decline , or if there is a negative impact on one or more of the other components of the calculation , we may incur a full cost ceiling impairment related to our oil and gas properties in future quarters . an impairment charge would have no effect on liquidity or our capital resources , but it would adversely affect our results of operations in the period incurred . general and administrative ( g & a ) expenses consist primarily of salaries and related benefits , office rent , legal fees , consultants , systems costs and other administrative costs incurred in our offices and not directly associated with exploration , development or production activities . our g & a expense is reported net of amounts reimbursed to us by working interest owners of the oil and gas properties we operate and net of amounts capitalized pursuant to the full cost method of accounting . 30 see story_separator_special_tag command=add_tablewidth , '' 100 % '' -- > replace_table_token_20_th fluctuations in net margins from gas gathering and processing and gas marketing activities are a function of increases and decreases in volumes and prices associated with third-party gas . in 2013 , our total operating costs and expenses of $ 1.077 billion ( not including gas gathering , processing and marketing costs , or income tax expense ) benefited from a $ 142.8 million reduction in our estimated exposure to litigation expense which had been accruing since 2008. excluding the effect of the litigation reduction , our total operating costs and expenses would have been $ 1.219 billion , or $ 188 million ( 18 % ) higher than 2012 costs and expenses of $ 1.031 billion . story_separator_special_tag analyses of the year-over-year differences are discussed below : replace_table_token_21_th our 2013 dd & a expense increased 20 % to $ 615.9 million , compared to $ 513.9 million in 2012. the $ 102.0 million increase accounted for 54 % of the aggregate increase in operating costs and expenses , excluding the effect of the litigation reversal . on a per mcfe basis , 2013 dd & a increased by 9 % to $ 2.44 compared to $ 2.24 for 2012. about half of the 2013 increase in dd & a was attributable to our higher production volumes . the rest of the increase was a result of a higher dd & a rate . our dd & a rate has increased because the per unit cost of adding new proved reserves has exceeded the net remaining book basis of proved reserves added in prior years . we expect our average dd & a rate to increase modestly during 2014 . 33 asset retirement obligation expense declined by 39 % to $ 8.0 million in 2013 , compared to $ 13.0 million in 2012. half of the decrease resulted from property sales in the latter half of 2012 , which lowered our retirement obligation expense during 2013. this decrease was partially offset by increased expense related to newly drilled wells . the remaining decrease was due to higher plugging and abandonment costs in the permian basin and gulf of mexico during 2012. our production costs consist of lease operating expense and workover expense as follows : replace_table_token_22_th lease operating expense in 2013 increased by 4 % compared to 2012. in 2013 , as we continued to put new wells on production , we had increased costs for compression , rental equipment , fuel and overhead . we also had year-over-year increased costs for equipment & maintenance , roads & location , and environmental expenditures . these increases were partially offset by lower salt water disposal costs and decreased year-over-year costs resulting from property divestitures which occurred in the latter half of 2012. the lower rate per mcfe was primarily a function of increased production volumes and efficiencies of horizontal well operations in 2013 compared to 2012. workover expense increased by 47 % from 2012 to 2013. generally , these costs will fluctuate based on the amount of maintenance and remedial activity planned and or required during the period . about 60 % of the 2013 increase was incurred in the permian basin region and the remainder was primarily in the mid-continent region . our year-over-year transportation and other operating costs increased by 63 % during 2013. transportation costs will vary by product type and area . increases or decreases in sales volumes , compression charges and fuel costs also have an impact . the increase in these costs is primarily from the growth of our oil and ngl production in the permian basin and western oklahoma . taxes other than income are assessed by state and local taxing authorities on production , revenues or the value of properties . revenue based severance taxes are the largest component of these taxes . our 2013 taxes increased by 30 % compared to 2012. the increase is primarily due to increased severance taxes on higher production volumes . in addition , our 2012 taxes were lower due to a refund for taxes paid in prior years . general and administrative ( g & a ) costs were as follows : replace_table_token_23_th our 2013 overall g & a cost increased 26 % compared to 2012. in 2013 , we experienced increased costs for salaries and benefits as well as higher rent related to new office facilities . in addition , our 2013 expenditures included $ 7 million for university endowments established in honor of our former chairman , f.h . merelli , and $ 1 million of contributions for tornado relief in oklahoma . 34 stock compensation expense consists of non-cash charges resulting from the issuance of restricted stock and stock option awards , net of amounts capitalized . in accordance with our stock incentive plan , such grants are periodically made to non-employee directors , officers and other eligible employees . we have recognized non-cash stock-based compensation cost as follows : replace_table_token_24_th expense associated with stock compensation will fluctuate based on the grant-date market value of the award and the number of shares granted . the 2012 cost for the performance awards includes $ 3.9 million of accelerated compensation expense related to the death of former chairman , f.h . merelli . in addition , the 2013 cost for performance awards is approximately $ 4.3 million lower than 2012 cost due to the timing of awards granted . almost all of the performance awards granted in 2013 were awarded in mid-december . awards granted in january of 2010 were fully amortized in early january of 2013 , resulting in 2013 having less cost amortized during the year . see note 8 to the consolidated financial statements of this report for further discussion regarding our stock-based compensation . we have not elected hedge accounting treatment for our derivative instruments . therefore , we recognize settlements and changes in the assets or liabilities relating to our open derivative contracts in earnings . cash settlements of our contracts are included in cash flows from operating activities in our statements of cash flows . gains and losses on our derivative contracts are a function of fluctuations in the underlying commodity prices and the monthly settlement of the instruments . see item 7a and note 2 to the consolidated financial statements of this report for further details regarding our derivative instruments . the following table summarizes the net ( gains ) and losses from settlements and changes in fair value of our derivative contracts : replace_table_token_25_th 35 other operating ( income ) expense , net consists of costs related to various legal matters , most of which pertain to litigation and contract settlements , and title and royalty issues .
| subsequent to december 31 , 2013 we entered into the following gas hedges : weighted average price period type volume/day index ( 1 ) floor ceiling feb 14 - dec 14 collars 30,000 mmbtu perm ep $ 3.58 $ 4.50 ( 1 ) perm ep refers to el paso natural gas company , permian basin index as quoted in platt 's inside ferc . depending on changes in oil and gas futures markets and management 's view of underlying supply and demand trends , we may increase or decrease our hedging positions . since 2009 , we have chosen not to apply hedge accounting treatment to our derivative contracts . as a result , any settlements on the contracts are shown as a component of operating costs and expenses as either a net gain or loss on derivative instruments . see the discussion of our net gains/losses on hedging activities below , in results of operations . also , see item 7a and note 2 to the consolidated financial statements of this report for additional information regarding our derivative instruments . 31 results of operations 2013 compared to 2012 net income for the year ended december 31 , 2013 , was $ 564.7 million ( $ 6.47 per diluted share ) , up 60 % from $ 353.8 million ( $ 4.07 per diluted share ) for the previous year . the increase in 2013 net income was primarily the result of higher revenues from increased production volumes and higher realized prices received for oil and gas production . net income in 2013 also benefited from a reduction in our estimated exposure to certain litigation expense which had been accruing since 2008. the increases to 2013 net income were partially offset by increased dd & a , other oil and gas operational expenses and income taxes compared to 2012. these changes are discussed further in the analysis that follows . replace_table_token_19_th revenue from our production totaled a record $ 2.0 billion in 2013 , compared to $ 1.6 billion last year . increased production volumes together with higher realized prices for oil and gas sales accounted for the year-over-year improvement .
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23 cash flows we began 2018 with $ 1.0 million in cash and other liquid investments and ended the year with $ 0.6 million in cash . at december 31 , 2018 , we had borrowings of $ 27.1 million outstanding on our new credit facility compared to $ 92.0 million outstanding under our former credit agreement as of december 31 , 2017 and $ 67.7 million outstanding as of december 31 , 2016 . the following table sets forth the elements of cash flow for the years ended december 31 , 2016 , 2017 and 2018 ( in thousands ) : replace_table_token_7_th operating activities for the year ended december 31 , 2018 , cash provided by operating activities was $ 49.0 million compared to $ 45.2 million for the year ended december 31 , 2017 and $ 50.0 million for the year ended december 31 , 2016 . the increase of $ 3.8 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 was due primarily to the favorable impact of working capital changes . the decrease of $ 4.8 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 was primarily due to a decline in preneed cemetery revenue and acquired funeral home operating profit in 2017 and working capital changes , which include the timing of payments for income taxes , payments for accrued severance for the retirement of a former executive and our good to great incentive compensation plan during the first quarter of 2017. investing activities our investing activities resulted in a net cash outflow of $ 51.5 million f or the year ended december 31 , 2018 compared to $ 39.5 million for the year ended december 31 , 2017 and $ 45.3 million for the year ended december 31 , 2016 , an increase of $ 12.0 million and a decrease of $ 5.8 million , respectively . during the year ended december 31 , 2018 , we acquired four funeral home businesses , two in virginia , one in tennessee , and one in north carolina for an aggregate purchase price of $ 38.0 million . during the year ended december 31 , 2017 , we acquired seven funeral home businesses , two in colorado and five in new york for an aggregate purchase price of $ 27.5 million . we also purchased real estate for funeral home parking lot expansion projects for $ 1.3 million . 24 during the year ended december 31 , 2016 , we acquired six funeral home businesses , two in houston , texas , one in madera , california , one in brookfield , wisconsin , one in burlington , north carolina and one in graham , north carolina for the aggregate purchase price of $ 32.8 million . for the year ended december 31 , 2018 , capital expenditures totaled $ 13.5 million compared to $ 16.4 million for the year ended december 31 , 2017 , and $ 16.8 million for the year ended december 31 , 2016 , a decrease of $ 2.9 million and a decrease of $ 0.4 million , respectively . the following tables present our growth and maintenance capital expenditures ( in millions ) : replace_table_token_8_th replace_table_token_9_th financing activities our financing activities resulted in a net cash inflow of $ 2.2 million for the year ended december 31 , 2018 compared to a net cash outflow of $ 8.1 million for the year ended december 31 , 2017 and net cash outflow of $ 2.0 million for the year ended december 31 , 2016 . for the year ended december 31 , 2018 , we had net proceeds related to the issuance of our senior notes of $ 318.8 million , offset by net payments on our long-term debt obligations of $ 196.1 million and payments of $ 99.2 million to acquire our convertible notes . we purchased treasury stock for $ 16.3 million and paid $ 5.5 million in dividends on our common stock . for the year ended december 31 , 2017 , we had net borrowings on our long-term debt obligations of $ 11.1 million . we purchased treasury stock for $ 16.4 million and paid $ 3.7 million in dividends on our common stock . for the year ended december 31 , 2016 , we had net borrowings on our long-term debt obligations of $ 1.1 million . we paid $ 2.5 million in dividends on our common stock and paid transactions costs of $ 0.7 million related to the seventh amendment to our former credit agreement . 25 dividends on october 25 , 2017 , our board approved an increase in our quarterly dividend on our common stock from $ 0.050 to $ 0.075 per share , effective with respect to dividends payable on december 1 , 2017 and later . for the years ended december 31 , 2018 , 2017 and 2016 , our board declared the following dividends payable on the dates below ( in millions , except per share amounts ) : replace_table_token_10_th share repurchases on february 25 , 2016 , our board approved a share repurchase program authorizing us to purchase up to an aggregate of $ 25.0 million of our common stock in accordance with rule 10b-18 of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . on october 25 , 2017 , our board approved a $ 15.0 million increase in its authorization for repurchases of our common stock in addition to the $ 25.0 million approved on february 25 , 2016 , bringing the total authorized repurchase amount to $ 40.0 million , in accordance with the exchange act . during the year ended december 31 , 2018 , we repurchased 1,101,969 shares of common stock for a total cost of approximately $ 17.7 million at an average cost of $ 16.03 per share pursuant to our share repurchase program . story_separator_special_tag our shares were purchased in the open market at times and in amounts as management determined appropriate based on factors such as market conditions , legal requirements and other business considerations . shares purchased pursuant to the repurchase program are currently held as treasury shares . at december 31 , 2018 , we had approximately $ 8.3 million available for repurchase under our share repurchase program . during the year ended december 31 , 2017 , we repurchased 574,054 shares of common stock for a total cost of approximately $ 14.0 million at an average cost of $ 24.35 per share pursuant to our share repurchase program . our shares were purchased in the open market at times and in amounts as management determined appropriate based on factors such as market conditions , legal requirements and other business considerations . shares purchased pursuant to the repurchase program are currently held as treasury shares . at december 31 , 2017 , we had approximately $ 26.0 million available for repurchase under our share repurchase program . on august 18 , 2017 , we purchased 100,000 shares of our common stock from melvin c. payne , our chairman of the board and chief executive officer . the purchase of these shares was made pursuant to a privately-negotiated transaction at a price of $ 23.85 per share for a total purchase price of $ 2.4 million . the purchase price we paid for these shares was the stock 's trading price at the time of the transaction . this purchase was not a part of the share repurchase program approved by the board on february 25 , 2016. the repurchase of the shares held by mr. payne was approved in advance by our board , with mr. payne abstaining . see note 26 to our consolidated financial statements included herein for additional information on our related party transactions . we did not purchase any shares of our common stock during 2016 . 26 long-term debt on april 25 , 2018 , we entered into an eighth amendment , which amended the former credit agreement as follows : ( i ) increase the aggregate revolving credit commitment to $ 200.0 million ; ( ii ) permit the company to use the proceeds of revolving loans ( a ) to repay certain indebtedness ; ( b ) for working capital and acquisitions ; ( c ) to make certain capital expenditures ; ( d ) to pay interest on certain subordinated indebtedness and refinancing indebtedness ( subject to the satisfaction of certain terms and conditions ) ; ( e ) to prepay , repay , purchase or redeem certain subordinated indebtedness ; and ( f ) for general corporate purposes ; ( iii ) modify the maximum senior secured leverage ratio covenant ; and ( iv ) release the mortgage liens of the administrative agent on certain real property collateral located in a flood plain , among other things . following the effectiveness of the eighth amendment , the former credit agreement was comprised of a $ 200.0 million revolving credit facility and a $ 150.0 million term loan . under the former credit agreement , as amended by the eighth amendment , we were required to comply with a covenant to maintain a maximum senior secured leverage ratio . we incurred $ 0.7 million in transaction costs related to the eighth amendment of our former credit agreement , which were recorded in net loss on early extinguishment of debt . on may 7 , 2018 , we used the remaining capacity under the former credit agreement from the eighth amendment to fund the cash consideration used in our privately-negotiated exchanges of approximately 80 % of the then outstanding aggregate principal amount of our convertible notes . we recognized ( i ) a net gain of $ 1.2 million related to the acquisition of our convertible notes ; and ( ii ) a loss of $ 0.5 million related to transaction costs incurred for the acquisition of our convertible notes , all of which were recorded in net loss on early extinguishment of debt . on may 31 , 2018 , we completed the issuance of $ 325.0 million in aggregate principal amount of our senior notes . on may 31 , 2018 , we used $ 291.4 million of the net proceeds from the sale of the senior notes to repay all amounts outstanding under our former credit agreement and all commitments thereunder were terminated . in connection with the repayment in full of all amounts due thereunder , the former credit agreement was retired and $ 2.0 million of letters of credit previously issued under the former credit agreement were deemed issued under ( and remain outstanding under ) the new credit facility . we did not incur any material early termination penalties in connection with the repayment of the former credit agreement . in connection with the termination of the former credit agreement , we recognized ( i ) a loss of $ 0.7 million related to the eighth amendment transaction costs ; and ( ii ) a loss of $ 0.9 million of unamortized debt issuance costs related to the former credit agreement , all of which were recorded in net loss on early extinguishment of debt . on may 31 , 2018 , in connection with the issuance of the senior notes , we entered into a $ 150.0 million new credit facility with the financial institutions party thereto , as lenders , and bank of america , n.a. , as administrative agent . our obligations under the new credit facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries which guarantee the senior notes and certain of our subsequently acquired or organized domestic subsidiaries ( collectively , the “ credit facility guarantors ” ) .
| additionally , we experienced an increase of $ 8.2 million in interest expense related to our senior notes . 31 net income in 2017 increased $ 17.6 million compared to 2016 primarily due to the $ 17.5 million discrete tax benefit . further discussion of general , administrative and other expenses , home office depreciation and amortization expense , interest expense , income taxes and other components of income and expenses are presented herein under “ – other financial statement items. ” reporting and non-gaap financial measures we also present our financial performance in our “ operating and financial trend report ” ( “ trend report ” ) as reported in our earnings release for the year ending december 31 , 2018 dated february 20 , 2019 and discussed in the corresponding earnings conference call . this trend report is used as a supplemental financial measurement statement by management and investors to compare our current financial performance with our previous results and with the performance of other companies . we do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with united states generally accepted accounting principles ( “ gaap ” ) . the trend report is a non-gaap statement that also provides insight into underlying trends in our business . below is a reconciliation of net income ( a gaap measure ) to adjusted net income ( a non-gaap measure ) for the years ended december 31 , 2016 , 2017 , and 2018 ( in thousands ) : replace_table_token_14_th ( 1 ) special items are defined as charges or credits included in our gaap financial statements that can vary from period to period and are not reflective of costs incurred in the ordinary course of our operations . special items are taxed at the federal statutory rate of 35 percent for both years ended december 31 , 2016 and 2017 and 21 percent for the year ended december 31 , 2018 except for the accretion of the discount on the convertible
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we accrued for this contingent liability at its estimated fair value at the time of the acquisition . as a provision of the settlement agreement between us and the former owners of efls , a net receivable due of $ 78 thousand was forgiven in june 2013. additionally , we recognized a $ 66 thousand favorable adjustment related to the change in the estimate of the performance-related contingent obligation , resulting in a net expense of $ 12 thousand charged to operations in 2013. in the fourth quarter of 2012 , we reassessed the carrying value of the contingent liability related to the 2.5 percent payout based upon revised projected future billings of efls , subsequently recorded a reduction to the contingent liability of $ 102 thousand . see note 12 , commitments and contingencies , included in item 8 for further information . restructuring during the third quarter of 2013 , we relocated our manufacturing operations from a contract manufacturing facility located in mexico to our facilities located in pleasanton , california and solon , ohio . the consolidated statements of operations include $ 80 thousand of “ restructuring ” costs for severance paid to mexican contract employees as required by the production share agreement , as amended , between us and the contract manufacturer . see note 10 , restructuring , for more information on these charges . as a result of the sale of the pool products business , we relocated our manufacturing operations in pleasanton , california to solon , ohio . this activity was completed by march 2014 , and the cost was negligible . other i ncome ( expense ) settlement of acquisition obligations as a provision of the settlement agreement between us and the former owners of efls , our obligation to pay a $ 500 thousand special fee and a $ 500 thousand convertible promissory note including interest of $ 92 thousand were cancelled in their entirety in exchange for a $ 200 thousand payment . we recognized a net gain of $ 892 thousand related to these items in june 2013. see note 11 , settlement of acquisition obligations , included in item 8 for further information . interest expense interest expense was $ 2.7 million , $ 842 thousand , and $ 511 thousand for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . interest expense in 2014 included a $ 2.3 million non-cash charge to write-off the remaining unamortized discount associated with the convertible notes , as well as $ 154 thousand of additional interest that we paid by september 30 , 2014. interest expense includes amortization of debt discounts , interest on our line of credit facility and any other fees related to the line of credit agreement , and interest expense for outstanding borrowings . other expense s we incurred other expenses of $ 531 thousand in 2014 , compared to $ 240 thousand in 2013. the increase was primarily a result of the write-off of loan origination costs in connection with the convertible notes . other expenses in 2013 increased $ 83 thousand compared to $ 157 thousand in 2012. the increase was a result of higher loan origination costs and facility and other fees . net loss net loss from continuing operations was $ 5.8 million in 2014 , a decrease of $ 1.2 million compared to net loss from continuing operations of $ 6.9 million in 2013. the decrease was a result of increased sales , specifically ; products sales to the government , as well as improved gross profit margins . additionally , the 2014 net loss included one-time charges of $ 2.7 million related to the conversion of the unsecured convertible notes in march 2014 , primarily for the write-off of the remaining unamortized discount associated with the notes . excluding those charges , net loss from continuing operations in 2014 would have decreased compared to 2013 by $ 3.9 million . income taxes we had a full valuation allowance recorded against our united states deferred tax assets at december 31 , 2014 , 2013 , and 2012 , respectively . net deferred tax assets for our united kingdom subsidiary at december 31 , 2014 and at december 31 , 2013 were $ 2 thousand , as this subsidiary has not been profitable for several years . we had no net deferred liabilities at december 31 , 2014 or 2013. there were no federal tax expenses for the united states operations in 2014 , 2013 , and 2012 , as any expected benefits were offset by an increase to the valuation allowance . 23 at december 31 , 2014 , we had net operating loss carry-forwards of approximately $ 75.4 million for federal , state , and local income tax purposes . however , due to changes in our capital structure , approximately $ 23.9 million of this amount is available after the application of irc section 382 limitations . if not utilized , these carry-forwards will begin to expire in 2021 for federal purposes and have begun to expire for state and local purposes . please refer to note 14 , income taxes , included in item 8 for further information . discontinued o perations in november 2013 , we announced the sale of our pool products business . in connection with the sale , we have eliminated all net sales and expenses associated with this business from the consolidated statements of operations and have reported the net ( loss ) income from those activities as “ discontinued operations. ” there were no revenues from discontinued operations in 2014. revenues from discontinued operations in 2013 and 2012 were $ 4.5 million and $ 6.5 million , respectively . see note 3 , included in item 8 of this annual report for more information . liquidity and c apital r esources we have incurred substantial losses , and as of december 31 , 2014 , we had an accumulated deficit of $ 88.8 million . story_separator_special_tag we have raised approximately $ 18 million between 2012 and 2014 through the issuance of common stock and debt , which has been funding our operating expenses and working capital , including the $ 5.15 million in cash , net of related expenses , from the public offering and sale of our common stock in august 2014. additionally , we received $ 4.8 million in cash , net of related expenses , through the sale of our pool products business in 2013. in order for us to attain profitability and growth , we will need to continue to address legacy issues that have historically burdened our financial performance , including through improvement in gross margins , execution of our marketing and sales plans for our energy-efficient led lighting products , the development of new technologies into sustainable product lines , and continued improvements in our supply chain performance . there is a risk that our business may not be as successful as we envision as we work to generate sufficient cash flow to meet obligations and sustain operations without obtaining additional external financing . we currently have a revolving credit facility that provides funding for our operations . we have the right to terminate the facility on december 31 , 2015 , and the lender may terminate the facility at any time by providing the requisite advance notice . there can be no assurance that we will generate sufficient cash flows to sustain our operations or obtain funding on acceptable terms or in a timely fashion or at all . as such , we will continue to review and pursue selected external funding sources , if necessary , to execute these objectives including , but not limited to , the following : ● renew our existing credit facility on acceptable terms prior to its expiration or termination or obtain funding from other financial institutions on acceptable terms , ● obtain financing from traditional or non-traditional investment capital organizations or individuals , and ● obtain funding from the sale of our common stock or other equity or debt instruments or the exercise of outstanding warrants . obtaining financing through the above-mentioned mechanisms contains risks , including : ● loans or other debt instruments may have terms and or conditions , such as interest rate , restrictive covenants and control or revocation provisions , which are not acceptable to management or our board of directors , ● the current environment in capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing , ● financing may not be available for parties interested in pursuing the acquisition of one or more of our operating units , and ● additional equity financing may not be available to us in the current capital environment and could lead to further dilution of stockholder value for current stockholders of record . if we fail to raise additional capital , including from sales revenues , loans or other external funding sources , we may be required to change our planned business strategies . if we are unable to obtain adequate financing , we may not be able to successfully develop and market our products and services . as a result , we would need to curtail business operations , which would have a material negative effect on operating results . cash and cash equivalents and d ebt at december 31 , 2014 , our cash and cash equivalents balance was $ 7.5 million , compared to $ 2.9 million at december 31 , 2013. the balance at december 31 , 2014 included restricted cash of $ 105 thousand , compared to $ 94 thousand at december 31 , 2013. the restricted cash balance relates to funds to be used exclusively for a research and development project with the national shipbuilding research program . additionally , our cash balance at december 31 , 2014 included $ 300 thousand of the purchase price from the sale of our pool products business held in escrow to secure our obligations of the sale , compared to $ 500 thousand at december 31 , 2013. under the terms of our agreement , the first of five $ 100 thousand scheduled escrow releases commenced on march 25 , 2014 , and was to continue on the 25 th day of each of the next four subsequent months . at december 31 , 2014 , $ 200 thousand of the cash held in escrow had been released to us and $ 300 thousand remained in escrow subject to the resolution of outstanding buyer claims . see note 3 , included in item 8 for further information . 24 on august 6 , 2014 , we announced the pricing of a public offering to sell 1.175 million shares of our common stock at a price of $ 4.50 per share . the underwriters for the offering were given an option to purchase up to an additional 176,250 shares at $ 4.50 per share to cover over allotments . on august 8 , 2014 , they exercised their option to purchase the 176,250 additional shares . the offering closed on august 11 , 2014. the net proceeds we received from the offering , after deducting the underwriting discount and offering expenses paid by us , were $ 5.15 million . the following is a summary of cash flows from operating , investing , and financing activities , as reflected in the consolidated statements of cash flows ( in thousands ) : replace_table_token_7_th cash used in operating activities net cash used in operating activities of $ 1.4 million in 2014 resulted from the net loss , adjusted for non-cash items , including ; depreciation and amortization , stock-based compensation , and a one-time charge to write off the remaining unamortized discount associated with the conversion of convertible notes in march 2014. see note 9 , debt , included in item 8 for more information on the conversion of the convertible notes .
| fluctuations in this operation 's currency may have an impact on our business , results of operations and financial position . we currently do not use financial instruments to hedge our exposure to exchange rate fluctuations with respect to our international operations . as a result and due to the volatility of other currencies compared to the united states dollar , we may experience foreign currency translation gains or losses which may positively or negatively affect our results of operations attributed to these operations . international net sales accounted for 9.0 percent of net sales in 2014 , compared to 11.1 percent in 2013 , and 12.9 percent in 2012. the effect of changes in currency exchange rates was not material in 2014 , 2013 , or 2012 , respectively . the following table sets forth a breakdown of our global sales ( in thousands ) : replace_table_token_5_th gross profit gross profit was $ 9.4 million , or 32.3 percent of net sales in 2014 , compared to $ 4.6 million , or 21.3 percent of net sales in 2013. solutions segment gross profit was $ 720 thousand in 2014 , a decrease of $ 766 thousand compared to 2013. the decrease was a result of the shift in our focus away from the turnkey solutions business to align our resources with developing and selling our led products . products segment gross profit was $ 8.6 million , or 34.2 percent of net sales in 2014 , a $ 5.5 million increase over 2013. the increase resulted from higher-net sales due to a higher mix of commercial and government products sales , compared to r & d services sales , which carry low to no gross margins . additionally , gross margins on our products improved as a result of continuous development of efficiencies , improvements in our supply chain , and building our economies of scale from sales volume increases . 21 gross profit in 2013 increased $ 607 thousand over 2012 's gross profit of $ 4 million . the increase in 2013 resulted from
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financial operations overview license agreement university of pennsylvania in may 2020 , we entered into an amended and restated research , collaboration and licensing agreement , or the penn agreement , with penn , for research and development collaborations and exclusive license rights to patents for certain products and technologies , which superseded the sponsored research , collaboration and licensing agreement that we entered into with penn in september 2018. under the penn agreement , in addition to the obligation to fund certain research relating to the preclinical development of our seven licensed programs , we will fund discovery research conducted by penn for five years , beginning in may 2020 , and will receive exclusive rights , subject to certain limitations , to technologies resulting from the discovery program for passage bio products developed with gtp , such as novel capsids , toxicity reduction technologies and delivery and formulation improvements . our funding commitment is $ 5.0 million a year for five years , with quarterly payments of $ 1.3 million . under the penn agreement we have 10 options available to us to commence additional licensed programs for rare , monogenic cns indications until may 2025. if we were to exercise any of these remaining options , we would owe penn a non-refundable fee of $ 1.0 million per product indication . the penn agreement requires that we make payments of up to $ 16.5 million per product candidate in aggregate upon the achievement of specific development milestone events by such licensed product for a first indication , reduced development milestone payments for the second and third indications and no development milestone payments for subsequent indications . in addition , on a product by product basis , we are obligated to make up to $ 55.0 million in sales milestone payments on each licensed product based on annual sales of the licensed product in excess of defined thresholds . upon successful commercialization of a product using the licensed technology , we are obligated to pay to penn , on a licensed product-by-licensed product and country-by-country basis , tiered royalties ( subject to customary reductions ) in the mid-single digits on annual worldwide net sales of such licensed product . in addition , we are obligated to pay to penn a percentage of sublicensing income , ranging from the mid-single digits to low double digits , for sublicenses under the penn agreement . collaboration and manufacturing and supply agreements catalent we have a collaboration agreement with catalent maryland , inc. , or catalent ( formerly paragon bioservices , inc. ) , or the catalent collaboration agreement . as part of the catalent collaboration agreement , we paid catalent an upfront fee for the commissioning , qualification , validation and equipping of a clean room suite . subject to validation of the clean 125 room suite , which was completed in the fourth quarter of 2020 , we will pay an annual fee for five years for the use of the clean room suite . we have commenced manufacturing operations in the suite to support aav production for our lead gene therapy product candidates for the treatment of rare monogenic cns disorders . in april 2020 , we entered into a development services and clinical supply agreement , or the manufacturing and supply agreement , with catalent to secure clinical scale manufacturing capacity for batches of active pharmaceutical ingredients for our gene therapy product candidates . the manufacturing and supply agreement provides for a term of five years which period may be extended once , at our option , for an additional five year-period . the collaboration agreement also remains in effect . in consideration for the use of the clean room suite , we have agreed to a minimum amount of purchase commitments for each year in the term , subject to adjustments for inflation . under both the catalent collaboration agreement and the manufacturing and supply agreement , we have an annual minimum commitment of $ 10.6 million per year owed to catalent for five years from the validation of the clean room suite , subject to certain inflationary adjustments . story_separator_special_tag roman ' , 'times ' , 'serif ' ; font-size:10pt ; font-style : italic ; font-weight : bold ; margin:0pt 0pt 12pt 0pt ; '' > funding requirements our primary use of cash is to fund operating expenses , most significantly research and development expenditures . cash used to fund operating expenses is impacted by the timing of when we pay these expenses , as reflected in the change in our outstanding accounts payable , accrued expenses and prepaid expenses . because of the numerous risks and uncertainties associated with research , development and commercialization of pharmaceutical products , we are unable to estimate the exact amount of our operating capital requirements . our future funding requirements will depend on many factors , including , but not limited to : ● the scope , timing , progress and results of discovery , preclinical development , laboratory testing and clinical trials for our product candidates ; ● the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization ; ● the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates ; ● the costs of preparing , filing and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending intellectual property-related claims ; ● the costs and fees associated with the discovery , acquisition or in-license of additional product candidates or technologies ; ● our ability to establish additional collaborations on favorable terms , if at all ; ● the costs required to scale up our clinical , regulatory and manufacturing capabilities ; ● the costs of future commercialization activities , if any , including establishing sales , marketing , manufacturing and distribution capabilities , for any of our product candidates for which we receive marketing approval ; and ● revenue , if any , received from commercial sales of our product candidates , should story_separator_special_tag any of our product candidates receive marketing approval . we will need additional funds to meet operational needs and capital requirements for clinical trials , other research and development expenditures , and business development activities . we currently have no credit facility or committed sources of capital . because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates , we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies . until such time , if ever , as we can generate substantial product revenue , we expect to finance our operations through a combination of equity offerings , debt financings , collaborations , strategic alliances and marketing , distribution or licensing arrangements . to the extent that we raise additional capital through the sale of equity or convertible debt securities , your ownership interest will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder . debt financing and preferred equity financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making acquisitions or capital expenditures or declaring dividends . if we raise additional funds through collaborations , strategic alliances or marketing , distribution or licensing arrangements with third parties , 129 we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or drug candidates , or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings or other arrangements when needed , we may be required to delay , limit , reduce or terminate our research , product development or future commercialization efforts , or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . cash flows the following table shows a summary of our cash flows for the periods indicated : replace_table_token_3_th net cash used in operating activities during the year ended december 31 , 2020 , we used $ 80.5 million of net cash in operating activities , primarily to fund our operations related to the development of our product candidates . cash used in operating activities reflected our net loss of $ 112.2 million , which was partially offset by non-cash charges of $ 17.3 million related to acquired in-process research and development expense , share-based compensation , depreciation , amortization of premium and discount , net and changes in deferred rent as well as a $ 14.4 million net increase in cash flows resulting from changes in our operating assets and liabilities . during the year ended december 31 , 2019 , we used $ 39.9 million of net cash in operating activities . cash used in operating activities reflected our net loss of $ 45.6 million and a $ 5.9 million net decrease in cash flows resulting from changes in our operating assets and liabilities . cash used was offset by noncash charges of $ 9.1 million for the loss on the change in fair value of our future tranche right liability , $ 1.5 million in share-based compensation , $ 0.5 million related to an acquired in-process research and development charge , $ 0.1 million in depreciation expense and a $ 0.5 million change in our deferred rent balance . net cash used in investing activities during the year ended december 31 , 2020 , we purchased $ 266.1 million in marketable securities and had sales and maturities of $ 95.6 million in marketable securities . during the years ended december 31 , 2020 and 2019 , we used $ 1.1 million and $ 1.2 million , respectively , for the purchase of property and equipment . we also used $ 0.5 million in each of the years ended december 31 , 2020 and 2019 to purchase technology rights from penn . net cash provided by financing activities during the years ended december 31 , 2020 and 2019 , financing activities provided $ 228.3 million and $ 176.2 million , respectively , from the sale of our common and convertible preferred stock . during 2020 , we received $ 0.3 million from the issuance of common stock under our employee stock purchase plan and received $ 0.2 million from the exercise of stock options . during 2019 , we received $ 0.2 million from the exercise of stock options and paid $ 0.8 million in deferred offering costs . 130 contractual obligations and other commitments the following table summarizes our contractual obligations and commitments at december 31 , 2020 : replace_table_token_4_th ( 1 ) clean room validated in q4 2020 in september 2018 , we entered into an agreement to lease 8,887 square feet of office space in philadelphia , pennsylvania , for a term of seven years . the lease includes a renewal option for an additional five years . the initial rent commenced at $ 0.2 million per year , with 2.5 % annual base rent increases plus operating expenses , real estate taxes , utilities and janitorial fees . we occupied this space in early 2019. in april 2020 , we entered into an amendment to this lease , which provided that so long as we are not in breach of the initial lease agreement , the initial lease agreement shall terminate five business days after the one commerce commencement date , as defined below . in april 2020 , we entered into an agreement to lease for approximately 37,000 square feet of office space in philadelphia , pennsylvania , or one commerce lease , with an expected commencement date of january 1 , 2021 , or the one commerce commencement date , and expected expiration date of november 1 , 2031. we have an option to extend the term of the one commerce lease by up to two five-year terms .
| product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect our research and development expenses to increase significantly over the next several years as we increase personnel costs , including share-based compensation , conduct our clinical trials , including later-stage clinical trials , for current and future product candidates and prepare regulatory filings for our product candidates . 126 costs incurred in obtaining technology licenses are charged to research and development expense as acquired in-process research and development if the technology licensed has not reached technological feasibility and has no alternative future use . general and administrative expenses general and administrative expenses consist primarily of personnel expenses , including salaries , benefits and share-based compensation expense , for employees and consultants in executive , finance , accounting , legal , and human resource functions . general and administrative expense also includes corporate facility costs , including rent , utilities , depreciation and maintenance , not otherwise included in research and development expense , as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting services . we expect that our general and administrative expenses will increase in the future to support our continued research and development activities , potential commercialization efforts and continued increased costs of operating as a public company . these increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants , lawyers and accountants , among other expenses . additionally , we anticipate increased costs associated with being a public company , including expenses related to services associated with maintaining compliance with the requirements of the nasdaq stock market , llc and the sec , insurance and investor relations costs . if any of our current or future product candidates obtains u.s. regulatory approval , we expect that we would incur significantly increased expenses associated with building
| 11,999 |
we anticipate catering will be a significant source of future growth at both brands . optimizing our restaurant portfolio in december 2018 , we completed a comprehensive review of our restaurant portfolio at both brands with the closure of a number of unprofitable restaurants . store closures based on the completion of our restaurant portfolio examination as part of our strategic review process in december 2018 , we closed 14 pollo tropical restaurants , including all of our pollo tropical restaurants in the greater atlanta metropolitan area , and nine taco cabana restaurants . we also closed two taco cabana restaurants in the second quarter of 2018. additionally , we closed 30 pollo tropical restaurants in the second quarter of 2017 , ten pollo tropical restaurants in the third quarter of 2017 and six taco cabana restaurants in the third and fourth quarters of 2017. six pollo tropical restaurants that were closed in 2016 and 2017 in texas were rebranded as taco cabana restaurants in 2017 and 2018 and one pollo tropical restaurant will be rebranded as a taco cabana restaurant in 2019. impairment and other lease charges for the twelve months ended december 30 , 2018 were $ 21.1 million and included ( i ) impairment charges of $ 17.1 million and lease and other charges of $ 2.1 million primarily with respect to the 23 restaurants that were closed in the fourth quarter of 2018 , three of which were initially impaired in 2017 , and adjustments to estimates of future lease costs for certain previously closed restaurants , and ( ii ) impairment charges of $ 1.9 million related to seven underperforming pollo tropical and taco cabana restaurants that we continue to operate . impairment and other lease charges for the twelve months ended december 31 , 2017 were $ 61.8 million and included impairment charges of $ 54.2 million and lease and other charges of $ 7.5 million primarily with respect to the 46 restaurants that were closed in 2017 , an office location that was closed in 2017 and two pollo tropical restaurants and five taco cabana restaurants that we continued to operate . for the twelve months ended december 30 , 2018 , the 14 closed pollo tropical restaurants and nine closed taco cabana restaurants contributed approximately $ 15.8 million and $ 9.5 million in restaurant sales , respectively , and $ 5.2 million and $ 1.7 million in restaurant-level operating losses to income from operations , respectively , including depreciation expense of $ 2.2 million and $ 0.7 million for pollo tropical and taco cabana , respectively . hurricanes during the third quarter of 2017 , texas and florida were struck by hurricanes harvey and irma ( the `` hurricanes '' ) . forty-three taco cabana and two company-owned pollo tropical restaurants in the houston metropolitan area and all 149 company-owned pollo tropical restaurants in florida and the atlanta metropolitan area were closed and affected by the hurricanes to varying degrees ( e.g . property preparation and damage , inventory losses , payment of hourly restaurant employees while restaurants were closed , lost business related to temporary closures , limited menu and modified hours of operations ) . other texas markets where we operate company-owned restaurants including san antonio were also affected by hurricane harvey , but to a lesser degree . we estimate that the hurricanes negatively impacted adjusted ebitda and income ( loss ) from operations by approximately $ 2.5 million to $ 3.5 million for pollo tropical , net of $ 0.7 million in estimated insurance recoveries , and approximately $ 0.5 35 million to $ 1.5 million for taco cabana , net of $ 0.2 million in estimated insurance recoveries , and negatively impacted comparable restaurant sales and transactions by approximately 1.0 % to 2.0 % for pollo tropical , and approximately 0.5 % to 1.0 % for taco cabana for the twelve months ended december 31 , 2017. in 2018 , we received business interruption and property damage insurance settlement proceeds of $ 2.8 million and $ 1.7 million for pollo tropical and taco cabana , respectively , and recognized other income of $ 2.1 million and $ 1.4 million for pollo tropical and taco cabana , respectively , related to the hurricanes . change in tax law on december 22 , 2017 , the tax cuts and jobs act ( the `` act '' ) , which includes a provision that reduces the federal corporate income tax rate from 35.0 % to 21.0 % effective january 1 , 2018 , was signed into law . in addition , the act limits net operating loss deductions generated in 2018 and future years and modifies net operating loss carryover terms . in accordance with generally accepted accounting principles , the enactment of this new tax legislation required us to revalue our net deferred income tax assets at the new corporate statutory rate of 21.0 % as of the enactment date in 2017 , which resulted in a one-time adjustment to our deferred income taxes of $ 9.0 million with a corresponding non-cash increase to the provision for income taxes as a discrete item during the fourth quarter of 2017. the change in the corporate tax rate reduced the nominal value of our deferred tax assets , but it did not reduce the future tax deductions they represent . in 2018 , in conjunction with a cost segregation study conducted prior to filing our 2017 federal income tax return , we changed the depreciation method for certain assets for federal income tax purposes to accelerate tax deductions . changes in our 2017 federal income tax return from the amounts recorded as of december 31 , 2017 were primarily the result of changing the depreciable lives of assets for federal income tax purposes . story_separator_special_tag these changes allowed us to record an incremental benefit of $ 4.0 million for 2018. executive summary—consolidated operating performance for the year ended december 30 , 2018 our fiscal year 2018 story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-align : justify ; text-indent:24px ; font-size:10pt ; '' > as a result of new restaurant openings , sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for pollo tropical by 0.4 % in 2018 . comparable restaurant sales decreased 6.5 % and 7.3 % for pollo tropical and taco cabana restaurants , respectively , in 2017 . for pollo tropical , a decrease in comparable restaurant transactions of 8.8 % was partially offset by menu price increases that drove an increase in restaurant sales of 2.1 % in 2017 as compared to 2016 . for taco cabana , a decrease in comparable restaurant transactions of 8.7 % was partially offset by menu price increases that drove an increase in restaurant sales of 2.3 % in 2017 as compared to 2016 . the decrease in comparable sales for both brands in 2017 compared to 2016 was partially attributable to temporary closures , limited menu offerings and modified hours of operations as a result of the hurricanes , which we estimate negatively impacted comparable restaurant sales and transactions for pollo tropical by approximately 1.0 % to 2.0 % and taco cabana by approximately 0.5 % to 1.0 % in 2017 compared to 2016. as a result of new restaurant openings , sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for pollo tropical by 0.6 % and 1.5 % in 2017 and 2016 , respectively . restaurant sales for pollo tropical in 2018 compared to 2017 and in 2017 compared to 2016 were also negatively impacted by the restaurant closures that occurred in the fourth quarter of 2016 and in 2017. franchise revenues increased by $ 0.1 million to $ 2.7 million in 2018 as compared to 2017 due to higher sales at franchised restaurants in 2018 . franchise revenues decreased by $ 0.3 million to $ 2.5 million in 2017 as compared to 2016 due to the closure of seven franchised pollo tropical restaurants in 2017. operating costs and expenses . operating costs and expenses include cost of sales , restaurant wages and related expenses , other restaurant expenses and advertising expenses . cost of sales consists of food , paper and beverage costs including packaging costs , less rebates and purchase discounts . cost of sales is generally influenced by changes in commodity costs , the sales mix of items sold and the effectiveness of our restaurant-level controls to manage food and paper costs . key commodities , including chicken and beef , are generally purchased under contracts for future periods of up to one year . restaurant wages and related expenses include all restaurant management and hourly productive labor costs , employer payroll taxes , restaurant-level bonuses and related benefits . payroll and related taxes and benefits are subject to inflation , including minimum wage increases and increased costs for health insurance , workers ' compensation insurance and state unemployment insurance . 38 other restaurant operating expenses include all other restaurant-level operating costs , the major components of which are utilities , repairs and maintenance , general liability insurance , real estate taxes , sanitation , supplies and credit card fees . advertising expense includes all promotional expenses including television , radio , billboards and other sponsorships and promotional activities . pre-opening costs include costs incurred prior to opening a restaurant , including restaurant employee wages and related expenses , travel expenditures , recruiting , training , promotional costs associated with the restaurant opening and rent , including any non-cash rent expense recognized during the construction period . pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening . 39 the following tables present the primary drivers of the changes in the components of restaurant operating margins for pollo tropical and taco cabana . all percentages are stated as a percentage of applicable segment restaurant sales . replace_table_token_13_th ( 1 ) includes costs related to the plan . ( 2 ) includes the impact of higher wage rates . ( 3 ) includes the impact of lower sales on fixed and semi-fixed costs for 2017 compared to 2016 . ( 4 ) includes the impact of restaurant closures in 2018 compared to 2017 and 2017 compared to 2016 . ( 5 ) includes the impact of a one-time write-off of unused pre-production costs in 2017 . 40 replace_table_token_14_th ( 1 ) includes costs related to the plan . ( 2 ) includes the impact of lower sales on fixed and semi-fixed costs for 2017 compared to 2016 . ( 3 ) includes the impact of higher wage rates and an increase in overtime hours . consolidated restaurant rent expense . restaurant rent expense includes base rent and contingent rent on our leases characterized as operating leases , reduced by amortization of gains on sale-leaseback transactions . restaurant rent expense , as a percentage of total restaurant sales , decreased to 5.3 % in 2018 from 5.5 % in 2017 , primarily due to the closure of underperforming restaurants in 2017 , which generally had higher rent and lower sales and the impact of higher comparable restaurant sales . restaurant rent expense , as a percentage of total restaurant sales , was 5.5 % in 2017 compared to 5.3 % in 2016 , primarily as a result of the impact of lower comparable restaurant sales . 41 consolidated general and administrative expenses . general and administrative expenses are comprised primarily of ( 1 ) salaries and expenses associated with the development and support of our company and brands and the management oversight of the operation of our restaurants ; and ( 2 ) legal , auditing and other professional fees and stock-based compensation expense .
| comparable restaurant sales increased 2.2 % for our pollo tropical restaurants resulting primarily from an increase in average check of 4.3 % , partially offset by a decrease in comparable restaurant transactions of 2.1 % . during 2018 , we opened seven new pollo tropical restaurants and seven new taco cabana restaurants and permanently closed 14 pollo tropical restaurants and 11 taco cabana restaurants . consolidated adjusted ebitda increased $ 0.5 million for the twelve months ended december 30 , 2018 to $ 68.0 million compared to $ 67.4 million for the twelve months ended december 31 , 2017 , driven primarily by higher comparable restaurant sales at both brands in 2018 and higher advertising expenses at pollo tropical in 2017 during the relaunch as part of the plan , partially offset by higher costs associated with the plan to improve the guest experience to drive incremental transactions and higher advertising expenses at taco cabana in 2018. consolidated adjusted ebitda is a non-gaap financial measure of performance . for a discussion of our use of consolidated adjusted ebitda and a reconciliation from net income ( loss ) to consolidated adjusted ebitda , see `` management 's use of non-gaap financial measures . '' 36 results of operations the following table summarizes the changes in the number and mix of pollo tropical and taco cabana company-owned and franchised restaurants in each fiscal year : replace_table_token_10_th the following table sets forth , for the years ended december 30 , 2018 , december 31 , 2017 and january 1 , 2017 , selected consolidated operating results as a percentage of consolidated restaurant sales and selected segment operating results as a percentage of applicable segment restaurant sales : replace_table_token_11_th consolidated revenues . revenues include restaurant sales and franchise royalty revenues and fees . restaurant sales consist of food and beverage sales , net of discounts , at our restaurants . franchise royalty revenues and fees represent ongoing royalty payments that are determined based on a percentage of franchisee sales , franchise fees associated with new restaurant openings , and development fees associated with the opening of new franchised
| 12,000 |
- oil and gas property sales in january 2011 , the company completed the sale of its interest in certain producing oil and gas properties located in the on-shore gulf coast region of texas . proceeds from the sale totaled $ 6.2 million and the pre-tax gain from this transaction totaled $ 2,708,000. total proved reserves sold were approximately 26,000 barrels of crude oil and 2,148,000 mcf of natural gas . sales negotiations were conducted by the third party operator of the properties on behalf of all working interest owners and the transaction was completed with a separate third party investment entity . the company 's proportionate interest in the transaction was approximately 5 percent and the company elected to participate in the sale due to attractive pricing . also during the first quarter of 2011 , the company sold a portion of its interest in certain non-producing oil and gas properties located in west texas . total proceeds from the sale were $ 329,000 and the company recorded a $ 125,000 gain from this transaction . proceeds from the sales were used for general working capital purposes and the company is continuing with oil and gas exploration operations in the vicinity of the properties sold . in october 2011 , the company sold an interest in certain non-producing properties for $ 90,000 in proceeds and gain . 21 - general and administrative , interest income and income tax general and administrative expenses were consistent during the three year review period ending december 31 , 2011 except during 2011 such costs were elevated due to employee bonuses . interest income declined for 2011 , 2010 and 2009 as interest rates on overnight deposits declined to near zero following the significant turmoil that occurred in the financial markets during the fall of 2008. the provision for income taxes is based on federal and state tax rates and variations are consistent with taxable income in the respective accounting periods . - outlook the short-term outlook presumes continued volume and margin strength within the crude oil marketing operation . industry competitors and company suppliers are aware of the present opportunity , however , and are actively seeking to capture such advantage and unit margins have begun to shrink . over the course of the mid-term time horizon ( 3 - 6 months from current date ) management anticipates crude oil marketing margins will return to their approximate historical levels . transportation results slowed in late 2011 but generally look to be stable for 2012. within the oil and gas segment , declining natural gas prices will , in all likelihood , offset volume increases from the new wells coming on line in 2012. however , absent further declines in commodity prices , the recurrence of property impairment charges is unlikely in 2012. in contrast , should recent escalation in diesel fuel costs continue , 2012 marketing and transportation earnings could be adversely affected to some extent . the company has the following major objectives for 2012 : - maintain marketing operating earnings at the $ 28 million level exclusive of inventory valuation gains or losses . - maintain transportation operating earnings at the $ 6 million level excluding gains from the sale of used equipment . - return oil and gas operating earnings to the $ 2 million level and replace 2011 production with current reserve additions . liquidity and capital resources the company 's liquidity primarily derives from net cash provided from operating activities , which was $ 55,815,000 , $ 36,928,000 and $ 22,285,000 for each of 2011 , 2010 and 2009 , respectively . as of december 31 , 2011 and 2010 , the company had no bank debt or other forms of debenture obligations . cash and cash equivalents totaled $ 37,066,000 as of december 31 , 2011 , and such balances are maintained in order to meet the timing of day-to-day cash needs . working capital , the excess of current assets over current liabilities , totaled $ 48,808,000 as of december 31 , 2011. capital expenditures during 2011 included $ 27,802,000 for marketing and transportation equipment additions , primarily consisting of truck-tractors , and $ 24,580,000 in property additions associated with oil and gas exploration and production activities . for 2012 , the company anticipates expending an additional approximately $ 19 million on oil and gas development and exploration projects . in addition , approximately $ 17 million will be expended during 2012 for the purchase of 167 truck-tractors for the transportation segment and approximately $ 5.3 million will be expended for the purchase of 31 truck-tractors and 18 trailers for the marketing segment with funding for such purchase from available cash flow . these units will serve to replace older units and to increase the marketing fleet . funding for these 2012 projects will be from operating cash flow and available working capital . within certain constraints , the proposed projects can be delayed or cancelled should funding become unavailable . 22 from time to time , the company may make cash prepayments to certain suppliers of crude oil and natural gas for the company 's marketing operations . such prepayments totaled $ 6,521,000 as of december 31 , 2011 and such amounts will be recouped and advanced from month to month as the suppliers deliver product to the company . the company also requires certain counterparties to post cash collateral with the company in order to support their purchase from the company . such cash collateral held by the company totaled $ 721,000 as of december 31 , 2011. the company also maintains a stand-by letter of credit facility with wells fargo bank to provide for the issuance of up to $ 60 million in stand-by letters of credit to the company 's suppliers of crude oil and natural gas ( see note 1 to financial statements ) . the issuance of stand-by letters of credit enables the company to avoid posting cash collateral when procuring crude oil and natural gas supply . story_separator_special_tag as of december 31 , 2011 , letters of credit outstanding totaled $ 38.9 million . management believes current cash balances , together with expected cash generated from future operations , and the ease of financing truck and trailer additions through leasing arrangements ( should the need arise ) will be sufficient to meet short-term and long-term liquidity needs . the company utilizes cash from operations to make discretionary investments in its oil and natural gas exploration , marketing and transportation businesses , which comprise substantially all of the company 's investing cash outflows for each of the periods in this filing . the company does not look to proceeds from property sales to fund its cash flow needs . except for an approximate $ 10.7 million commitment for transportation equipment , operating leases and storage tank terminal arrangements and office lease space , the company 's future commitments and planned investments can be readily curtailed if operating cash flows contract . historically , the company pays an annual dividend in the fourth quarter of each year , and the company paid a $ .57 per common share dividend or $ 2,404,000 to shareholders of record as of december 1 , 2011. the most significant item affecting future increases or decreases in liquidity is earnings from operations and such earnings are dependent on the success of future operations ( see item 1a . risk factors in this annual report of form 10-k ) . off-balance sheet arrangements the company maintains certain operating lease arrangements primarily with independent truck owner-operators in order to provide truck-tractor equipment for the company 's fleet . any commitments with independent truck owner-operators are on a month-to-month basis . in addition , the company has entered into certain lease and terminal access contracts in order to provide tank storage and dock access for its crude oil marketing business . such contracts require certain minimum monthly payments for the term of the contracts . all operating lease commitments qualify for off-balance sheet treatment . rental expense for the years ended december 31 , 2011 , 2010 , and 2009 was $ 7,621,000 , $ 5,870,000 and $ 6,898,000 , respectively . as of december 31 , 2011 , rental commitments under long-term non-cancelable operating leases and terminal arrangements for the next five years are payable as follows : 2012 - $ 3,059,000 ; 2013 - $ 2,148,000 ; 2014 - $ 1,468,000 ; 2015 - $ 1,201,000 ; 2016 – $ 1,181,000 and $ 1,602,000 thereafter . contractual cash obligations the company has no capital lease obligations . the company has entered into certain operating lease arrangements and terminal access agreements for tankage , truck-tractors , trailers and office space . a summary of the payment periods for contractual cash obligations is as follows ( in thousands ) : replace_table_token_17_th 23 in addition to its lease financing obligations , the company is also committed to purchase certain quantities of crude oil and natural gas in connection with its marketing activities . such commodity purchase obligations are the basis for commodity sales , which generate the cash flow necessary to meet such purchase obligations . approximate commodity purchase obligations as of december 31 , 2011 are as follows ( in thousands ) : replace_table_token_18_th insurance from time to time , the marketplace for all forms of insurance enters into periods of severe cost increases . in the past , during such cyclical periods , the company has seen costs escalate to the point where desired levels of insurance were either unavailable or unaffordable . the company 's primary insurance needs are worker 's compensation , automobile and umbrella coverage for its trucking fleet and medical insurance for employees . during each of 2011 , 2010 and 2009 , insurance costs were consistent with activity and totaled $ 11.2 million , $ 10 million and $ 10.5 million , respectively . insurance cost may experience renewed rate increases during 2012 subject to market conditions . since the company is generally unable to pass on such cost increases , any increase will need to be absorbed by existing operations . competition in all phases of its operations , the company encounters strong competition from a number of entities . many of these competitors possess financial resources substantially in excess of those of the company . the company faces competition principally in establishing trade credit , pricing of available materials and quality of service . in its oil and gas operation , the company also competes for the acquisition of mineral properties . the company 's marketing division competes with major oil companies and other large industrial concerns that own or control significant refining and marketing facilities . these major oil companies may offer their products to others on more favorable terms than those available to the company . from time to time in recent years , there have been supply imbalances for crude oil and natural gas in the marketplace . this in turn has led to significant fluctuations in prices for crude oil and natural gas . as a result , there is a high degree of uncertainty regarding both the future market price for crude oil and natural gas and the available margin spread between wholesale acquisition costs and sales realization . critical accounting policies and use of estimates fair value accounting the company enters into certain forward commodity contracts that are required to be recorded at fair value and such contracts are recorded as either an asset or liability measured at its fair value . changes in fair value are recognized immediately in earnings unless the derivatives qualify for , and the company elects , cash flow hedge accounting . the company had no contracts designated for hedge accounting during 2011 , 2010 and 2009. the company utilizes a market approach to valuing its commodity contracts . on a contract by contract , forward month by forward month basis , the company obtains observable market data for valuing its contracts . such contracts typically have durations that are less than 18 months .
| as of december 31 , 2011 , the company held 182,728 barrels of crude oil inventory at an average price of $ 98.36 per barrel . diesel fuel expense which tends to fluctuate in tandem with crude oil prices also has a significant impact on operating earnings . a relatively low level of diesel fuel costs during 2009 , served to improve comparative operating earnings for such year relative to 2010. diesel fuel cost were elevated in 2011 due to increased prices and an approximate 50 unit expansion of the truck fleet engaged to handle added volumes . the impact on crude oil operating earnings from inventory liquidation gains and diesel fuel cost is summarized as follows ( in thousands ) : replace_table_token_11_th natural gas sales are reported net of underlying natural gas purchase costs and thus reflect gross margin . as shown above , gross margins were reduced during 2011 as average field level purchase volumes were off 19 percent for the period . current volumes declined because the company 's natural gas suppliers do not operate in the shale areas and therefore curtailed drilling activity due to declining natural gas prices . the company 's primary source of natural gas supply is the non-shale areas of texas , louisiana and the gulf of mexico . in addition to volume declines , development of the nation 's natural gas infrastructure including more diverse areas of production and expanded pipeline and storage capacity have served to reduce purchase opportunities and per unit margins . operating earnings for the refined products segment continued to underperform following the downturn in the domestic economy which began during the third quarter of 2008. due to customer slow payment patterns , refined product operating earnings were additionally impacted in 2011 and 2009 when the bad debt provision was increased by approximately $ 947,000 and $ 560,000 , respectively . as a result of its recent market performance , in february 2012 the company sold substantially all contracts , equipment and inventories associated with its refined products segment
| 12,001 |
these preclinical studies are anticipated to be complete by year-end 2012 and are funded in part by a grant awarded by the michael j. fox foundation . we have generated significant losses to date and expect to continue to generate losses as we continue the clinical development of our drug candidates , including migalastat hcl , and conduct preclinical studies on other programs . these activities are budgeted to expand over time and will require further resources if we are to be successful . from our inception in february 2002 through december 31 , 2011 , we have accumulated a deficit of $ 270.1 million . as we have not yet generated commercial sales revenue from any of our product candidates , our losses will continue and are likely to be substantial in the near term . collaboration with gsk on october 28 , 2010 , we entered into the license and collaboration agreement with glaxo group limited , an affiliate of gsk , to develop and commercialize migalastat hcl . under the terms of the license and collaboration agreement , gsk received an exclusive worldwide license to develop , manufacture and commercialize migalastat hcl . in consideration of the license grant , we received an upfront , license payment of $ 30 million from gsk and we are eligible to receive further payments of up to $ 173.5 million upon the successful achievement of development , regulatory and commercialization milestones , as well as tiered double-digit royalties on global sales of migalastat hcl . potential payments include up to ( i ) $ 13.5 million related to the attainment of certain clinical development objectives and the acceptance of regulatory filings in select worldwide markets , ( ii ) $ 80 million related to market approvals for migalastat hcl in selected territories throughout the world , and ( iii ) $ 80 million associated with the achievement of certain sales thresholds . we and gsk are jointly funding development costs in accordance with an agreed upon development plan pursuant to which we funded 50 % of the development costs in 2011 and we will fund only 25 % of the development costs in 2012 and beyond , subject to annual and aggregate caps . additionally , gsk purchased approximately 6.9 million shares of our common stock at a price of $ 4.56 per share . the total value of this equity investment to us was approximately $ 31 million and represents a 19.8 % ownership position in us as of december 31 , 2011. under the terms of the collaboration agreement , while we will collaborate with gsk , gsk will have decision-making authority over clinical , regulatory and commercial matters . additionally , gsk will have primary responsibility for interactions with regulatory agencies and prosecuting applications for marketing and reimbursement approvals worldwide . other potential alliances and collaborations we continually evaluate other potential collaborations and business development opportunities that would bolster our ability to develop therapies for rare and orphan diseases including licensing agreements and acquisitions of businesses and assets . we believe such opportunities may be important to the advancement of our current product candidate pipeline , the expansion of the development of our current technology , gaining access to new technologies and in our transformation from a development stage company to a commercial biotechnology company . financial operations overview revenue in november 2010 , gsk paid us an initial , non-refundable license fee of $ 30 million and a premium of $ 3.2 million related to gsk 's purchase of an equity investment in us . the total upfront consideration received of $ 33.2 million will be recognized as collaboration revenue on a straight-line basis over the development period of the collaboration agreement which is approximately 5.2 years . for the year ended december 31 , 2011 , we recognized approximately $ 6.6 million of the total upfront consideration as collaboration revenue and approximately $ 14.8 million of research revenue for reimbursed research and development costs . research and development expenses we expect to continue to incur substantial research and development expenses as we continue to develop our product candidates and explore new uses for our pharmacological chaperone technology . however , we will share future research and development costs related to migalastat hcl with gsk in accordance with the license and collaboration agreement . research and development expense consists of : internal costs associated with our research and clinical development activities ; 46 payments we make to third party contract research organizations , contract manufacturers , investigative sites , and consultants ; technology license costs ; manufacturing development costs ; personnel related expenses , including salaries , benefits , travel , and related costs for the personnel involved in drug discovery and development ; activities relating to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials ; and facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . we have multiple research and development projects ongoing at any one time . we utilize our internal resources , employees and infrastructure across multiple projects . we record and maintain information regarding external , out-of-pocket research and development expenses on a project specific basis . we expense research and development costs as incurred , including payments made to date under our license agreements . we believe that significant investment in product development is a competitive necessity and plan to continue these investments in order to realize the potential of our product candidates . from our inception in february 2002 through december 31 , 2011 , we have incurred research and development expense in the aggregate of $ 265.6 million . the following table summarizes our principal product development projects through december 31 , 2011 , including the related stages of development for each project , and the out-of-pocket , third party expenses incurred with respect to each project ( in thousands ) . replace_table_token_7_th ( 1 ) other project costs are leveraged across multiple projects . story_separator_special_tag ( 2 ) other costs include facility , supply , overhead , and licensing costs that support multiple projects . * we do not plan to advance our afegostat tartrate monotherapy program into phase 3 development at this time . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates . as a result , we are not able to reasonably estimate the period , if any , in which material net cash inflows may commence from our product candidates , including migalastat hcl or any of our other preclinical product candidates . this uncertainty is due to the numerous risks and uncertainties associated with the conduct , duration and cost of clinical trials , which vary significantly over the life of a project as a result of evolving events during clinical development , including : the number of clinical sites included in the trials ; 47 the length of time required to enroll suitable patients ; the number of patients that ultimately participate in the trials ; the results of our clinical trials ; and any mandate by the fda or other regulatory authority to conduct clinical trials beyond those currently anticipated . our expenditures are subject to additional uncertainties , including the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending and enforcing any patent claims or other intellectual property rights . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay or modify clinical trials of some product candidates or focus on others . in addition , gsk has considerable influence over and decision-making authority related to our migalastat hcl program . a change in the outcome of any of the foregoing variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development , regulatory approval and commercialization of that product candidate . for example , if the fda or other regulatory authorities were to require us to conduct clinical trials beyond those which we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . drug development may take several years and millions of dollars in development costs . general and administrative expense general and administrative expense consists primarily of salaries and other related costs , including stock-based compensation expense , for persons serving in our executive , finance , accounting , legal , information technology and human resource functions . other general and administrative expense includes facility-related costs not otherwise included in research and development expense , promotional expenses , costs associated with industry and trade shows , and professional fees for legal services , including patent-related expense and accounting services . from our inception in february 2002 through december 31 , 2011 , we spent $ 113.2 million on general and administrative expense . interest income and interest expense interest income consists of interest earned on our cash and cash equivalents and marketable securities . interest expense consists of interest incurred on our capital lease facility and our equipment financing agreements . critical accounting policies and significant judgments and estimates 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 u.s. generally accepted accounting principles . 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 our 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 . we believe that the following discussion represents our critical accounting policies . revenue recognition we recognize revenue when amounts are realized or realizable and earned . revenue is considered realizable and earned when the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collection of the amounts due are reasonably assured . in multiple element arrangements , revenue is allocated to each separate unit of accounting and each deliverable in an arrangement is evaluated to determine whether it represents separate units of accounting . a deliverable constitutes a separate unit of accounting when it has standalone value and there is no general right of return for the delivered elements . in instances when the aforementioned criteria are not met , the deliverable is combined with the undelivered elements and the allocation of the arrangement consideration and revenue recognition is determined for the combined unit as a single unit of accounting . allocation of the consideration is determined at arrangement inception on the basis of each unit 's relative selling price . in instances where there is determined to be a single unit of accounting , the total consideration is applied as revenue for the single unit of accounting and is recognized over the period of inception through the date where the last deliverable within the single unit of accounting is expected to be delivered .
| general and administrative expense was $ 19.9 million in 2011 , an increase of $ 4.2 million or 27 % from $ 15.7 million in 2010. the variance was primarily due to additional stock option compensation expense recognized of $ 2.7 million as a result of the change in the terms of the chief executive officer 's stock options resulting from his resignation and subsequent reappointment to the chief executive officer position as well as a severance related compensation charge of $ 0.6 million related to the resignation of our former president and the vesting of his restricted stock award . in addition , there were increases in recruitment fees , professional fees , and consulting fees of $ 1.0 million . depreciation and amortization . depreciation and amortization expense was $ 1.6 million in 2011 , a decrease of $ 0.5 million or 24 % from $ 2.1 million in 2010. the decrease in depreciation was due to a smaller depreciable asset base at december 31 , 2011. interest income and interest expense . interest income was $ 0.2 million in both 2011 and 2010. interest expense was $ 0.1 million in 2011 , a decrease of $ 0.2 million from $ 0.3 million in 2010. change in fair value of warrant liability . in connection with the sale of our common stock and warrants from the registered direct offering in march 2010 , we recorded the warrants as a liability at their fair value using a black-scholes model and will remeasure the fair value at each reporting date until exercised or expired . changes in the fair value of the warrants are reported in the statements of operations as non-operating income or expense . for the year ended december 31 , 2011 , we reported a gain of $ 2.8 million related to the decrease in fair value of these warrants from the year ended december 31 , 2010. the market price for our common stock has been and may continue to be volatile . consequently , future fluctuations in the price of our common stock may cause significant increases or decreases in the fair value of these warrants . other income/expense . other income decreased due to funds received from the u.s. treasury department in 2010 of $ 1.4 million compared to $ 0.1 million in 2011 for the qualified therapeutic discovery projects tax credit and grant program . tax benefit . during 2010 and 2011 , we sold a portion of our new jersey state
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emergency quarantine measures and travel restrictions cause business disruptions in many sectors across china , which we expect to seriously slow down our business operation for at least the first quarter of 2020. our sales have been and will continue to be adversely affected as the results of these measures . the company rolled out active precaution measures and has gradually resumed work since mid-february to reduce the impact on the company 's production and operation . the extent to which covid-19 negatively impacts our business is highly uncertain and can not be accurately predicted . we believe that the coronavirus outbreak and the measures taken to control it may have a significant negative impact on economic activities in china . our sales are conducted in china . the magnitude of this negative effect on the continuity of our business operation in china remains uncertain . these uncertainties impede our ability to conduct our daily operations and could materially and adversely affect our business , financial condition and results of operations . 30 ● 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 government agencies . our inability to obtain , or loss or denial of extensions to , any of our applicable licenses or permits could hamper our ability to generate revenue from our operations . ● resource & environmental factors : our fishing expeditions are based in the eez , the international waters and the arafura sea of indonesia . any earthquake , tsunami , adverse weather or oceanic conditions , or other disasters 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 impact our harvest volume . ● fluctuation on fuel prices : our operations may be adversely affected by fluctuations in fuel prices . changes in fuel prices may 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 the business in the eez , the international waters , and the arafura sea of indonesian . competition within our designated fishing areas is not currently significant as the region is not overfished or regulated by government limits on the number of vessels that are allowed to fish in the territories ; however , there is no guarantee that competition will not become more intense . competition in the consumer market in china , however , is keen . we compete with other fishing companies that offer similar and varied products . there is significant demand for fish in the chinese market . we believe our catch appeals to a wide segment of consumers because of the low price points of our products . ● fishing licenses : each of our fishing vessels requires approval from the moa to carry out ocean fishing projects in international waters and foreign territories . different countries may have different policies for foreign cooperation in fisheries . some countries require fishing licenses issued by the accessed country ; some others may require establishment of a joint venture or sole proprietorship to obtain local licenses . during the indonesian moratorium , we were informed that the fishing licenses of four vessels operated through pt . avona , one of the local companies through which we conduct business in indonesia , and the fishery business license of pt . dwikarya , the other local company through which we conduct business in indonesia , were revoked . in september 2017 , we were informed that the fishing licenses of the 13 vessels operating in the indo-pacific waters of timor-leste were suspended ; and these vessels have returned to the prc for regular maintenance . in early december 2014 , the indonesian government introduced a six-month moratorium on issuing new fishing licenses and renewals so that the country 's mmaf could combat illegal fishing and rectify ocean fishing order . in february 2015 , we ceased all fishing operations in indonesia . although , in november 2015 , the indonesian government announced that the moratorium had concluded , the mmaf has neither implemented new fishing policies nor resumed the license renewal process . we have been paying close attention to any new trends in fishing policy and have been actively exploring other business operations and redeploying vessels to other locations . in october 2016 , we deployed 13 vessels , which were granted fishing licenses by the ministry of agriculture and fisheries of the democratic republic of timor-leste ( “ maf ” ) , to operate in the indo-pacific waters of the country . in september 2017 , we were informed that the fishing licenses of these 13 vessels were suspended and the vessels were docked in the port by the maf . the 13 vessels have returned to the prc . 31 story_separator_special_tag vertical-align : top '' > ● other miscellaneous selling expense for the year ended december 31 , 2019 increased by $ 117,699 , or 97.7 % , as compared to the year ended december 31 , 2018. the increase in fees was mainly attributable to satellite communication fees and pilotage fees occurring during the period . general and administrative expense general and administrative expense totalled $ 15,846,569 for the year ended december 31 , 2019 , as compared to $ 20,019,808 for the year ended december 31 , 2018 , a decrease of $ 4,173,239 or 20.8 % . story_separator_special_tag general and administrative expense for the years ended december 31 , 2019 and 2018 consisted of the following : replace_table_token_8_th ● impairment loss represents the impairment loss on the vessels whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recovered . in 2019 , we dismantled 1 transport vessel and deregistered 16 fishing vessels and applied to the moa for rebuilding 17 new vessels . in 2018 , we deregistered 24 fishing vessels and applied to the moa for building 24 new fishing vessels . as a result of the rebuilding projects , we assessed the recoverability of the 17 fishing vessels and 24 fishing vessels for the year ended 2019 and 2018 based on the undiscounted future cash flow that the fishing vessels are expected to generate as less than the carrying amount , and recognized an impairment loss . the impairment loss on vessels was $ 7,951,635 and $ 9,715,058 for the year ended 2019 and 2018 , respectively . ● we recorded the depreciation in relation to vessels that are not operating as operation expense rather than cost of revenue . for the year ended december 31 , 2019 , depreciation expense decreased by $ 2,065,496 , or 35.7 % , as compared to the year ended december 31 , 2018 . ● for the year ended december 31 , 2019 , compensation and related benefits decreased by $ 197,610 , or 12.6 % as compared to the year ended december 31 , 2018. the change was mainly attributable to booking the salaries of the crews that are not in operation in east timor into g & a expenses in 2018 , and we have no such costs in 2019 as these non-operation vessels shipped back to china . 34 ● professional fees , which primarily consist of legal fees , accounting fees , investor relations services charge , valuation service fees , consulting fees , and other fees associated with being a public company , for the year ended december 31 , 2019 , decreased by $ 314,707 , or 20.3 % , as compared to the year ended december 31 , 2018. the decrease in the year ended december 31 , 2019 was primarily attributable to a decrease in legal fees of approximately $ 259,000 , a decrease in consulting service charge of approximately $ 67,000 , a decrease in transfer agent fees of approximately $ 18,000 , and a decrease in investor relations services charges of approximately $ 17,000 , offset by an increase in accounting fees of approximately $ 46,000 . ● rent and related administrative service charge increased slightly by $ 29,902 , or 6.1 % for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 . ● for the year ended december 31 , 2019 , travel and entertainment expense increased by $ 76,470 , or74.0 % as compared to the year ended december 31 , 2018. the increase was mainly attributable to an increase in entertainment expense of approximately $ 83,000 and offset by a decrease in travel expense of approximately $ 6,000 . ● for the year ended december 31 , 2019 , we recorded bad debt of $ 30,366 as compared to bad debt recovery of $ 66,532 for the year ended december 31 , 2018. based on our periodic review of accounts receivable balances , we adjusted the allowance for doubtful accounts after considering management 's evaluation of the collectability of individual receivable balances , including the analysis of subsequent collections , and customers ' collection history , and recent economic events . ● other general and administrative expense , primarily consists of communication fees , office supplies , miscellaneous taxes , bank service charge , depreciation , and nasdaq listing fee . for the year december 31 , 2019 , other general and administrative expense decreased slightly by $ 40,273 , or 4.6 % , as compared to the year ended december 31 , 2018. subsidy the subsidy mainly consists of an incentive granted by the chinese government to encourage the development of the ocean fishing industry in order to satisfy the demand of natural seafood in china and other miscellaneous subsidy from the chinese government . for the year ended december 31 , 2019 , grant income decreased by $ 2,144,432 , or 25.0 % as compared to the year ended december 31 , 2018. the change was mainly due to the government 's subsidy disbursement schedule . gain or loss on fixed assets disposal gain or loss on fixed assets disposal represents the gain or loss on the disposal of fixed assets we recorded as it incurred . the gain on fixed assets disposal was $ 59,432 for the year ended 2019 in comparison to the loss on fixed assets disposal was $ 2,105,960 for the year ended 2018 , respectively . this was mainly due to 27 fishing vessels being dismantled for modification and rebuilding project in 2018. income from operations as a result of the factors described above , for the year ended december 31 , 2019 , income from operations amounted to $ 13,168,148 , as compared to income from operations of $ 15,853,018 for the year ended december 31 , 2018 , a change of $ 2,684,870 , or 16.9 % . other income/expense other income/expense mainly include interest income from bank deposits , interest expense generated from short-term and long-term bank borrowings , foreign currency transaction gain , gain from cost method investment , and loss on equity method investment .
| average unit sale price decreased by 27.9 % in the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 , the decrease was mainly attributable to the fish species with highest sales volume being sold at lower selling prices , which pulled down the average unit sale price . for the year ended december 31 , 2019 , our increase in revenue was primarily attributable to more vessels in operation , which caused the sales volume to increase , and due to the different sales mix , average unit sale price decreased , as compared to the year ended december 31 , 2018 . 32 cost of revenue our cost of revenue primarily consists of fuel cost , labor cost , depreciation , fishing vessels maintenance fee , and other overhead costs . fuel cost , labor cost and depreciation generally accounted for the majority of our cost of revenue . the following table sets forth our cost of revenue information , both in amounts and as a percentage of revenue for the years ended december 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_5_th cost of revenue for the year ended december 31 , 2019 was $ 64,396,571 , representing an increase of $ 31,156,989 or 93.7 % as compared to $ 33,239,582 for the year ended december 31 , 2018. the increase was primarily attributable to the increase in our production activities . gross profit our gross profit is affected primarily by changes in production costs . fuel cost , labor cost and depreciation together account for about 88.1 % and 88.1 % of cost of revenue for the years ended december 31 , 2019 and 2018 , respectively . the fluctuation of fuel price and change in depreciation may significantly affect our cost level and gross profit . the following table sets forth information as to our revenue , cost of revenue , gross profit and gross margin for the years ended december 31 , 2019 and 2018. replace_table_token_6_th gross profit for the year ended december 31 , 2019 was $ 25,225,585 , representing a change of $ 5,790,921 or 18.7 % as compared to gross profit of
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we had a net loss of $ 37.5 million for the year ended december 31 , 2015 , compared to $ 21.7 million for the year ended december 31 , 2014 , and $ 9.9 million for the year ended december 31 , 2013. we expect to incur significant and increasing operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical testing and clinical trials and seek regulatory approval and eventual commercialization . in addition to these increasing research and development expenses , we expect general and administrative costs to increase as we add personnel and operate as a public company . we will need to generate significant revenues to achieve profitability , and we may never do so . on april 17 , 2015 , the company closed its initial public offering of 4,000,000 shares of its common stock at a price of $ 19.00 per share for a total offering amount of $ 76,000,000 , before underwriting discounts , commissions and other company expenses . net proceeds to the company totaled approximately $ 70.6 million after deducting underwriting discounts and commissions of $ 3.8 million and other offering expenses of approximately $ 1.6 million . as of december 31 , 2015 , we had 78 employees . recent events : clinical trial and construction of the new manufacturing facility highlights as of march 2016 , xbiotech has achieved some significant milestones with its xilonix and 514g3 programs . enrollment on a phase iii symptomatic colorectal cancer study has been completed and 333 subjects were enrolled . because the study endpoints were satisfactorily met , xbiotech decided to proceed with the submission of a marketing authorization application to the european medicines agency , and possibly other foreign regulatory authorities . additionally , the final patient for phase i on a staphylococcus aureus bacteremia phase i and ii study with a brand new antibody therapy , 514g3 , has been enrolled . phase ii will commence once it has been found the final enrolled patient is free of dose-related toxicities . there was significant progress in 2015 with regard to construction of the new manufacturing facility located in austin , texas . during the year the building walls , structural steel , and roofing were installed . build out of the interior was started in administrative and lab spaces , and the building was prepared for installation of clean rooms . final engineering designs were completed for the manufacturing spaces with clean room construction commencing in q4 2015. all activities are on schedule per the current project plan with anticipated building completion in may 2016 and validation of product in july 2016. revenues to date , we have not generated any revenue . our ability to generate revenue and become profitable depends on our ability to successfully commercialize our lead product candidate , xilonix , or any other product candidate we may advance in the future . 46 research and development expenses research and development expense consists of expenses incurred in connection with identifying and developing our drug candidates . these expenses consist primarily of salaries and related expenses , stock-based compensation , the purchase of equipment , laboratory and manufacturing supplies , facility costs , costs for preclinical and clinical research , development of quality control systems , quality assurance programs and manufacturing processes . we charge all research and development expenses to operations as incurred . clinical development timelines , likelihood of success and total costs vary widely . we do not currently track our internal research and development costs or our personnel and related costs on an individual drug candidate basis . we use our research and development resources , including employees and our drug discovery technology , across multiple drug development programs . as a result , we can not state precisely the costs incurred for each of our research and development programs or our clinical and preclinical drug candidates . from inception through december 31 , 2015 , we have recorded total research and development expenses , including share-based compensation , of $ 101.1 million . our total research and development expenses for the year ended december 31 , 2015 was $ 31.3 million , compared to $ 14.3 million the year ended december 31 , 2014 , and $ 7.9 million for the year ended december 31 , 2013. share-based compensation accounted for $ 2.2 million for the year ended december 31 , 2015 , compared to $ 1.3 million for the year ended december 31 , 2014 and $ 0.6 million for the year ended december 31 , 2013. research and development expenses , as a percentage of total operating expenses for the year ended december 31 , 2015 was 83 % , compared to 66 % for the year ended december 31 , 2014 , and 80 % for the year ended december 31 , 2013. the percentages , excluding stock-based compensation , for the year ended december 31 , 2015 was 88 % , compared to 88 % for the year ended december 31 , 2014 and 80 % for the year ended december 31 , 2013. as planned , our clinical costs has increased as we advance xilonix as an anti-cancer therapy for treating last-line metastatic colorectal cancer , under a regulatory pathway through phase iii clinical trials in europe and the us and when we expand the studies to south america , israel , australia and canada , all territories expected to be active during q2 2016. our clinical study underway in europe , that is regulated by the european medicines agency ( ema ) , completed enrollment in november , 2015. the submission for marketing approval to the ema was completed in march 2016 which could position the company to generaterelated revenues in 2017 if it receives ema marketing approval and the company successfully completes its commercialization plan for xilonix . story_separator_special_tag the clinical research and development costs will also increase as we have launched a phase i and ii clinical study of novel true human therapeutic antibody for treating serious infections due to staphylococcus aureus in the u.s. we expect to complete expansion of this study into europe , south korea and taiwan for participation in the phase ii portion by the end of q2 2016. the company 's plans to pursue an advanced regulatory path for pyoderma gangrenosum is on hold indefinitely while we await the outcome of other programs in later stages of development . in the meantime , based on the results of our preclinical studies , we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to their preclinical and clinical success and commercial potential . for r & d candidates in early stages of development , it is premature to estimate when material net cash inflows from these projects might occur . general and administrative expenses general and administrative expense consists primarily of salaries and related expenses for personnel in administrative , finance , business development and human resource functions , as well as the legal costs of pursuing patent protection of our intellectual property and patent filing and maintenance expenses , share–based compensation , and professional fees for legal services . our total general and administration expenses for the year ended december 31 , 2015 was $ 6.2 million , compared to $ 7.4 million for the year ended december 31 , 2014 and $ 2.0 million for the year ended december 31 , 2013. share-based compensation accounted for $ 2.2 million for the year ended december 31 , 2015 , compared to $ 5.7 million for the year ended december 31 , 2014 and $ 0.2 million for the year ended december 31 , 2013. critical accounting policies our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states , or us gaap . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and expenses incurred during the reported periods . we base estimates on our historical experience , known trends and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 47 while our significant accounting policies are more fully described in the notes to our financial statements appearing in this annual report on form 10-k , we believe that the following accounting policies are the most critical to understanding and evaluating our reported financial results . stock-based compensation stock-based awards are measured at fair value at each grant date . we recognize stock-based compensation expenses ratably over the requisite service period of the option award . determination of the fair value of stock-based compensation grants the determination of the fair value of stock-based compensation arrangements is affected by a number of variables , including estimates of the expected stock price volatility , risk-free interest rate and the expected life of the award . we value stock options using the black-scholes option-pricing model , which was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions . black-scholes and other option valuation models require the input of highly subjective assumptions , including the expected stock price volatility . if we made different assumptions , our stock-based compensation expenses , net loss , and net loss per common share could be significantly different . prior to our initial public offering in april 2015 , we issued common stock for cash consideration to new investors . we believe that such transactions represent the best evidence of fair value of our common stock . therefore , we used the sales price of our common stock during these periods as the fair value of our common stock . the following summarizes the assumptions used for estimating the fair value of stock options granted during the periods indicated : replace_table_token_5_th we have assumed no dividend yield because we do not expect to pay dividends in the foreseeable future , which is consistent with our past practice . the risk-free interest rate assumption is based on observed interest rates for u.s. treasury securities with maturities consistent with the expected life of our stock options . the expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method when the stock option includes “ plain vanilla ” terms . under the simplified method , the expected life of an option is presumed to be the midpoint between the vesting date and the end of the agreement term . we used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options . for stock options that did not include “ plain vanilla ” terms we used the contractual life of the stock option as the expected life . such stock options consisted primarily of options issued to our board of directors that were immediately vested at issuance . expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options . 48 story_separator_special_tag no . 333-201813 ) was declared effective by the sec for our initial public offering pursuant to which we sold an aggregate of 4,000,000 shares of our common stock at a price of $ 19.00 per share . the offering commenced as of april 14 , 2015 and
| research and development expenses increased by $ 6.4 million to $ 14.3 million for the year ended december 31 , 2014 , compared to $ 7.9 million for the year ended december 31 , 2013. this increase was due to a $ 3.1 million increase in clinical trial activities in europe and the united states , a $ 1.6 million increase in research and development use of chemicals , reagents as well as laboratory materials ; a $ 0.8 million increase in salaries and up $ 0.7 million increase in stock-based compensation . 49 general and administrative general and administrative costs are summarized as follows ( in thousands ) : replace_table_token_7_th general and administrative expenses decreased by 17 % to $ 6.2 million for the year ended december 31 , 2015 compared to $ 7.4 million for the year ended december 31 , 2014. the decrease was primarily related to the stock–based compensation expenses of $ 5.7 million in 2014 resulting mainly from immediately-vested granted stock options granted to board members and employees in the second half of 2014. in addition , professional fees increased due to additional legal fees after the company became a public entity . the salary and related costs increased primarily due to new employees in the general and administrative department patent filing expenses also increased due to the increase of worldwide patent certification activities . general and administrative expense increased by $ 5.5 million to $ 7.5 million for the year ended december 31 , 2014 , compared to $ 2.0 million for the year ended december 31 , 2013. the increase was primarily related to increases in expenses related to stock – based compensation of $ 5.7 million . other income the following table summarizes other income ( in thousands ) : replace_table_token_8_th other income consists primarily of a $ 21 thousand gain from the sale of fully-depreciated scientific equipment for the year ended december 31 , 2015. foreign exchange expense changed in the year ended december 31 , 2015 compared to the year ended december 31 , 2014. also , the foreign exchange gain in the year ended december 31 , 2014 due to the euro and canadian dollar exchange
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we believe the technology will generate new opportunities that require less up-front architectural changes by system designers and provide a scalable performance roadmap of options using our accelerator engine ics . despite our limited new ic product development efforts , we believe our current hardware and software/firmware product portfolio positions us for future growth and profitability . we continue to seek third-party funding for new product development efforts . subsequent to december 31 , 2020 , we received gross proceeds of approximately $ 9.3 million from financing activities . in february 2021 , we completed a registered direct offering and sold 1,487,601 shares of common stock at a price of $ 5.00 per share to institutional investors . net proceeds of the offering , after placement agent and other fees and expenses payable by us , were approximately $ 6,800,000. during january and february 2021 , we received a total of $ 2,477,657 of proceeds from the exercise of 1,032,357 warrants to purchase shares of common stock at a price of $ 2.40 per share . we used approximately $ 3 million of these proceeds to pay in full the outstanding balance of our senior secured convertible notes . we incurred net losses of approximately $ 3.8 million and $ 2.6 million for the years ended december 31 , 2020 and 2019 , respectively , and had an accumulated deficit of approximately $ 242.7 million as of december 31 , 2020. these and prior year losses have resulted in significant negative cash flows for almost a decade and have necessitated that we raise substantial amounts of additional capital during this period . to date , we have primarily financed our operations through multiple offerings of common stock to investors and affiliates , as well as asset sale transactions and one offering of convertible notes . in february 2021 , we completed a registered direct offering of our common stock for net proceeds of approximately $ 6.8 million . we may continue to incur operating losses and will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time . 28 covid-19 the global outbreak of the coronavirus disease 2019 ( covid-19 ) was declared a pandemic by the world health organization and a national emergency by the u.s. government in march 2020. this has negatively affected the u.s. and global economy , disrupted global supply chains , significantly restricted travel and transportation , resulted in mandated closures and orders to “ shelter-in-place ” and created significant disruption of the financial markets . the full extent of the covid-19 impact on our operational and financial performance will depend on future developments , including the duration and spread of the pandemic and related actions taken by the u.s. and foreign government agencies to prevent disease spread , all of which are uncertain , out of our control , and can not be predicted . in march 2020 , santa clara county in california , where we are based , issued a ” shelter-in-place ” order ( the order ) that was initially effective through april 7 , 2020 and has now been extended . we have been complying with the order and have minimized business activities at our san jose headquarters facility ( our only facility ) . we have implemented a teleworking policy for our employees and contractors to reduce on-site activity at our facility . the order impacted our ability to produce and ship our ic products in the second half of march , as certain of our vendors in the san francisco bay area closed in accordance with the order . in april , we resumed shipments of our ic products , as we and our vendors are supporting shipment of components for critical infrastructure , as defined by the federal government ; however , our employees are generally restricted from visiting our customer and vendor sites in compliance with the order , and , in some cases , we have limited ability to conduct certain product testing and development activities . we remain diligent in continuing to identify and manage risks to our business given the changing uncertainties related to covid-19 . the ultimate impact of the covid-19 pandemic on our business and results of operations is uncertain and difficult to predict , and we are closely monitoring impacts , especially to customer programs and our supply chain . we expect that the impacts of the covid-19 pandemic will have a negative impact on our revenues for 2021 , although we are not in a position to quantify such impacts . in addition , we have and continue to experience longer lead times for certain components used to manufacture our ic products . while we believe that our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters , we recognize that unpredictable events could create difficulties in the months ahead . we may not be able to address these difficulties in a timely manner , which could negatively impact our business , results of operations , financial condition and cash flows . the continued spread of covid-19 has also led to disruption and volatility in the global capital markets . during 2020 , we were able to raise additional capital and received a loan under the paycheck protection program ( see discussion below under liquidity and in notes 6 and 10 to the consolidated financial statements included in item 15 of this report ) , however , our ability to raise additional capital to support operations in the future may be impacted , and we may be unable to access the capital markets and additional capital may only be available tous on terms that could be significantly detrimental to our existing stockholders and to our business . story_separator_special_tag critical accounting policies and use of estimates our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america . note 1 to the consolidated financial statements included in item 15 of this report describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . we have identified the accounting policies below as some of the more critical to our business and the understanding of our results of operations . these policies may involve estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . although we believe our judgments and estimates are appropriate , actual future results may differ from our estimates , and if different assumptions or conditions were to prevail , the results could be materially different from our reported results . 29 revenue recognition we recognize revenue in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification topic 606 , revenue from contracts with customers and all its related amendments ( “ asc 606 ” ) . this standard update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers . we generate revenue primarily from sales of ic products and licensing of our intellectual property . revenues are recognized when control is transferred to customers in amounts that reflect the consideration we expect to be entitled to receive in exchange for those goods . revenue recognition is evaluated through the following five steps : ( i ) identification of the contract , or contracts , with a customer ; ( ii ) identification of the performance obligations in the contract ; ( iii ) determination of the transaction price ; ( iv ) allocation of the transaction price to the performance obligations in the contract ; and ( v ) recognition of revenue when or as a performance obligation is satisfied . ic products revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied . the majority of our contracts have a single performance obligation to transfer products . accordingly , we recognize revenue when title and risk of loss have been transferred to the customer , generally at the time of shipment of products . revenue is measured as the amount of consideration we expect to receive in exchange for transferring products and is generally based upon a negotiated , formula , list or fixed price . we sell our products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less . we may record an estimated allowance , at the time of shipment , for future returns and other charges against revenue consistent with the terms of sale . royalty and other our licensing contracts typically provide for royalties based on the licensee 's use of our memory technology in its currently shipping commercial products . we estimate our royalty revenue in the calendar quarter in which the licensee uses the licensed technology . payments are received in the subsequent quarter . fair value measurements of financial instruments we measure the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels , as follows : level 1—inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date . level 2—pricing is provided by third party sources of market information obtained from investment advisors rather than models . we do not adjust for or apply any additional assumptions or estimates to the pricing information we receive from advisors . our level 2 securities include cash equivalents and available-for-sale securities , which consisted primarily of corporate debt , and government agency and municipal debt securities from issuers with high quality credit ratings . our investment advisors obtain pricing data from independent sources , such as standard & poor 's , bloomberg and interactive data corporation , and rely on comparable pricing of other securities because the level 2 securities we hold are not actively traded and have fewer observable transactions . we consider this the most reliable information available for the valuation of the securities . 30 level 3—unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value . these values are generally determined using pricing models for which the assumptions utilize management 's estimates of market participant assumptions . the determination of fair value for level 3 investments and other financial instruments involves the most management judgment and subjectivity . valuation of long-lived assets we evaluate our long-lived assets for impairment at least annually , or more frequently when a triggering event is deemed to have occurred . this assessment is subjective in nature and requires significant management judgment to forecast future operating results , projected cash flows and current period market capitalization levels . if our estimates and assumptions change in the future , it could result in a material write-down of long-lived assets . we amortize our finite-lived intangible assets , such as developed technology and patent license , on a straight-line basis over their estimated useful lives of three to seven years . we recognize an impairment charge as the difference between the net book value of such assets and the fair value of the assets on the measurement date . deferred tax valuation allowance when we prepare our consolidated financial statements , we estimate our income tax liability for each of the various jurisdictions where we conduct business .
| research and development expenses included stock-based compensation expenses of $ 0.1 million for each of the years ended december 31 , 2020 and 2019. we expect that total research and development expenses will remain flat in 2021. selling , general and administrative ( sg & a ) replace_table_token_7_th selling , general and administrative expenses consist primarily of personnel and related overhead costs for sales , marketing , finance , human resources and general management . selling , general and administrative expenses increased slightly for 2020 , compared with the prior year , primarily as a result of increased consulting fees . selling , general and administrative expenses included stock-based compensation expense of $ 0.2 million for each of the years ended december 31 , 2020 and 2019. we expect total selling , general and administrative expenses to remain flat in 2021. impairment of goodwill replace_table_token_8_th in 2019 , we recorded goodwill impairment charges . see note 1 of the consolidated financial statements in item 15 of this report for additional disclosure . interest expense replace_table_token_9_th interest expense is incurred on our senior secured convertible notes ( the notes ) . through december 31 , 2020 , we have paid all accumulated interest for the notes in-kind through the issuance of identical new senior-secured convertible notes . see note 10 and 11 to the consolidated financial statements in item 15 of this report for additional disclosure . 33 liquidity and capital resources at december 31 , 2020 , we had cash and cash equivalents totaling $ 5.9 million compared with cash , cash equivalents and short-term investments of $ 6.4 million as of december 31 , 2019. in february 2021 , we completed a registered direct offering of our common stock for net proceeds of approximately $ 6.8 million . subsequent to december 31 , 2020 , we received a total of $ 2,476,817 of proceeds from the exercise of 1,032,007 warrants to purchase shares of common stock at a price of $ 2.40 per share . we believe that cash generated from our liquidity sources will be sufficient to meet our working capital and capital expenditure needs for the foreseeable future . in 2020 , we
| 12,005 |
changes in various factors such as market interest rates , prepayment speeds , estimated future cash flows , servicing costs and credit quality could affect the amount of premium to be amortized or discount to be accreted into interest income for a given period . market interest rates and prepayment rates vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . the company 's operating results may also be affected by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers whose mortgage loans underlay the msrs held by the company . set forth below is the positive gross spread between the yield on our invested assets and our costs of funding those assets at the end of each of the four quarters in 2015 : average net yield spread at period end replace_table_token_6_th the average asset yield at september 30 , 2015 was depressed due largely to the rapid but temporary investment of funds drawn under the term loan pending application to its msr purchase in october 2015. the spread has narrowed over the year primarily due to increases in the rates charged by the counterparties on our repurchase agreements which are a component of our average cost of funds . the average cost of funds also includes the benefits of related swaps . these repurchase rates rose in anticipation of the action of the federal reserve to increase its target for the federal funds rate , and have remained at elevated levels despite the decline in the yield on us treasury securities . the loss of funding through the fhlbi is likely to aggravate the spread compression over the near term . changes in the market value of our assets we hold our servicing related assets as long-term investments . our excess msrs and msrs are carried at their fair value with changes in their fair value recorded in other income or loss in our consolidated statements of operations . our rmbs are carried at their fair value , as available-for-sale in accordance with asc 320 , accounting for certain investments in debt or equity securities , with changes in fair value recorded through accumulated other comprehensive income or loss , a component of stockholders ' equity . as a result , we do not expect that changes in the market value of our rmbs will normally impact our operating results . however , at least on a quarterly basis , we assess both our ability and intent to continue to hold our rmbs as long-term investments . as part of 33 this process , we monitor our rmbs for other-than-temporary impairment . a change in our ability and or intent to continue to hold any of our rmbs could result in our recognizing an impairment charge or realizing losses while holding these assets . impact of changes in market interest rates on servicing related assets our servicing related assets are subject to interest rate risk . generally , in a declining interest rate environment , prepayment speeds tend to increase . conversely , in an increasing interest rate environment , prepayment speeds tend to decrease . prepayment speed is the measurement of how quickly borrowers pay down the unpaid principal balance ( upb ) of their loans or how quickly loans are otherwise liquidated or charged off . prepayment speeds significantly affect the value of the servicing related assets . the price we pay to acquire servicing related assets is based on , among other things , our projection of the cash flows from the related pool of mortgage loans . our expectation of prepayment speeds is a significant assumption underlying those cash flow projections . if prepayment speeds are significantly greater than expected , the carrying value of the servicing related assets could exceed their estimated fair value . if the fair value of the servicing related assets decreases , we would be required to record a non-cash charge , which would have a negative impact on our financial results . furthermore , a significant increase in prepayment speeds could materially reduce the ultimate cash flows we receive from the servicing related assets and we could ultimately receive substantially less than what we paid for such assets . to the extent we do not utilize derivatives to hedge against changes in the fair value of the servicing related assets , our balance sheet , results of operations and cash flows are susceptible to significant volatility due to changes in the fair value of , or cash flows from , the servicing related assets as interest rates change . voluntary and involuntary prepayment rates may be affected by a number of factors including , but not limited to , the availability of mortgage credit , the relative economic vitality of the area in which the related properties are located , the servicing of the mortgage loans , possible changes in tax laws , other opportunities for investment , homeowner mobility and other economic , social , geographic , demographic and legal factors , none of which can be predicted with any certainty . we have attempted to reduce the exposure of our excess msrs to voluntary prepayments through the structuring of our recapture agreements with freedom mortgage . under these arrangements , we will receive a new excess msr with respect to a loan that was originated by freedom mortgage and used to repay a loan underlying an excess msr that we previously acquired from freedom mortgage . in lieu of receiving an excess msr with respect to the loan used to repay a prior loan , freedom mortgage may supply a similar excess msr . to the extent freedom mortgage is unable to achieve anticipated recapture rates , we may not benefit from the terms of the recapture agreements we have entered into , and the value of our excess msrs could decline . story_separator_special_tag for a summary of the recapture terms related to our existing investments in excess msrs , see —our portfolio—excess msrs. if we were to enter into a recapture agreement with respect to msrs that we acquire we would expect similar benefits on our investment in those msrs . impact of interest rates on recapture activity the value , and absolute amount , of recapture activity tends to vary inversely with the direction of interest rates . when interest rates are falling , recapture rates tend to be higher due to increased opportunities for borrowers to refinance . as interest rates increase , however , there is likely to be less recapture activity . since we expect interest rates to rise , which is likely to reduce the level of voluntary prepayments , we expect recapture rates to be significantly lower than what they had been in the past . however , since voluntary prepayment rates are likely to decline at the same time , we expect overall prepayment rates to remain roughly constant . impact of changes in market interest rates on assets other than servicing related assets with respect to our business operations , increases in interest rates , in general , may over time cause : the interest expense associated with our borrowings to increase ; the value of our assets to fluctuate ; the coupons on any adjustable-rate and hybrid rmbs we may own to reset , although on a delayed basis , to higher interest rates ; 34 prepayments on our rmbs to slow , thereby slowing the amortization of our purchase premiums and the accretion of our purchase discounts ; and an increase in the value of any interest rate swap agreements we may enter into as part of our hedging strategy . conversely , decreases in interest rates , in general , may over time cause : prepayments on our rmbs to increase , thereby accelerating the amortization of our purchase premiums and the accretion of our purchase discounts ; the interest expense associated with our borrowings to decrease ; the value of our assets to fluctuate ; to the extent we enter into interest rate swap agreements as part of our hedging strategy , the value of these agreements to decrease ; and coupons on any adjustable-rate and hybrid rmbs assets we may own to reset , although on a delayed basis , to lower interest rates . prepayment speed also affects the value of our rmbs and any prime mortgage loans we may acquire . when we acquire rmbs , we anticipate that the underlying mortgage loans will prepay at a projected rate generating an expected yield . if we purchase assets at a premium to par value , when borrowers prepay their mortgage loans faster than expected , the corresponding prepayments on our rmbs may reduce the expected yield on such securities because we will have to amortize the related premium on an accelerated basis . conversely , if we purchase assets at a discount to par value , when borrowers prepay their mortgage loans slower than expected , the decrease in corresponding prepayments on our rmbs may reduce the expected yield on such securities because we will not be able to accrete the related discount as quickly as originally anticipated . based on our experience , we expect that over time any adjustable-rate and hybrid rmbs and mortgage loans that we own will experience higher prepayment rates than do fixed-rate rmbs and mortgage loans , as we believe that homeowners with adjustable-rate and hybrid mortgage loans exhibit more rapid housing turnover levels or refinancing activity compared to fixed-rate borrowers . in addition , we anticipate that prepayments on adjustable-rate mortgage loans accelerate significantly as the coupon reset date approaches . effects of spreads on our assets the spread between the yield on our assets and our funding costs affects the performance of our business . wider spreads imply greater income on new asset purchases but may have a negative impact on our stated book value . wider spreads may also negatively impact asset prices . in an environment where spreads are widening , counterparties may require additional collateral to secure borrowings which may require us to reduce leverage by selling assets . conversely , tighter spreads imply lower income on new asset purchases but may have a positive impact on stated book value of our existing assets . in this case we may be able to reduce the amount of collateral required to secure borrowings . credit risk we are subject to varying degrees of credit risk in connection with our assets . although we expect relatively low credit risk with respect to our portfolios of excess msrs and agency rmbs , we are subject to the credit risk of the borrowers under the loans for which we hold msrs . through loan level due diligence we attempt to mitigate this risk by seeking to acquire high quality assets at appropriate prices given anticipated and unanticipated losses . we also conduct ongoing monitoring of acquired assets . nevertheless , unanticipated credit losses could occur which could adversely impact our operating results . critical accounting policies and use of estimates our financial statements are prepared in accordance with u.s. gaap , which requires the use of estimates that involve the exercise of judgment and the use of assumptions as to future uncertainties . in accordance with sec guidance , the following discussion addresses the accounting policies that we apply with respect to our operations . our most critical accounting policies involve decisions and assessments that could affect our reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities , as well as our reported 35 amounts of revenues and expenses . we believe that all of the decisions and assessments upon which our financial statements are based were reasonable at the time made and based upon information available to us at that time . our critical accounting policies and accounting estimates will be expanded over time as we diversify our portfolio .
| the fair value of excess msr pool 2 increased by approximately $ 2.3 million for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014. change in fair value of derivatives the fair value of derivatives at december 31 , 2015 decreased by approximately $ 60,000 from december 31 , 2014 , primarily due to changes in interest rates . general and administrative expense general and administrative expense for the year ended december 31 , 2015 increased by approximately $ 140,000 from the year ended december 31 , 2014 , primarily due to the addition of aurora and associated acquisition costs . management fees to affiliate management fees for the year ended december 31 , 2015 increased by approximately $ 0.2 million from the year ended december 31 , 2014 , primarily due to the estimated catch up premium amortization realized in 2015. net income allocated to ltip - op units net income allocated to ltip—op units which are owned by directors and officers of the company and by certain employees of freedom mortgage who provide services to us through the manager , represents approximately 1.4 % of net income for the year ended december 31 , 2015 . 41 accumulated other comprehensive income ( loss ) set forth below are the changes in our accumulated other comprehensive income ( loss ) for the periods indicated below ( dollars in thousands ) : accumulated other comprehensive income ( loss ) year ended december 31 , 2015 accumulated other comprehensive gain ( loss ) , december 31 , 2014 $ 6,641 other comprehensive income ( loss ) ( 6,838 ) accumulated other comprehensive gain ( loss ) , december 31 , 2015 $ ( 197 ) year ended december 31 , 2014 accumulated other comprehensive gain ( loss ) , december 31 , 2013 $ ( 5,033 ) other comprehensive income ( loss ) 11,674 accumulated other comprehensive gain ( loss ) , december 31 , 2014 $ 6,641 year ended december 31 , 2013 accumulated other comprehensive gain ( loss ) , december 31 , 2012 $ — other comprehensive income ( loss ) ( 5,033 ) accumulated other comprehensive gain ( loss ) , december 31 , 2013 $ ( 5,033 ) our gaap equity changes as the values of our rmbs are marked
| 12,006 |
with respect to our non-agency rmbs , which were generally purchased at a significant discount , while market interest rates increased , market credit spreads for these investments decreased , with the net result being an increase in value during the quarter . the value of our msrs and excess msrs is subject to a variety of factors , as described in “ quantitative and qualitative disclosures about market risk ” and in “ risk factors. ” in the fourth quarter of 2017 , the fair value of our direct investments in excess msrs and our share of the fair value of the excess msrs held through equity method investees increased by approximately $ 39.3 million in the aggregate , primarily as a result of a decrease in the weighted average discount rate of the portfolio to 8.9 % . in addition , a decrease in discount rates , as well as contractual changes resulting from the ocwen transaction , partially offset by a decrease in interest rates , caused the fair value of our msrs , including msr financing receivables , to increase by approximately $ 91.8 million during the period . changes in interest rates did not have a meaningful impact on the net interest spread of our agency and non-agency rmbs portfolios . our rmbs are primarily floating rate or hybrid ( i.e. , fixed to floating rate ) securities , which we generally finance with floating rate debt , or are economically hedged with respect to interest rates . therefore , while rising interest rates will generally result in a higher cost of financing , they will also result in a higher coupon payable on the securities . the net interest spread on our agency rmbs portfolio as of december 31 , 2017 was 1.41 % , compared to 1.61 % as of september 30 , 2017 . the spread changed primarily as a result of increased funding costs and lower yields from new securities purchased during the fourth quarter of 2017 . the net interest spread on our non-agency rmbs portfolio as of december 31 , 2017 was 2.76 % , compared to 3.01 % as of september 30 , 2017 . this spread changed primarily as a result of lower yields from new securities purchased during the fourth quarter of 2017 and increased funding costs . general u.s. economy and unemployment during the fourth quarter of 2017 , the u.s. unemployment rate generally continued to decline and equity market prices increased , signaling a general improvement in the u.s. economy . in our view , an improvement in the economy , as demonstrated through such measures , generally improves the value of housing and the ability of borrowers to make payments on their loans , thereby decreasing delinquencies and defaults on residential mortgage loans , consumer loans and rmbs . this relationship held true as the case shiller home price index increased from 184 as of the third quarter of 2016 to 195 as of the third quarter of 2017 . in addition , according to corelogic , the total number of mortgaged residential properties with negative equity stood at 2.5 million , or 4.9 percent , as of the third quarter of 2017 , down from 3.2 million , or 6.3 percent , as of the second quarter of 2017 . this trend has helped to support the values of our residential mortgage loans , consumer loans and rmbs . credit spreads corporate credit spreads generally continued to tighten during the fourth quarter of 2017 , which would generally have a favorable impact on the value of yield driven financial instruments , such as our rmbs and loan portfolios . corporate credit spreads , while a useful market proxy , are not necessarily indicative or directly correlated to mortgage credit spreads . collateral performance , market liquidity and other factors related specifically to certain investments within our mortgage securities and loan portfolio coupled with the corporate credit spread tightening during the fourth quarter of 2017 caused the value of the portion of this portfolio that was owned for the entire quarter to increase . for more information regarding these and other market factors which impact our portfolio , see “ quantitative and qualitative disclosures about market risk. ” our manager on december 27 , 2017 , softbank announced that it completed the softbank merger . in connection with the softbank merger , fortress will operate within softbank as an independent business headquartered in new york . fortress 's senior investment professionals will remain in place , including those individuals who perform services for us . 67 our portfolio our portfolio is currently composed of mortgage servicing related assets , residential securities and loans and other investments , as described in more detail below . the assets in our portfolio are described in more detail below ( dollars in thousands ) , as of december 31 , 2017 . replace_table_token_10_th ( a ) weighted average life is based on the timing of expected principal reduction on the asset . ( b ) the outstanding face amount of excess msrs , msrs , mortgage servicing rights financing receivables , and servicer advance investments is based on 100 % of the face amount of the underlying residential mortgage loans and currently outstanding advances , as applicable . ( c ) represents msrs where our subsidiary , nrm , is the named servicer . ( d ) the value of our servicer advance investments also includes the rights to a portion of the related msr . ( e ) amortized cost basis is net of impairment . servicing related assets msrs and mortgage servicing rights financing receivables as of december 31 , 2017 , we had $ 2,334.2 million carrying value of msrs and mortgage servicing rights financing receivables within our servicer subsidiary , nrm . nrm has contracted with certain subservicers to perform the related servicing duties on the residential mortgage loans underlying its msrs . story_separator_special_tag as of december 31 , 2017 , these subservicers include nationstar , ditech , phh , ocwen , flagstar , and citi , which subservice 41.2 % , 29.9 % , 20.9 % , 6.3 % , 1.1 % , and 0.6 % of the underlying upb of the related mortgages , respectively ( includes both mortgage servicing rights and mortgage servicing rights financing receivables ) . nrm has entered into agreements with ditech , nationstar and phh whereby nrm is entitled to the msr on any refinancing by such subservicer of a loan in the related original portfolio . 68 nrm is , generally , obligated to fund all future servicer advances related to the underlying pools of mortgages on its msrs and mortgage servicing rights financing receivables . generally , nrm will advance funds when the borrower fails to meet contractual payments ( e.g. , principal , interest , property taxes , insurance ) . nrm will also advance funds to maintain and report foreclosed real estate properties on behalf of investors . advances are recovered through claims to the related investor and subservicers . per the servicing agreements , nrm is obligated to make certain advances on mortgages to be in compliance with applicable requirements . in certain instances , the subservicer is required to reimburse nrm for any advances that were deemed nonrecoverable or advances that were not made in accordance with the related servicing contract . see note 5 to our consolidated financial statements for further information regarding our investments in mortgage servicing rights financing receivables . the table below summarizes the terms of our investments in msrs and mortgage servicing rights financing receivables completed as of december 31 , 2017 . replace_table_token_11_th the following table summarizes the collateral characteristics of the loans underlying our investments in msrs and mortgage servicing rights financing receivables as of december 31 , 2017 ( dollars in thousands ) : collateral characteristics current carrying amount current principal balance number of loans wa fico score ( a ) wa coupon wa maturity ( months ) average loan age ( months ) adjustable rate mortgage % ( b ) three month average cpr ( c ) three month average crr ( d ) three month average cdr ( e ) three month average recapture rate mortgage servicing rights agency $ 1,735,504 $ 172,392,496 1,233,955 744 4.3 % 257 68 3.3 % 13.3 % 13.0 % 0.4 % 16.3 % non-agency — 61,654 891 624 7.2 % 194 177 42.8 % 15.8 % 10.4 % 6.0 % — % mortgage servicing rights financing receivables agency 476,206 49,498,415 364,791 744 4.2 % 246 74 7.5 % 13.5 % 12.9 % 0.6 % 14.3 % non-agency 122,522 14,846,478 107,347 661 5.1 % 267 143 22.5 % 13.6 % 10.5 % 3.4 % — % total $ 2,334,232 $ 236,799,043 1,706,984 739 4.4 % 255 74 5.4 % 13.4 % 12.9 % 0.6 % 14.8 % replace_table_token_12_th ( a ) the wa fico score is based on the weighted average of information provided by the loan servicer on a monthly basis . the loan servicer generally updates the fico score when loans are refinanced or become delinquent . 69 ( b ) adjustable rate mortgage % represents the percentage of the total principal balance of the pool that corresponds to adjustable rate mortgages . ( c ) three month average cpr , or the constant prepayment rate , represents the annualized rate of the prepayments during the quarter as a percentage of the total principal balance of the pool . ( d ) three month average crr , or the voluntary prepayment rate , represents the annualized rate of the voluntary prepayments during the quarter as a percentage of the total principal balance of the pool . ( e ) three month average cdr , or the involuntary prepayment rate , represents the annualized rate of the involuntary prepayments ( defaults ) during the quarter as a percentage of the total principal balance of the pool . ( f ) delinquency 30 days , delinquency 60 days and delinquency 90+ days represent the percentage of the total principal balance of the pool that corresponds to loans that are delinquent by 30–59 days , 60–89 days or 90 or more days , respectively . the phh transaction ( note 5 to our consolidated financial statements ) settled in stages during 2017. as of december 31 , 2017 , msrs , and related servicer advances receivable , with respect to private-label residential mortgage loans of approximately $ 6.0 billion in total upb with a purchase price of approximately $ 35.5 million had not been settled . on january 16 , 2018 , pursuant to the walter purchase agreement ( note 5 to our consolidated financial statements ) , nrm purchased msrs , and related servicer advances receivable , with respect to certain freddie mac residential mortgage loans with a total upb of $ 11.5 billion for a purchase price of approximately $ 101.5 million . also see note 18 to our consolidated financial statements for further information regarding our investments in mortgage servicing rights and mortgage servicing rights financing receivables subsequent to december 31 , 2017 . excess msrs as of december 31 , 2017 , we had approximately $ 1.3 billion estimated carrying value of excess msrs ( held directly and through joint ventures ) . as of december 31 , 2017 , our completed investments represent an effective 32.5 % to 100.0 % interest in the excess msrs ( held either directly or through joint ventures ) on pools of residential mortgage loans with an aggregate upb of approximately $ 267.6 billion . in our capacity as owner of the excess msrs , we do not have any servicing duties , liabilities or obligations associated with the servicing of the portfolios underlying any of our excess msrs .
| interest expense interest expense increased by $ 87.4 million primarily attributable to increases of ( i ) $ 73.7 million of interest expense on repurchase agreements and financings on real estate securities in which we made additional levered investments subsequent to december 31 , 2016 , ( ii ) $ 43.3 million of interest expense on msrs and related servicer advances financing obtained subsequent to december 31 , 2016 , ( iii ) $ 25.8 million on residential mortgage loans due to an increase in the underlying principal balance of the portfolio levered with repurchase agreements , and ( iv ) $ 16.9 million on debt collateralized by excess msrs issued subsequent to december 31 , 2016 . the increase was partially offset by ( v ) a $ 70.7 million decrease in interest on financings related to servicer advance investments due to debt extinguishment and refinancing subsequent to december 31 , 2016 , and ( vi ) $ 1.6 million on consumer loans due to a decrease in the levered portfolio . other than temporary impairment ( otti ) on securities the other-than-temporary impairment on securities increased by $ 0.1 million primarily resulting from a decline in fair values on a greater portion of our non-agency rmbs , which we purchased with existing credit impairment , below their amortized cost basis as of december 31 , 2017 . valuation and loss provision ( reversal ) on loans and real estate owned the $ 2.0 million decrease in the valuation and loss provision ( reversal ) on loans and real estate owned resulted from ( i ) a $ 15.1 million decrease in impairment on residential mortgage loans and reo due primarily to improved performance on certain non-performing loans and a reduction in impairment on reos during the year ended december 31 , 2017 . the decrease was partially offset by ( ii ) a $ 9.3 million increase in consumer loan provision expense on loans recorded as a result of the springcastle transaction ( note 9 to our consolidated financial statements ) and certain newly originated consumer loans acquired subsequent to december 31 , 2016 , and ( iii ) a $ 3.8 million increase of reserve related
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we evaluate each expansion project on the basis of its ability to produce sustained returns in excess of our cost of capital and its ability to improve efficiency or reduce operating costs . we also regularly look at acquisition opportunities that would be consistent with or complimentary to our overall business strategies . depending on the size of the acquisition , any such acquisitions could require external financing . as noted above in item 1a , `` risk factors , '' we are subject to extensive environmental regulations , which may impose significant additional costs on our operations in the future . further , concerns about ghg emissions and their possible effects on climate change has led to the enactment of regulations , and to proposed legislation and additional regulations , that could affect us in the form of increased cost of feedstocks and fuel , other increased costs of production and decreased demand for our products . while we do not expect any of these enactments or proposals to have a material adverse effect on us in the near term , we can not predict the longer-term effect of any of these regulations or proposals on our future financial condition , results of operations or cash flows . recent developments on august 31 , 2016 , we completed the acquisition of axiall for $ 33.00 per share in an all-cash transaction ( the `` merger '' ) , pursuant to the terms of the agreement and plan of merger ( the `` merger agreement '' ) , dated as of june 10 , 2016 , by and among westlake , axiall and lagoon merger sub , inc. , a wholly-owned subsidiary of westlake . the combined company is the third-largest global chlor-alkali producer and the third-largest global pvc producer . during the third quarter of 2016 , in order to finance a portion of the consideration and related fees and expenses , and for other general corporate purposes , we issued $ 1.45 billion aggregate principal amount of senior notes . in addition , we entered into a $ 1.0 billion unsecured revolving credit facility ( the `` credit agreement '' ) . in july 2016 , opco completed planned major maintenance activities , or a turnaround , of its petro 1 ethylene unit at our lake charles , louisiana site . in conjunction with this turnaround , opco also completed an upgrade and capacity expansion of the petro 1 ethylene unit . the petro 1 expansion project is expected to increase ethylene capacity by approximately 250 million pounds annually . income from operations for the third quarter of 2016 was negatively impacted as a result of the lost production , unabsorbed fixed manufacturing costs and other costs related to the planned turnaround and expansion . our calvert city facility experienced an unplanned outage that lasted from june 1 , 2016 until mid july 2016. the unplanned outage was caused by a mechanical failure of opco 's ethylene unit , which resulted in a complete outage of the facility and halted all production , including the production of edc , vcm , chlor-alkali and pvc resin . income from operations for the third quarter of 2016 was negatively impacted as a result of the lost production , unabsorbed fixed manufacturing costs and other costs related to the unplanned outage . in january 2016 , opco announced an expansion project to increase the ethylene capacity of its ethylene plant at our calvert city facility . the expansion , along with other initiatives , is expected to increase ethylene capacity by approximately 100 million pounds annually and is targeted for completion during the first half of 2017 . 32 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > . transaction and integration-related costs . transaction and integration-related costs were $ 103.7 million in 2016 and primarily consisted of severance benefits provided to former axiall executives in conjunction with the merger , including the conversion of axiall restricted stock units into our restricted stock units , transitional service expenses for certain former axiall employees , retention agreement costs and consulting and professional fees related to the merger . interest expense . interest expense increase d by $ 44.8 million to $ 79.5 million in 2016 from $ 34.7 million in 2015 , largely as a result of higher average debt outstanding , partially offset by increased capitalized interest on major capital projects in 2016 as compared to 2015 . see `` liquidity and capital resources—debt '' below for a further discussion of our indebtedness . other income ( expense ) , net . other income , net increase d $ 18.1 million to $ 56.4 million in 2016 from $ 38.3 million in 2015 . this increase was primarily attributable to the realized gain of approximately $ 49.1 million from the previously held outstanding shares of common stock of axiall and higher interest income for 2016 as compared to the prior year , partially offset by the expenses related to the bridge loan facility and other financing costs in connection with the merger . other income ( expense ) , net for 2015 included a gain of approximately $ 15.5 million related to the bargain purchase gain from the acquisition of a controlling interest in suzhou huasu plastics co. , ltd. ( `` huasu '' ) , net of related expenses , partially offset by the impairment and loss from the disposition of an equity method investment . income taxes . the effective income tax rate was 24.8 % in 2016 as compared to 31.0 % in 2015 . story_separator_special_tag the effective income tax rate for 2016 was below the u.s. federal statutory rate of 35.0 % primarily due to the benefit of state tax credits , the domestic manufacturing deduction , depletion deductions , income attributable to noncontrolling interests , the non-recognition of tax related to the gain recognized on previously held outstanding shares of common stock of axiall , the benefit in prior years ' and current-year tax credits for increased research and development expenditures and adjustments related to prior years ' tax returns as filed , change in state apportionment and the foreign earnings rate differential , partially offset by state income taxes and nondeductible transaction costs related to the merger . the effective income tax rate for 2015 was below the u.s. federal statutory rate of 35.0 % primarily due to the benefit of state tax credits , the domestic manufacturing deduction , income attributable to noncontrolling interests , the non-recognition of tax related to the bargain purchase of a controlling interest in huasu , the foreign earnings rate differential and the increased benefit in certain prior years ' deductions due to a change in the calculation methodology of the domestic manufacturing deduction and adjustments related to prior years ' tax returns as filed , partially offset by state income taxes . olefins segment net sales . net sales decrease d by $ 366.5 million , or 16.2 % , to $ 1,893.6 million in 2016 from $ 2,260.1 million in 2015 , mainly due to lower sales prices for our major products and lower sales volumes for most of our major products as compared to the prior year . average sales prices for the olefins segment decreased by 8.9 % in 2016 as compared to 2015 , while average sales volumes decreased by 7.3 % in 2016 as compared to 2015 . income from operations . income from operations was $ 557.8 million in 2016 as compared to $ 747.4 million in 2015 . this decrease was predominantly attributable to lower olefins integrated product margins , primarily as a result of lower sales prices as compared to 2015 , and the lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs related to the turnaround and expansion of opco 's lake charles petro 1 ethylene unit and other planned turnarounds and unplanned outages in 2016 . trading activity for 2016 resulted in a gain of $ 19.7 million as compared to a loss of $ 11.4 million for 2015 . vinyls segment net sales . net sales increase d by $ 978.6 million , or 44.4 % , to $ 3,181.8 million in 2016 from $ 2,203.2 million in 2015 . this increase was primarily attributable to sales contributed by axiall and higher sales volume for pvc resin , partially offset by lower sales prices for our major products . average sales prices for the vinyls segment decreased by 3.8 % in 2016 as compared to 2015 . average sales volumes increased by 48.3 % in 2016 as compared to 2015 , primarily related to sales contributed by axiall , as compared to the prior year . income from operations . income from operations was $ 174.1 million in 2016 as compared to $ 254.5 million in 2015 . this decrease was primarily driven by the lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs associated with the unplanned outage at our calvert city facility and the planned turnaround at our lake charles vinyls facility in 2016 . income from operations for the year ended december 31 , 2016 was also lower as a result of lower sales prices 35 for our major products , partially offset by higher product margins at our european operations , as compared to 2015 . in addition , income from operations for the year ended december 31 , 2016 included the negative impact of selling higher cost axiall inventory recorded at fair value . 2015 compared with 2014 net sales . net sales increased by $ 47.9 million , or 1.1 % , to $ 4,463.3 million in 2015 from $ 4,415.4 million in 2014. this increase was mainly attributable to sales contributed by vinnolit ( primarily as a result of the inclusion of its operations in our consolidated financial statements for the full year 2015 as opposed to only five months in 2014 ) and , to a lesser extent , huasu , and higher sales volumes for most of our major products , partially offset by lower sales prices for all our major products , as compared to the prior year . average sales prices for 2015 decreased by 25.3 % as compared to 2014. sales prices for the year ended december 31 , 2015 were negatively impacted by the significant decline in crude oil prices . overall sales volume increased by 26.3 % in 2015 as compared to 2014. gross profit . gross profit margin percentage decreased to 26.6 % in 2015 from 29.8 % in 2014. the decrease in gross profit margin percentage was mainly the result of lower olefins integrated product margins primarily due to lower sales prices . sales prices decreased an average of 25.3 % for the year ended december 31 , 2015 as compared to 2014. in addition , gross profit for the year ended december 31 , 2015 was negatively impacted by lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs associated with turnarounds at our various facilities . the decrease in gross profit for the year ended december 31 , 2015 was partially offset by lower average feedstock and energy costs and higher vinyls integrated product margins , primarily attributable to lower feedstock costs , increased production at our calvert city facilities following the completion of opco 's feedstock conversion and ethylene expansion project and higher production rates at our geismar chlor-alkali plant , as compared to the prior year . selling , general and administrative expenses .
| net income for the year ended december 31 , 2016 was impacted by ( 1 ) pre-tax transaction and integration-related costs of approximately $ 103.7 million , or $ 0.52 per diluted share , associated with the merger ; ( 2 ) pre-tax unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of opco 's lake charles petro 1 ethylene unit and other planned turnarounds and unplanned outages totaling approximately $ 155.1 million , or $ 0.77 per diluted share ; and ( 3 ) lost sales associated with such turnarounds and outages , partially offset by ( 4 ) a realized gain of approximately $ 49.1 million from the previously held outstanding shares of common stock of axiall ; and ( 5 ) a lower effective tax rate of 24.8 % . the lower 2016 effective tax rate resulted from discrete items totaling $ 46.9 million , which decreased the tax provision for 2016 , and are comprised of a net $ 12.9 million related to the non-recognition of tax on the gain recognized attributable to the previously held outstanding shares of common stock of axiall , partially offset by non-deductible axiall acquisition costs , and $ 34.0 million related to return to provision , amended returns , changes in state apportionment and other adjustments . net sales for the year ended december 31 , 2016 increase d $ 612.2 million to $ 5,075.5 million compared to net sales for the year ended december 31 , 2015 of $ 4,463.3 million , primarily due to sales contributed by axiall and higher sales volume for pvc resin , partially offset by lower sales prices for all our major products and lower sales volumes for our major olefins products . income from operations was $ 581.5 million for the year ended december 31 , 2016 as compared to $ 959.8 million for the year ended december 31 , 2015 , a decrease of $ 378.3 million . the decrease in 2016 income from operations was mainly attributable to lower sales prices for all our major products , transaction and integration-related costs associated with the merger and the lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of opco 's lake charles petro 1 ethylene unit and other planned turnarounds and unplanned outages . the decrease in income from operations for the year ended december 31 , 2016 was partially offset by lower average feedstock and energy costs
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in first quarter of 2016 , abbvie initiated three phase 3 studies in the registrational program . in the fourth quarter of 2016 , the company started a fifth pivotal trial . other in july 2016 , following an evaluation of data for the development of abt-122 , a dual-variable domain ( dvd ) immunoglobulin targeting tnf and il-17 in phase 2 trials for rheumatoid arthritis and psoriatic arthritis , abbvie determined that further development of abt-122 will not be pursued . while the trial data demonstrated that the dvd platform worked well , with clear evidence of biologic activity , the decision was based on a lack a differentiation from other candidates in abbvie 's development pipeline . in october 2016 , abbvie opted not to exercise an option to license vobarilizumab , an anti-il-6r nanobody , from ablynx nv based on results of a phase 2 study in rheumatoid arthritis . abbvie retains an option to license vobarilizumab based on results of an on-going phase 2 study in systemic lupus erythematosus . oncology imbruvica in march 2016 , abbvie announced that the fda approved imbruvica as a first-line treatment for patients with cll . the approval was based on data from the phase 3 resonate-2 trial , which evaluated efficacy and safety of imbruvica versus traditional chemotherapy , chlorambucil , in treatment-naïve patients with cll or small lymphocytic leukemia . this is the first fda-approved chemotherapy-free treatment option for first-line cll patients . in may 2016 , abbvie announced that the ema approved imbruvica as a first-line treatment option for adult patients with cll . imbruvica is now available to treat all lines of cll in the european union ( eu ) . this is the fifth treatment indication in the eu for imbruvica . in may 2016 , abbvie announced that the fda updated the imbruvica prescribing information to include new data from two phase 3 trials supporting expanded use in patients with cll and small lymphocytic lymphoma . the label now includes overall survival results in previously-untreated cll/small lymphocytic lymphoma patients from the phase 3 resonate-2 trial . the imbruvica label has also been updated with safety and efficacy data from the phase 3 helios trial assessing the use of imbruvica in combination with bendamustine and rituximab versus placebo plus rituximab in relapsed/refractory patients with cll/small lymphocytic lymphoma . additionally , the fda approved a new imbruvica indication to include the treatment of patients with small lymphocytic lymphoma with or without the deletion of chromosome 17p . 2016 form 10-k | 30 in june 2016 , abbvie announced that the fda granted imbruvica breakthrough therapy designation for chronic graft-versus-host-disease after failure of one or more lines of systemic therapy , a rare condition with limited treatment options . this is the fourth breakthrough therapy designation for imbruvica . in january 2017 , abbvie announced that the fda approved imbruvica for the treatment of patients with relapsed/refractory marginal zone lymphoma ( mzl ) who require systemic therapy and have received at least one prior anti-cd20-based therapy . this indication is approved under accelerated approval based on overall response rate ( orr ) and continued approval may be contingent upon verification and description of clinical benefit in a confirmatory trial . mzl is a slow-growing form of non-hodgkin 's lymphoma . this marks the seventh fda approval and fifth disease indication for imbruvica since the medication 's initial approval in 2013. venetoclax in april 2016 , the fda granted accelerated approval of venclexta ( venetoclax ) tablets for patients diagnosed with chronic lymphocytic leukemia ( cll ) with 17p deletion who have received at least one prior therapy . additionally , in january 2016 , the fda granted two additional breakthrough therapy designations for venetoclax : ( i ) in combination with rituximab for the treatment of patients with relapsed/refractory cll , including patients with chromosome 17p deletion ; and ( ii ) in combination with hypomethylating agents for the treatment of patients with untreated ( treatment-naïve ) acute myeloid leukemia ( aml ) who are ineligible to receive standard induction therapy ( high-dose chemotherapy ) . a phase 3 clinical trial was recently initiated to study the safety and efficacy of venetoclax in combination with azacitidine in treatment naïve elderly subjects with aml who are ineligible for standard induction therapy . in july 2016 , abbvie announced the initiation of a phase 3 clinical trial to study the safety and efficacy of venetoclax in combination with bortezomib and dexamethasone in patients with relapsed or refractory multiple myeloma who are considered sensitive or naive to proteasome inhibitors and have received one to three prior lines of therapy . the combination of venetoclax , bortezomib and dexamethasone will be compared to treatment with bortezomib , dexamethasone and placebo . in december 2016 , abbvie announced that the european commission ( ec ) has granted conditional marketing authorization for venclyxto ( venetoclax ) monotherapy for the treatment of cll in the presence of 17p deletion or tp53 mutation in adult patients who are unsuitable for or have failed a b-cell receptor pathway inhibitor ; and for the treatment of cll in the absence of 17p deletion or tp53 mutation in adult patients who have failed both chemoimmunotherapy and a b-cell receptor pathway inhibitor . conditional marketing authorization is granted to medicines that address an unmet medical need , where the benefit of its immediate availability to patients outweighs the risk of limited data availability and where comprehensive data will be provided . venclyxto is a fist-in-class , oral , once-daily medicine that selectively inhibits the function of the bcl-2 protein . venclyxto is being developed by abbvie and genentech , a member of the roche group . it is jointly commercialized by the companies in the u.s. and by abbvie outside of the u.s. rova-t in june 2016 , abbvie acquired stemcentrx and its lead late-stage asset rova-t currently in registrational trials for small cell lung cancer ( sclc ) . story_separator_special_tag rova-t is a novel bio-marker-specific therapy that is derived from cancer stem cells and targets delta-like protein 3 ( dll3 ) that is expressed in more than 80 % of sclc patient tumors and is not present in healthy tissue . registrational trials for third-line sclc are expected to complete enrollment by the end of 2016. abbvie recently began enrollment of a phase 1 eight-arm `` basket study '' in neuroendocrine tumors and a phase 1/2 regimen selection study as a first-line treatment for sclc . beyond rova-t , stemcentrx has four novel compounds in clinical trials across several solid tumor indications and has additional pre-clinical compounds . in july 2016 , bms and abbvie announced a clinical trial collaboration to evaluate the safety , tolerability and efficacy of rova-t in combination with bms ' opdivo ( nivolumab ) and opdivo + yervoy ( ipilimumab ) regimen as a treatment for relapsed extensive stage sclc . the phase 1/2 clinical program will explore the potential of combining bms ' immune-oncology agents in conjunction with rova-t to drive improved and sustained efficacy and tolerability above the current standard of care . other in may 2016 , bristol-myers squibb company ( bms ) and abbvie announced that the ema approved empliciti ( elotuzumab ) for the treatment of multiple myeloma as combination therapy with revlimid® ( lenalidomide ) and dexamethasone in adult patients who have received at least one prior therapy . empliciti is now the first and only immunostimulatory antibody approved for multiple myeloma in the eu . 31 | 2016 form 10-k in june 2016 , abbvie exercised its right to end its global collaboration with infinity pharmaceuticals , inc. ( infinity ) , which it entered into in september 2014 to develop and commercialize duvelisib ( ipi-145 ) for the treatment of patients with cancer . pursuant to the terms of the global collaboration agreement , the worldwide rights to duvelisib reverted to infinity . virology/liver disease in february 2016 , abbvie announced that chmp granted a positive opinion for the use of viekira ( ombitasvir/paritaprevir/ritonavir tablets ) + exviera ( dasabuvir tablets ) without ribavirin ( rbv ) in chronic hcv infected genotype 1b ( gt1b ) patients with compensated cirrhosis ( child-pugh a ) . in april 2016 , abbvie announced that the fda approved viekira pak ( ombitasvir , paritaprevir , ritonavir tablets ; dasabuvir tablets ) without rbv in patients with gt1b chronic hcv infection and compensated cirrhosis . in july 2016 , abbvie announced that the fda approved a new drug application ( nda ) for viekira xr ( dasabuvir , ombitasvir , paritaprevir and ritonavir ) extended-release tablets . viekira xr is a once-daily , extended-release co-formulation of the active ingredients in viekira pak ( ombitasvir , paritaprevir and ritonavir tablets ; dasabuvir tablets ) and is for the treatment of patients with chronic genotype 1 ( gt1 ) hcv , including those with compensated cirrhosis ( child-pugh a ) . in october 2016 , abbvie announced that the fda granted breakthrough therapy designation for the investigational , pan-genotypic regimen of glecaprevir ( abt-493 ) /pibrentasvir ( abt-530 ) for the treatment of patients with hcv who failed previous therapy with direct-acting antivirals in genotype 1 , including therapy with an ns5a inhibitor and or protease inhibitor . in january 2017 , abbvie announced that its marketing authorization application ( maa ) has been validated and is now under accelerated assessment by the ema for the company 's investigational , pan-genotypic regimen of g/p for the treatment of all major chronic hcv genotypes . g/p is also intended to address the needs of patients with specific treatment challenges , including those with severe chronic kidney disease ( ckd ) and those not cured with previous direct-acting antiviral ( daa ) treatment . in february 2017 , abbvie announced that the fda accepted its new drug application ( nda ) and granted priority review for the company 's investigational , pan-genotypic regimen of g/p for the treatment of all major chronic hcv genotypes . neurology in may 2016 , biogen and abbvie announced that the fda approved zinbryta ( daclizumab ) for the treatment of adult patients with relapsing forms of multiple sclerosis ( rms ) . zinbryta is a once-monthly , self-administered , subcutaneous injection . biogen and abbvie will co-promote zinbryta in the united states . in july 2016 , biogen and abbvie announced that the ema granted a marketing authorization for zinbryta for the treatment of adult patients with rms . zinbryta launched in the third quarter of 2016. other in january 2016 , abbvie announced the initiation of the first of two planned phase 3 studies evaluating the safety and efficacy of elagolix in the treatment of patients with uterine fibroids . abbvie made a milestone payment of $ 15 million to neurocrine biosciences , inc. , abbvie 's collaboration partner , upon enrollment of the first patient . elagolix is also in phase 3 development for endometriosis . 2016 form 10-k | 32 results of operations net revenues the comparisons presented at constant currency rates reflect comparative local currency net revenues at the prior year 's foreign exchange rates . this measure provides information on the change in net revenues assuming that foreign currency exchange rates had not changed between the prior and the current periods . abbvie believes that the non-gaap measure of change in net revenues at constant currency rates , when used in conjunction with the gaap measure of change in net revenues at actual currency rates , may provide a more complete understanding of the company 's operations and can facilitate analysis of the company 's results of operations , particularly in evaluating performance from one period to another . replace_table_token_4_th 33 | 2016 form 10-k the following table details abbvie 's worldwide net revenues : replace_table_token_5_th n/a—not applicable . 2016 form 10-k | 34 the following discussion and analysis of abbvie 's net revenues by product is presented on a constant currency basis . global humira sales increased 16 % in 2016 and 19 % in 2015 .
| in october 2016 , abbvie 's board of directors declared a quarterly cash dividend of $ 0.64 per share of common stock payable in february 2017. this reflects an increase of approximately 12 % over the previous quarterly rate of $ 0.57 per share of common stock . in april 2016 , abbvie acquired all rights to risankizumab ( bi 655066 ) , an anti-il-23 monoclonal biologic antibody , from bi pursuant to a global collaboration agreement . in june 2016 , abbvie acquired stemcentrx , a privately held biotechnology company . the transaction expands abbvie 's oncology pipeline by adding the late-stage asset rovalpituzumab tesirine ( rova-t ) , four additional early-stage clinical compounds in solid tumor indications and a significant portfolio of pre-clinical assets . rova-t is currently in registrational trials for small cell lung cancer and in early-stage clinical development for other solid tumors . in connection with the stemcentrx acquisition , abbvie 's board of directors authorized a $ 4.0 billion increase to 2016 form 10-k | 28 abbvie 's existing share repurchase program . promptly following the closing of the stemcentrx transaction , abbvie entered into and executed a $ 3.8 billion accelerated share repurchase agreement ( asr ) with a third party financial institution to reacquire nearly all of the newly-issued equity . in may 2016 , abbvie issued $ 7.8 billion aggregate principal amount of unsecured senior notes . of the $ 7.7 billion net proceeds , $ 2.0 billion was used to repay the company 's outstanding term loan that was due to mature in november 2016 , approximately $ 1.9 billion was used to finance the acquisition of stemcentrx and approximately $ 3.8 billion was used to finance the asr . in november 2016 , the company issued 3.6 billion aggregate principal amount of unsecured senior euro notes and repaid the company 's outstanding 1.75 % senior notes that were due to mature in november 2017. see note 5 to the consolidated financial statements for additional information related to the acquisition of stemcentrx and bi compounds ,
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we remain a community bank at heart , dedicated to serving and strengthening our communities as we evolve into a regional bank structure . as old national implements this strategic plan , our mission has also evolved . our objective is to transform old national into a commercially-oriented regional bank that consistently delivers top quartile performance to clients , team members , shareholders , and communities . as old national moves from a generalist relationship management approach , based on geography , to a specialist relationship management approach , based on business segmentations , the fundamentals of basic banking do not change . those fundamentals are loan growth , non-interest income growth , prudent capital deployment , and expense management . organic loan growth is a priority . our loan production and pipeline are at high levels as we enter into 2020 and we are hopeful that the 2019 cycle of persistently high levels of prepayments has passed . despite this , we continue to adhere to our disciplined underwriting process . our practice of recognizing underperforming credits early , along with active engagement with these borrowers ultimately leads to lower credit losses . credit quality remains strong , and we have not experienced any specific sector credit related weaknesses , yet are watching a small number of credits . with the onset of the onb way , we have made investments in our non-interest income businesses , in technology and personnel . accordingly , we are optimistic for continued expansion in 2020. our acquisition strategy has not changed . we remain an active looker in our target markets and a highly selective , disciplined buyer . we wait patiently for the perfect pitch while we remain focused on execution . as we look ahead to 2020 , we remain committed to generating positive operating leverage . 32 story_separator_special_tag million and $ 4.3 million , respectively , in 2018 ; and $ 15.6 million and $ 7.5 million , respectively , in 2017 ; using the federal statutory tax rate in effect of 21 % in 2019 and 2018 and 35 % in 2017 . ( 5 ) includes principal balances of nonaccrual loans . interest income relating to nonaccrual loans is included only if received . 37 the yield on average earning assets in creased 1 3 basis points from 4.15 % in 2018 to 4.28 % in 2019 and the cost of interest-bearing liabilities increased 15 basis points from 0 . 81 % in 2018 to 0 . 96 % in 201 9 . average earning assets increased by $ 1.884 billion , or 1 2 % . the increase in average earning assets consisted of a $ 1.197 b illion increase in investment securities , a $ 668.0 m illion increase in loans , and a n $ 1 8.8 million in crease in money market and other interest-earning investments . average interest-bearing liabilities increased $ 1 . 398 billion , or 1 2 % . the increase in average interest-bearing liabilities consisted of a $ 1 . 285 b illion increase in interest-bearing deposits , a $ 3.2 million increase in federal funds purchased and interbank borrowings , a $ 2.3 million de crease in securities sold under agreements to repurchase , a $ 1 10 . 3 million increase in fhlb advances , and a $ 1.4 million increase in other borrowings . average noninterest-bearing deposits increased by $ 230.2 million . the increase in average earning assets in 2019 compared to 2018 was primarily due to our acquisition of klein in november 2018. including loans held for sale , the loan portfolio , which generally has an average yield higher than the investment portfolio , was approximately 70 % of average interest earning assets in 2019 compared to 74 % in 2018. average loans including loans held for sale increased $ 668.0 million in 2019 compared to 2018 reflecting loans acquired from klein in november 2018 , along with organic loan growth . loans including loans held for sale attributable to the klein acquisition totaled $ 1.052 billion as of the closing date of the acquisition , which was november 1 , 2018. average investments increased $ 1.197 billion in 2019 compared to 2018 reflecting the klein acquisition . excess liquidity generated in 2019 also resulted in higher investment securities . average non-interest-bearing deposits increased $ 230.2 million in 2019 compared to 2018 reflecting the klein acquisition . average interest-bearing deposits increased $ 1.285 billion in 2019 compared to 2018 reflecting the klein acquisition . average borrowed funds increased $ 112.6 million in 2019 compared to 2018 primarily due to an increase in fhlb advances . 38 the following table shows fluctuations in taxable equivalent net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended december 31. replace_table_token_10_th the variance not solely due to rate or volume is allocated equally between the rate and volume variances . ( 1 ) interest on investment securities and loans includes the effect of taxable equivalent adjustments of $ 7.7 million and $ 5.2 million , respectively , in 2019 ; $ 7.1 million and $ 4.3 million , respectively , in 2018 ; and $ 15.6 million and $ 7.5 million , respectively , in 2017 ; using the federal statutory tax rate in effect of 21 % in 2019 and 2018 and 35 % in 2017. provision for loan losses the provision for loan losses was an expense of $ 4.7 million in 2019 , compared to an expense of $ 7.0 million in 2018. net charge-offs totaled $ 5.6 million in 2019 , compared to net charge-offs of $ 1.9 million in 2018. the lower provision for loan losses is the result of a decrease in specific reserves on loans individually evaluated for impairment , partially offset by loan growth . continued loan growth in future periods , a decline in our current level of recoveries , or an increase in charge-offs could result in an increase in provision expense . story_separator_special_tag additionally , with the adoption of cecl beginning on january 1 , 2020 , provision expense may become more volatile due to changes in cecl model assumptions of credit quality , macroeconomic factors and conditions , and loan composition , which drive the allowance for credit losses balance . for additional information about non-performing loans , charge-offs , and additional items impacting the provision , refer to the “ risk management – credit risk ” section of item 7 , “ management 's discussion and analysis of financial condition and results of operations. ” noninterest income we generate revenues in the form of noninterest income through client fees , sales commissions , and other gains and losses from our core banking franchise and other related businesses , such as wealth management , investment consulting , and investment products . this source of revenue as a percentage of total revenue was 25 % in 2019 compared to 27 % in 2018 . 39 the following table details the components of noninterest income for the years ended december 31. replace_table_token_11_th ( 1 ) total revenue includes the effect of a taxable equivalent adjustment of $ 12.9 million in 2019 , $ 11.4 million in 2018 , and $ 23.1 million in 2017. the increase in noninterest income in 2019 compared to 2018 was primarily due to higher mortgage banking revenue , higher capital markets income , and higher noninterest income attributable to the full year impact of the klein partnership . these increases were partially offset by a $ 14.0 million gain on the sale of 10 wisconsin branches in the fourth quarter of 2018. service charges and overdraft fees increased $ 0.9 million in 2019 compared to 2018 primarily due to higher service charges and overdraft fees attributable to the klein partnership . debit card and atm fees increased $ 1.4 million in 2019 compared to 2018 primarily due to higher interchange income attributable to the klein partnership . mortgage banking revenue increased $ 9.0 million in 2019 compared to 2018 primarily due to increased mortgage originations , sales , and strong pipeline growth in 2019. capital markets income is comprised of customer interest rate swap fees , debt placement fees , foreign currency exchange fees , and net gains ( losses ) on foreign currency adjustments . capital markets income increased $ 8.3 million in 2019 compared to 2018 primarily due to higher customer interest rate swap fees . company-owned life insurance income increased $ 1.0 million in 2019 compared to 2018 primarily due to higher settlements in 2019. in 2018 , we recorded a net gain of $ 14.0 million in connection with the october 2018 divestiture of 10 wisconsin branches , which included a deposit premium of $ 15.0 million , goodwill allocation of $ 0.6 million , and $ 0.4 million of other transaction expenses . other income decreased $ 3.9 million in 2019 compared to 2018 primarily due to a $ 2.2 million gain on the sale of our student loan portfolio in the second quarter of 2018. also contributing to the decrease in other income was the recognition of deferred gains on sale leaseback transactions of $ 1.6 million in 2018. the deferred gains were eliminated as a cumulative-effect adjustment upon adoption of the new accounting guidance in topic 842 effective january 1 , 2019. these decreases were partially offset by higher other income attributable to the klein partnership . 40 noninterest expense the following table details the components of noninterest expense for the years ended december 31. replace_table_token_12_th noninterest expense decreased $ 8.8 million in 2019 compared to 2018 reflecting a decrease in amortization of tax credit investments and lower charitable contributions . these decreases were partially offset by higher professional fees , higher salaries and employee benefits , and higher operating expenses and acquisition and integration costs associated with the full year impact of the klein partnership . salaries and employee benefits is the largest component of noninterest expense . salaries and benefits increased $ 8.2 million in 2019 compared to 2018 primarily due to higher salaries and employee benefits attributable to the klein partnership . equipment expenses increased $ 2.0 million in 2019 compared to 2018 primarily due to higher equipment expenses attributable to the klein partnership and an increase in small equipment expenses . professional fees increased $ 8.4 million in 2019 compared to 2018 reflecting $ 10.3 million in consulting fees incurred in 2019 related to the onb way . fdic assessment expenses decreased $ 4.6 million in 2019 compared to 2018 primarily due to the elimination of an fdic surcharge . amortization of intangibles increased $ 2.5 million in 2019 compared to 2018 primarily due to amortization of core deposit intangibles related to the klein acquisition . amortization of tax credit investments decreased $ 20.2 million in 2019 compared to 2018. the recognition of tax credit amortization expense is contingent upon the successful rehabilitation of a historic building or completion of a solar project within the reporting period . many factors including weather , labor availability , building regulations , inspections , and other unexpected construction delays related to a rehabilitation project can cause a project to exceed its estimated completion date . see note 11 to the consolidated financial statements for additional information on our tax credit investments . other expense decreased $ 9.9 million in 2019 compared to 2018 primarily due to lower charitable contributions of $ 7.7 million and writedowns on long-lived assets in 2018 related to branch consolidations . provision for income taxes we record a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future , which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes . the major difference between the effective tax rate applied to our financial statement income and the federal statutory tax rate is caused by a tax benefit from our tax credit investments and interest on tax-exempt securities and loans .
| net interest income and margin are influenced by many factors , primarily the volume and mix of earning 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 . the federal reserve lowered the discount rate by 75 basis points in the second half of 2019. at december 31 , 2019 , the treasury yield curve was flat from the 3-month treasury to the 5-year treasury with a spread of 12 basis points . continued flatness of the yield curve could cause our interest rate spread to decline , which may result in a decrease in our net interest income . however , management has taken balance sheet restructuring , derivative , and deposit pricing actions to help mitigate this risk . 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 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 , net interest income , and margin . 35 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 in the table that follows , adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset . we used the federal statutory tax rate in effect of 21 % for 2019 and 2018 and 35 % for 2017 . this analysis portrays the income tax benefits related to 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
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actual results could differ from those described in this report because of numerous factors , many of which are beyond our control . these factors include , without limitation , those described under item 1a “ risk factors. ” we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes . please see “ forward-looking statements ” at the beginning of this form 10-k. the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this form 10-k. we undertake no obligation to update any forward-looking statements in the discussion of our financial condition and results of operations to reflect events or circumstances after the date of this report or to reflect actual outcomes . overview we are a specialty pharmaceutical company that seeks to develop and commercialize our product principally for use in the acute/intensive care hospital setting . our current product candidate is intravenous ( iv ) tramadol , for the treatment of post-operative acute pain . under the terms of certain agreements described herein , we have an exclusive license to develop and commercialize iv tramadol in the united states . in 2016 , we completed a pharmacokinetic ( pk ) study for iv tramadol in healthy volunteers as well as an end of phase 2 ( eop2 ) meeting with the u.s. food and drug administration ( fda ) . in the third quarter of 2017 , we initiated a phase 3 development program of iv tramadol for the management of post-operative pain . in december 2019 , we submitted a new drug application ( nda ) for iv tramadol and received a complete response letter ( crl ) from the fda in october 2020. in february 2021 , we resubmitted the nda for iv tramadol . the fda assigned a prescription drug user fee act ( pdufa ) goal date of april 12 , 2021 for the resubmitted nda for iv tramadol . to date , we have not received approval for the sale of our product candidate in any market and , therefore , have not generated any sales revenue from our product candidate . recent developments on november 12 , 2018 , we entered into a stock purchase and merger agreement ( spma ) with invagen pharmaceuticals , inc. ( invagen ) , and madison pharmaceuticals inc. ( merger sub ) , pursuant to which we agreed to the sale of the company in a two-stage transaction , the details of which are summarized below . recently , invagen has communicated to us that it believes two material adverse effects ( as defined in the spma ) have occurred , which raise substantial doubt as to whether or not the merger will be consummated . in october 2020 , invagen communicated to us that it believes a material adverse effect ( as defined in the spma ) has occurred due to the impact of the covid-19 pandemic on potential commercialization and projected sales of iv tramadol . additionally , in connection with the resubmission of our nda in february 2021 ( details of which are below ) , invagen communicated to us that it believes the proposed label for iv tramadol would also constitute a material adverse effect on the purported basis that the proposed label under certain circumstances would make the product commercially unviable , and in addition that the indication that the fda approves may fail to satisfy a condition precedent to invagen 's obligation to consummate the second stage closing of the spma . while we disagree with invagen 's assertions , it is possible invagen could attempt to avoid its obligation to consummate the merger , terminate the spma , and or pursue monetary claims against us . over the past several months , we have communicated with invagen relating to its assertions that material adverse effects have occurred . nevertheless , invagen has communicated to us its desire to consider all options on the proposed merger , including the option to not consummate the merger . as a result , the possible timing and likelihood of the completion of the merger are uncertain , and , accordingly , there can be no assurance that such transaction will be completed on the expected terms , anticipated schedule , or at all . background on june 26 , 2017 , we completed an initial public offering ( ipo ) of our common stock , resulting in net proceeds of approximately $ 34.2 million after deducting underwriting discounts , and other offering costs . we used the proceeds from our ipo to initiate our first phase 3 trial of iv tramadol in patients with moderate-to-severe pain following bunionectomy , which had its first patient dosed in september 2017. in may 2018 , we announced the study met its primary endpoint and all key secondary endpoints . in december 2018 , we initiated the second phase 3 trial in patients with moderate-to-severe pain following abdominoplasty upon successful completion of the bunionectomy study . in june 2019 , we announced the study met its primary endpoint and all key secondary endpoints . in december 2017 , we initiated an open-label safety study , which was completed during the second quarter of 2019. the results showed that iv tramadol is well-tolerated with a side effect profile consistent with known pharmacology . in december 2019 , we submitted an nda pursuant to section 505 ( b ) ( 2 ) of the federal food , drug and cosmetic act ( fdca ) . story_separator_special_tag in february 2020 , the fda accepted our nda submission and set a pdufa goal date of october 10 , 2020. on october 12 , 2020 , we announced that we had received a crl from the fda regarding our nda . in november 2020 , we had a type a meeting with the fda to discuss issues raised in the crl . on february 12 , 2021 , we resubmitted the nda to the fda for iv tramadol . the nda resubmission follows the receipt of official minutes from a type a meeting with the fda , which was conducted following receipt of the crl . the nda resubmission included revised language relating to the proposed product label and a report relating to terminal sterilization validation . the fda assigned a pdufa goal date of april 12 , 2021 for the resubmitted nda for iv tramadol . 44 on november 12 , 2018 , we entered into the spma with invagen pursuant to which invagen agreed to purchase , for $ 35 million , common shares representing 33.3 % of the fully diluted capitalization of the company ( the stock purchase transaction ) and subsequently acquire the remaining issued and outstanding capital stock of the company for $ 180 million , subject to certain reductions , in a reverse subsidiary merger transaction ( the merger transaction ) . pursuant to the terms and subject to the conditions set forth in the spma , invagen will , at second closing , hold 100 % of the issued and outstanding equity interests of the company . consummation of the merger transaction is conditioned upon , among other things , fda approval of iv tramadol by april 30 , 2021 , its labeling and scheduling and the absence of any risk evaluation and mitigation strategy restrictions in effect with respect to iv tramadol , as well as the filing and expiration of any waiting period applicable to the acquisition under the hart-scott-rodino antitrust improvements act of 1976 , as amended , which filing both parties completed on march 12 , 2021. the aggregate consideration to be paid by invagen under the spma is $ 215 million in cash ( a portion of which was already paid in connection with the stock purchase transaction as described below ) , subject to certain potential reductions , which invagen intends to have sufficient immediately available funds to pay . in addition , we are subject to certain lock-up restrictions and agreed not to ( subject to customary exceptions ) , during the period commencing at the signing of the spma until the merger transaction , issue , buy , sell , or otherwise subject to a security interest , pledge , hypothecation , mortgage or lien , any securities of the company . the spma was approved by a majority of our stockholders , including a majority of our non-affiliated stockholders , at our special shareholder meeting on february 6 , 2019. on february 8 , 2019 , the company and invagen consummated the stock purchase transaction whereby invagen acquired 5,833,333 shares of our common stock at $ 6.00 per share for total gross consideration of $ 35.0 million , representing a 33.3 % stake in our capital stock on a fully diluted basis . as described above , in october 2020 , invagen communicated to us that it believes a material adverse effect ( as defined in the spma ) has occurred due to the impact of the covid-19 pandemic on potential commercialization and projected sales of iv tramadol , which means it is possible invagen could attempt to avoid its obligation to consummate the second stage closing under the spma , terminate the spma , and or pursue monetary claims against us . we disagree with invagen 's assertion that a material adverse effect has occurred and we have advised invagen of our position . additionally , in connection with the resubmission of our nda in february 2021 , invagen communicated to us that it believes the proposed label for iv tramadol under certain circumstances would constitute a material adverse effect ( as defined in the spma ) on the purported basis that the proposed label under certain circumstances would make the product commercially unviable , and in addition that the indication that the fda approves may fail to satisfy a condition precedent to invagen 's obligation to consummate the second stage closing of the spma . we have notified invagen that we disagree with invagen 's assertions . nevertheless , invagen may seek to avoid its obligation to consummate the second stage closing under the spma , terminate the spma , and or pursue monetary claims against us . over the past several months , we communicated with invagen relating to its assertions that material adverse effects have occurred . nevertheless , invagen has communicated to us its desire to consider all options on the proposed merger , including the option to not consummate the merger . this indicates that invagen may attempt to avoid its obligations under the spma to consummate the merger , terminate the spma , and or pursue monetary claims against avenue . as a result , the possible timing and likelihood of the completion of the merger are uncertain , and , accordingly , there can be no assurance that such transaction will be completed on the expected terms , anticipated schedule , or at all .
| we expect our general and administrative costs to continue as we seek potential regulatory approval and potential commercialization of our product candidate . for the years ended december 31 , 2020 and 2019 , general and administrative expenses were $ 2.4 million and $ 3.1 million , respectively . the $ 0.7 million decrease primarily reflects decreases of $ 0.8 million for non-cash stock compensation , $ 0.1 million in personnel costs and $ 0.1 million for commercial marketing preparation costs . these decreases were partially offset by an increase of $ 0.3 million for legal costs . interest income interest income was $ 62,000 and $ 0.4 million for the years ended december 31 , 2020 and 2019 , respectively . the decrease in interest income was due to the cash used in operations . liquidity and capital resources we have incurred substantial operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable . as of december 31 , 2020 , we had an accumulated deficit of $ 73.3 million . we have used the funds from our ipo and from the invagen share purchase to finance our operations and will continue to use the funds primarily for general corporate purposes , which may include financing our growth and developing our product candidate . in the event that iv tramadol is approved by the fda , this triggers $ 5.0 million in milestone payments , to which the company currently does not have sufficient funding . in the event that iv tramadol is not approved by the fda , the company believes that its cash and cash equivalents should be sufficient to fund its operating expenses through the end of the third quarter of 2021. we will need to secure additional funds through equity or debt offerings , or other potential sources . we can not be certain that additional funding will be available on acceptable terms , or at all . these factors
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we believe this has the potential to improve the absorption of many drugs currently on the market or in development , and to reduce the risk of stomach erosions and ulcers associated with certain drugs . vazalore , available in two doses , 325 mg and 81 mg , is an fda-approved liquid-filled aspirin capsule that provides patients with vascular disease and diabetic patients who are candidates for aspirin therapy based on physician recommendation , with fast , reliable and predictable platelet inhibition . it also reduces the risk of stomach erosions and ulcers , as compared to immediate release aspirin , common in an acute setting . our commercialization strategy will target the over-the-counter ( “ otc ' ) market , taking advantage of the existing distribution channels for aspirin . we intend to market vazalore to the healthcare professional and the consumer through several sales and marketing channels . our product pipeline also includes other oral nonsteroidal anti-inflammatory drugs using the plxguard drug delivery system that may be developed , including pl1200 ibuprofen 200 mg and pl1200 ibuprofen 400 mg , for pain and inflammation in phase 1 clinical stage . critical accounting policies our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( “ u.s . gaap ” ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . note 3 of the notes to consolidated financial statements included elsewhere herein describes the significant accounting policies used in the preparation of the financial statements . certain of these significant accounting policies are considered to be critical accounting policies , as defined below . a critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult , subjective or complex judgments that could have a material effect on our financial condition and results of operations . specifically , critical accounting estimates have the following attributes : ( 1 ) we are required to make assumptions about matters that are highly uncertain at the time of the estimate ; and ( 2 ) different estimates we could reasonably have used , or changes in the estimate that are reasonably likely to occur , would have a material effect on our financial condition or results of operations . estimates and assumptions about future events and their effects can not be determined with certainty . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . these estimates may change as new events occur , as additional information is obtained and as our operating environment changes . these changes have historically been minor and have been included in the financial statements as soon as they became known . based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies , management believes that our financial statements are fairly stated in accordance with u.s. gaap and present a meaningful presentation of our financial condition and results of operations . we believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements : use of estimates the preparation of our consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period . in the accompanying consolidated financial statements , estimates are used for , but not limited to , the impairment assessment of goodwill , the fair value of warrant liability , the fair value of stock-based compensation , allowance for inventory obsolescence , contingent liabilities , fair value and depreciable lives of long-lived assets , and deferred taxes and associated valuation allowance . actual results could differ from those estimates . 45 fair value measurements fair value is defined as the price that would be received in the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date . the company has categorized all investments recorded at fair value based upon the level of judgment associated with the inputs used to measure their fair value . hierarchical levels , directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities , are as follows : ● level 1 : quoted prices in active markets for identical assets or liabilities that the organization has the ability to access at the reporting date . ● level 2 : inputs other than quoted prices included in level 1 , which are either observable or that can be derived from or corroborated by observable data as of the reporting date . ● level 3 : inputs include those that are significant to the fair value of the asset or liability and are generally less observable from objective resources and reflect the reporting entity 's assumptions about the assumptions market participants would use in pricing the asset or liability . the company 's financial instruments ( cash and cash equivalents , receivables , accounts payable and accrued liabilities ) are carried in the consolidated balance sheet at cost , which reasonably approximates fair value based on their short-term nature . the company 's warrant liability is recorded at fair value , with changes in fair value being reflected in the statements of operations for the period of change . story_separator_special_tag the fair value of the term loan approximates its face value of $ 0.6 million based on the company 's current financial condition and on the variable nature of term loan 's interest feature as compared to current rates . research and development expenses costs incurred in connection with research and development activities are expensed as incurred . research and development expenses consist of direct and indirect costs associated with specific projects , manufacturing activities , and include fees paid to various entities that perform research related services for the company . stock-based compensation the company recognizes expense in the consolidated statements of operations for the fair value of all stock-based compensation to key employees , nonemployee directors and advisors , generally in the form of stock options and stock awards . the company uses the black-scholes option valuation model to estimate the fair value of stock options on the grant date . compensation cost is amortized on a straight-line basis over the vesting period for each respective award . the company accounts for forfeitures as they occur . adopted accounting guidance for a discussion of significant accounting guidance recently adopted or unadopted accounting guidance that has the potential of being significant , see note 3 of the notes to the consolidated financial statements included elsewhere herein . story_separator_special_tag and $ 16.8 million net proceeds from the issuance of common stock in the 2020 period , which was higher than the net proceeds of $ 13.7 million from the issuance of series a preferred stock and $ 2.1 million net proceeds from the sale of common stock in the prior year . the current year period also includes higher payments of the term loan as the prior year period reflected two less payments due to the start of the payment amortization period . future liquidity and capital needs as of december 31 , 2020 , we had working capital of $ 19.4 million , including cash and cash equivalents of $ 22.4 million . in addition , during march 2019 , we entered into an equity distribution agreement ( the `` equity distribution agreement '' ) with jmp securities , inc. ( “ jmp ” ) to issue and sell shares of our common stock , having an aggregate offering price of up to $ 12.5 million , from time to time during the term of the equity distribution agreement , through an “ at-the-market ” equity offering program ( the “ atm offering ” ) at our sole discretion , under which jmp acted as our agent . at december 31 , 2020 , we had $ 10.2 million available under this atm offering . the jmp equity distribution agreement and related atm offering was terminated on march 2 , 2021. on march 5 , 2021 the company completed an underwritten public offering ( the “ public offering ” ) in which we issued 7,875,000 shares of our common stock at a price to the public of $ 8.00 per share . gross proceeds of the public offering were $ 63 million , before deducting underwriting discounts and commissions and other offering expenses payable by the company . net proceeds of the public offering were $ 59 million . the underwriters retained a 30-day option to purchase up to 1,181,250 shares of common stock at the public offering price , less underwriting discounts and commission . we have not generated any revenue from the sale of products and have incurred operating losses in each year since we commenced operations . as of december 31 , 2020 , we had an accumulated deficit of $ 102.1 million . we expect to continue to incur significant operating expenses and operating losses for the foreseeable future as we continue the development and commercialization of vazalore . although these losses and expected losses give rise to substantial doubt , the company 's cash on hand at december 31 , 2020 combined with the proceeds from the public offering support that the company can fund its obligations for at least one year from the date these financial statements were issued and mitigate the substantial doubt consideration . our prior losses , combined with expected future losses , have had and will continue to have an adverse effect on our stockholders ' equity and working capital . if we are unable to achieve and sustain profitability , the market value of our common stock will likely decline . because of the numerous risks and uncertainties associated with developing biopharmaceutical products , we are unable to predict the extent of any future losses or when , if ever , we will become profitable . we may need to obtain additional financing in the future , in addition to the proceeds from the public offering , to execute our commercialization plan . we may obtain additional financing through public or private equity offerings , debt financings ( including related-party financings ) , a credit facility or strategic collaborations . additional financing may not be available to us when we need it or it may not be available to us on favorable terms , if at all . our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies . we currently have no understandings , commitments or agreements relating to any of these types of transactions , other than in connection with the underwriters ' over-allotment option as part of the public offering . if we are unable to raise additional funds when needed , we may be required to sell or license our technologies or clinical product candidates or programs that we would prefer to develop and commercialize ourselves . impact of covid-19 pandemic on financial statements on march 11 , 2020 , the world health organization declared the outbreak of covid-19 as a “ pandemic ” , or a worldwide spread of a new disease . many countries imposed quarantines
| we expect our selling , general and administrative expenses to increase as a result of the expected commercial launch of vazalore . other expense other expense totaled $ 1.8 million for the year ended december 31 , 2020 , compared to $ 6.3 million for the year ended december 31 , 2019. the change is primarily attributable to the non-cash change in fair value of warrant liability primarily due to the fluctuation of the price of the company 's common stock ( $ 1.4 million of other expense for the year ended december 31 , 2020 , as compared to $ 5.7 million of other expense in the prior year ) . liquidity and capital resources the following table summarizes the primary uses and sources of cash for the periods indicated : replace_table_token_2_th net cash used in operating activities net cash used in operating activities was $ 12.2 million and $ 12.7 million for the years ended december 31 , 2020 and 2019 , respectively . the decrease was due to lower compensation and covid-19 impacted conference and travel costs offset somewhat by the increase in the settlement of 2019 year-end liabilities in 2020 . 47 net cash used in investing activities net cash used in investing activities totaled $ 0.1million and $ 0.2 million for the years ended december 31 , 2020 and 2019 , respectively , and reflects the purchase of manufacturing equipment for vazalore . net cash provided by financing activities net cash provided by financing activities totaled $ 20.8 million and $ 12.6 million for the years ended december 31 , 2020 and 2019 , respectively , and reflects $ 7.7 million net proceeds from the issuance of series b preferred stock
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on april 7 , 2020 , the federal banking agencies along with the national credit union administration , and the consumer financial protection bureau , in consultation with the state financial regulators , issued an interagency statement revising a march 22 , 2020 interagency statement on loan modifications and the reporting for financial institutions working with customers affected by the covid-19 pandemic ( the “ interagency statement ” ) . the interagency statement reconfirmed that efforts to work with borrowers where the loans are prudently underwritten , and not considered past due or carried on nonaccrual status , should not result in the loans automatically being considered modified in a troubled debt restructuring ( “ tdr ” ) for accounting and financial reporting purposes , or for purposes of their respective risk-based capital rules , which would otherwise require financial institutions subject to the capital rules to hold more capital . the interagency statement also clarified the interaction between its previous guidance and section 4013 of the cares act , which provides certain financial institutions with the option to suspend the application of accounting guidance for tdrs for a limited period of time for loan modifications made to address the effects of the covid-19 pandemic . oriental granted various forms of assistance to customers and clients impacted by the covid-19 pandemic , including payment deferrals . the majority of oriental 's covid-19 related loan modifications have not been considered tdrs as : they represent short-term or other insignificant modifications , whether under oriental 's regular loan modification assessments or the interagency statement guidance , or oriental has elected to apply the option to suspend the application of accounting guidance for tdrs as provided under section 4013 of the cares act . to the extent that certain modifications do not meet any of the above criteria , oriental accounts for them as tdrs . as of december 31 , 2020 , oriental had processed covid-19 payment deferrals for more than 47,000 retail customers for $ 2.2 billion dollars . for our commercial customers , we had processed relief on $ 642.6 million dollars in loans . deferrals have decreased from 30 % of total loans in the second quarter to 1 % of total loans in the fourth quarter . as of december 31 , 2020 , oriental had loans subject to covid-19 payment deferrals as follows : replace_table_token_2_th 33 mortgage loans in the payment deferral program above consist of fha and va insured mortgage loans . most commercial loans represent well-capitalized customers in the hospitality industry . for payment deferral programs that have expired at december 31 , 2020 , only 3 % or $ 15.9 million , in the auto loan portfolio , 7 % or $ 107.8 million , in the mortgage loan portfolio , 1 % or $ 7.4 million , in the commercial portfolio , and 1 % or $ 1.1 million in the consumer portfolio , have deteriorated to non-performing status . in accordance with oriental 's policies , all accrued interest receivable of these loans in non-performing status have been reversed . additionally , oriental is a lender for the sba ppp , a cares act program , and other sba , federal reserve board or united states treasury programs that have been created in response to the pandemic and may be a lender for programs created in the future . these programs are new and their effects on the company 's business are uncertain . through december 31 , 2020 , oriental had approved 5,074 ppp loans amounting to $ 297 million , impacting more than 50,000 employees . the macro-economic environment for the later part of 2020 has benefited from reduced covid-19 related government restrictions on economic activity , combined with growing liquidity from the federal stimulus programs puerto rico is receiving related to the recovery from hurricane maria in 2017 , the early 2020 earthquakes , and now the covid-19 pandemic . although the macroeconomic outlook has improved towards the end of the year 2020 , the future direct and indirect impact of covid-19 on our businesses , results of operations and financial condition remain highly uncertain . should current economic conditions persist or deteriorate , this macroeconomic environment may have an adverse effect on our businesses , results of operations and financial condition . for more information on how the risks related to the covid-19 pandemic may adversely affect our businesses , results of operations and financial condition , see part i , item 1a . risk factors , of this annual report . critical accounting policies and estimates the accounting and reporting policies followed by oriental conform with gaap and general practices within the financial services industry . oriental 's significant accounting policies are described in detail in note 1 to the consolidated financial statements and should be read in conjunction with this section . critical accounting policies require management to make estimates and assumptions , which involve significant judgment about the effect of matters that are inherently uncertain and that involve a high degree of subjectivity . these estimates are made under facts and circumstances at a point in time and changes in those facts and circumstances could produce actual results that differ from those estimates . the following md & a section is a summary of what management considers oriental 's critical accounting policies and estimates . allowance for credit losses related to loans collectively evaluated for impairment one of the most critical and complex accounting estimates is associated with the determination of the allowance for credit losses . the provision for credit losses charged to current operations is based on this determination . as discussed in note 1 to the consolidated financial statements , oriental adopted asu no . 2016-13 , financial instruments – credit losses ( asc topic 326 ) , as of january 1 , 2020. the total allowance for credit losses as of january 1 , 2020 and december 31 , 2020 , which includes loans evaluated on a collective basis , was calculated using this approach . story_separator_special_tag for a detailed description of the principal factors used to determine the allowance for credit losses related to loans collectively evaluated for impairment and for the principal enhancement 's management made to its methodology , refer to notes 1 and 7 to the consolidated financial statements . oriental 's management evaluates the adequacy of the allowance for credit losses on a quarterly basis following a systematic methodology in order to provide for known and inherent risks in the loan portfolio . in developing its assessment of the adequacy of the allowance for credit losses , oriental must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown , such as economic developments affecting specific customers , industries or markets . other factors that can affect management 's estimates are the key drivers used for each macroeconomic scenario , the macroeconomic scenarios selected , and the weighting given to each scenario , among others . changes in the financial condition of individual borrowers , in economic conditions , in historical loss experience and in the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for credit losses . consequently , the business , financial condition , liquidity , capital and results of operations 34 could also be affected . 35 story_separator_special_tag font-size : 10.00pt '' > 38 replace_table_token_6_th 39 replace_table_token_7_th 40 net interest income net interest income is a function of the difference between rates earned on oriental 's interest-earning assets and rates paid on its interest-bearing liabilities ( interest rate spread ) and the relative amounts of its interest earning assets and interest-bearing liabilities ( interest rate margin ) . oriental constantly monitors the composition and re-pricing of its assets and liabilities to maintain its net interest income at adequate levels . comparison of the years ended december 31 , 2020 and 2019 net interest income of $ 408.4 million increased $ 85.6 million from $ 322.8 million . interest rate spread decreased 75 basis points to 4.51 % from 5.26 % and net interest margin decreased 82 basis points to 4.55 % from 5.37 % . these decreases are mainly due to the net effect of a decrease of 94 basis points in the average yield of total interest-earning assets and a decrease of 19 basis points in the total average cost of interest-bearing liabilities . net interest income increased as a result of : higher interest income from loans by $ 117.6 million , reflecting higher balances as a result of the scotiabank pr & usvi acquisition and ppp loan originations , partially offset by a 75 basis points decline in yield from higher proportion of 30-year , fixed rate residential mortgages from such acquisition and the effect of federal reserve board 's rate cuts on variable rate commercial loans ; $ 6.5 million in one-time interest recoveries from acquired purchased credit-impaired ( “ pci ” ) scotiabank loans ; and lower interest expenses in borrowings by $ 6.9 million , reflecting the maturity and early extinguishment of repurchase agreements during 2020. such increases in net interest income were adversely impacted by : lower interest income from interest bearing cash and investment securities by $ 18.0 million , mainly impacted by the reserve board 's rate cuts ; and higher interest expense from deposits by $ 20.8 million , mainly related to deposits from the scotiabank pr & usvi acquisition and to the increase in customer deposits during the current year , reflecting commercial deposits from existing and new clients , and retail deposits from increased liquidity in the economy . 41 replace_table_token_8_th non-interest income non-interest income is affected by the amount of the bank 's trust department assets under management , transactions generated by clients ' financial assets serviced by oriental 's the securities broker-dealer and insurance agency subsidiaries , the level of mortgage banking activities , fees generated from loans and deposit accounts , and gains on sales of assets . comparison of years ended december 31 , 2020 and 2019 oriental recorded non-interest income , net , in the amount of $ 124.4 million , compared to $ 82.5 million , an increase of 50.7 % , or $ 41.9 million . the increase in non-interest income was mainly due to : an increase of $ 19.7 million in banking service revenues reflecting the scotiabank pr & usvi acquisition as electronic banking revenues and deposit fees increased $ 15.3 million and $ 2.6 million , respectively , due to oriental 's larger customer base ; an increase of $ 5.6 million in wealth management revenue due to higher insurance income by $ 6.8 million , mainly from the scotiabank pr & usvi acquisition insurance transaction volume , offset by lower trust fees and broker-dealer sales which declined by $ 476 thousand and $ 420 thousand , respectively ; an increase of $ 12.2 million in mortgage-banking activities , also reflecting the scotiabank pr & usvi acquisition , as servicing revenues increased by $ 8.3 million , and to an increase of $ 3.9 million from gains of loans sold ; and a $ 7.3 million bargain purchase gain from the scotiabank pr & usvi acquisition to adjust the fair value of accrued interest receivable and deferred tax asset from new information obtained during 2020 about facts that existed as of december 31 , 2019. the increase in non-interest income was offset by a gain of $ 8.3 million on the sales of securities recorded in 2019 compared to a gain of $ 4.7 million recorded in 2020 . 42 replace_table_token_9_th non-interest expenses comparison of years ended december 31 , 2020 and 2019 non-interest expense was $ 345.3 million , representing an increase of 48.0 % , or $ 112.0 million , compared to $ 233.2 million .
| net interest income of $ 98.7 million increased by 24.7 % and non-interest income of $ 34.0 million increased by 77.4 % . net interest margin was 4.24 % compared to 5.34 % in such quarter . solid production : new loan originations totaled $ 485.4 million compared to $ 404.9 million in the fourth quarter of 2019. compared to the third quarter of 2020 , production ( excluding ppp loans ) increased $ 38.0 million , driven by commercial and mortgage with continued strong levels of auto and consumer lending . the net loan balance declined $ 77.9 million from $ 6.6 billion at september 30 , 2020 to $ 6.5 billion at december 31 , 2020. lower provision : provision for credit losses was $ 14.2 million compared to $ 23.1 million the fourth quarter of 2019. fourth quarter of 2020 net charge-offs of $ 44.8 million included $ 31.2 million for two acquired commercial loans that were substantially reserved . december 31 , 2020 loan deferrals fell to 1.4 % of total loans from 2.0 % on september 30 , 2020. core expenses : non-interest expenses were $ 89.0 million compared to $ 78.9 million in the fourth quarter of 2019. excluding merger and covid-19 related costs , fourth quarter 2020 non-interest expenses of $ 77.4 million fell $ 9.4 million from the first quarter of 2020 , amounting to approximately $ 38.0 million in annualized reductions from the scotiabank pr & usvi acquisition , exceeding original expectations by about 9 % . lower cost of funds : cost of funds was 66 basis points compared to 92 basis points in the fourth quarter of 2019. compared to the third quarter of 2020 , cost of funds fell 5 basis points . customer deposits declined $ 216.8 million from $ 8.6 billion at september 30 , 2020 to $ 8.4 billion on december 31 , 2020. capital building : tangible book value per share increased $ 1.01 to $ 16.97 compared to the fourth quarter of 2019 and common equity tier 1 capital increased $
| 12,013 |
the costs of clinical trials may vary significantly over the life of a project owing to , but not limited to , the following : per patient trial costs ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the number of patients that participate in the trials ; the number of doses that patients receive ; the cost of comparative agents used in trials ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; and the efficacy and safety profile of the product candidate . we do not expect ns2 to be commercially available , if at all , for the next several years . general and administrative expenses general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation . our general and administrative expenses consisted primarily of payroll expenses for our full-time employees during the years ended december 31 , 2014 and 2013. other general and administrative expenses include professional fees for auditing , tax , and legal services . we expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly-traded company and maintaining compliance with exchange listing and sec requirements . these increases will likely include higher consulting costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and fees associated with investor relations . 55 total other income ( expense ) total other income ( expense ) consists primarily of interest income we earn on interest-bearing accounts , interest expense incurred on our outstanding debt and changes in the fair value of our derivative liabilities . there were no derivative liabilities outstanding as of december 31 , 2014. critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states ( us gaap ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the expenses during the reporting periods . we evaluate these estimates and judgments on an ongoing basis . 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 . our actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our financial statements appearing elsewhere in this prospectus , we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations . accrued research and development expenses as part of the process of preparing financial statements , we are required to estimate and accrue research and development expenses . this process involves the following : communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost ; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . examples of estimated research and development expenses that we accrue include : fees paid to investigative sites in connection with clinical studies ; fees paid to contract manufacturing organizations in connection with non-clinical development , preclinical research , and the production of clinical study materials ; and professional service fees for consulting and related services . we base our expense accruals related to non-clinical development , preclinical studies , and clinical trials on our estimates of the services received and efforts expended pursuant to contracts with organizations/consultants that conduct and manage clinical studies on our behalf . the financial terms of these agreements vary from contract to contract and may result in uneven payment flows . payments under some of these contracts may depend on many factors , such as the successful enrollment of patients , site initiation and the completion of clinical study milestones . our service providers invoice us monthly in arrears for services performed . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . to date , we have not experienced significant changes in our estimates of accrued research and 56 development expenses after a reporting period . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities . stock-based compensation stock-based compensation expense represents the grant date fair value of restricted stock awards and stock option grants , which are being recognized over the requisite service period of the awards ( usually the vesting period ) on a straight-line basis , net of estimated forfeitures . story_separator_special_tag for stock option grants with performance-based milestones , the expense is recorded over the remaining service period after the point when the achievement of the milestone is probable or the performance condition has been achieved . we generally estimate the fair value of stock option grants using the black-scholes option pricing model . if vesting is based on market-based milestones , we perform monte carlo simulations to estimate the timing and number of shares that are most likely to vest and record the expense on a straight-line basis over the estimated period the milestone will be achieved . we account for stock options to non-employees using the fair value approach . stock options to non-employees are subject to periodic revaluation over their vesting terms . we generally estimate the fair value of our stock-based awards to employees and non-employees using the black-scholes option pricing model , which requires the input of highly subjective assumptions , including ( a ) the risk-free interest rate , ( b ) the expected volatility of our stock , ( c ) the expected term of the award and ( d ) the expected dividend yield . due to the lack of a public market for the trading of our common stock and a lack of company specific historical and implied volatility data , we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded . for these analyses , we have selected companies with comparable characteristics to ours including enterprise value , risk profiles , position within the industry , and with historical share price information sufficient to meet the expected life of the stock-based awards . we compute the historical volatility data using the daily closing prices for the selected companies ' shares over approximately the past four years . the resulting volatility estimate was 89 % , and we have employed this value throughout our calculations . we will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available . we have estimated the expected life of our employee stock options using the simplified method , whereby , the expected life equals the average of the vesting term and the original contractual term of the option for service-based awards . the risk-free interest rates for periods within the expected life of the option are based on the yields of zero-coupon united states treasury securities . the assumptions used in the black-scholes option pricing model to determine the fair value of employee stock option grants in 2014 and 2013 were as follows : replace_table_token_3_th other information net operating loss carryforwards as of december 31 , 2014 we have federal and state income tax net operating loss ( nol ) carryovers of approximately $ 16.2 million and $ 13.4 million , respectively , which will expire at various dates through 2034. as of december 31 , 2014 we have federal and state tax carryovers of credits for increasing research activities ( r & d tax credits ) of approximately $ 392,000 and $ 45,000 , respectively , which will expire at various dates through 2034 . 57 as of december 31 , 2013 we had federal and state income tax nol carryovers of approximately $ 10.9 million and $ 9.8 million , respectively , which will expire at various dates through 2033. as of december 31 , 2013 we have federal and state tax carryovers of r & d tax credits of approximately $ 233,000 and $ 25,000 , respectively , which will expire at various dates through 2033. under section 382 of the internal revenue code of 1986 , as amended , if a corporation undergoes an ownership change ( generally defined as a greater than 50 % change ( by value ) in its equity ownership over a three year period ) , the corporation 's ability to use its pre-change nol carryforwards and other pre-change tax attributes to offset its post-change income may be limited . the company believes it underwent a change in ownership during 2008 , as defined by internal revenue code section 382 , and the net operating losses and research and development credits could be subject to limitation . however , we do not believe any of our nols and r & d tax credits are limited by this potential ownership change . recent accounting pronouncements in august 2014 , the fasb issued accounting standards update ( asu ) no . 2014-15 , going concern ( asu 2014-15 ) . asu 2014-15 provides gaap guidance on management 's responsibility in evaluating whether there is substantial doubt about a company 's ability to continue as a going concern and about related footnote disclosures . for each reporting period , management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company 's ability to continue as a going concern within one year from the date the financial statements are issued . the standard will be effective for annual periods ending after december 15 , 2016 , and interim periods within annual periods beginning after december 15 , 2016. early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued . upon adoption the company will use the guidance in asu 2014-15 to assess going concern . accounting standards update ( asu ) no . 2014-10 development stage entities ( topic 915 ) ; elimination of certain financial reporting requirements , including an amendment to variable interest entities , guidance in topic 810 , consolidation ( asu 2014-10 ) . in june 2014 , the financial accounting standards board ( fasb ) amended its guidance on development stage entities . the amendment removed all incremental financial reporting requirements from gaap for development stage entities . this guidance is effective for interim and annual periods beginning after december 15 , 2014 , with early adoption permitted .
| total other income ( expense ) was $ 16.7 million for the same period in 2013 and primarily consisted of the change in fair market value of warrants to purchase preferred stock warrant liabilities , convertible preferred stock rights and rights option liabilities , which were converted to common stock in connection with our initial public offering . upon our initial public offering in may 2014 , all redeemable convertible preferred stock was converted into common stock and the derivative warrant liabilities reflected on our balance sheet at december 31 , 2013 were net exercised and converted into common stock . liquidity and capital resources we have funded our operations primarily from the sale of equity securities and convertible equity securities and borrowings under our loan and security agreement . we have incurred operating losses since inception and negative cash flows from operating activities in devoting substantially all of our efforts towards research and development . at december 31 , 2014 , we had total stockholders ' equity of approximately $ 6.3 million and cash and cash equivalents of $ 8.5 million . in addition , we received net proceeds of approximately $ 9.1 million , after placement agent fees and expenses , from two private placement transactions in january 2015. during the year 59 ended december 31 , 2014 , we had net loss attributable to common stockholders of approximately $ 9.6 million , which includes non-cash items of a deemed dividend on preferred securities of $ 4.1 million and the effect of a change in fair value of preferred stock warrant liabilities of approximately $ 2.3 million . we expect to generate operating losses for the foreseeable future . in april 2012 , we entered into a loan and security agreement ( the credit facility ) with square 1 bank ( square 1 ) with availability in the amount of $ 500,000 to help fund our operations . the credit facility was subsequently amended in november 2013 to provide us with an additional $ 1.0
| 12,014 |
although in place pre-pandemic , we have further tightened our cash conservation program to manage cash flow and remain competitive in a low oil price environment . this includes optimizing receivables and payables by prioritizing payments , managing inventory to avoid buildup , monitoring discretionary spending , and delaying capital expenditures . despite this focus , management is keeping in mind the overall safety of our operations and personnel , as well as the impact to our business over the long-term . the duration of the impact of the covid-19 pandemic and the related market developments is unknown . the continued negative impact of these events on our business and operations will depend on the ongoing severity , location and duration of the effects and spread of covid-19 , the effectiveness of vaccine programs , other actions undertaken by federal , state , and local governments and health officials to contain the virus or treat its effects , and how quickly and to what extent economic conditions improve and normal business and operating conditions resume in 2021 or thereafter . a sustained period of low crude oil prices due to market volatility associated with the covid-19 pandemic may also result in significant financial constraints on producers , which could result in long term crude oil supply constraints and increased transportation costs . a failure to acquire crude oil and condensate when needed will have a material effect on our business results and operations . as a result , we may have to seek protection under bankruptcy laws . in such a case , the trading price of our common stock and the value of an investment in our common stock could significantly decrease , which could lead to holders of our common stock losing their investment in our common stock in its entirety . during the twelve-month period ended december 31 , 2020 , we received two small loans totaling $ 0.3 million in the aggregate under federal or other governmental programs to support our operations as a result of the covid-19 pandemic . these loans provided or guaranteed by the u.s. government , including pursuant to the coronavirus aid , relief and economic security act , signed into law on march 27 , 2020 , subject us to additional restrictions on our operations , including limitations on personnel headcount and compensation reductions and other cost reduction activities that could adversely affect us . blue dolphin energy company december 31 , 2020 page 39 management 's discussion and analysis debt overview . total debt and accrued interest replace_table_token_8_th net cash provided by financing activities was $ 5.4 million in ye 2020 compared to $ 8.8 million in ye 2019. net proceeds from the issuance of debt totaled $ 0.4 million in ye 2020 compared to $ 12.4 million in ye 2019. principal payments on long-term debt totaled $ 3.6 million in ye 2020 compared to $ 2.6 million in ye 2019. as of the filing date of this report , le and lrm were current on required monthly payments under secured loan agreements with veritex , but other defaults remain outstanding as noted below . nps is making partial monthly payments to pilot under the amended pilot line of credit as a tank lease setoff using amounts pilot owed to nps under two tank lease agreements . no payments have been made under the subordinated notre dame debt . debt defaults . the majority of our debt is in default . defaults under our secured loan agreements with third parties include veritex financial covenant violations , a pilot event of default and debt acceleration , and a notre dame debt event of default . we also have defaults under secured and unsecured related-party debt . see “ part ii , item 8. financial statements and supplementary data , notes ( 1 ) , ( 3 ) , ( 10 ) , and ( 11 ) ” for additional disclosures related to affiliate and third-party debt agreements , including debt guarantees , and defaults in our debt obligations . concentration of customers risk . we routinely assess the financial strength of our customers and have not experienced significant write-downs in accounts receivable balances . we believe that our accounts receivable credit risk exposure is limited . replace_table_token_9_th one of our significant customers is leh , an affiliate . the affiliate purchases our jet fuel under a jet fuel sales agreement and bids on jet fuel contracts under preferential pricing terms due to a hubzone certification . the affiliate accounted for 28.7 % and 31.3 % of total revenue from operations in 2020 and 2019 , respectively . the affiliate represented approximately $ 0 and $ 1.4 million in accounts receivable at december 31 , 2020 and 2019 , respectively . the amounts will be paid under normal business terms . amounts outstanding relating to the jet fuel sales agreement can significantly vary period to period based on the timing of the related sales and payments received . amounts we owed to leh under various long-term debt , related-party agreements totaled $ 9.1 million and $ 6.2 million at december 31 , 2020 and 2019 , respectively . see “ part i , item 1a . risk factors ” and “ part ii , item 8. financial statements and supplementary data , notes ( 3 ) and ( 16 ) ” for additional disclosures related to affiliate agreements , arrangements , and risk . blue dolphin energy company december 31 , 2020 page 40 management 's discussion and analysis contractual obligations . related-party debt agreement/transaction parties type effective date interest rate key terms amended and restated guaranty fee agreement jonathan carroll - le debt 04/01/2017 2.00 % tied to payoff of le $ 25 million veritex loan ; payments 50 % cash , 50 % common stock amended and restated guaranty fee agreement jonathan carroll - lrm debt 04/01/2017 2.00 % tied to payoff of lrm $ 10 million veritex loan ; story_separator_special_tag although in place pre-pandemic , we have further tightened our cash conservation program to manage cash flow and remain competitive in a low oil price environment . this includes optimizing receivables and payables by prioritizing payments , managing inventory to avoid buildup , monitoring discretionary spending , and delaying capital expenditures . despite this focus , management is keeping in mind the overall safety of our operations and personnel , as well as the impact to our business over the long-term . the duration of the impact of the covid-19 pandemic and the related market developments is unknown . the continued negative impact of these events on our business and operations will depend on the ongoing severity , location and duration of the effects and spread of covid-19 , the effectiveness of vaccine programs , other actions undertaken by federal , state , and local governments and health officials to contain the virus or treat its effects , and how quickly and to what extent economic conditions improve and normal business and operating conditions resume in 2021 or thereafter . a sustained period of low crude oil prices due to market volatility associated with the covid-19 pandemic may also result in significant financial constraints on producers , which could result in long term crude oil supply constraints and increased transportation costs . a failure to acquire crude oil and condensate when needed will have a material effect on our business results and operations . as a result , we may have to seek protection under bankruptcy laws . in such a case , the trading price of our common stock and the value of an investment in our common stock could significantly decrease , which could lead to holders of our common stock losing their investment in our common stock in its entirety . during the twelve-month period ended december 31 , 2020 , we received two small loans totaling $ 0.3 million in the aggregate under federal or other governmental programs to support our operations as a result of the covid-19 pandemic . these loans provided or guaranteed by the u.s. government , including pursuant to the coronavirus aid , relief and economic security act , signed into law on march 27 , 2020 , subject us to additional restrictions on our operations , including limitations on personnel headcount and compensation reductions and other cost reduction activities that could adversely affect us . blue dolphin energy company december 31 , 2020 page 39 management 's discussion and analysis debt overview . total debt and accrued interest replace_table_token_8_th net cash provided by financing activities was $ 5.4 million in ye 2020 compared to $ 8.8 million in ye 2019. net proceeds from the issuance of debt totaled $ 0.4 million in ye 2020 compared to $ 12.4 million in ye 2019. principal payments on long-term debt totaled $ 3.6 million in ye 2020 compared to $ 2.6 million in ye 2019. as of the filing date of this report , le and lrm were current on required monthly payments under secured loan agreements with veritex , but other defaults remain outstanding as noted below . nps is making partial monthly payments to pilot under the amended pilot line of credit as a tank lease setoff using amounts pilot owed to nps under two tank lease agreements . no payments have been made under the subordinated notre dame debt . debt defaults . the majority of our debt is in default . defaults under our secured loan agreements with third parties include veritex financial covenant violations , a pilot event of default and debt acceleration , and a notre dame debt event of default . we also have defaults under secured and unsecured related-party debt . see “ part ii , item 8. financial statements and supplementary data , notes ( 1 ) , ( 3 ) , ( 10 ) , and ( 11 ) ” for additional disclosures related to affiliate and third-party debt agreements , including debt guarantees , and defaults in our debt obligations . concentration of customers risk . we routinely assess the financial strength of our customers and have not experienced significant write-downs in accounts receivable balances . we believe that our accounts receivable credit risk exposure is limited . replace_table_token_9_th one of our significant customers is leh , an affiliate . the affiliate purchases our jet fuel under a jet fuel sales agreement and bids on jet fuel contracts under preferential pricing terms due to a hubzone certification . the affiliate accounted for 28.7 % and 31.3 % of total revenue from operations in 2020 and 2019 , respectively . the affiliate represented approximately $ 0 and $ 1.4 million in accounts receivable at december 31 , 2020 and 2019 , respectively . the amounts will be paid under normal business terms . amounts outstanding relating to the jet fuel sales agreement can significantly vary period to period based on the timing of the related sales and payments received . amounts we owed to leh under various long-term debt , related-party agreements totaled $ 9.1 million and $ 6.2 million at december 31 , 2020 and 2019 , respectively . see “ part i , item 1a . risk factors ” and “ part ii , item 8. financial statements and supplementary data , notes ( 3 ) and ( 16 ) ” for additional disclosures related to affiliate agreements , arrangements , and risk . blue dolphin energy company december 31 , 2020 page 40 management 's discussion and analysis contractual obligations . related-party debt agreement/transaction parties type effective date interest rate key terms amended and restated guaranty fee agreement jonathan carroll - le debt 04/01/2017 2.00 % tied to payoff of le $ 25 million veritex loan ; payments 50 % cash , 50 % common stock amended and restated guaranty fee agreement jonathan carroll - lrm debt 04/01/2017 2.00 % tied to payoff of lrm $ 10 million veritex loan ;
| gross deficit was $ 2.1 million for ye 2020 compared to a gross profit of $ 11.4 million for ye 2019. the significant decrease in gross profit between the periods primarily related to lower margins per bbl due to market fluctuations associated with the covid-19 pandemic in 2020. general and administrative expenses . general and administrative expenses decreased nearly 14 % to $ 2.3 million from $ 2.7 million in ye 2019. the decrease related to significantly lower legal expenses in ye 2020 compared to ye 2019. depletion , depreciation and amortization . depletion , depreciation , and amortization expenses for ye 2020 totaled approximately $ 2.7 million compared to approximately $ 2.5 million in ye 2019. the nearly 8 % increase primarily related to placing a petroleum storage tank in service . total other income ( expense ) . total other expense in ye 2020 was $ 6.6 million compared to total other income of $ 1.9 million in ye 2019 , representing a decrease of $ 8.5 million . total other expense in ye 2020 primarily related to interest expense associated with our secured loan agreements with veritex , related-party debt , and the line of credit with pilot . total other income in ye 2019 included a $ 9.1 million gain on the extinguishment of debt related to the gel settlement , which was offset by interest and other expense of $ 7.2 million . blue dolphin energy company december 31 , 2020 page 37 management 's discussion and analysis refinery operations . our refinery operations business segment is owned by le . assets within this segment consist of a light sweet-crude , 15,000-bpd crude distillation tower , petroleum storage tanks , loading and unloading facilities , and approximately 56 acres of land . refinery operations revenue is derived from refined product sales . replace_table_token_4_th replace_table_token_5_th ( 1 ) net revenue excludes intercompany crude sales . ye 2020 versus ye 2019 ● refining gross deficit per bbl was $ 1.60 for ye 2020 compared to a gross profit per bbl of $ 1.56 in ye 2019 , representing a decrease
| 12,015 |
the gross price realization for the year ended december 31 , 2019 and december 31 , 2018 is based on a volume weighted-average platts index price , the year december 31 , 2017 is based on a volume weighted average of the three-month average of the platts index , the steel index ( `` tsi '' ) premium coking coal index and the argus index on a one month lag during each quarter ( the `` australian lv index '' ) . segment adjusted ebitda we define segment adjusted ebitda as net income adjusted for other revenues , cost of other revenues , depreciation and depletion , selling , general and administrative , and certain transactions or adjustments that the ceo , our chief operating decision maker does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance . segment adjusted ebitda is used as a supplemental financial measure by management and by external users of our financial statements , such as investors , industry analysts , lenders and ratings agencies , to assess : our operating performance as compared to the operating performance of other companies in the coal industry , without regard to financing methods , historical cost basis or capital structure ; the ability of our assets to generate sufficient cash flow to pay distributions ; our ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities , such as blue creek . 62 sales volumes , gross price realization and average net selling price we evaluate our operations based on the volume of coal we can safely produce and sell in compliance with regulatory standards , and the prices we receive for our coal . our sales volume and sales prices are largely dependent upon the terms of our coal sales contracts , for which prices generally are set on daily index averages or a quarterly basis . the volume of coal we sell is also a function of the pricing environment in the international met coal markets and the amounts of lv and mv coal that we sell . we evaluate the price we receive for our coal on two primary metrics : first , our gross price realization and second , our average net selling price per metric ton . in the first quarter of 2018 , we changed our gross price realization calculation to no longer be based on the quarterly australian lv index average due to this index being on a one-month lag basis and not closely correlating with the timing of our shipments . our gross price realization now represents a volume weighted-average calculation of our daily realized price per ton based on the blended gross sales of our lv and mv coal , excluding demurrage and quality specification adjustments , as a percentage of the platts index daily price . our gross price realizations reflect the premiums and discounts we achieve on our lv and mv coal versus the platts index price because of the high quality premium products we sell into the export markets . in addition , the premiums and discounts in a quarter or year can be impacted by a rising or falling price environment . on a quarterly basis , our blended gross selling price per metric ton may differ from the platts index price per metric ton , primarily due to our gross sales price per ton being based on a blended average of gross sales price on our lv and mv coals as compared to the platts index price and due to the fact that many of our met coal supply agreements are based on a variety of indices . our average net selling price per metric ton represents our coal net sales revenue divided by total metric tons of coal sold . in addition , our average net selling price per metric ton is net of the previously mentioned demurrage and quality specification adjustments . cash cost of sales we evaluate our cash cost of sales on a cost per metric ton basis . cash cost of sales is based on reported cost of sales and includes items such as freight , royalties , manpower , fuel and other similar production and sales cost items , and may be adjusted for other items that , pursuant to gaap , are classified in the statements of operations as costs other than cost of sales , but relate directly to the costs incurred to produce met coal and sell it free-on-board at the port of mobile . our cash cost of sales per metric ton is calculated as cash cost of sales divided by the metric tons sold . cash cost of sales is used as a supplemental financial measure by management and by external users of our financial statements , such as investors , industry analysts , lenders and ratings agencies , to assess : our operating performance as compared to the operating performance of other companies in the coal industry , without regard to financing methods , historical cost basis or capital structure ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities , such as blue creek . we believe that this non-gaap financial measure provides additional insight into our operating performance , and reflects how management analyzes our operating performance and compares that performance against other companies on a consistent basis for purposes of business decision making by excluding the impact of certain items that management does not believe are indicative of our core operating performance . we believe that cash costs of sales presents a useful measure of our controllable costs and our operational results by including all costs incurred to produce met coal and sell it free-on-board at the port of mobile . story_separator_special_tag period-to-period comparisons of cash cost of sales are intended to help management identify and assess additional trends potentially impacting our company that may not be shown solely by period-to-period comparisons of cost of sales . cash cost of sales should not be considered an alternative to cost of sales or any other measure of financial performance or liquidity presented in accordance with gaap . cash cost of sales excludes some , but not all , items that affect cost of sales , and our presentation may vary from the presentations of other companies . as a result , cash cost of sales as presented below may not be comparable to similarly titled measures of other companies . 63 the following table presents a reconciliation of cash cost of sales to total cost of sales , the most directly comparable gaap financial measure , on a historical basis for each of the periods indicated . replace_table_token_7_th adjusted ebitda we define adjusted ebitda as net income before net interest expense , income tax expense ( benefit ) , depreciation and depletion , non-cash asset retirement obligation accretion , non-cash stock compensation expense , transaction and other costs , loss on early extinguishment of debt and other income . adjusted ebitda is used as a supplemental financial measure by management and by external users of our financial statements , such as investors , industry analysts , lenders and ratings agencies , to assess : our operating performance as compared to the operating performance of other companies in the coal industry , without regard to financing methods , historical cost basis or capital structure ; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities , such as blue creek . we believe that the presentation of adjusted ebitda in this annual report provides information useful to investors in assessing our financial condition and results of operations . the gaap measure most directly comparable to adjusted ebitda is net income . adjusted ebitda should not be considered an alternative to net income or loss or any other measure of financial performance or liquidity presented in accordance with gaap . adjustments excludes some , but not all , items that affect net loss and our presentation of adjusted ebitda may vary from that presented by other companies . the following table presents a reconciliation of adjusted ebitda to net income ( loss ) , the most directly comparable gaap financial measure , on a historical basis for each of the periods indicated . replace_table_token_8_th ( 1 ) represents non-cash accretion expense and valuation adjustment associated with our asset retirement obligations ( see note 8 to our consolidated financial statements ) . ( 2 ) represents non-cash stock compensation expense associated with equity awards . 64 ( 3 ) represents non-recurring costs incurred by the company in connection with the offering of the notes ( see note 13 to our consolidated financial statements ) , the secondary equity offerings ( as defined in note 17 ) , and our ipo ( see note 1 ) . ( 4 ) represents a loss incurred in connection with the early extinguishment of debt ( see note 13 to our consolidated financial statements ) ( 5 ) represents settlement proceeds received for the shared services claim and hybrid debt claim associated with the walter canada ccaa ( each discussed below ) . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2.7 % of total revenues for the year ended december 31 , 2018 . transaction and other costs were $ 9.1 million , or 0.7 % for the year ended december 31 , 2018 which was comprised primarily of professional fees incurred in connection with the issuance of the new notes and the secondary equity offerings ( as defined in notes 13 and 17 to our consolidated financial statements ) . interest expense , net was $ 29.3 million , or 2.3 % of total revenues , for the year ended december 31 , 2019 , compared to $ 37.3 million , or 2.7 % of total revenues , for the year ended december 31 , 2018 . the $ 8.0 million decrease was primarily driven by the retirement of debt of $ 131.6 million in the first quarter of 2019. interest expense , net is comprised of interest on our senior secured notes and amortization of our abl facility and senior secured notes debt issuance costs offset partially by earned interest income . for the year ended december 31 , 2019 , we recognized a loss on early extinguishment of debt of $ 9.8 million upon the extinguishment of $ 131.6 million of our notes ( as defined below ) . the loss on early extinguishment of debt represents a premium paid to retire the debt , accelerated amortization of debt discount , net , and fees incurred in connection with the transactions . other income was $ 22.8 million , or 1.8 % of total revenues , for the year ended december 31 , 2019 . in connection with our acquisition of certain core operating assets of walter energy , we acquired a receivable owed to walter energy by walter canada for certain shared services provided by walter energy to walter canada ( the “ shared services claim ” ) and a receivable for unpaid interest owed to walter energy from walter canada in respect of a promissory note ( the “ hybrid debt claim ” ) . each of these claims were asserted by us in the walter canada ccaa proceedings . walter energy deemed these receivables to be uncollectable for the year ended december 31 , 2015 and we did not assign any value to these receivables in acquisition accounting as collectability was deemed remote . in 2019 , we received $ 22.8 million in settlement proceeds for the shared services claim and hybrid debt claim which is reflected as other income in the statements of operations .
| the following list highlights our key accomplishments for the year ended december 31 , 2019 : through strong operational and financial performance , we were able to increase our guidance targets for 2019 and produced and sold record high volumes ; we achieved a record annual sales volume of 7.2 million metric tons and lowest annual cash cost of sales per metric ton of $ 99.15 ; we recorded our best ever annual production volume of 7.7 million metric tons , while achieving a record low safety incident rate at the mines of 2.30 ; we successfully retired $ 131.6 million aggregate principal amount of our notes through the restricted payment offer ( as defined below ) and tender offer ( as defined below ) to permit up to $ 299.0 million in stockholder returns ; we demonstrated an ongoing commitment to returning capital to our stockholders , including $ 240.4 million of special dividends and our regular $ 0.05 per share quarterly dividends ; we implemented the new stock repurchase program ( as defined below ) of $ 70.0 million after fully exhausting the first stock repurchase program ( as defined below ) of $ 40.0 million and repurchased 0.6 million shares of the company 's common stock , totaling $ 12.5 million ; we amended our abl facility to generally conform certain definitions with the corresponding definitions of these terms in our indenture governing the notes ; and we successfully completed five longwall operation moves during 2019. sales were $ 1.2 billion for the year ended december 31 , 2019 , compared to $ 1.3 billion for the year ended december 31 , 2018 . the $ 106.7 million decrease in revenues was primarily driven by a $ 166.5 million decrease in revenue related to a $ 23.00 decrease in the average selling price per metric ton of met coal offset partially by a $ 59.9 million increase in revenue due to a 0.3 million metric ton increase in met coal sales volume . other revenues for the year ended december 31 , 2019 were $ 32.3 million compared to $ 35.3 million for the year ended december 31 , 2018 . other revenues are comprised of revenue derived from our natural gas operations , as well as earned royalty revenue . the $ 3.0 million decrease in other revenues is primarily due to an 18 % decrease in gas sales driven by a decrease in natural gas prices and production during 2019. cost of sales ( exclusive of items shown separately below ) was $ 720.7 million , or 56.8 % of total revenues for the
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● our employees . our top priority during the covid-19 pandemic is protecting our employees ' health and safety around the world . as the covid-19 pandemic expanded globally during the spring of 2020 , we activated our strategic initiative plan and transitioned a significant number of our employees to a fully remote working environment in nearly all of our locations worldwide and restricted almost all business travel . throughout the pandemic , our goal has been to ensure that our employees feel safe and secure while having the flexibility and resources necessary to perform their jobs effectively . these efforts have included providing additional equipment to employees for working remotely and providing various benefits to promote our employees ' physical and mental well-being . we believe our employees have been able to remain productive during the covid-19 pandemic and that our operations have not been materially impacted by our employees primarily working on a remote basis . still , the continuation of the pandemic will place strains on our employees . as the pandemic 's progression continues , we will continue to monitor and follow guidance from authorities and health officials in the locations where we operate and modify our working environments around the world appropriately . our financial condition and operating results could be materially and adversely affected , decrease productivity , harm our company cultures , or negatively affect our business , to the extent of current or future actions . ● our network . the change in everyday behavior caused by the covid-19 pandemic during the year ended december 31 , 2020 , has resulted in an increased reliance on the internet , increased internet traffic , and a geographic migration of internet traffic from office-focused areas ( like city centers and business parks ) to more residential areas ( like suburbs and outlying towns ) . we believe that traffic on the internet and on our network that we use to provide our products to our customers worldwide will remain elevated while the isolation mandates across the globe stay in place or where significantly greater numbers of workers continue remote work than was the case before the pandemic . the periodically lifting of isolation mandates impose an uncertainty about the impact on internet traffic levels and work locations as more workers begin to return to working in office environments instead of remotely . ● our customers . the covid-19 pandemic and the measures taken by governments worldwide to contain the spread of covid-19 are materially and adversely impacting many of our current and potential customers . this impact has negatively impacted our business operations , results of operations , financial condition , and cash flows . depending on the pandemic 's future progression , we may experience a future slowing in our collections of outstanding accounts receivables from some of our customers . we will work harmoniously with our existing customer base to ameliorate any negative impacts . the concentration of our sales efforts on industries that are more insulated from the fiscal impact is an option of our marketing strategy . however , there can be no assurance that these efforts will be successful . for further discussion of the challenges and risks we confront related to the covid-19 pandemic , and otherwise , please refer to part i , item 1a “ risk factors ” of this annual report on form 10-k. 31 story_separator_special_tag interest expense for years ended december 31 , 2020 , and 2019 were $ 0.1 million and $ 1.9 million , respectively , representing a decrease of $ 1.8 million or 95 % . the decline is attributable to the payoff of approximately $ 6.3 million of convertible promissory notes in the fiscal year 2019. net loss net losses for the years ended december 31 , 2020 , and 2019 were $ 17.6 million and $ 18.0 million , respectively , representing a decrease of $ 0.4 million or 2 % . the reduction in the company 's net loss has been due in part to the company 's implementation of cost-saving strategic initiatives in response to uncertainties of the economic climate brought on by the covid-19 pandemic . even with vaccinations underway , new vaccine development , and approval , management is uncertain about the predictability of future events caused by the pandemic . the company will continue to attempt to mitigate unexpected conditions brought by the future influence of the covid-19 pandemic , domestically and worldwide . liquidity and capital resources the company incurred a loss from operations of approximately $ 17.9 million and cash used in operating activities of $ 14.4 million for the year ended december 31 , 2020. the company had $ 7.7 million in working capital , $ 270.1 million in accumulated deficits , and $ 5.2 million of cash on hand as of december 31 , 2020. additionally , as of april 14 , 2021 , our cash on hand is approximately $ 59.3 million . the covid-19 pandemic and interrelated economic uncertainties continue to create significant volatility . to mitigate any concern that the company may not have the ability to continue as a going concern , the company activated liquidity preservation arrangements intended to alleviate uncertainty about our potential to fund operations . strategic initiatives the company activated liquidity preservation actions in late march and early april of the fiscal year 2020 , including : ● implementation of proactive spending reductions to improve liquidity , including a partial workforce reduction , the furlough of employees , reduced discretionary spending , resulting in a projected annual savings of approximately $ 5.0 million . ● effective may 1 , 2020 , the company entered into new lease arrangements at two recent locations in hackettstown , nj , on a 90-day cycle for each site , effectively lowering rental fees by approximately 81 % . story_separator_special_tag paycheck protection program ( “ ppp ” ) and liquidity further , we benefited from the support afforded to us under the coronavirus aid , relief , and economic security act ( “ cares act ” ) , which provided temporary relief related to maintaining payroll and some overhead expenses through the period of emergency . the stated goal is to keep workers paid and employed during the period of the crisis . the company received approximately $ 1.2 million on april 10 , 2020 , under the ppp sponsorship , in the form of a promissory note , as discussed further in note 10 . 34 capital-raising events the company has been able to raise funds as follows successfully : ● on february 14 , 2020 , the company closed on an equity financing and received gross proceeds of approximately $ 5,998,000 , less offering costs of $ 712,000 for net proceeds of $ 5,286,000. the company issued 2,074,167 shares of common stock , 2,074,167 warrants to purchase 1,555,625 shares of common stock , 2,471,200 pre-funded warrants with each pre-funded warrant exercisable for one share of common stock , together with 2,471,200 warrants to purchase 1,853,400 shares of common stock . ● on may 5 , 2020 , the company filed a shelf registration statement on form s-3 with the u.s. securities and exchange commission ( “ sec ” ) and declared effective on may 13 , 2020. during the year ended december 31 , 2020 , the company 's access to the shelf registration features effected the issuance of 6,508,860 shares of common stock , receiving gross proceeds of approximately $ 12,548,000 , less offering costs of $ 488,000 for net proceeds of $ 12,060,000 . ● as described in note 20 ( subsequent events ) , the company raised approximately $ 12,663,000 , less offering costs of 392,000 for net proceeds of $ 12,271,000 between january 1 , 2021 , and april 14 , 2021 under the may 5 , 2020 shelf registration . furthermore , on february 8 , 2021 , the company closed on an equity financing and received gross proceeds of approximately $ 50,000,000 , less offering costs of $ 3,180,000 for net proceeds of $ 46,820,000. the company issued 18,181,120 shares of common stock , supplemented by 9,090,910 five-year warrants with an exercise price of $ 3.25 per share exercisable for one share each of common stock . together , with the capital raises , the ppp loan , and the company-wide protocols invoked as a result of the worldwide consequences encountered from the covid-19 health emergency and based on forward-looking estimates of our business operations and outcome , we believe we will have sufficient funds to continue our operations for at least twelve months from the date of these financial statements . the ability to recognize revenue and cash receipts is contingent upon , but not limited to , acceptable performance of the delivered equipment and services . the extent to which covid-19 continues to impact the company 's operations , results of operations , liquidity , and financial condition will depend on future developments . the timing and efficacy of the vaccination programs in the jurisdictions in which the company operates , and the actions implemented to contain the impact of covid-19 by federal and local governments , limit determining the foreseeable resulting economic effects with any level of predictability . our operations primarily have been funded through cash generated by debt and equity financing . cash consists of cash on hand and demand deposits . our cash balances were as follows ( in thousands ) : year ended december 31 , 2020 year ended december 31 , 2019 cash $ 5,190 $ 1,737 cash flows the following table sets forth the major components of our consolidated statements of cash flows data for the periods presented ( in thousands ) . replace_table_token_1_th operating activities net cash used in operating activities of approximately $ 14.4 million during the year ended december 31 , 2020 , was principally attributable to our net loss of $ 17.6 million , a decrease of $ 2.7 million of accounts payable , a decrease of $ 1.9 million in deferred revenue and customer deposits , a decrease of $ 1.3 million of inventory , partially offset by an increase of $ 1.5 million of accounts receivable , and $ 1.4 million of depreciation and amortization . net cash used in operating activities of approximately $ 8.4 million during the year ended december 31 , 2019 , was primarily attributable to our net loss of $ 18.0 million , a change in the fair value of derivative liabilities of $ 1.1 million , a decrease of accounts receivable and operating lease liabilities of $ 0.9 million each , a decrease of accounts payable of $ 0.6 million , partially offset by stock-based compensation of $ 2.1 million , depreciation and amortization of $ 2.4 million , inventory valuation adjustments of $ 4.7 million , an increase in deferred revenue and customer deposits of $ 1.2 million , and an increase in inventory of $ 0.8 million . 35 investing activities net cash used in investing activities of $ 0.3 million during the year ended december 31 , 2020 , was primarily due to equipment purchases . net cash used in investing activities of $ 0.4 million during the year ended december 31 , 2019 , was primarily due to equipment purchases . financing activities net cash provided by financing activities of $ 18.0 million during the year ended december 31 , 2020 , was primarily due to the net proceeds received from an equity financing of $ 18.5 million , principally offset by principal payments made on convertible promissory notes of $ 0.5 million . net cash provided by financing activities of $ 8.5 million during the year ended december 31 , 2019 , was primarily due to the net proceeds received from an equity financing of $ 14.4 million , principally offset by principal payments made on convertible promissory notes of $ 6.0 million .
| the decline is attributable discontinuance of specific product lines under the company 's strategic initiative plan . general and administrative expenses general and administrative expenses are costs incurred in operating the business daily and include salary and benefit expenses , including stock-based compensation and payroll taxes , as well as the costs of trade shows , marketing programs , promotional materials , professional services , facilities , general liability insurance , travel and expenses associated with being a public company . for the years ended , general and administrative expenses ended december 31 , 2020 , and 2019 were $ 17.0 million and $ 20.1 million , respectively , representing a decrease of $ 3.1 million or 15 % . the reduction is primarily attributable to a decline of $ 1.8 million of salaries and benefits , $ 1.5 million of stock-based compensation , and $ 0.5 million each for rent and utilities , travel and management , and management fees . an increase of $ 0.6 million in miscellaneous expenses , $ 0.5 million in legal fees , and $ 0.5 million in costs in maintaining a publicly held company offset the reduction . we executed a strategic initiative in early 2020 in mitigation of the potential impact of the covid-19 pandemic . the program included proactive spending reductions to improve liquidity , including a partial workforce reduction , the furlough of employees , reduced discretionary spending , revealing notable savings in the company 's general and administrative expenses illustrated above . we remain uncertain of the extent of the covid-19 pandemic 's future impact on our operations or whether it will result in business disruptions and the possible severity . it is indeterminable to assess the duration or lasting impact the pandemic will have on the economy . with vaccinations underway , new vaccines receive emergency approval from the fda , emphasizing workforce safety and security , cost management , and enterprise agility will continue . research and development research and development expenses consist primarily of salary and benefit expenses , including stock-based compensation and payroll taxes and prototypes , facilities , and travel
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as global gdp per capita increases , the composition of daily caloric intake is expected to shift away from the direct consumption of primary crops toward animal-based proteins , which is expected to result in increased demand for primary crops as feed for livestock . according to the united nations ' food and agriculture organization ( “ un fao ” ) , these factors are expected to require more than one billion additional tons of global annual grain production by 2050 , a 43 % increase from 2005-2007 levels and more than two times the 446 million tons of grain produced in the united states in 2014. furthermore , we believe that , as gdp per capita grows , a significant portion of additional household income is allocated to food and that once individuals increase consumption of , and spending on , higher quality food , they will strongly resist returning to their former dietary habits , resulting in greater inelasticity in the demand for food . as a result , we believe that , as global demand for food increases , rental rates on our farmland and the value of our farmland will increase over the long-term . global demand for corn and soybeans as inputs in the production of biofuels such as ethanol and soy diesel also could impact the prices of corn and soybeans , which , in the long-term , could impact our rental revenues and our results of operations . however , the success of our business strategy is not dependent on growth in demand for biofuels and we do not believe that demand for corn and soybeans as inputs in the production of biofuels will materially impact our results of operations or the value of our farmland , primarily because we believe that growth in global population and gdp per capita will be more significant drivers of global demand for primary crops over the long term . supply global supply of agricultural commodities is driven by two primary factors , the number of tillable acres available for crop production and the productivity of the acres being farmed . although the amount of global cropland in use has gradually increased over time , growth has plateaued over the last 20 years . cropland area continues to increase in developing countries , but after accounting for expected continuing cropland loss , the un fao projects only 173 million acres will be added from 2005-2007 to 2050 , an approximate 5 % increase . in comparison , world population is expected to grow over the same period to 9.1 billion , a nearly 40 % increase . according to the world bank group arable land per capita has decreased by approximately 50 % from 1961 to 2015. while we expect growth in the global supply of arable land , we also expect that landowners will only put that land into production if increases in commodity prices and the value of farmland cause landowners to benefit economically from using the land for farming rather than alternative uses . we also believe that decreases in the amount of arable land in the united states and globally as a result of increasing urbanization will partially offset the impact of additional supply of farmland . additionally , we believe that farmland lost to urban development disproportionately impacts higher quality farmland . according to a study published in 2017 in the proceedings of the national academy of sciences , urban expansion is expected to take place on cropland that is 1.77 times more productive than the global average.the global supply of food is also impacted by the productivity per acre of tillable land . historically , productivity gains ( measured by average crop yields ) have been driven by advances in seed technology , farm equipment , irrigation techniques , improvements in soil health , and chemical fertilizers and pesticides . furthermore , we expect the increasing shortage of water in many irrigated growing regions in the united states and other growing regions around the globe , often as a result of new water restrictions imposed by laws or regulations , to lead to decreased productivity growth on many acres and , in some cases , cause yields to decline on those acres . 41 conditions in our existing markets our portfolio spans numerous farmland markets and crop types , which provides us broad diversification across conditions in these markets . across all regions , farmland acquisitions continue to be dominated by buyers who are existing farm owners and operators ; institutional and investor acquirors remain a small fraction of the industry . we generally see firm demand for high quality properties across all regions and crop types . with regard to leasing dynamics , we believe quality farmland in the united states has a near-zero vacancy rate as a result of the supply and demand fundamentals discussed above . our view is that rental rates for farmland are a function of farmland operators ' view of the long-term profitability of farmland , and that many farm operators will compete for farmland even during periods of decreased profitability due to the scarcity of farmland available to rent . in particular , we believe that due to the relatively high fixed costs associated with farming operations ( including equipment , labor and knowledge ) , many farm operators in some circumstances will rent additional acres of farmland when it becomes available in order to allocate their fixed costs over additional acres . furthermore , because it is generally customary in the industry to provide the existing tenant with the opportunity to re-lease the land at the end of each lease term , we believe that many farm operators will rent additional land that becomes available in order to control the ability to farm that land in future periods . as a result , in our experience , many farm operators will aggressively pursue rental opportunities in their operable geographic area , even when the farmer anticipates lower current returns or short-term losses . story_separator_special_tag in our primary row crop farmland , we see flat to modestly higher rent rates in connection with 2020 lease renewals . this is consistent with , on the one hand , headwinds in primary crop markets and , on the other , tenant demand for leasing high quality farmland . due to the short term nature of most of our primary crop leases , we believe that a recovery of crop prices and farm profitability will be reflected relatively rapidly in our revenues via increases in rent rates . across specialty crops , operator profitability is under some pressure . participating lease structures are common in many specialty crops and base lease rates are consistent with or somewhat lower than 2019. lease expirations farm leases are often short-term in nature among row crop farms , and longer term in nature among permanent crop farms in our portfolio . as of december 31 , 2019 our portfolio had the following lease expirations as a percentage of approximate acres leased and annualized minimum cash rents : replace_table_token_4_th as of the date of this report , 674 total acres are unleased and we are currently negotiating leases for all of them . rental revenues our revenues are primarily generated from renting farmland to operators of farming businesses . our leases have terms ranging from one to 25 years , with three being the most common . although the majority of our leases do not provide the tenant with a contractual right to renew the lease upon its expiration , we believe it is customary to provide the existing tenant with the opportunity to renew the lease , subject to any increase in the rental rate that we may establish . if the tenant elects not to renew the lease at the end of the lease term , the land will be offered to a new tenant . the leases for the majority of the properties in our portfolio provide that tenants must pay us at least 50 % of the annual rent in advance of each spring planting season . as a result , we collect a significant portion of total annual rents in the first calendar quarter of each year . we believe our use of leases pursuant to which at least 50 % of the annual rent is payable 42 in advance of each spring planting season mitigates the tenant credit risk associated with the variability of farming operations that could be adversely impacted by poor crop yields , weather conditions , mismanagement , undercapitalization or other factors affecting our tenants . tenant credit risk is further mitigated by requiring that our tenants maintain crop insurance and by our claim on a portion of the related proceeds , if any , as well as by our security interest in the growing crop . prior to acquiring farmland property , we take into consideration the competitiveness of the local farm-operator tenant environment in order to enhance our ability to quickly replace a tenant that is unwilling to renew a lease or is unable to pay a rent payment when it is due . some of our leases provide for a reimbursement of the property taxes we pay . expenses substantially all of our farm leases are structured in such a way that we are responsible for major maintenance , certain insurance and taxes ( which are sometimes reimbursed to us by our tenants ) , while our tenant is responsible for minor maintenance , water usage and all of the additional input costs related to farming operations on the property , such as seed , fertilizer , labor and fuel . we expect that substantially all of the leases for farmland we acquire in the future will continue to be structured in a manner consistent with substantially all of our existing leases . as the owner of the land , we generally only bear costs related to major capital improvements permanently attached to the property , such as irrigation systems , drainage tile , grain storage facilities , permanent plantings or other physical structures customary for farms . in cases where capital expenditures are necessary , we typically seek to offset , over a period of multiple years , the costs of such capital expenditures by increasing rental rates . we also incur the costs associated with maintaining liability and casualty insurance . we incur costs associated with running a public company , including , among others , costs associated with employing our personnel and compliance costs . we incur costs associated with due diligence and acquisitions , including , among others , travel expenses , consulting fees , and legal and accounting fees . we also incur costs associated with managing our farmland . the management of our farmland , generally , is not labor or capital intensive because farmland generally has minimal physical structures that require routine inspection and maintenance , and our leases , generally , are structured to require the tenant to pay many of the costs associated with the property . furthermore , we believe that our platform is scalable , and we do not expect the expenses associated with managing our portfolio of farmland to increase significantly as the number of farm properties we own increases over time . crop prices we believe short-term crop price changes have had little effect historically on farmland values . they also have a limited impact on our rental revenue , as most of our leases provide for a fixed cash rental rate , a common approach in agricultural markets , especially with respect to row crops , for several reasons . this approach recognizes that the value of leased land to a tenant is more closely linked to the total revenue produced on the property which is driven by crop yield and crop price . this approach simplifies the administrative requirements for the landlord and the tenant significantly .
| this is the result of a decreased number of supplemental property tax invoices charged to us and reimbursed by tenants , which are largely related to leases on properties in the state of california , offset by an increase in property taxes reimbursed . crop sales increased $ 0.6 million , or 138.5 % , for the year ended december 31 , 2019 as compared to the prior year . the increase is the result of a larger number of properties directly operated by the company . other revenues totaled $ 1.3 million during both the year ended december 31 , 2019 and the prior year . depreciation , depletion and amortization expense decreased $ 0.2 million , or 2.6 % , for the year ended december 31 , 2019 as compared to the prior year as a result of selling approximately $ 5.1 million in depreciable assets in 2019. property operating expenses increased $ 0.1 million , or 0.8 % , in the year ended december 31 , 2019 as compared to the prior year . the increase largely relates to clean up costs on farms in the southeast region as a result of hurricane michael in the fourth quarter of 2018 and the initial accounting of a sales-type equipment lease in the third quarter of 2019 , partially offset by a reduction due to asset sales . acquisition and due diligence costs totaled $ 0.0 million for the year ended december 31 , 2019 as compared to $ 0.2 million recognized in the prior year . the decrease is due to a reduction in acquisition activity . general and administrative expenses declined by $ 1.4 million , or 18.4 % , for the year ended december 31 , 2019 as compared to the prior year . the decrease is largely due to lower overall payroll costs for employees . legal and accounting expenses increased $ 1.6 million , or 70.4 % , for the year ended december 31 , 2019 as compared to the prior year .
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we have outlined three key priorities for fiscal 2021 that we expect will allow us to generate competitive performance while continuing to advance our long-term goals : 1 ) compete effectively , everywhere we play , leading to increased brand penetration , competitive service levels , strengthened customer partnerships , and market share gains in our key categories . we expect net sales growth in fiscal 2021 will be positively impacted by superior execution as well as elevated at-home food demand , relative to the pre-pandemic period . we anticipate headwinds to fiscal 2021 net sales growth from comparisons against the 53rd week , the extra month of pet segment results , and the pandemic-related increase in demand in the fourth quarter of fiscal 2020. additionally , fiscal 2021 net sales growth may be negatively impacted by a potential reduction in consumers ' at-home food inventory , which has been elevated during the pandemic . 2 ) drive efficiency to fuel investment . we anticipate that the combination of benefits from our hmm initiatives and volume leverage and headwinds from input cost inflation , increased investment in our brands and capabilities , higher costs to service elevated demand , and higher ongoing health and safety-related expenses will result in an adjusted operating profit margin that is approximately in line with fiscal 2020 levels . 3 ) reduce leverage to increase financial flexibility . we expect to make further progress in fiscal 2021 in reducing our net debt-to-adjusted ebitda ratio . we expect the largest factor impacting our fiscal 2021 performance will be relative balance of at-home versus away-from-home consumer food demand . this balance will be determined by factors such as consumers ' ability and willingness to eat in restaurants , the proportion of people working from home , the reopening of schools , and changes in consumers ' income levels . while the covid-19 pandemic has significantly influenced each of these factors in recent months , the magnitude and duration of its future impact remains highly uncertain . we expect consumer concerns about covid-19 virus transmission and the recession to drive elevated demand for food at home , relative to pre-pandemic levels . we are tracking the level of virus control , the possibility of a second-wave outbreak , the availability of a vaccine , gdp growth , unemployment rates , consumer confidence , and wage growth , among other factors , to assess the likely magnitude and duration of elevated at-home food demand . certain terms used throughout this report are defined in a glossary in item 8 of this report . story_separator_special_tag style= '' vertical-align : bottom ; width : 2 % ; border-bottom : solid # 000000 1pt ; padding-left : 2.00pt ; padding-right : 2.00pt ; background : # cceeff ; padding-top : 0 ; padding-bottom : 0 '' > % ( a ) see the `` non-gaap measures '' section below for our use of measures not defined by gaap . consolidated net sales were as follows : replace_table_token_3_th the 5 percent increase in net sales in fiscal 2020 reflects higher contributions from volume growth and favorable net price realization and mix , partially offset by unfavorable foreign currency exchange . the 53 rd week in fiscal 2020 contributed 2 percentage points of net sales growth , reflecting 2 percentage points of growth from volume . the fiscal 2020 increase in net sales growth includes approximately 3 points of net sales growth due to the impact of the covid-19 pandemic . components of organic net sales growth are shown in the following table : fiscal 2020 vs. fiscal 2019 contributions from organic volume growth ( a ) 2 pts organic net price realization and mix 2 pts organic net sales growth 4 pts foreign currency exchange ( 1 ) pt divestitures flat 53rd week 2 pts net sales growth 5 pts note : table may not foot due to rounding ( a ) measured in tons based on the stated weight of our product shipments . organic net sales in fiscal 2020 increased 4 percent compared to fiscal 2019 , driven by increased contributions from organic volume growth and favorable organic net price realization and mix . the increase in organic net sales growth includes approximately 3 points of organic net sales growth due to the impact of the covid-19 pandemic . the disclosed impacts attributable to the covid-19 pandemic on net sales and organic net sales were calculated based upon net sales in excess of our expectations prior to the net increase in demand resulting from the covid-19 pandemic . the impacts disclosed are approximate and reflect our best estimate of the impact of the covid-19 pandemic . cost of sales increased $ 388 million in fiscal 2020 to $ 11,497 million . the increase was primarily driven by a $ 397 million increase due to higher volume . in fiscal 2020 , we recorded a $ 19 million charge related to a product recall in our international green giant business , an $ 18 million increase in certain compensation and benefits expenses , and a $ 1 million increase attributable to product rate and mix . in fiscal 2019 , we recorded a $ 53 million charge related to the fair value adjustment of inventory acquired in the blue buffalo acquisition . we recorded a $ 25 million net increase in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories in fiscal 2020 compared to a net increase of $ 36 million in fiscal 2019 ( please see note 8 to the consolidated financial statements in item 8 of this report for additional information ) . in fiscal 2020 , we recorded $ 26 million of 20 restructuring charges in cost of sales compared to $ 10 million in fiscal 2019. we also recorded $ 2 million of restructuring initiative project-related costs in cost of sales in fiscal 2020 compared to $ 1 million in fiscal 2019 ( please see note 4 to the consolidated financial statements in item 8 of this report for additional information ) . story_separator_special_tag gross margin increased 6 percent in fiscal 2020 versus fiscal 2019. gross margin as a percent of net sales increased 70 basis points to 34.8 percent compared to fiscal 2019. sg & a expenses increased $ 216 million to $ 3,152 million in fiscal 2020 compared to fiscal 2019. the increase in sg & a expenses primarily reflects increased compensation and benefits expenses and media and advertising expenses , partially offset by lower other consumer-related expenses . sg & a expenses as a percent of net sales in fiscal 2020 increased 50 basis points compared to fiscal 2019. divestitures loss totaled $ 30 million in fiscal 2019 from the sale of our la salteña fresh pasta and refrigerated dough business in argentina and the sale of our yogurt business in china . restructuring , impairment , and other exit costs totaled $ 24 million in fiscal 2020 compared to $ 275 million in fiscal 2019. we did not undertake any new restructuring actions in fiscal 2020. in fiscal 2019 , we recorded $ 193 million of impairment charges related to certain brand intangible assets and a $ 15 million charge related to the impairment of certain manufacturing assets in our north america retail and asia & latin america segments . in fiscal 2019 , we also recorded $ 80 million of restructuring charges related to actions to drive efficiencies in targeted areas of our global supply chain . please see note 4 to the consolidated financial statements in item 8 of this report for additional information . benefit plan non-service income totaled $ 113 million in fiscal 2020 compared to $ 88 million in fiscal 2019 , primarily reflecting lower interest costs ( please see note 2 to the consolidated financial statements in item 8 of this report for additional information ) . interest , net for fiscal 2020 totaled $ 466 million , $ 56 million lower than fiscal 2019 , primarily driven by lower average debt levels . our effective tax rate for fiscal 2020 was 18.5 percent compared to 17.7 percent in fiscal 2019. the 0.8 percentage point increase was primarily due to certain nonrecurring discrete tax benefits in fiscal 2019 , partially offset by the benefit from the reorganization of certain wholly-owned subsidiaries and favorable changes in earnings mix by jurisdiction in fiscal 2020. our adjusted effective tax rate was 20.7 percent in fiscal 2020 compared to 21.8 percent in fiscal 2019 ( see the “ non-gaap measures ” section below for a description of our use of measures not defined by gaap ) . after-tax earnings from joint ventures increased 27 percent to $ 91 million in fiscal 2020 compared to fiscal 2019 , primarily driven by higher net sales at cpw partially reflecting the impact of the covid-19 pandemic in the month of march and our share of lower after-tax restructuring charges compared to fiscal 2019. on a constant-currency basis , after-tax earnings from joint ventures increased 31 percent ( see the “ non-gaap measures ” section below for a description of our use of measures not defined by gaap ) . the components of our joint ventures ' net sales growth are shown in the following table : fiscal 2020 vs. fiscal 2019 cpw hdj total contributions from volume growth ( a ) 2 pts ( 11 ) pts net price realization and mix 3 pts 7 pts net sales growth in constant currency 4 pts ( 4 ) pts 3 pts foreign currency exchange ( 4 ) pts 3 pts ( 3 ) pts net sales growth flat ( 1 ) pt flat note : table may not foot due to rounding ( a ) measured in tons based on the stated weight of our product shipments average diluted shares outstanding increased by 8 million in fiscal 2020 from fiscal 2019 due to option exercises . 21 results of segment operations our businesses are organized into five operating segments : north america retail ; convenience stores & foodservice ; europe & australia ; asia & latin america ; and pet . f iscal 2020 includes 13 months of pet operating segment results as we changed the pet operating segment 's reporting period from an april fiscal year end to a may fiscal year end to match our fiscal calendar . fiscal 2019 included 12 months of results . the following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal 2020 and fiscal 2019 : replace_table_token_4_th segment operating profit as reviewed by our executive management excludes unallocated corporate items , net gain/loss on divestitures , and restructuring , impairment , and other exit costs that are centrally managed . north america retail segment our north america retail operating segment reflects business with a wide variety of grocery stores , mass merchandisers , membership stores , natural food chains , drug , dollar and discount chains , and e-commerce grocery providers . our product categories in this business segment are ready-to-eat cereals , refrigerated yogurt , soup , meal kits , refrigerated and frozen dough products , dessert and baking mixes , frozen pizza and pizza snacks , snack bars , fruit snacks , savory snacks , and a wide variety of organic products including ready-to-eat cereal , frozen and shelf-stable vegetables , meal kits , fruit snacks , snack bars , and refrigerated yogurt . north america retail net sales were as follows : replace_table_token_5_th note : table may not foot due to rounding . ( a ) measured in tons based on the stated weight of our product shipments . the 8 percent increase in north america retail net sales for fiscal 2020 was primarily driven by the impact of the covid-19 pandemic . the increase in net sales includes an increase in contributions from volume growth , including 2 percentage points resulting from the 53rd week , partially offset by unfavorable net price realization and mix .
| 19 a summary of our consolidated financial results for fiscal 2020 follows : fiscal 2020 in millions , except per share fiscal 2020 vs. fiscal 2019 percent of net sales constant-currency growth ( a ) net sales $ 17,626.6 5 % operating profit 2,953.9 17 % 16.8 % net earnings attributable to general mills 2,181.2 24 % diluted earnings per share $ 3.56 23 % organic net sales growth rate ( a ) 4 % adjusted operating profit ( a ) 3,058.0 7 % 17.3 % 7 % adjusted diluted earnings per share ( a ) $ 3.61 12 % 12 < td
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in support of the move to the vesta manufacturing facility , we also implemented new manufacturing process improvements which , in consultation with the fda , required three ( 3 ) additional submissions . these submissions were approved by the fda on january 10 , 2018 , january 19 , 2018 and april 17 , 2018. with these latest approvals , we re-launched our breast implant business in april 2018 and intend to continue to scale implant supply . in addition , we offer biocorneum , an advanced silicone scar treatment , directly to physicians and the allox2 , and dermaspan lines of breast tissue expanders , as well as the softspan line of general tissue expanders . we sell our silicone gel breast implants and tissue expanders exclusively to plastic surgeons . we seek to provide plastic surgeons with differentiated services , including enhanced customer service offerings and a twenty year limited warranty that provides patients with cash reimbursement for certain out of pocket costs related to revision surgeries in a covered event ; a lifetime no charge implant replacement program for covered ruptures ; and the industry 's first policy of no charge replacement implants to patients who experience covered capsular contracture , double capsule and late-forming seroma events within twenty years of the initial implant procedure . miradry segment in july 2017 , we completed our acquisition of miradry , following which we began selling the miradry system , the only fda cleared device to reduce underarm sweat , odor and hair of all colors through the precise and non-surgical delivery of microwave energy to the region where sweat glands reside . the energy generates heat at the dermal-fat interface which results in destruction of the sweat glands . at the same time , a continuous hydro-ceramic cooling system protects the superficial dermis and keeps the heat focused at the dermal-fat interface where the sweat glands reside . because sweat glands do not regenerate after the procedure , we believe the results are lasting . microwaves are the ideal technology as the energy can be focused directly at the dermal-fat interface where the glands reside . the miradry system has been cleared by the fda as indicated for use in the treatment of primary axillary hyperhidrosis , or a condition characterized by abnormal sweating in excess of that required for regulation of body temperature , plus unwanted underarm hair removal , and permanent reduction of underarm hair of all colors for fitzpatrick skin types i – iv . permanent hair reduction is defined as long-term , stable reduction in the number of hairs regrowing when measured at 6 , 9 and 12 months after the completion of a treatment regime . when used for the treatment of primary axillary hyperhidrosis , the miradry system may reduce underarm odor . in addition , the miradry system received ce mark approval for the treatment of primary axillary hyperhidrosis and approval in several other countries . the miradry system provides patients with a non-surgical and durable procedure to selectively destroy underarm sweat glands for both severely hyperhidrotic patients and those that are bothered by their underarm sweat . the miradry system is clinically proven to reduce sweat in one or more procedures of approximately 60-minutes , allowing most patients to achieve immediately noticeable and durable results without the pain , expense , downtime , or repeat visits associated with surgical and minimally-invasive procedures . the sweat glands in the treated area are destroyed through targeted heating of the tissue , and because the body does not regenerate sweat glands , we believe the results will be lasting , although some patients may need to repeat the miradry procedure to achieve the lasting results . 62 the miradry system consists of a console and a handheld device which uses consumable single-use biotips . the miradry procedure is not technique-dependent , does not require significant training or skill for the treatment provider , and the user-interfa ce guides the provider through each step of the procedure for each treatment . we sell our miradry system and consumable single-use biotips only to physicians , consisting of dermatologists , plastic surgeons , aesthetic specialists and physicians specializing in the treatment of hyperhidrosis . aesthetic specialists are physicians who elect to offer aesthetic procedures as a significant part of their practices but are generally not board-certified dermatologists or plastic surgeons . physicians can market the mi radry procedure as a premium , highly-differentiated , non-surgical sweat reduction procedure . we are approved to sell the miradry system in over 40 international markets outside of north america , including countries in asia , europe , the middle east and sout h america . components of operating results net sales we recognize revenue on breast implants and tissue expanders , net of sales discounts and estimated returns , as the customer has a standard six-month window to return purchased breast implants and tissue expanders . our breast products segment net sales include sales of silicone gel breast implants , tissue expanders and biocorneum . we defer the value of our service warranty revenue and recognize it once all performance obligations have been met . net sales for our miradry segment for the years ended december 2018 and 2017 include net sales of the miradry system and consumable biotips , as a result of the acquisition of miradry on july 25 , 2017. we expect that , in the future , our net sales will fluctuate on a quarterly basis due to a variety of factors , including seasonality of breast augmentation procedures and purchase of miradry procedures . we believe that aesthetic procedures are subject to seasonal fluctuation due to patients planning their procedures leading up to the summer season and in the period around the winter holiday season . cost of goods sold and gross margin cost of goods sold consists primarily of costs of finished products purchased from our third‑party manufacturers , reserve for product assurance warranties , inventory fair market value adjustment , royalty costs , and warehouse and other related costs . story_separator_special_tag with the acquisition of miradry , cost of goods sold also consists of raw material , labor , overhead , and variable manufacturing costs associated with the manufacturing of the miradry systems and biotips . with respect to our supplier contracts , all our products and raw materials are manufactured under contracts with fixed unit costs . we provide an assurance and service warranty on our silicone gel breast implants and a standard warranty on our miradry systems , handpieces and biotips . the estimated warranty costs are recorded at the time of sale . costs related to our service warranty are recorded when expense is incurred related to meeting our performance obligations . in addition , the inventory fair market value associated with purchase accounting adjustments and royalty costs related to both the ssp and miradry acquisitions were recorded at the time of sale . we expect our overall gross margin , which is calculated as net sales less cost of goods sold for a given period divided by net sales , to fluctuate in future periods primarily as a result of quantity of units sold , manufacturing price increases , the changing mix of products sold with different gross margins , warranty costs , overhead costs and targeted pricing programs . sales and marketing expenses our sales and marketing expenses primarily consist of salaries , bonuses , benefits , incentive compensation , stock-based compensation and travel for our sales , marketing and customer support personnel . our sales and marketing expenses also include expenses for trade shows , our no‑charge customer shipping program for the breast products segment and no-charge product evaluation units for the breast products segment , as well as educational , promotional and marketing activities , including direct and online marketing . we expect our sales and marketing expenses to fluctuate in future periods as a result of headcount and timing of our marketing programs . however , we generally expect these costs will increase in absolute dollars . 63 research and development expenses our research and development , or r & d , expenses primarily consist of clinical expenses , product development costs , regulatory expenses , consulting services , outside research activities , quality control and other costs associated with the development of our products and compliance with good clinical practices , or cgcp , requirements . r & d expenses also include related personnel and consultant compensation and stock‑based compensation expense . we expense r & d costs as they are incurred . we expect our r & d expenses to vary as different development projects are initiated , including improvements to our existing products , expansions of our existing product lines , new product acquisitions and our clinical studies . however , we generally expect these costs will increase in absolute terms over time as we continue to expand our product portfolio and add related personnel . general and administrative expenses our general and administrative , or g & a , expenses primarily consist of salaries , bonuses , benefits , incentive compensation and stock-based compensation for our executive , financial , legal , business development and administrative functions . other g & a expenses include contingent consideration fair market value adjustments , outside legal counsel and litigation expenses , independent auditors and other outside consultants , corporate insurance , facilities and information technologies expenses . we expect future g & a expenses to increase as we continue to build our finance , legal , information technology , human resources and other general administration resources to continue to advance the commercialization of our products . in addition , we expect to continue to incur g & a expenses in connection with operating as a public company , which may increase further when we are no longer able to rely on the “ emerging growth company ” exemption we are afforded under the jumpstart our business startups act , or the jobs act . other income ( expense ) , net other income ( expense ) , net primarily consists of interest income , interest expense , changes in the fair value of common stock warrants and amortization of issuance costs associated with our credit agreements . income taxes income tax expense consists of an estimate for income taxes based on the projected income tax expense for the year ended december 31 , 2018. we operate in several tax jurisdictions and are subject to taxes in each jurisdiction in which we conduct business . to date , we have incurred cumulative net losses and maintain a full valuation allowance on our net deferred tax assets due to the uncertainty surrounding realization of such assets . however , as a result of the biocorneum and tissue expander portfolio acquisitions , we have deferred tax liabilities associated with indefinite-lived intangible assets that can not be considered sources of income to support the realization of the deferred tax assets . the end result is a tax expense which is reduced by the indefinite life benefits of irc section 163 ( j ) , nol carryovers , and ca r & d credits that can be used within the applicable limitations . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , net sales and expenses and the disclosure of contingent assets and liabilities in our financial statements . we evaluate our estimates and judgments on an ongoing basis . 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 our financial condition and results of operations that are not readily apparent from other sources . actual results may differ from these estimates .
| 69 cost of goods sold and gross margin cost of goods sold increased $ 12.7 million , or 89.3 % , to $ 26.8 million for the year ended december 31 , 2018 , as compared to $ 14.2 million for the year ended december 31 , 2017. the increase was primarily due to an increase in net sales and the acquisition of miradry on july 25 , 2017. cost of goods sold for our miradry segment increased $ 12.9 million to $ 15.6 million for the year ended december 31 , 2018 , as compared to $ 2.7 million for the year ended december 31 , 2017 , due to an increase in sales and the inclusion of a year of activity in 2018 versus approximately five months of activity in 2017. the gross margins for the years ended december 31 , 2018 and 2017 were 60.6 % and 61.2 % , respectively . the decrease for the year ended december 31 , 2018 was primarily due to the inclusion of miradry which carries a lower margin . sales and marketing expenses sales and marketing expenses increased $ 33.8 million , or 99.7 % , to $ 67.7 million for the year ended december 31 , 2018 , as compared to $ 33.9 million for the year ended december 31 , 2017. the increase is primarily due to the addition of miradry , higher employee-related costs as a result of increased sales and headcount , and an increase in marketing initiatives . sales and marketing expense for our miradry segment increased $ 27.5 million to $ 32.9 million for the year ended december 31 , 2018 , as compared to $ 5.4 million for the year ended december 31 , 2017 , due to the inclusion of a year of activity in 2018 versus approximately five months of activity in 2017. research and development expenses research and development expenses increased $ 1.1 million , or 11.5 % , to $ 10.9 million for the year ended december 31 , 2018 , as compared to $ 9.8 million for the year ended december 31 , 2017. the increase was primarily due to the addition of miradry . research and development expense for our miradry segment increased $ 1.1 million to $ 2.0 million for the year ended december 31 , 2018 , as compared to $ 0.9 million for the year ended december
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beginning late in the first half of fiscal 2009 and continuing throughout fiscal 2010 , the sales of consumables were affected by reduced discretionary spending and high levels of unemployment resulting from the general economic conditions , particularly in the united states . dental equipment sales declined 3.0 % in fiscal 2010 to $ 709.5 million . we believe the weak economy caused many dental practitioners to focus their investment dollars on equipment with rapid and high rates of return . sales of basic equipment were 7.5 % lower in fiscal 2010 , while sales of cerec ® 3d dental restorative systems rose 15.7 % . within the basic equipment category , certain technology products with rapid rates of return such as digital imaging systems ( sensors , panoramic and cone beam units ) outperformed core equipment such as chairs , power units and cabinetry . other dental sales , consisting primarily of technical service parts and labor , software support services and artificial teeth , grew 7.7 % in fiscal 2010. sales of webster veterinary grew 16.9 % to $ 643.6 million . acquisitions , primarily the columbus serum company ( columbus ) acquired in october 2008 , contributed 11.5 % of the sales growth . internally generated sales rose 5.4 % . patterson medical sales of $ 426.3 million were 15.5 % higher than fiscal 2009. acquisitions , primarily those of mobilis healthcare group ( mobilis ) late in fiscal 2009 and empi therapy solutions ( empi ) in june 2009 , contributed 13.4 % of the sales growth . internally generated sales growth , which excludes the contribution of acquisitions and a 0.3 % negative impact related to foreign currency translation rates , was 2.4 % in fiscal 2010. gross margin . consolidated gross margin was 33.7 % in both fiscal 2010 and fiscal 2009. the dental segment 's gross margin improved 40 basis points to 36.8 % in fiscal 2010 , largely due to product mix . core equipment such as chairs , units and lights , generally have a lower gross margin than newer , technology related equipment . gross margin of the veterinary unit was unchanged at 19.5 % . 36 patterson medical 's gross margin declined 30 basis points due primarily to the mobilis and empi acquisitions which carry lower gross margins than patterson medical 's historical business . operating expenses . the consolidated operating expense ratio in fiscal 2010 was 22.7 % , or 20 basis points higher than fiscal 2009. in the second half of fiscal 2009 and continuing throughout fiscal 2010 , the company took steps involving a range of cost control initiatives including a hiring freeze except in the area of sales representatives , a wage freeze and restrictions on travel and other more discretionary expenses . in the first quarter of fiscal 2010 , the company enacted company-wide salary reductions . while these measures have slowed expense growth , their impact was lessened by acquisition-related expenses , including amortization expense , and higher levels of incentive compensation based on achievement of operating targets for the current year . the dental unit 's operating expense ratio increased 40 basis points , reflecting increased fixed costs on lower sales volume and acquisition-related expense . the ratio of the veterinary unit 's operating expenses as a percent of sales improved 10 basis points , primarily due to leverage on higher sales . patterson medical 's operating expense ratio increased 70 basis points in fiscal 2010 due primarily to the cost structure of recent acquisitions . operating income . operating income was $ 355.3 million in fiscal 2010 , or 2.6 % higher compared to $ 346.2 million in fiscal 2009. operating margin was 11.0 % and 11.2 % in fiscal years 2010 and 2009 , respectively , as increases in semi-variable and fixed costs outpaced revenue growth causing the de-leveraging of the expense structure . interest expense . interest expense was $ 25.7 million in fiscal 2010 compared to $ 30.1 million in fiscal 2009. the $ 4.4 million decrease in interest expense is due primarily to $ 130 million of scheduled debt payments made in november 2008. other income , net . other income , net of other expenses , was $ 9.4 million in fiscal 2010 compared to $ 3.6 million in fiscal 2009. interest income increased $ 3.1 million due primarily to higher levels of finance contracts held during fiscal 2010. besides higher interest income , other income was $ 0.9 million , a change of $ 2.7 million from the loss of $ 1.8 million in fiscal 2009 , due primarily to fluctuations in foreign currency rates . income taxes . the effective income tax rate was 37.4 % in fiscal 2010 as compared to 37.5 % in fiscal 2009. net income and earnings per share . net income increased 6.3 % to $ 212.3 million in fiscal 2010 due to increases in operating income and other income , net as discussed above . earnings per diluted share and dilutive shares outstanding were $ 1.78 and 119.2 million , respectively , in fiscal 2010 and $ 1.69 and 118.4 million , respectively , in fiscal 2009. liquidity and capital resources patterson 's operating cash flow has been the company 's principal source of liquidity in the last three fiscal years . during fiscal 2009 and in early fiscal 2010 , the company used its revolving credit facility periodically as a source of liquidity in addition to operating cash flow . operating activities generated cash of $ 262.6 million in fiscal 2011 , compared to $ 265.5 million in fiscal 2010 and $ 124.0 million in fiscal 2009. in the second half of fiscal 2009 , the company invested in a financing program to support marketing efforts directed at the cerec ® product line . this promotion , which ended at the close of fiscal 2009 , had generated approximately $ 98 million of finance contracts that the company could not immediately sell to its funding sources due to certain requirements in those funding arrangements . story_separator_special_tag in fiscal 2011 and 2010 , the company invested in similar financing programs , but to a lesser degree . 37 capital expenditures were $ 36.9 , $ 29.8 and $ 32.3 million in fiscal years 2011 , 2010 and 2009 , respectively . significant expenditures in these years included the purchase and expansion of distribution facilities to accommodate multiple business units , the construction of a new facility for the patterson technology center , the expansion of our general office building and continuing investments in information systems . in fiscal 2011 , a project to build-out a purchased distribution center in indiana has progressed and is operational for one business unit . in fiscal 2012 , the remainder of the build-out will be completed and the building will serve as a distribution facility used by all three business units . this facility is replacing several smaller distribution facilities that have been or will be closed . in addition , the majority of the construction of a new building for the patterson technology facility in illinois took place in fiscal 2011. this 100,000 square foot state-of-the-art facility will replace a nearby leased location and is expected to open in the second quarter of fiscal 2012. capital expenditures in fiscal 2012 will include the interior furnishings for this facility . the company expects to invest approximately $ 30 million in capital expenditures during fiscal 2012 , including investments in information systems and the completion of the indiana distribution facility build-out and patterson technology facility projects discussed above . cash used for acquisitions and equity investments totaled $ 52.2 million in fiscal 2011 , $ 53.7 million in fiscal 2010 and $ 124.8 million in fiscal 2009. the majority of the cash used for acquisitions in fiscal 2011 was related to the acquisition of the entities of dcc plc . the acquisition of the rehabilitation products business of empi , inc. and the investment in vetsource accounted for the majority of the cash used in fiscal 2010 and the acquisitions of columbus , dolphin , and mobilis accounted for the majority of the cash used in fiscal 2009. there were neither issuances of , nor principal payments on , debt during fiscal 2011. in fiscal 2010 , the company fully paid the $ 22 million that was outstanding under a revolving credit facility at the end of fiscal 2009. a maximum of $ 300 million is available under this facility which expires in fiscal 2013. payments on long-term debt in fiscal 2009 were $ 130 million and related to a scheduled retirement of debt that had been issued in fiscal 2004. in the fourth quarter of fiscal 2010 , the company declared and paid an initial quarterly cash dividend of $ 0.10 per share . in fiscal 2011 , the company continued to pay a quarterly cash dividend of $ 0.10 per share for the first three quarters , which was increased to $ 0.12 per share in the fourth quarter . total dividends paid in fiscal 2011 and fiscal 2010 were $ 50.0 million and $ 11.9 million , respectively . in addition , during fiscal 2011 the company repurchased approximately 3.3 million shares of its common stock for approximately $ 99 million . under a share repurchase plan authorized by the board of directors , as of april 30 , 2011 , the company may repurchase up to an additional 23.1 million shares of its common stock . this authorization remains in effect through march 15 , 2016. the company expects to continue to pay a quarterly cash dividend and to return a portion of its excess cash to shareholders through additional repurchases of its common stock under the current authorization discussed above . while there are no assurances as to the level of repurchases in the future , the company expects to use approximately $ 100 million to repurchase its common stock during fiscal 2012. management expects funds generated from operations and existing cash to be sufficient to meet the company 's working capital needs for the next fiscal year . the company expects to continue to obtain liquidity from the sale of its equipment finance contracts . in addition , as of april 30 , 2011 , $ 300 million is available under a revolving credit facility . the company 's existing debt facilities are believed to be adequate as a supplement to internally generated cash flows to fund anticipated expansion plans and strategic initiatives , including acquisitions . the company sells a significant portion of its finance contracts to a commercial paper funded conduit managed by a third party bank , and as a result , commercial paper is indirectly an important source of liquidity for the company . the company is allowed to participate in the conduit due to the quality of its finance contracts and 38 its financial strength . cash flow could be impaired if the company 's financial strength diminished to a level that precluded the company from taking part in this facility or other similar facilities . also , market conditions outside of the company 's control could adversely affect the ability of the company to sell the contracts . customer financing arrangements the company is a party to two arrangements under which it has sold finance contracts it receives from its customers to outside financial institutions . these arrangements have provided sources of liquidity for the company that would have to be replaced should each of the current financial institutions be unable or unwilling to continue in the arrangements . in the fourth quarter of fiscal 2010 , one agreement with a group of banks led by u.s. bank national association with capacity of $ 110 million was amended such that no additional contracts will be sold under the arrangement . at the same time , the company 's other agreement with jpmorgan chase bank , n.a was amended to increase capacity from $ 367 million to $ 550 million . in december 2010 , the agreement with jpmorgan chase bank , n.a .
| as market fundamentals have started to improve , we believe dentists have gradually become more confident about investing in their practices . in addition , we implemented additional marketing programs at the beginning of the fourth quarter of fiscal 2011. these two factors helped in reaching equipment sales growth of 11.2 % in the fourth quarter . we believe we are rebuilding sales momentum and are forcasting stronger equipment sales growth for fiscal 2012 as compared to fiscal 2011 , however , our equipment sales may experience quarterly fluctuations as they have historically , given the sales cycles related to these capital expenditures and the potential impact of prevailing economic conditions . 34 other dental sales , consisting primarily of technical service parts and labor , software support services and artificial teeth , increased 2.0 % in fiscal 2011. webster veterinary sales grew 4.9 % to $ 674.9 million . sales of consumables were 4.0 % higher in fiscal 2011 and equipment and software sales of $ 34.3 million represented an increase of 16.8 % compared to fiscal 2010. the veterinary equipment business has been growing at solid rates in recent quarters , and we intend to continue investing in this relatively new portion of webster 's operation that has expanded the unit 's full-service platform . due to a change in distribution by a major pharmaceutical company at the beginning of calendar 2010 , webster 's consumable sales growth was negatively impacted during the first two-thirds of the fiscal year . a higher percentage of doses sold during this period were under agency agreements as compared to the prior year where more doses were sold under buy-sell agreements . under agency agreements , webster reports a small commission for each dose sold , while under a buy-sell agreement , the full transaction value of the dose is recorded as revenue . this impact was estimated to be approximately three percentage points during the period . patterson medical sales of $ 504.7 million were 18.4 % higher than fiscal 2010 .
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for extended warranties , the transaction price is recognized ratably over the warranty period , using output methods , as control of the services is transferred to the customer . when there is more than one performance obligation in a customer arrangement , the company typically uses the “ standalone selling price ” method to determine the transaction price to allocate to each performance obligation . the company sells the performance obligations separately and has established standalone selling prices for its products and services . in the case of an overall price discount , the discount is applied to each performance obligation proportionately based on standalone selling price . to determine the standalone selling price for initial epicentral installations , the company uses the adjusted market assessment approach . accounts receivable – we have standardized credit granting and review policies and procedures for all customer accounts , including : credit reviews of all new customer accounts ; ongoing credit evaluations of current customers ; credit limits and payment terms based on available credit information ; and adjustments to credit limits based upon payment history and the customer 's current creditworthiness . we also provide an estimate of doubtful accounts based on historical experience and specific customer collection issues . our allowance for doubtful accounts as of december 31 , 2019 was $ 221 thousand , or 3.3 % of outstanding accounts receivable , which we believe is appropriate considering the overall quality of our accounts receivable . although credit losses have historically been within expectations and the reserves established , there is no assurance that our credit loss experience will continue to be consistent with historical experience . inventories – our inventories are stated at the lower of cost ( principally standard cost , which approximates actual cost on a first-in , first-out basis ) or net realizable value . we review net realizable value based on estimated selling prices in the ordinary course of business less estimated costs of completion , disposal and transportation , historical usage and estimates of future demand . assumptions are reviewed at least quarterly and adjustments are made , as necessary , to reflect changing market conditions . based on these reviews , inventory write-downs are recorded , as necessary , to reflect estimated obsolescence , excess quantities and net realizable value . should circumstances change and we determine that additional inventory is subject to obsolescence , additional write-downs of inventory could result in a charge to income . goodwill and intangible assets – we acquire businesses in purchase transactions that result in the recognition of goodwill and intangible assets . the determination of the value of intangible assets requires management to make estimates and assumptions . in accordance with asc 350-20 “ goodwill ” , acquired goodwill is not amortized , but is subject to impairment testing at least annually and when an event occurs or circumstances change , which indicate it is more likely than not an impairment exists . factors considered that may trigger an impairment review are : significant underperformance relative to expected historical or projected future operating results ; significant changes in the manner of use of acquired assets or the strategy for the overall business ; significant negative industry or economic trends ; and significant decline in market capitalization relative to net book value . definite-lived intangible assets are amortized and are tested for impairment when appropriate . we reported $ 2.6 million of goodwill and $ 0.8 million of unamortized definite-lived intangible assets at december 31 , 2019. we have determined that no goodwill or intangible asset impairment has occurred and the fair value of goodwill was substantially higher than our carrying value based on our assessment as of december 31 , 2019 when the impairment review was performed . income taxes – in preparing our consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . this involves estimating the actual current tax exposure together with assessing temporary differences between the tax basis of certain assets and liabilities and their reported amounts in the financial statements , as well as net operating losses , tax credits and other carryforwards . these differences result in deferred tax assets and liabilities , which are reflected in our consolidated balance sheets . we then assess the likelihood that the deferred tax assets will be realized from future taxable income , and to the extent that we believe that realization is not likely , we establish a valuation allowance . significant judgment is required in determining the provision for income taxes and , in particular , any valuation allowance or tax reserves with respect to our deferred tax assets and uncertain tax positions . on a quarterly basis , we evaluate the recoverability of our deferred tax assets based upon historical results and forecasted taxable income over future years , and match this forecast against the basis differences , deductions available in future years and the limitations allowed for net operating loss and tax credit carryforwards to ensure that there is adequate support for the realization of the deferred tax assets . although we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance , in the event we were to determine that we would not be able to realize all or part of our deferred tax assets in the future , an adjustment to the valuation allowance or tax reserves would be charged as a reduction to income in the period such determination was made . likewise , should we determine that we would be able to realize future deferred tax assets in excess of its net recorded amount , an adjustment to the valuation allowance would increase net income in the period such determination was made . we account for income taxes in accordance with asc 740 , “ income taxes. story_separator_special_tag ” among other things this provision prescribes a minimum recognition threshold that an income tax position must meet before it is recorded in the reporting entity 's financial statements . it also requires that the effects of such income tax positions be recognized only if , as of the balance sheet reporting date , it is “ more likely than not ” ( i.e. , more than a 50 % likelihood ) that the income tax position will be sustained based solely on its technical merits . when making this assessment , management must assume that the responsible taxing authority will examine the income tax position and have full knowledge of all relevant facts and other pertinent information . the accounting guidance also clarifies the method of accruing for interest and penalties when there is a difference between the amount claimed , or expected to be claimed , on a company 's income tax returns and the benefits recognized in the financial statements . see note 10 to the consolidated financial statements for further details of the impact of the tax reform act . 16 warranty – we generally warrant our products for up to 24 months and record the estimated cost of such product warranties at the time the sale is recorded . estimated warranty costs are based upon actual past experience of product repairs and the related estimated cost of labor and material to make the necessary repairs . if actual future product repair rates or the actual costs of material and labor differ from the estimates , adjustments to the accrued warranty liability and related warranty expense would be made . share-based compensation – we calculate share-based compensation expense in accordance with asc 718 , “ compensation – stock compensation ” using the black-scholes option-pricing model to calculate the fair value of share-based awards . the key assumptions for this valuation method include the expected term of an option grant , stock price volatility , risk-free interest rate , and dividend yield . we account for forfeitures as they occur . results of operations : year ended december 31 , 2019 compared to year ended december 31 , 2018 net sales . net sales , which include printer , terminal and software sales as well as sales of replacement parts , consumables and maintenance and repair services , by market for the years ended december 31 , 2019 and 2018 are detailed in the below table . we have reclassified sales of labels and other recurring revenue items , which includes extended warranty and service contracts , and technical support services related to our food service technology market , previously included in tsg to food service technology for all periods presented in this form 10-k. replace_table_token_4_th * international sales do not include sales of products made to domestic distributors or other customers who in turn ship those products to international destinations . net sales for 2019 decreased $ 8.8 million , or 16 % , from 2018. printer , terminal and other hardware sales volume decreased by 22 % to approximately 111,000 units , driven primarily by a 17 % decrease in unit volume from the casino and gaming market and , to a lesser extent , a 66 % and 22 % decrease in the lottery market and pos automation and banking market , respectively . the average selling price of our printers , terminals and other hardware increased 2 % during 2019 compared to 2018. international sales decreased $ 0.7 million , or 6 % , primarily driven by a 7 % decrease of international casino and gaming sales . this increase was partially offset by a 31 % increase from our international food service technology market during 2019 compared to 2018. food service technology : the primary offering in the food service technology market is our boha ! ecosystem , which combines our latest generation terminal , cloud-based software applications and related hardware into a unique solution to automate back-of-house operations in restaurants and food service operations . the software component of boha ! consists of a suite of saas-based applications , including applications for inventory management , temperature monitoring of food and equipment , timers , food safety labeling , food recalls , checklists and procedures , equipment service management , and delivery management . these applications are combined into a single platform with the associated hardware , which includes the boha ! terminal , handheld devices , tablets , temperature probes and temperature sensors . the boha ! terminal combines the software and hardware components in a device that includes an operating system , touchscreen and one or two thermal print mechanisms that print easy-to-read food rotation labels , grab and go labels for prepared foods , and “ enjoy by ” date labels . the boha ! terminal is equipped with the transact enterprise management system to ensure that only approved applications and functions are available on the device , and allows over-the-air updates to the applications and operating system . boha ! helps food service establishments and restaurants ( including fine dining , casual dining , fast casual and quick-serve restaurants , convenience stores , hospitality establishments and contract food service providers ) effectively manage food safety and grab-and-go initiatives , as well as automate and manage back-of-house operations . recurring revenue from boha ! is generated by software sales , including software subscriptions that are charged to customers upfront on a per-application basis , as well as sales of labels , extended warranty and service contracts , and technical support services . in the food service technology market , we use an internal sales force and , to a lesser extent , distributors , to solicit sales directly from end users . sales of our worldwide food service technology products for the years ended december 31 , 2019 and 2018 is as follows ( in thousands , except percentages ) : replace_table_token_5_th replace_table_token_6_th 17 the increase in food service technology sales in 2019 compared to 2018 was driven by sales of our boha !
| tsg sales to igt decreased due to lower sales of spare parts in the lottery market during 2019 compared to 2018. these sales declines were as expected as we are no longer focusing on the lottery markets and therefore we expect lottery and tsg sales to continue to decrease in 2020 compared to 2019. during the year ended december 31 , 2019 , our total net sales decreased 16 % to approximately $ 45.7 million . we have reclassified sales of labels and other recurring revenue items , which includes extended warranty and service contracts , and technical support services related to our food service technology market , previously included in tsg to food service technology for all periods presented in this form 10-k. see the table below for a breakdown of our sales by market : replace_table_token_3_th sales of our food service technology products increased 20 % in the year ended december 31 , 2019 compared to the year ended december 31 , 2018. in the food service technology market , we focus on providing hardware products , which include terminals , handheld devices , tablets , temperature probes and temperature sensors ; in addition to cloud-based software applications , labels and other recurring revenue items . in 2019 , we launched our boha ! solution , which combines our latest generation terminal , cloud-based software applications and hardware into a unique solution to automate the back-of-house operations in restaurants and food service operations . food service technology sales increased in 2019 primarily due to a 264 % increase in recurring revenue attributable to sales of boha ! , which sales reflect subscriptions for the related software applications , as well as sales of labels , extended warranty and service contracts , and technical support services . we expect food service technology to increase in 2020 as we plan to accelerate investments in selling and marketing and product development to exploit the significant market opportunities . sales of our pos automation and banking products decreased 21 % in the year ended december 31 , 2019 compared to the year ended december 31 , 2018. in the pos market , we focus primarily on supplying printers that print receipts or linerless labels for customers in the restaurant and quick serve markets . during the year
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the company believes 2016 global retail sales of harley-davidson motorcycles will face headwinds as the competition continues to be aggressive with discounting and new product introductions . the company also anticipates global macro-economic challenges including weakness in oil-dependent areas . internationally , various markets are experiencing economic challenges . in particular in brazil , the company expects significant pressure to continue . in response to the nearly 50 % devaluation of the brazilian real last year , the company raised prices over 20 % in 2016 , and it expects lower retail sales in brazil in 2016. the company expects to ship 269,000 to 274,000 harley-davidson motorcycles during 2016 , up approximately 1 % to 3 % over 2015. this includes 78,000 to 83,000 harley-davidson motorcycles that it expects to ship in the first quarter of 2016 , approximately down 2 % at the low end of the range to up 4 % at the high end of the range over the first quarter of 2015 . the company expects 2016 global retail motorcycle sales to grow year-over-year with international retail sales growing at a faster rate than the rate of growth in the u.s. the company expects the 2016 operating margin percent for the motorcycles segment to be between 16 % and 17 % compared to 16.5 % in 2015. the company expects gross margin as a percent of revenue will be down year-over-year . the company expects that the 2016 gross margin percent will benefit from motorcycle pricing and strong productivity gains offset by unfavorable foreign currency exchange and higher year-over-year start-up costs as it implements its enterprise resource planning ( erp ) system at its kansas city manufacturing facility . if foreign currency exchange rates on january 27 , 2016 remained constant throughout 2016 , which is a hypothetical expectation in what is a very volatile foreign currency exchange environment , the company estimates the adverse impact to its expected motorcycle segment revenue from currency exchange in 2016 would be approximately 1 % . under this scenario , the company would also expect an unfavorable impact to 25 2016 gross margin of approximately $ 60 million , or 1 percentage point , driven by lower revenues and the comparison to the more favorable foreign currency contract gains it realized in 2015. in accordance with its practices , the company has hedged a portion of its 2016 foreign currency exposure ; however , the gains it would realize on those hedges at current spot rates would not be as favorable as those it realized in 2015. although the company will invest significantly more in marketing and product development in 2016 , the company expects its full-year selling , administrative and engineering expenses to be flat to up modestly from 2015. as a percent of revenue , the company expects its selling , administrative and engineering expense will decrease . the company expects its first quarter of 2016 selling , administrative and engineering expense to be approximately $ 25 million higher than the first quarter of 2015 as it ramps up its efforts to drive demand . the company expects operating income for the financial services segment to be down modestly in 2016 as compared to 2015 as a result of increased borrowing costs and unfavorable credit losses , partially offset by higher revenues . the company 's capital expenditure estimates for 2016 are between $ 255 million and $ 275 million as it increases its focus on bringing exciting new products to market and as it continues to invest in its systems infrastructure , most notably expanding the implementation of its erp system . the company anticipates it will have the ability to fund all capital expenditures in 2016 with cash flows generated by operations . the company also announced on january 28 , 2016 that it expects the full year 2016 effective income tax rate to be approximately 34.5 % . results of operations 2015 compared to 2014 consolidated results replace_table_token_9_th consolidated operating income was down 9.8 % in 2015 driven by a decrease in operating income from the motorcycles segment which decreased by $ 127.7 million compared to 2014 . operating income for the financial services segment increased by $ 2.4 million during 2015 as compared to 2014 . please refer to the “ motorcycles and related products segment ” and “ financial services segment ” discussions following for a more detailed discussion of the factors affecting operating income . corporate interest expense was higher in 2015 compared to 2014 due to the issuance of corporate debt . the company issued $ 750.0 million of senior unsecured notes in the third quarter of 2015 and utilized the proceeds to fund the repurchase of common stock in the third and fourth quarters of 2015. the effective income tax rate for 2015 was 34.6 % compared to 34.2 % for 2014 . diluted earnings per share were $ 3.69 in 2015 , down 4.9 % compared to 2014 . diluted earnings per share were adversely impacted by the 10.9 % decrease in net income , but benefited from lower diluted weighted average shares outstanding . diluted weighted average shares outstanding decreased from 217.7 million in 2014 to 203.7 million in 2015 driven by the company 's repurchases of common stock . please refer to `` liquidity and capital resources '' for additional information concerning the company 's share repurchase activity . motorcycle retail sales and registration data worldwide independent dealer retail sales of harley-davidson motorcycles decreased 1.3 % during 2015 compared to 2014 . retail sales of harley-davidson motorcycles decreased 1.7 % in the united states and 0.5 % internationally in 2015 . 26 the company believes 2015 u.s. retail sales of its motorcycles were negatively impacted by intense competitive activity behind currency-driven discounting and new competitor products as well as a challenging macro-economic environment . the company 's u.s. market share of 601+cc motorcycles for 2015 was 50.2 % , down 3.1 percentage points compared to 2014 ( source : motorcycle industry council ) . story_separator_special_tag the company anticipated some level of market share loss following the 13.4 percentage point increase in recent years ; however , the company 's market share over the first three quarters was more severely impacted than expected , which the company believes is a result of the intense competitive environment and the inclusion of autocycles in the industry numbers . international retail sales growth during 2015 in the asia pacific region was more than offset by declines in the emea region , latin america and canada . retail sales in the asia pacific region were driven by growth in emerging markets and in australia , partially offset by declines in japan . the company believes the retail sales decrease in the emea region was due to the introduction of several performance-oriented models by the competition . international retail sales as a percent of total retail sales in 2015 were 36.4 % compared to 36.2 % in 2014 . despite the volatility in global retail sales , the company believes it can continue to realize strong international growth opportunities by expanding its distribution network and increasing its brand relevance by delivering exceptional products that inspire riders . in 2015 , the company added 40 international dealerships , and it plans to add an additional 150 to 200 through 2020 . ( 1 ) harley-davidson motorcycle retail sales ( a ) the following table includes retail unit sales of harley-davidson motorcycles : replace_table_token_10_th ( a ) data source for retail sales figures shown above is new sales warranty and registration information provided by harley-davidson dealers and compiled by the company . the company must rely on information that its dealers supply concerning retail sales and this information is subject to revision . ( b ) data for europe include austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland and the united kingdom . motorcycle registration data - 601+cc ( a ) the following table includes industry retail motorcycle registration data : replace_table_token_11_th 27 ( a ) data includes on-road 601+cc models . on-road 601+cc models include dual purpose models , three-wheeled motorcycles and autocycles . autocycles were included in the u.s. and europe data beginning in 2014 and 2015 , respectively . registration data for harley-davidson street 500 ® motorcycles is not included in this table . ( b ) united states industry data is derived from information provided by motorcycle industry council ( mic ) . this third party data is subject to revision and update . ( c ) europe data includes austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland , and the united kingdom . industry retail motorcycle registration data includes 601+cc models derived from information provided by association des constructeurs europeens de motocycles ( acem ) , an independent agency . this third-party data is subject to revision and update . motorcycles and related products segment motorcycle unit shipments the following table includes wholesale motorcycle unit shipments for the motorcycles segment : replace_table_token_12_th ( a ) category previously referred to as `` custom '' motorcycle units , as used in this table , include dyna ® , softail ® , v-rod ® and cvo models . ( b ) initial shipments of street motorcycle units began during the first quarter of 2014. during 2015 , wholesale shipments of harley-davidson motorcycles were down 1.6 % compared to the prior year . international shipments as a percentage of the total were up slightly in 2015 as compared to 2014. in addition , shipments of sportster ® / street motorcycles as a percentage of total shipments increased in 2015 compared to the prior year driven by the strong acceptance of the street motorcycles as the company continued its global rollout of these models in 2015. touring motorcycle shipments were down in 2015 following a 14.2 % increase in shipments of touring motorcycles in 2014 driven by demand for the new rushmore models . as the company expected , dealer retail inventory of new harley-davidson motorcycles in the u.s. at the end of 2015 was approximately 2,600 units higher than at the end of 2014 , largely due to the initial dealer fill of its new 2016 model-year motorcycles . the company believes the u.s. year-end 2015 dealer retail inventory level is appropriate as the company aggressively manages supply in line with demand ( 1 ) . 28 segment results the following table includes the condensed statement of operations for the motorcycles segment ( in thousands ) : replace_table_token_13_th the following table includes the estimated impact of the significant factors affecting the comparability of net revenue , cost of goods sold and gross profit from 2014 to 2015 ( in millions ) : replace_table_token_14_th the following factors affected the comparability of net revenue , cost of goods sold and gross profit from 2014 to 2015 : on average , wholesale prices on the company 's 2015 and 2016 model-year motorcycles were higher than the prior model-years resulting in the favorable impact on revenue during the period . the impact of revenue favorability resulting from model-year price increases on gross profit was partially offset by increases in cost related to the additional content added to the 2015 and 2016 model-year motorcycles . gross profit was negatively impacted by changes in foreign currency exchange rates during 2015 compared to 2014. revenue was negatively impacted by a weighted-average devaluation in the euro , japanese yen , brazilian real and australian dollar of 17 % compared to 2014. the negative impact to revenue was partially offset by a positive impact to cost of goods sold as a result of natural hedges , benefits of foreign exchange contracts and a decrease in losses from the revaluation of foreign-denominated assets on the balance sheet .
| 35 other matters new accounting standards not yet adopted in may 2014 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2014-09 revenue from contracts with customers ( asu no . 2014-09 ) . asu no . 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . in august 2015 , the fasb issued asu no . 2015-14 revenue from contracts with customers : deferral of effective date ( asu no . 2015-14 ) to defer the effective date of the new revenue recognition standard by one year to fiscal years beginning after december 15 , 2017 and for interim periods therein . the company is currently evaluating the impact of adoption . in february 2015 , the fasb issued asu no . 2015-02 amendments to the consolidation analysis ( asu 2015-02 ) . asu no . 2015-02 amends the guidance within accounting standards codification ( asc ) topic 810 , `` consolidation , ” to change the analysis that a reporting entity must perform to determine whether it should consolidate certain legal entities . the company is required to adopt asu no . 2015-02 for fiscal years , and for interim periods within those fiscal years , beginning after december 15 , 2015. the company believes the adoption of asu no . 2015-02 will not have an impact on its financial results and will only impact the content of the current disclosure . in april 2015 , the fasb issued asu no . 2015-03 simplifying the presentation of debt issuance costs ( asu 2015-03 ) . asu no . 2015-03 amends the guidance within asc topic 835 , `` interest `` , to require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt
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our national brand recently implemented a price increase that was effective on april 6 , 2018 , while our kimball brand announced a price increase effective on july 2 , 2018. on may 7 , 2018 , robert f. schneider informed the board of directors of kimball international of his decision to retire as our chief executive officer and chairman of the board . mr. schneider plans to retire effective october 31 , 2018. the board of directors created a continuity committee to facilitate the appointment of a new ceo . during the latter portion of our fiscal year 2017 , we sold a facility in indiana which housed the education center for dealer and employee training , a research and development center , and a product showroom for proceeds of $ 3.8 million . we leased a portion of the facility through december 2017 to facilitate the short-term transition of those functions to other existing indiana locations . the sale of the facility did not qualify for sale-leaseback accounting during fiscal year 2017 , and thus the $ 1.7 million pre-tax gain on the sale was not recognized in selling and administrative expenses until fiscal year 2018. the u.s. government , as well as state and local governments , can typically terminate or modify their contracts with us either at their discretion or if we default by failing to perform under the terms of the applicable contract , which could expose us to liability and impede our ability to compete in the future for contracts and orders . the failure to comply with regulatory and contractual requirements could subject us to investigations , fines , or other penalties , and violations of certain regulatory and contractual requirements could also result in us being suspended or debarred from future government contracting . in march 2016 , in connection with a renewal of one of our two contracts with the general services administration ( “ gsa ” ) , we became aware of noncompliance and inaccuracies in our gsa subcontractor reporting . accordingly , we retained outside legal counsel to assist in conducting an internal review of our reporting practices , and we self-reported the matter and the results of the internal review to the gsa . we have promptly responded to 23 inquiries from the gsa since our initial reporting , have met with government officials as requested on two occasions , and intend to cooperate fully with any further inquiries or investigations . we can not reasonably predict the outcome of a government investigation at this time . during fiscal year 2018 , sales related to our gsa contracts were approximately 7.5 % of our consolidated sales , with one contract accounting for approximately 5.3 % of our consolidated sales and the other contract accounting for approximately 2.2 % of our consolidated sales . due to the contract and project nature of furniture markets , fluctuation in the demand for our products and variation in the gross margin on those projects is inherent to our business which in turn impacts our operating results . effective management of our manufacturing capacity is and will continue to be critical to our success . see below for further details regarding current sales and open order trends . we expect to continue to invest in capital expenditures prudently , including potential acquisitions , that would enhance our capabilities and diversification while providing an opportunity for growth and improved profitability . we have a strong focus on cost control and closely monitor market changes and our liquidity in order to proactively adjust our operating costs , discretionary capital spending , and dividend levels as needed . managing working capital in conjunction with fluctuating demand levels is likewise key . in addition , a long-standing component of our annual cash incentive plan is that it is linked to our company-wide and business unit performance which is designed to adjust compensation expense as profits change . we continue to maintain a strong balance sheet . our short-term liquidity available , represented as cash , cash equivalents , and short-term investments plus the unused amount of our credit facility , was $ 115.9 million at june 30 , 2018 . 24 fiscal year 2018 story_separator_special_tag vertical markets and are now classified in the healthcare vertical market . the net sales by vertical market was estimated for fiscal years 2017 and 2016 to reflect the new vertical market definitions on a comparable basis . key explanatory comments for our sales by vertical market follow : our education vertical market sales grew as we continued our focus on education products and distribution . our finance vertical market sales increase was driven by focus on strategic accounts and assisting financial institutions with refreshing their image and adding collaborative spaces . our sales in the government vertical market increased as we experienced improved order activity on awarded blanket purchase agreements and had success with larger projects relative to fiscal year 2016. the hospitality vertical market sales increase was primarily driven by increased non-custom business . each of our vertical market sales levels can fluctuate depending on the mix of projects in a given period . open orders at june 30 , 2017 increased 1 % when compared to the open order level as of june 30 , 2016 as demand for office furniture increased and hospitality furniture open orders declined slightly . in fiscal year 2017 we recorded net income of $ 37.5 million , or $ 0.99 per diluted share , inclusive of a $ 1.1 million after-tax restructuring gain , or $ 0.03 per diluted share , from the sale of the idaho facility . in fiscal year 2016 we recorded net income of $ 21.2 million , or $ 0.56 per diluted share , inclusive of $ 4.5 million , or $ 0.12 per diluted share , of after-tax restructuring expense . story_separator_special_tag excluding these non-recurring gains or expenses , our adjusted net income for fiscal year 2017 improved to $ 36.4 million , or $ 0.96 per diluted share , compared to adjusted net income for fiscal year 2016 of $ 25.7 million , or $ 0.68 per diluted share . see the “ non-gaap financial measures and other key performance indicators ” section below . gross profit as a percent of net sales increased 120 basis points in fiscal year 2017 compared to fiscal year 2016. the improvement was driven by the favorable impact of price increases , the benefit of leverage gained on higher sales volumes , and the benefits from our restructuring plan involving the transfer of metal fabrication production from idaho into facilities in indiana . higher employee benefit costs in fiscal year 2017 , retirement expense in particular , partially offset the aforementioned improvements . as a percent of net sales , selling and administrative expenses in fiscal year 2017 compared to fiscal year 2016 decreased 50 basis points due to increased sales volumes . in absolute dollars selling and administrative spending increased 3 % primarily due to higher incentive compensation costs as a result of higher earnings levels and higher salary expense . we also had an unfavorable variance within selling and administrative expenses of $ 1.2 million for fiscal year 2017 compared to fiscal year 2016 related to the normal revaluation to fair value of our serp liability . the impact from the change in the serp liability that was recognized in selling and administrative expenses was offset with the change in fair value of the serp investments which was recorded in other income ( expense ) , and thus there was no effect on net income . during fiscal year 2017 we also recognized $ 1.2 million of gains on the sale of land . 28 fiscal year 2017 includes a pre-tax restructuring gain of $ 1.8 million which included a gain on the sale of our post falls , idaho facility and land of $ 2.1 million partially offset by restructuring expense of $ 0.3 million . we recognized pre-tax restructuring expense of $ 7.3 million in fiscal year 2016. the improvement of customer delivery , supply chain dynamics , and reduction of transportation costs were expected to generate annual pre-tax savings of approximately $ 5 million per year , and we achieved savings of approximately $ 4.7 million in fiscal year 2017 as savings began to ramp up during our first quarter . see note 17 - restructuring expense of notes to consolidated financial statements for further information on restructuring . other income ( expense ) consisted of the following : replace_table_token_13_th our fiscal year 2017 effective tax rate was 35.4 % as higher taxable income generated a $ 1.2 million higher domestic manufacturing deduction than fiscal year 2016. our fiscal year 2016 effective tax rate was 36.6 % and did not include any material unusual items . liquidity and capital resources our cash position , which is comprised of cash , cash equivalents , and short-term investments , decreased to $ 87.3 million at june 30 , 2018 from $ 98.6 million at june 30 , 2017 , primarily due to an $ 18.2 million cash outflow for the d'style acquisition , capital expenditures of $ 22.3 million in fiscal year 2018 , and the return of capital to shareowners in the form of stock repurchases and dividends totaling $ 19.0 million in fiscal year 2018 , which more than offset $ 46.9 million of cash flows from operations during fiscal year 2018 . working capital at june 30 , 2018 was $ 85.1 million compared to working capital of $ 82.5 million at june 30 , 2017 . the current ratio was 1.7 at both june 30 , 2018 and june 30 , 2017 . our short-term liquidity available , represented as cash , cash equivalents , and short-term investments plus the unused amount of our credit facility , totaled $ 115.9 million at june 30 , 2018 . at june 30 , 2018 , we had $ 1.4 million in letters of credit outstanding , which reduced our borrowing capacity on the credit facility . we had no credit facility borrowings outstanding as of june 30 , 2018 or june 30 , 2017 . during fiscal year 2017 we sold a facility in indiana which housed an education center for dealer and employee training , a research and development center , and a product showroom for proceeds of $ 3.8 million . we were leasing a portion of the facility back to facilitate the short-term transition of those functions to other existing indiana locations . the sale of the facility did not qualify for sale-leaseback accounting thus the book value of the building remained on the property and equipment line of our consolidated balance sheet as of june 30 , 2017 and the related sale-leaseback financing obligation was a current liability on our consolidated balance sheet as of june 30 , 2017. during fiscal year 2018 , the lease terminated and the sales transaction was recognized , resulting in a $ 1.7 million pre-tax gain which was recorded in selling and administrative expense . cash flows the following table reflects the major categories of cash flows for fiscal years 2018 , 2017 , and 2016 . replace_table_token_14_th 29 cash flows from operating activities for fiscal years 2018 and 2017 , net cash provided by operating activities was $ 46.9 million and $ 64.8 million , respectively , fueled by net income of $ 34.4 million and $ 37.5 million , respectively . in fiscal year 2018 , changes in working capital balances used $ 15.2 million and a reduction in deferred income tax and other deferred charges increased cash flow by $ 9.1 million . changes in working capital balances provided $ 10.1 million of cash in fiscal year 2017 .
| each of our vertical market sales levels can fluctuate depending on the mix of projects in a given period . open orders at june 30 , 2018 increased 13 % when compared to the open order level as of june 30 , 2017 primarily due to higher hospitality furniture backlog driven by both the d'style acquisition and growth in organic hospitality orders . excluding an approximate $ 2.0 million positive impact from a price increase for one of our brands which took effect on july 2 , 2018 and accelerated orders into our fiscal year 2018 , office furniture backlog as of june 30 , 2018 was flat . open orders at a point in time may not be indicative of future sales trends . in fiscal year 2018 we recorded net income of $ 34.4 million , or $ 0.92 per diluted share . in fiscal year 2017 we recorded net income of $ 37.5 million , or $ 0.99 per diluted share , inclusive of $ 1.1 million , or $ 0.03 per diluted share , of after-tax restructuring gain from the sale of the idaho facility . excluding the non-recurring gain , our adjusted net income for fiscal year 2017 was $ 36.4 million , or $ 0.96 per diluted share . see the “ non-gaap financial measures and other key performance indicators ” section below . gross profit as a percent of net sales decreased 100 basis points in fiscal year 2018 compared to fiscal year 2017 , as increased product pricing and lower employee benefit expenses such as healthcare were more than offset by a shift in sales mix to lower margin products , freight cost increases , higher discounting , and an increase in our lifo inventory reserve . see note 3 - inventories of notes to consolidated financial statements for more information on lifo inventory . as a percent of net sales , selling and administrative
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we have a fleet of approximately 120,000 railcars in north america , including approximately 13,450 tank cars currently used to transport flammable liquids that are affected by the new rules , of which approximately 3,900 are moving crude oil and ethanol . over 97 % of our affected tank cars have a compliance deadline of 2023 or later . we expect to modify some of the most modern of our affected tank cars to comply with the new standards . however , for the majority of the affected cars , we currently anticipate retiring , redeploying , or selling them rather than performing retrofits . rail international segment summary rail international , composed primarily of gatx rail europe ( `` gre '' ) , produced solid operating results in 2017. despite market pressure , gre was successful in maintaining high fleet utilization . railcar utilization for gre was 96.8 % at the end of 2017 , compared to 95.6 % at the end of 2016 , and 95.8 % at the end of 2015 . gre 's results in 2017 benefited from lower maintenance expense , primarily due to lower wheelset costs , which were higher in 2016 due to a refurbishment program to address anti-corrosion paint issues on certain wheelsets . rail india continued to focus on investment opportunities and diversification of its fleet , as well as developing relationships with customers , suppliers and the indian railways . in 2017 , rail india added 275 railcars , compared to zero in 2016 and 410 railcars in 2015. as of december 31 , 2017 , rail india had entered into contracts to acquire approximately 350 additional railcars in 2018 and expects continued fleet growth and diversification . rail russia focused on managing its fleet and developing relationships with new customers . in 2017 , rail russia did not add any new railcars , compared to 20 railcars added in 2016 and 150 railcars added in 2015. as of december 31 , 2017 , rail russia had commitments to acquire approximately 165 railcars in 2018 and plans to further expand both its fleet and customer base in 2018 . 34 the following table shows rail international 's segment results for the years ended december 31 ( in millions ) : replace_table_token_13_th the following table shows fleet activity for gre railcars for the years ended december 31 : replace_table_token_14_th 35 \ foreign currency rail international 's reported results of operations are impacted by fluctuations in the exchange rates of the foreign currencies in which it conducts business , primarily the euro . in 2017 , a stronger euro positively impacted lease revenue by approximately $ 4.5 million and segment profit , excluding other income ( expense ) , by approximately $ 2.5 million compared to 2016. in 2016 , fluctuations in the value of the euro did not have a meaningful impact on revenue or segment profit compared to the prior year . segment profit in 2017 , segment profit of $ 68.8 million increased 9.2 % compared to $ 63.0 million in 2016 . the increase was largely due to higher lease revenue and lower maintenance expense , as well as the positive impacts of foreign exchange rates . in 2016 , segment profit of $ 63.0 million decreased 10.1 % compared to $ 70.1 million in 2015. the decrease was largely due to higher maintenance expense , primarily as a result of higher wheelset costs , and the absence of a gain recognized on the sale of a workshop in 2015 , partially offset by higher lease revenue and lower net legal defense costs . revenues in 2017 , lease revenue increased $ 8.3 million , or 4.6 % , due to more cars on lease , as well as the positive impacts of foreign exchange rates . other revenue was comparable to the prior year . in 2016 , lease revenue increased $ 9.1 million , or 5.3 % , primarily due to more cars on lease . 36 expenses in 2017 , maintenance expense decreased $ 6.1 million , primarily due to lower wheelset costs and reimbursements from manufacturers on previously incurred wheelset costs , partially offset by the negative impacts of foreign exchange rates . depreciation expense increased $ 3.4 million , driven by the impact of new cars added to the fleet , as well as the negative impacts of foreign exchange rates . other operating expense was comparable to prior year . in 2016 , maintenance expense increased $ 7.6 million , primarily due to the costs of wheelset replacements related to the refurbishment program , as discussed above , and the higher costs associated with railcars undergoing regulatory compliance maintenance . depreciation expense increased $ 1.8 million , driven by the impact of new cars added to the fleet . other operating expense was comparable to prior year . other income ( expense ) in 2017 , net gain on asset dispositions increased $ 2.0 million , primarily due to higher scrapping gains resulting from more railcars scrapped . net interest expense increased $ 3.7 million , due to a higher average interest rate and a higher average debt balance . other expense increased $ 4.0 million , driven by the unfavorable impact of changes in foreign exchange rates on non-functional currency items and derivatives . in 2016 , net gain on asset dispositions decreased $ 5.7 million , primarily due to the absence of a gain recognized on the sale of a workshop in 2015 and lower railcar scrapping gains as a result of fewer railcars scrapped in 2016. net interest expense increased $ 7.3 million , largely due to a higher average debt balance , resulting from an increase in segment leverage in 2016 , partially offset by a lower average interest rate . other expense decreased $ 6.8 million , largely due to lower net legal costs resulting from insurance reimbursements received in 2016 for previously expensed legal defense costs story_separator_special_tag we have a fleet of approximately 120,000 railcars in north america , including approximately 13,450 tank cars currently used to transport flammable liquids that are affected by the new rules , of which approximately 3,900 are moving crude oil and ethanol . over 97 % of our affected tank cars have a compliance deadline of 2023 or later . we expect to modify some of the most modern of our affected tank cars to comply with the new standards . however , for the majority of the affected cars , we currently anticipate retiring , redeploying , or selling them rather than performing retrofits . rail international segment summary rail international , composed primarily of gatx rail europe ( `` gre '' ) , produced solid operating results in 2017. despite market pressure , gre was successful in maintaining high fleet utilization . railcar utilization for gre was 96.8 % at the end of 2017 , compared to 95.6 % at the end of 2016 , and 95.8 % at the end of 2015 . gre 's results in 2017 benefited from lower maintenance expense , primarily due to lower wheelset costs , which were higher in 2016 due to a refurbishment program to address anti-corrosion paint issues on certain wheelsets . rail india continued to focus on investment opportunities and diversification of its fleet , as well as developing relationships with customers , suppliers and the indian railways . in 2017 , rail india added 275 railcars , compared to zero in 2016 and 410 railcars in 2015. as of december 31 , 2017 , rail india had entered into contracts to acquire approximately 350 additional railcars in 2018 and expects continued fleet growth and diversification . rail russia focused on managing its fleet and developing relationships with new customers . in 2017 , rail russia did not add any new railcars , compared to 20 railcars added in 2016 and 150 railcars added in 2015. as of december 31 , 2017 , rail russia had commitments to acquire approximately 165 railcars in 2018 and plans to further expand both its fleet and customer base in 2018 . 34 the following table shows rail international 's segment results for the years ended december 31 ( in millions ) : replace_table_token_13_th the following table shows fleet activity for gre railcars for the years ended december 31 : replace_table_token_14_th 35 \ foreign currency rail international 's reported results of operations are impacted by fluctuations in the exchange rates of the foreign currencies in which it conducts business , primarily the euro . in 2017 , a stronger euro positively impacted lease revenue by approximately $ 4.5 million and segment profit , excluding other income ( expense ) , by approximately $ 2.5 million compared to 2016. in 2016 , fluctuations in the value of the euro did not have a meaningful impact on revenue or segment profit compared to the prior year . segment profit in 2017 , segment profit of $ 68.8 million increased 9.2 % compared to $ 63.0 million in 2016 . the increase was largely due to higher lease revenue and lower maintenance expense , as well as the positive impacts of foreign exchange rates . in 2016 , segment profit of $ 63.0 million decreased 10.1 % compared to $ 70.1 million in 2015. the decrease was largely due to higher maintenance expense , primarily as a result of higher wheelset costs , and the absence of a gain recognized on the sale of a workshop in 2015 , partially offset by higher lease revenue and lower net legal defense costs . revenues in 2017 , lease revenue increased $ 8.3 million , or 4.6 % , due to more cars on lease , as well as the positive impacts of foreign exchange rates . other revenue was comparable to the prior year . in 2016 , lease revenue increased $ 9.1 million , or 5.3 % , primarily due to more cars on lease . 36 expenses in 2017 , maintenance expense decreased $ 6.1 million , primarily due to lower wheelset costs and reimbursements from manufacturers on previously incurred wheelset costs , partially offset by the negative impacts of foreign exchange rates . depreciation expense increased $ 3.4 million , driven by the impact of new cars added to the fleet , as well as the negative impacts of foreign exchange rates . other operating expense was comparable to prior year . in 2016 , maintenance expense increased $ 7.6 million , primarily due to the costs of wheelset replacements related to the refurbishment program , as discussed above , and the higher costs associated with railcars undergoing regulatory compliance maintenance . depreciation expense increased $ 1.8 million , driven by the impact of new cars added to the fleet . other operating expense was comparable to prior year . other income ( expense ) in 2017 , net gain on asset dispositions increased $ 2.0 million , primarily due to higher scrapping gains resulting from more railcars scrapped . net interest expense increased $ 3.7 million , due to a higher average interest rate and a higher average debt balance . other expense increased $ 4.0 million , driven by the unfavorable impact of changes in foreign exchange rates on non-functional currency items and derivatives . in 2016 , net gain on asset dispositions decreased $ 5.7 million , primarily due to the absence of a gain recognized on the sale of a workshop in 2015 and lower railcar scrapping gains as a result of fewer railcars scrapped in 2016. net interest expense increased $ 7.3 million , largely due to a higher average debt balance , resulting from an increase in segment leverage in 2016 , partially offset by a lower average interest rate . other expense decreased $ 6.8 million , largely due to lower net legal costs resulting from insurance reimbursements received in 2016 for previously expensed legal defense costs
| the terms of our contracts provide that a substantial portion of fuel costs are passed on to customers . in 2016 , marine operating revenue decreased $ 16.1 million , or 9.7 % , primarily due to lower shipping volume as a result of decreased demand , as well as fewer long-haul shipments of various commodities . in addition , lower fuel revenue , which is offset in marine operating expense , contributed to the variance . expenses in 2017 , maintenance expense increased $ 3.6 million , due to more winter work and higher operating repairs . marine operating expense increased $ 9.5 million , largely driven by the impact of an additional vessel in operation and more overall operating days , as well as higher fuel costs . in 2016 , maintenance expense decreased $ 3.7 million , due to fewer operating vessels and lower operating repairs . marine operating expense decreased $ 10.5 million , largely driven by lower fuel costs , two fewer vessels deployed in 2016 , and more efficient operations . operating lease expense in 2017 , 2016 , and 2015 included rent for the lease of asc 's tug-barge vessel that was returned at the beginning of 2017 and rent for a vessel that was returned in december 2017. other income ( expense ) in 2017 , other income ( expense ) improved by $ 6.7 million , due to the absence of $ 5.0 million of expenses recorded in 2016 related to an accrual for asbestos-related litigation and costs associated with the scheduled return of a leased vessel in 2017. in 2016 , other expense increased $ 4.7 million , driven by the $ 5.0 million of expenses noted above . investment volume asc 's investments in each of 2017 , 2016 , and 2015 consisted of structural and mechanical upgrades to our vessels . portfolio management segment summary portfolio management 's segment profit includes income from our investment in the rolls-royce & partners finance
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our cost of goods sold for refurbished products includes the price we pay for cores , freight , and costs to refurbish the parts , including direct and indirect labor , facility and equipment costs , depreciation and other overhead related to our refurbishing operations . our cost of goods sold for recycled products includes the price we pay for the salvage vehicle and , where applicable , auction , towing and storage fees . prices for salvage vehicles may be impacted by a variety of factors , including the number of buyers competing to purchase the vehicles , the demand and pricing trends for used vehicles , the number of vehicles designated as “ total losses ” by insurance companies , the production level of new vehicles ( which provides the source from which salvage vehicles ultimately come ) , the age of vehicles at auction and the status of laws regulating bidders or exporters of salvage vehicles . from time to time , we may also adjust our buying strategy to target vehicles with different attributes ( for example , age , level of damage , and revenue potential ) . due to changes relating to these factors , we have seen the prices we pay for salvage vehicles fluctuate over time . our cost of goods sold also includes labor and other costs we incur to acquire and dismantle such vehicles . our labor and labor-related costs related to acquisition and dismantling generally account for between 9 % and 13 % of our cost of goods sold for vehicles we dismantle . the acquisition and dismantling of salvage vehicles is a manual process and , as a result , energy costs are not material . our cost of goods sold for remanufactured products includes the price we pay for cores ; freight ; and costs to remanufacture the products , including direct and indirect labor , facility and equipment costs , depreciation and other overhead related to our remanufacturing operations . some of our salvage mechanical products are sold with a standard six-month warranty against defects . additionally , some of our remanufactured engines are sold with a standard three-year warranty against defects . we also provide a limited lifetime warranty for certain of our aftermarket products that is supported by certain of the suppliers of those products . we record the estimated warranty costs at the time of sale using historical warranty claims information to project future warranty claims activity and related expenses . other revenue is primarily generated from the hulks and unusable parts of the vehicles we acquire for our wholesale and self service recycled product operations , and therefore , the costs of these sales include the proportionate share of the price we pay for the salvage vehicles as well as the applicable auction , storage and towing fees and internal costs to purchase and dismantle the vehicles . our cost of goods sold for other revenue will fluctuate based on the prices paid for salvage vehicles , which may be impacted by a variety of factors as discussed above . expenses our facility and warehouse expenses primarily include our costs to operate our aftermarket warehouses , salvage yards and self service retail facilities . these costs include personnel expenses such as wages , incentive compensation and employee benefits for plant management and facility and warehouse personnel , as well as rent for our facilities and related utilities , property taxes , repairs and maintenance . the costs included in facility and warehouse expenses do not relate to inventory processing or conversion activities and , as such , are classified below the gross margin line on our consolidated statements of income . our distribution expenses primarily include our costs to prepare and deliver our products to our customers . included in our distribution expense category are personnel costs such as wages , employee benefits and incentive compensation for drivers ; 31 third party freight costs ; fuel ; and expenses related to our delivery and transfer trucks , including vehicle leases , repairs and maintenance , and insurance . our selling and marketing expenses primarily include salary , commission and other incentive compensation expenses for sales personnel ; advertising , promotion and marketing costs ; credit card fees ; telephone and other communication expenses ; and bad debt expense . personnel costs generally account for between 75 % and 80 % of our selling and marketing expenses . most of our sales personnel are paid on a commission basis . the number and quality of our sales force is critical to our ability to respond to our customers ' needs and increase our sales volume . our objective is to continually evaluate our sales force , develop and implement training programs , and utilize appropriate measurements to assess our selling effectiveness . our general and administrative expenses primarily include the costs of our corporate offices and field support center , which provide management , treasury , accounting , legal , payroll , business development , human resources and information systems functions . general and administrative expenses include wages , benefits , stock-based compensation and other incentive compensation for corporate , regional and administrative personnel ; information systems support and maintenance expenses ; and accounting , legal and other professional fees . seasonality our operating results are subject to quarterly variations based on a variety of factors , influenced primarily by seasonal changes in weather patterns . during the winter months , we tend to have higher demand for our vehicle replacement products because there are more weather related repairs . our specialty vehicle operations typically generate greater revenue and earnings in the first half of the year , when vehicle owners tend to install this equipment . we expect our aftermarket glass operations to generate greater revenue and earnings in the second and third quarters , when the demand for glass replacements increases after the winter weather . story_separator_special_tag critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , assumptions , and judgments , including those related to revenue recognition , inventory valuation , business combinations and goodwill impairment . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue . actual results may differ from these estimates . revenue recognition we recognize and report revenue from the sale of vehicle products when they are shipped to or picked up by the customers and title has transferred , subject to an allowance for estimated returns , discounts and allowances that management estimates based upon historical information . in instances where a product is returned by a customer , the product would ordinarily be returned within a few days of shipment . our customers may earn discounts based upon sales volumes or sales volumes coupled with prompt payment . allowances are normally given within a few days following product shipment . we analyze historical returns and allowances activity by comparing the items to the original invoice amounts and dates . we use this information to project future returns and allowances on products sold . if actual returns and allowances are higher than our historical experience , there would be an adverse impact on our operating results in the period of occurrence . we recognize revenue from the sale of scrap metal , other metals , and cores when title has transferred , which typically occurs upon delivery to the customer . inventory accounting salvage and remanufactured inventory . our salvage inventory cost is established based upon the price we pay for a vehicle , including auction , towing and storage fees , as well as expenditures for buying and dismantling vehicles . inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility 's inventory at expected selling prices , the assessment of which incorporates the sales probability based on a part 's days in stock and historical demand . the average cost to sales percentage is derived from each facility 's historical profitability for salvage vehicles . remanufactured inventory cost is based upon the price paid for cores , and also includes expenses incurred for freight , direct manufacturing costs and overhead related to our remanufacturing operations . 32 for all inventory , carrying value is recorded at the lower of cost or market and is reduced to reflect current anticipated demand . if actual demand differs from our estimates , additional reductions to inventory carrying value would be necessary in the period such determination is made . business combinations we record our acquisitions using the acquisition method of accounting , under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values . we utilize management estimates and , in some instances , independent third-party valuation firms to assist in determining the fair values of assets acquired , liabilities assumed and contingent consideration granted . such estimates and valuations require us to make significant assumptions , including projections of future events and operating performance . goodwill impairment we are required to test our goodwill for impairment at least annually . when testing goodwill for impairment , we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceed the carrying value . if these assumptions or estimates change in the future , we may be required to record impairment charges for these assets . in response to changes in industry and market conditions , we may be required to strategically realign our resources and consider restructuring , disposing of , or otherwise exiting businesses , which could result in an impairment of goodwill . we perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist . during 2016 , we did not identify any events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts . therefore , we did not perform any impairment tests other than our annual test in the fourth quarter of 2016 . as of the date of our annual goodwill impairment test , we were organized into five operating segments : wholesale - north america ; europe ; specialty ; glass ; and self service . our glass operating segment was composed of two reporting units , the aftermarket business and the glass manufacturing business ; however , goodwill was recorded only in the aftermarket reporting unit . the other four operating segments were single reporting units for purposes of goodwill testing in 2016 . our goodwill would be considered impaired if the net book value of a reporting unit exceeded its estimated fair value . the fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach . we believe that using two methods to determine fair value limits the chances of an unrepresentative valuation . as of december 31 , 2016 , we had a total of $ 3.1 billion in goodwill subject to future impairment tests .
| we are organized into five operating segments : wholesale – north america ; europe ; specialty ; glass and self service . we aggregate our wholesale –north america , glass and self service operating segments into one reportable segment , north america , resulting in three reportable segments : north america , europe and specialty . our revenue , cost of goods sold , and operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors , some of which are beyond our control . factors that may affect our operating results include , but are not limited to , those listed in the special note on forward-looking statements in part i , item 1 and risk factors in part i , item 1a of this annual report on form 10-k. due to these factors and others , which may be unknown to us at this time , our operating results in future periods can be expected to fluctuate . accordingly , our historical results of operations may not be indicative of future performance . acquisitions and investments since our inception in 1998 , we have pursued a growth strategy through both organic growth and acquisitions . we have pursued acquisitions that we believe will help drive profitability , cash flow and stockholder value . we target companies that are market leaders , will expand our geographic presence and enhance our ability to provide a wide array of automotive products to our customers through our distribution network . on march 18 , 2016 , lkq acquired rhiag , a distributor of aftermarket spare parts for passenger cars and commercial vehicles in italy , czech republic , switzerland , hungary , romania , ukraine , bulgaria , slovakia , poland and spain . this acquisition expanded lkq 's geographic presence in continental europe , and we believe the acquisition will generate potential purchasing synergies . on april 21 , 2016 , lkq acquired pgw , a leading global distributor and manufacturer of
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live events business unit : over the long-term , we believe growth in the live events business unit will result from a number of factors , including : facilities spending more on larger display systems lower product costs , which are driving an expansion of the marketplace our product and service offerings , which remain the most integrated and comprehensive offerings in the industry the competitive nature of sports teams , which strive to out-perform their competitors with display systems the desire for high-definition video displays , which typically drives larger displays or higher resolution displays , both of which increase the average transaction size schools and theatres business unit : over the long-term , we believe growth in the schools and theatres business unit will result from a number of factors , including : increased demand for video systems in high schools as school districts realize the revenue generating potential of these displays versus traditional scoreboards increased demand for different types of displays , such as message centers at schools to communicate to students , parents and the broader community the use of more sophisticated displays in more athletic venues , such as aquatics in schools transportation business unit : over the long-term , we believe growth in the transportation business unit will result from increasing applications of electronic displays to manage transportation systems , including roadway , airport , parking , transit and other applications . this growth is highly dependent on government spending , primarily by the federal government . international business unit : over the long-term , we believe growth in the international business unit will result from achieving greater penetration in various geographies , building products more suited to individual markets , third party advertising market opportunities , and the reasons listed in each of the other business units to the extent they apply outside the united states and canada . each of our business units is impacted by adverse economic conditions in different ways and to different degrees . the effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses , although in severe economic downturns , the sports business also can be severely impacted . our commercial and international business units are highly dependent on economic conditions in general . 20 the cost and selling prices of our products have decreased over time and are expected to continue to decrease in the future . as a result , each year we must sell more products to generate the same or greater level of net sales as in previous fiscal years . this price decline has been significant as a result of increased competition across all business units . critical accounting policies and estimates the following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgments which affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on a regular basis , we evaluate our estimates , including those related to total costs on long-term construction-type contracts , costs to be incurred for product warranties and extended maintenance contracts , bad debts , excess and obsolete inventory , income taxes , share-based compensation and contingencies . our estimates are based on historical experience and on various other assumptions 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 not readily apparent from other sources . actual results may differ from these estimates . we believe the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements : revenue recognition on long-term construction-type contracts . earnings on construction-type contracts are recognized on the percentage-of-completion method , measured by the percentage of costs incurred to date to estimated total costs for each contract . contract costs include all direct material and labor costs and those indirect costs related to contract performance . indirect costs include charges for such items as facilities , engineering and project management . provisions for estimated losses on uncompleted contracts are made in the period such losses are capable of being estimated . generally , construction-type contracts we enter into have fixed prices established , and to the extent the actual costs to complete construction-type contracts are higher than the amounts estimated as of the date of the financial statements , the resulting gross margin would be negatively affected in future quarters when we revise our estimates . our practice is to revise estimates as soon as such changes in estimates are known . we do not believe there is a reasonable likelihood there will be a material change in future estimates or assumptions we use to determine these estimates . we combine contracts for accounting purposes when they are negotiated as a package with an overall profit margin objective , essentially represent an agreement to do a single project for a customer , involve interrelated construction activities , and are performed concurrently or sequentially . when a group of contracts is combined , revenue and profit are recognized uniformly over the performance of the combined projects . we segment revenues in accordance with the contract segmenting criteria in accounting standards codification ( “ asc ” ) 650-35 , construction-type and production-type contracts . allowance for doubtful accounts . 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 were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . story_separator_special_tag to identify impairment in customers ' ability to pay , we review aging reports , contact customers in connection with collection efforts and review other available information . although we consider our allowance for doubtful accounts adequate , if the financial condition of our customers were to deteriorate and impair their ability to make payments to us , additional allowances may be required in future periods . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine the allowance for doubtful accounts . as of april 27 , 2013 and april 28 , 2012 , we had an allowance for doubtful accounts balance of approximately $ 2.7 million and $ 2.4 million , respectively . warranties . we have recognized a reserve for warranties on our products equal to our estimate of the actual costs to be incurred in connection with our performance under the warranties . generally , estimates are based on historical experience taking into account known or expected changes . if we would become aware of an increase in our estimated warranty costs , additional reserves may become necessary , resulting in an increase in costs of goods sold . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine our reserve for warranties . as of april 27 , 2013 and april 28 , 2012 , we had approximately $ 25.1 million and $ 22.2 million reserved for these costs , respectively . extended warranty and product maintenance . we recognize deferred revenue related to separately priced extended warranty and product maintenance agreements . the deferred revenue is recognized ratably over the contractual term . if we would become aware of an increase in our estimated costs under these agreements in excess of our deferred revenue , additional reserves may be necessary , resulting in an increase in costs of goods sold . in determining if additional reserves are necessary , we examine cost trends on the contracts and other information and compare them to the deferred revenue . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine estimated costs under these agreements . as of april 27 , 2013 and april 28 , 2012 , we had $ 13.0 million and $ 14.0 million of deferred revenue related to separately priced extended warranty and product maintenance agreements , respectively . 21 inventory . inventories are stated at the lower of cost or market . market refers to the current replacement cost , except market may not exceed the net realizable value ( that is , the estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal ) , and market is not less than the net realizable value reduced by an allowance for normal profit margins . in valuing inventory , we estimate market value where it is believed to be the lower of cost or market , and any necessary changes are charged to costs of goods sold in the period in which they occur . in determining market value , we review various factors such as current inventory levels , forecasted demand and technological obsolescence . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate the estimated market value of inventory . however , if market conditions change , including changes in technology , product components used in our products or in expected sales , we may be exposed to unforeseen losses which could be material . income taxes . as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating the actual current tax expense , as well as assessing temporary differences in the treatment of items for tax and financial reporting purposes . these timing differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . we must then assess the likelihood our deferred tax assets will be recovered from future taxable income in each jurisdiction , and to the extent we believe recovery is not likely , a valuation allowance must be established . we review deferred tax assets , including net operating losses , and to the extent we believe the asset may not be realized , we recognize a valuation allowance . if our estimates of future taxable income are not met in future periods , a valuation allowance for some of these deferred tax assets may be required . we believe we will generate taxable income in future years which will allow for realization of deferred tax assets . realization of the deferred tax assets would require approximately $ 20 million of taxable income , which we believe is achievable through the carry back of losses or future earnings . we operate within multiple taxing jurisdictions , both domestic and international , and are subject to audits in these jurisdictions . these audits can involve complex issues , including challenges regarding the timing and amount of deductions and the allocation of income amounts to various tax jurisdictions . at any one time , multiple tax years are subject to audit by various tax authorities . we record our income tax provision based on our knowledge of all relevant facts and circumstances , including the existing tax laws , the status of any current examinations and our understanding of how the tax authorities view certain relevant industry and commercial matters . in evaluating the exposure associated with our various tax filing positions , we record reserves for probable exposures consistent with asc 740 , income taxes .
| we continue to see ongoing interest from venues at all levels to increase the size and capability of their display system which should offer continued growth opportunity for this market in fiscal 2014. a number of factors , such as the discretionary nature of customers committing to upgrade systems , versus the non-discretionary purchases associated with new construction , the current aggressive competitive environment and various other factors , make forecasting fiscal 2014 orders and net sales difficult . however , for the reasons cited previously , we expect growth in this business unit over the long-term , assuming the economy continues to improve and we are successful at counteracting competitive pressures . schools and theatres : the increase in net sales for fiscal 2013 compared to the same period one year ago was the result of : schools demonstrating more willingness this year than in fiscal 2012 to move forward with projects including smaller video systems , scoring and timing equipment and message centers . an increased demand in video projects for high schools . we continue to see opportunities to sell larger video systems , primarily in high school facilities which benefit from our sports marketing services that generate advertising revenue to fund the display systems for fiscal 2014. for the long term , we believe this business unit presents growth opportunities as the economy continues to improve . transportation : the increase in net sales for fiscal 2013 compared to the same period one year ago was the result of : sales recorded from a large procurement contract compared to the previous year . sales recorded in relation to a $ 21 million order for video displays at the lax bradley international terminal in los angeles . this type of order in the transportation market is unusual and infrequent in nature . during fiscal 2013 , we recorded significant revenues from large projects in excess of $ 40 million related to the
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further development of edp-494 for hcv will depend in part on the results of this study and in part on our assessment of the potential market opportunities in hcv and in other possible indications . we have utilized our internal chemistry and drug discovery capabilities to generate all of our development-stage programs . licensed product/candidate under our collaborative development and license agreement with abbvie , we have developed and licensed to abbvie : paritaprevir : paritaprevir is the protease inhibitor contained in viekira pak ® and abbvie 's other hcv treatment regimens currently marketed in the u.s. , eu , japan and other countries around the world . first approved and sold in the u.s. in december 2014 for treatment of genotype 1 , or gt-1 , hcv , abbvie 's hcv regimens containing paritaprevir are now also approved for gt-4 hcv and are available in most major markets . abbvie 's net sales of these regimens provided us $ 57.7 million in royalty revenue in our 2016 fiscal year , compared to $ 34.1 million in fiscal 2015. we have also received a total of $ 155.0 million in milestone payments upon the initial commercialization regulatory approvals of a paritaprevir-containing regimen in major markets . glecaprevir ( abt-493 ) : our second protease inhibitor , glecaprevir , is being developed by abbvie with its second ns5a inhibitor , pibrentasvir ( abt-530 ) , as abbvie 's next treatment regimen for hcv . this combination , which is currently referred to as g/p , is a once daily , all oral , fixed-dose treatment for hcv genotypes 1-6 , which is referred to as being pan-genotypic . 60 in november 2016 , abbvie announced results from several phase 3 studies of this investigational combination demonstrating 97.5 percent of chronic hcv infected patients without cirrhosis and new to treatment across all major genotypes ( gt1-6 ) achieved svr 12 with just 8 weeks of g/p treatment . abbvie also announced results of its expedition-4 study in chronic hcv patients with chronic kidney disease ( ckd ) , in which 98 percent of patients ( n=102/104 ) across all major genotypes ( gt-1-6 ) achieved svr12 with 12 weeks of treatment with g/p . the fda has granted breakthrough therapy designation for the g/p combination for the treatment of gt-1 patients with chronic hcv who failed previous therapy with direct-acting antivirals ( daas ) , including previous therapy with an ns5a inhibitor and or protease inhibitor . upon commercialization regulatory approval of g/p in major markets , enanta would be eligible for up to $ 80.0 million dollars in milestone payments , as well as annually tiered , double-digit royalties on 50 % of the net sales of this 2-daa product . the following table summarizes our product development pipeline in our virology and liver disease programs : 61 we are currently funding all research and development for our internal programs . we expect to incur substantially greater expenses as we continue to advance our fxr agonist program , for which we initiated phase 1 clinical studies of our lead candidate , edp-305 , in september 2016. in addition , we expect to increase expenses in fiscal 2017 as we complete our proof of concept study for edp-494 and advance other compounds into substantial preclinical and clinical development . since commencing our operations in 1995 , we have devoted substantially all of our resources to the discovery and development of novel compounds for the treatment of viral infections and liver diseases . for the periods included in this report we have funded our operations primarily through payments received under our collaborations and a niaid government contract , as well as net proceeds of approximately $ 59.9 million that we received from our march 2013 ipo , after deducting underwriting discounts and commissions . our revenue from our collaboration agreements has resulted in our reporting net income in each of our past five fiscal years . our revenue in the near term will continue to be dependent on our collaboration with abbvie , including royalties from sales of paritaprevir-containing regimens and potential milestone payments and royalties from the development program for glecaprevir ( abt-493 ) , our second protease inhibitor being developed with abbvie . given the schedule of potential milestone payments and the uncertainties due to the nature and timing of clinical development , regulatory approval and market acceptance of abbvie 's regimen containing glecaprevir , as well as uncertainty regarding the extent of royalty payments related to paritaprevir or glecaprevir , if any , we can not be certain as to when or whether we will receive further milestone or royalty payments under this collaboration or whether we will continue to report net income in future years . financial operations overview revenue since our inception , our revenue has been derived from two primary sources : collaboration agreements with pharmaceutical companies and one government research and development contract . we have entered into three significant collaboration agreements and contracts since 2006 , the most significant of which is our continuing collaboration agreement with abbvie . in addition , from september 2011 through august 2015 , we had a contract with niaid , which funded the preclinical and early clinical development of an antibiotic product candidate for potential use in biodefense . beginning in our fiscal year ended september 30 , 2015 , we generated royalty revenue from abbvie 's net sales allocable to paritaprevir , which is part of abbvie 's treatment regimens for hcv approved in the u.s. in december 2014 , in the eu in january 2015 and in dozens of other countries since then . story_separator_special_tag abbvie received reimbursement approval for paritaprevir in japan in the first quarter of fiscal 2016. the following table is a summary of revenue recognized from our collaboration agreement and our government contract for the years ended september 30 , 2016 , 2015 , and 2014 : replace_table_token_6_th abbvie agreement we concluded our research obligations under the abbvie agreement in june 2011 and as such , each of the five milestone payments received after june 2011 has been recognized as revenue upon achievement of the milestone 62 by abbvie . under the terms of the abbvie agreement , we earned and recognized a $ 30.0 million milestone payment in fiscal 2016 upon achievement of commercialization regulatory approval of abbvie 's paritaprevir-containing regimen in japan in november 2015. this was the final milestone payment for which we were eligible for the successful development and commercialization of paritaprevir . under the terms of the abbvie agreement , we are eligible to receive additional future milestone payments from abbvie totaling up to $ 80.0 million related to the successful commercialization regulatory approvals in major markets of the first hcv treatment regimen incorporating glecaprevir or another of our collaboration 's protease inhibitors . we also receive annually tiered , double-digit royalties per product on abbvie 's net sales allocable to any one of our collaboration 's protease inhibitors . under the terms of our agreement , as amended in october 2014 , 30 % of net sales of 3-daa regimens containing paritaprevir and 45 % of net sales of 2-daa regimens containing paritaprevir are allocated to paritaprevir for purposes of calculating our annually tiered royalties . we expect our revenue in 2017 to be generated primarily from our collaboration agreement with abbvie . niaid contract under our niaid contract , which ended in august 2015 , we received research and development funding of approximately $ 20.6 million from niaid through september 30 , 2016. we recognized revenue of $ 0.6 million , $ 1.8 million and $ 7.7 million under this agreement during the years ended september 30 , 2016 , 2015 , and 2014 , respectively . internal programs as our internal product candidates are currently in preclinical or early clinical development , we have not generated any revenue from product sales and do not expect to generate any revenue from product sales derived from these product candidates for at least the next several years . we expect that our revenue for the next several years will be derived from milestone payments and royalties under our current collaboration agreement with abbvie , as well as any additional collaborations that we may enter into in the future . operating expenses the following table summarizes our operating expenses for the years ended september 30 , 2016 , 2015 , and 2014 : replace_table_token_7_th research and development expenses research and development expenses consist of costs incurred to conduct basic research , such as the discovery and development of novel small molecules as therapeutics , as well as any expenses of preclinical and clinical development activities . we expense all costs of research and development as incurred . these expenses consist primarily of : personnel costs , including salaries , related benefits and stock-based compensation expense for employees engaged in scientific research and development functions ; third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities ; 63 third-party license fees ; laboratory consumables ; and allocated facility-related costs . project-specific expenses reflect costs directly attributable to our clinical development candidates and preclinical candidates nominated and selected for further development . remaining research and development expenses are reflected in research and drug discovery , which represents early-stage drug discovery programs . at any given time , we typically have several active early stage research and drug discovery projects . our internal resources , employees and infrastructure are not directly tied to any individual research or drug discovery project and are typically deployed across multiple projects . as such , we do not maintain information regarding costs incurred for our early-stage research and drug discovery programs on a project-specific basis . we expect that our research and development expenses will continue to increase in the future as we advance our nash , rsv and hbv programs . our research and drug discovery programs are at early stages ; therefore , the successful development of our product candidates is highly uncertain and may not result in approved products . completion dates and completion costs can vary significantly for each product candidate and are difficult to predict . given 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 the current or future clinical trials of our product candidates or if , or to what extent , we will generate revenue from the commercialization and sale of any of our product candidates . we anticipate that we will make determinations as to which development programs to pursue and how much funding to direct to each program on an ongoing basis in response to the preclinical and clinical success of each product candidate , as well as ongoing assessments of the commercial potential of each product candidate . general and administrative expenses general and administrative expenses consist primarily of personnel costs , which include salaries , related benefits and stock-based compensation , of our executive , finance , business and corporate development and other administrative functions . general and administrative expenses also include travel expenses , allocated facility-related costs not otherwise included in research and development expenses , director 's and officer 's liability insurance premiums , and professional fees for auditing , tax and legal services and patent expenses . we expect that general and administrative expenses will increase in the future primarily due to ongoing expansion of our operating activities in support of our own research and development programs , as well as potential additional costs associated with operating a growing public company . other income ( expense ) , net interest income .
| we recognized revenue of $ 160.9 million during the year ended september 30 , 2015 , as compared to $ 47.7 million during the year ended september 30 , 2014. the increase in revenue of $ 113.2 million year over year was primarily due to an increase in milestone payments and royalties received from abbvie and was partially offset by lower government contract revenue earned as a result of the conclusion of our niaid contract that ended in august 2015. during the years ended september 30 , 2015 and 2014 , we recognized revenue of $ 125.0 million and $ 40.0 million , respectively , for milestone payments received from abbvie as a result of abbvie 's commercialization and regulatory approvals and regulatory filings for a regimen that included paritaprevir . we began recognizing royalty revenue in fiscal 2015 for net sales of abbvie 's hcv treatment regimen allocable to paritaprevir upon u.s. and eu regulatory approvals . research and development expenses . replace_table_token_9_th research and development expenses increased by $ 17.3 million for the year ended september 30 , 2016 as compared to the same period in 2015 due to progression of preclinical and clinical activities in our virology and 69 liver disease programs . increases were driven by an increase in headcount to support our preclinical activities , expansion of our research facility and an increase in external costs for clinical and preclinical activities . research and development expenses increased by $ 4.5 million for the year ended september 30 , 2015 as compared to the same period in 2014 due to an increase in costs for the progression of preclinical activities in our liver disease program , partially offset by a decrease in costs associated with our antibiotic program which ended in august 2015. increases in costs associated with our liver disease program were driven by additional headcount , expansion of our research facilities and an increase in external costs for preclinical activities . general and administrative expenses . general and administrative expenses increased by $ 3.4 million for the year ended september 30 , 2016 as compared to the same period in 2015 primarily due to an increase in stock-based compensation expense of $ 2.3 million related to an increase in headcount , additional stock option grants to employees , and achievement of performance-based option milestones granted to management . general and administrative expenses increased by $ 3.5 million for the year ended september 30 , 2015 as compared to the same period in 2014 primarily due to an increase in stock-based compensation expense of $ 2.3 million related to additional stock option grants to employees which were
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as of december 31 , 2019 , january 1 , 2019 and january 2 , 2018 , there were 282 , 296 and 293 restaurants , respectively , in the comparable company-operated restaurant base . as of december 31 , 2019 , january 1 , 2019 and january 2 , 2018 , there were 272 , 43 244 and 239 restaurants , respectively , in the comparable franchise-operated restaurant base . this measure highlights the performance of existing restaurants as the impact of new restaurant openings is excluded . same store sales growth can be generated by an increase in the number of transactions and or by increases in the average check resulting from a shift in menu mix and or higher prices resulting from new products , promotions or menu price increases . company-operated average unit volumes we measure company-operated average unit volumes ( `` auvs '' ) on both a weekly and an annual basis . weekly auvs are calculated by dividing the sales from comparable company-operated restaurants over a seven day period from wednesday to tuesday by the number of comparable restaurants . annual auvs are calculated by dividing sales for the trailing 52-week period for all company-operated restaurants that are in the comparable base by the total number of restaurants in the comparable base for such period . this measurement allows management to assess changes in consumer traffic and spending patterns at our company-operated restaurants and the overall performance of the restaurant base . restaurant contribution and restaurant contribution margin restaurant contribution and restaurant contribution margin are neither required by , nor presented in accordance with u.s gaap . restaurant contribution is defined as company restaurant sales less restaurant operating expenses , which are food and paper costs , labor and related expenses and occupancy and other operating expenses . restaurant contribution margin is defined as restaurant contribution as a percentage of company restaurant sales . restaurant contribution and restaurant contribution margin are supplemental measures of operating performance of restaurants and the calculations thereof may not be comparable to those reported by other companies . restaurant contribution and restaurant contribution margin have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of results as reported under u.s. gaap . management believes that restaurant contribution and restaurant contribution margin are important tools for investors because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity , efficiency and performance . management uses restaurant contribution and restaurant contribution margin as key performance indicators to evaluate the profitability of incremental sales at del taco restaurants , to evaluate restaurant performance across periods and to evaluate restaurant financial performance compared with competitors . see the heading entitled `` management 's use of non-gaap financial measures '' for the reconciliation of restaurant contribution to the most directly comparable gaap financial measure . number of new restaurant openings the number of restaurant openings reflects the number of new restaurants opened by us and our franchisees during a particular reporting period . before a new restaurant opens , we and our franchisees incur pre-opening costs , as described below . some new restaurants open with an initial start-up period of higher than normal sales volumes , which subsequently decrease to stabilized levels . typically , new restaurants experience normal inefficiencies in the form of higher food and paper , labor and other direct operating expenses and , as a result , restaurant contribution margins are generally lower during the start-up period of operation . typically , the average start-up period after which new company restaurant sales and restaurant operating expenses normalize is approximately 26 to 52 weeks . in new markets , the length of time before average company restaurant sales and restaurant operating expenses for new restaurants stabilize is less predictable and can be longer as a result of limited knowledge of these markets and consumers ' limited awareness of our brand . when we enter new markets , we may be exposed to start-up times that are longer and restaurant contribution margins that are lower than typical historical experience , and these new restaurants may not be profitable and their sales performance may not follow historical patterns . ebitda and adjusted ebitda ebitda represents net income ( loss ) before interest expense , provision ( benefit ) for income taxes , depreciation and amortization . adjusted ebitda represents net income ( loss ) before interest expense , provision ( benefit ) for income taxes , depreciation , amortization and items that we do not consider representative of ongoing operating performance , as identified in the reconciliation table under the heading entitled `` management 's use of non-gaap financial measures . '' ebitda and adjusted ebitda as presented in this annual report are supplemental measures of performance that are neither required by , nor presented in accordance with u.s. gaap . ebitda and adjusted ebitda are not measurements of financial performance under u.s. gaap and should not be considered as alternatives to net income ( loss ) , income ( loss ) from operations or any other performance measures derived in accordance with u.s. gaap or as alternatives to cash flow from operating activities as a measure of liquidity . in addition , in evaluating ebitda and adjusted ebitda , you should be aware that in the future we may incur expenses or charges such as those added back to calculate ebitda and adjusted ebitda . our 44 presentation of ebitda and adjusted ebitda should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items . ebitda and adjusted ebitda have limitations as analytical tools , and you should not consider them in isolation , or as substitutes for analysis of results as reported under u.s. gaap . story_separator_special_tag some of these limitations include but are not limited to : ( i ) they do not reflect cash expenditures , or future requirements for capital expenditures or contractual commitments ; ( ii ) they do not reflect changes in , or cash requirements for , working capital needs ; ( iii ) they do not reflect the significant interest expense , or the cash requirements necessary to service interest or principal payments , on debt ; ( iv ) although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and ebitda and adjusted ebitda do not reflect any cash requirements for such replacements ; ( v ) they do not adjust for all non-cash income or expense items that are reflected in the statements of cash flows ; ( vi ) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of ongoing operations ; and ( vii ) other companies in the industry may calculate these measures differently than we do , limiting their usefulness as comparative measures . we compensate for these limitations by providing specific information regarding the u.s. gaap amounts excluded from such non-gaap financial measures . we further compensate for the limitations in the use of non-gaap financial measures by presenting comparable u.s. gaap measures more prominently . we believe ebitda and adjusted ebitda facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies . these potential differences may be caused by variations in capital structures ( affecting interest expense ) , tax positions ( such as the impact on periods or changes in effective tax rates or net operating losses ) and the age and book depreciation of facilities and equipment ( affecting relative depreciation expense ) . we also present ebitda and adjusted ebitda because ( i ) we believe these measures are frequently used by securities analysts , investors and other interested parties to evaluate companies in their industry , ( ii ) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness , and ( iii ) we use ebitda and adjusted ebitda internally as benchmarks to compare performance to that of competitors . see the heading entitled `` management 's use of non-gaap financial measures '' for the reconciliation of ebitda and adjusted ebitda to net income ( loss ) . key financial definitions company restaurant sales company restaurant sales represents sale of food and beverages in company-operated restaurants , net of promotional allowances , employee meals and other discounts . company restaurant sales in any period is directly influenced by the number of operating weeks in such period , the number of open restaurants , same store sales performance and per-restaurant sales . franchise revenue franchise revenue consists of franchise royalty income from franchisees and , to a lesser extent , renewal fees and franchise fees from franchise owners for new franchise restaurant openings . franchise fees are collected upon signing a franchise agreement and deferred and recognized as revenue over the term of the franchise agreement and renewal fees are deferred and recognized over the term of the renewal agreement . to a lesser extent , franchise revenue also includes pass-through fees for services , such as software maintenance and technology subscriptions , since we are considered the principal related to the purchase and sale of the services to the franchisee and have no remaining performance obligations . the related expenses are recognized in general and administrative expenses . franchise advertising contributions franchise advertising contributions consist of a percentage of a franchise restaurant 's net sales , typically 4 % , paid to the company for advertising and promotional services that the company provides . 45 franchise sublease and other income franchise sublease income consists of rental income received from franchisees related to properties where we have subleased a leasehold interest to the franchisee but remain primarily liable to the landlord . the related expenses are recognized in occupancy and other - franchise subleases and other . during 2019 , as a result of the adoption of topic 842 , franchise sublease income also includes rental income for closed restaurant properties where we have subleased to a third party but remain primarily liable to the landlord , and the related expenses are recognized in restaurant closure charges , net . franchise other income also includes information technology hardware such as point of sale equipment , tablets , kitchen display systems , servers , scanners and printers that we occasionally purchase from third party vendors and then sell to franchisees . since we are considered the principal related to the purchase and sale of the hardware to the franchisee and have no remaining performance obligations , the franchisee reimbursement is recognized as franchise sublease and other income upon transfer of the hardware . the related expenses are recognized in occupancy and other - franchise subleases and other . food and paper costs food and paper costs include the direct costs associated with food , beverage and packaging of menu items . the components of food and paper costs are variable in nature , change with sales volume and are impacted by menu mix and are subject to increases or decreases based on fluctuations in commodity , distribution and transportation costs . other important factors causing fluctuations in food and paper costs include seasonality , promotional activity and restaurant level management of food and paper waste . food and paper are a significant expense and can be expected to grow proportionally as company restaurant sales grows . labor and related expenses labor and related expenses include all restaurant-level management and hourly labor costs , including wages , benefits , bonuses , workers ' compensation expense , group health insurance , paid leave and payroll taxes .
| franchise sublease and other income franchise sublease and other income increased $ 2.0 million , or 58.8 % for the fifty-two weeks ended december 31 , 2019 , primarily due to an increase in sublease income related to the sale of 13 company-operated restaurants to franchisees during the first quarter of 2019 and the sale of 18 company-operated restaurants to franchisees during the fourth quarter of 2019 in which we retained the leasehold interest to the real estate , as well as sublease income related to previously closed stores included in franchise sublease and other income as part of the adoption of topic 842 , partially offset by a reduction in sublease income due to the purchase of one franchise-operated restaurant where we had a sublease with a franchisee during the first quarter of 2019. food and paper costs food and paper costs increased $ 1.8 million , or 1.4 % for the fifty-two weeks ended december 31 , 2019 , consisting of a $ 1.6 million increase in food costs and a $ 0.2 million increase in paper costs . the increase in food and paper costs was primarily due to commodity cost inflation . as a percentage of company restaurant sales , food and paper costs were 27.6 % for the fifty-two weeks ended december 31 , 2019 , compared to 27.4 % for the fifty-two weeks ended january 1 , 2019 . the percentage increase resulted from commodity cost inflation partially offset by menu price increases . labor and related expenses labor and related expenses increased $ 4.1 million , or 2.7 % , for the fifty-two weeks ended december 31 , 2019 , primarily due to increased labor costs resulting from a california minimum wage increase on january 1 , 2019 and a los angeles minimum wage increase on july 1 , 2019 , partially offset by a reduction in workers compensation expense based on lower payments and reserves related to underlying claims activity and lower group health insurance expense . as a percentage of company restaurant sales , labor and related expenses were 32.9 % for the fifty-two weeks ended december 31 , 2019 , compared to 32.2 % for the fifty-two weeks ended january 1 , 2019 . this percentage increase resulted primarily from the impact of the increased california and los angeles minimum wage discussed above , partially offset
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mining is an energy intensive industry using significant quantities of electricity and fuel in the mining , transport , crushing , grinding and processing of ores and as a result , a mine 's cost structure is sensitive to changes in fuel and electric power costs . increases in crude oil prices from $ 45 per barrel in early 2009 , to in excess of $ 100 per barrel in late 2011 have thus contributed to higher mining costs worldwide . increasing fuel costs have also resulted in higher electric power in many areas including ghana . the resource boom of recent years has constrained availability of skilled mining personnel , which in turn has put upward pressure on labor costs . it has also contributed to increases in mining equipment costs and long lead times for new orders . an analysis of cash operating costs of 26 competitors ' mines in africa , north america , and south america as reported in their public financial reporting documents , show that on average , cash operating costs in the first nine months of 2011 were up 20 % over the first nine months of 2010. while these various companies may apply differing cost accounting procedures , this analysis is an indication of recent trends in gold mining costs . increases in taxation and royalties during 2011 , several countries announced increases , or intent to increase mineral royalty rates , income tax rates and fees applicable to mining operations , including australia , peru , bolivia , chile , tanzania , ecuador , mali , brazil , burkina faso and ghana . in early 2011 , ghana raised its royalty rates on gold mines from 3 % to 5 % , and which was a major factor in the 63 % increase in the royalties paid by our mines in 2011 , as compared to 2010. in late 2011 , the government of ghana proposed a number of changes to the mining fiscal regime for 2012 , which if implemented , will likely result in an increase in corporate tax payable by mining companies in ghana . the government of ghana has indicated that in 2012 the corporate income tax rate will increase from 25 % to 35 % for mining companies , and capital allowances ( tax depreciation ) will be deductible at a flat rate of 20 % over a five year period instead of an 80 % deduction in the year that the capital spending was incurred . in addition , the government proposed to disallow expenditures from one mining area as a deduction from revenues in a separate mining area belonging to the same company in determining the company 's taxable income . the government also announced its intent to introduce a 10 % windfall profit tax on mining companies in 2012. the details of these tax changes have not been made available and we are thus not able to determine the impact of these new taxes on our operations at this time . moreover , the ghana government announced in late 2011 that it intends to establish a tax stability renegotiation team which plans to review the existing tax stability agreements of mining companies operating in ghana . while our mines do not have tax stability agreements , it is not clear at this time if the tax 49 stability renegotiation team will review out deeds of warranty which specify certain tax agreements for our properties . convertible debt our $ 125 million convertible debentures mature on november 30 , 2012. we have the option to settle this liability in cash payment , or subject to certain limitations , in common shares . see the liquidity outlook section below for additional details of the settlement alternatives for this debt . results of operations - 2011 compared to 2010 consolidated results consolidated 2011 financial results include a net loss attributable to golden star of $ 2.1 million or 0.008 per share which was improved over a net loss attributable to golden star of $ 11.2 million or $ 0.044 per share in 2010. while the number of ounces sold was down from 2010 's level and operating costs were higher , rising gold prices during 2011 yielded an increase in revenues that exceeded the impact of lower ounces and higher operating costs . realized gold prices averaged $ 1,564 per ounce during 2011 , up 28 % from $ 1,219 per ounce in 2010. lower ore grades and less tonnes of ore processed at both bogoso and at wassa contributed to the 2011 loss , as did higher cash operating costs at both operations . consolidated 2011 cash operating costs totaled $ 319.8 million , up 18 % from $ 272.0 million in 2010. the increase in cash operating costs reflects significant increases in prices of many of our key operating inputs including the prices paid for electric power , labor , cyanide , fuel , and other reagents used in processing plants . higher cash operating costs also reflect an increase in waste mining activities in 2011 as compared to 2010. see bogoso 's operational discussion below for more details on cost increases . depreciation charges in 2011 were down $ 29.1 million from 2010 due to lower ounces sold at bogoso and at wassa , and due to the decrease in depreciation and amortization expense per ounce from the increase in gold reserves at the end of 2010. replace_table_token_18_th gold hedging activities during 2011 resulted in a loss of $ 19.5 million , up from a $ 1.1 million loss in 2010. most of these losses were related to forward gold price contracts which lost value during the year as gold prices rose . see note 5 of the attached financial statements for additional discussion of the 2011 gold forward contracts . offsetting the gold derivative losses in 2011 was a $ 26.2 million gain on fair value of the option feature in our convertible debentures . story_separator_special_tag the gain was in response to lower prices of our common shares which resulted in a lower value of the option feature . in comparison , we recorded a $ 3.2 million loss on the fair value of the conversion feature of our convertible debentures in 2010 in response to rising prices for our common shares . see note 4 of the attached financial statements for additional disclosure on fair value adjustments to our convertible debentures . interest expense totaled $ 8.9 million in 2011 , down marginally from $ 9.2 million in 2010 , reflecting lower balances on our equipment financing loans during 2011 as loan balances were paid down . corporate general and administrative costs totaled $ 25.4 million in 2011 , up from $ 17.1 million in 2010. most of the increase was related to one-time corporate advisory and consulting fees totaling $ 4.2 million , increases in non-cash stock compensation expense , addition of a technical services group and higher option and personnel costs . the consulting expense was related to an independent review performed at our mine sites to improve production processes and to lower operating costs . this project was competed in 2011 and we do not expect to commission similar studies in 2012. the increase in income tax expense from 2010 reflects higher income in ghana at wassa . 50 bogoso/prestea operations 2011 compared to 2010 replace_table_token_19_th bogoso/prestea 's revenues totaled $ 222.5 in 2011 , up from $ 206.5 million in the same period of 2010. while the number of ounces sold was lower than in 2010 , increases in realized gold prices during 2011 more than offset the impact of lower ounces . bogoso 's realized gold price averaged $ 1,584 per ounce during 2011 , up from $ 1,207 per ounce a year earlier . bogoso sold 140,504 ounces in 2011 , down from 170,973 ounces in 2010. decreases in tonnes processed and lower plant feed grade were the major factors contributing to the drop in ounces sold . the decrease in grade as compared to 2010 reflects a change in ore source . in 2010 , bogoso 's main feed source was the higher-grade buesichem pit , but mining was completed at the buesichem pit in the third quarter of 2010 and subsequently bogoso moved its mining fleet to other pits at bogoso where ore grades have been lower than at buesichem . the drop in tonnes processed , as compared to 2010 , reflects lower availability of ore in recent quarters as we pursued an accelerated waste stripping program at the chujah pit to allow a more steady supply of ore in subsequent periods . bogoso 's cash operating costs totaled $ 180.4 million during 2011 , up from $ 147.5 million in 2010. the largest item contributing to bogoso 's increase in cash operating costs was a 7.4 million tonne increase in waste tonnes mined which resulted in higher equipment rental costs , additional equipment maintenance costs and additional equipment operating costs . increases in the price of electric power , fuel , cyanide and labor , as compared to 2010 , also contributed to higher operating costs as did higher maintenance expense than a year earlier . more specifically , in late 2011 , the actual price we paid for mine truck tires was up 27 % from a year earlier . similarly , the price we paid for electricity was 23 % higher , our fuel price was up 41 % , explosives were up 7 % and the cost of cyanide was up 16 % . a decrease in the number of ounces sold and higher cash operating costs resulted in a $ 1,284 per ounce cash operating cost in 2011 , up from $ 863 per ounce during 2010. bogoso 's royalty costs were higher than a year earlier due to higher revenues and an increase in the government of ghana 's royalty rate from 3 % in 2010 to 5 % in 2011. the drop in ounces sold contributed to lower units-of-production amortization expense , as did an increase in gold reserves at the end of 2010. cost analysis and cost control planning was a major focus at all operational sites during 2011 , and implementation of the new cost control programs are expected in early 2012. as part of the cost control efforts , we carried out an extensive mine planning exercise in late 2011 to determine the the optimum sequencing of the future bogoso/prestea pits to provide a steady , long term flow of oxide and sulfide ore to the bogoso oxide and sulfide processing plants . mining of oxide ore was initiated at the pampe pit west of bogoso late in the third quarter of 2011 and the bogoso oxide plant was brought on-line in the first quarter of 2012. in addition , we received final permits required to begin recovery and re-processing old bogoso tails materials through the bogoso oxide plant . based on these new developments , we now expect that the combination of pampe oxide ore and the recovery of oxidized tailings will allow continuous , or near-continuous , oxide plant operating throughout 2012 and beyond . since the processing costs of oxide ores are typically lower than for other ore types at bogoso/prestea , we expect reductions in average cash operating costs per ounce in 2012 as compared to 2011. we expect that 2012 sulfide mining rates will be lower than in 2011 with a lower strip ratio and we expect an increase in sulfide ore tonnes processed . sulfide gold recovery rates should remain near the 75 % rate established in the second half of 2011. while sulfide feed grades are expected to drop below 2011 levels , expected increases in processing rates and recovery should more than offset this , resulting in an increase in ounces sold versus 2011. resumption of operations at the oxide processing plant should also contribute to higher gold sales in 2012. during 2011 , the prestea underground mine remained on a care and maintenance basis .
| gold sales totaled 354,904 ounces in 2010 , down from 409,902 ounces sold in 2009. the major factors contributing to the decrease in gold sold were lower gold recovery at bogoso and lower ore grades at wassa . realized gold prices averaged $ 1,219 52 per ounce during 2010 , up 25 % from $ 978 per ounce in 2009. wassa processed essentially the same tonnes in 2010 as in 2009 , but ore grades were lower than in 2009 as mining moved into lower grade areas of the benso and hwini-butre ore bodies during 2010. in contrast , bogoso processed higher grade ore during 2010 than in 2009 , but its gold output was adversely impacted by lower gold recoveries during most of the year . lower gold recovery at bogoso was related to a change in ore sources during the year . in 2009 and the first quarter of 2010 , bogoso 's main ore source was fresh ore from deep in the buesichem pit , which yielded good recoveries . by mid 2010 , the buesichem pit was exhausted and bogoso moved its main mining fleet to the chujah main pit where mining in the initial benches encountered partially oxidized ore which yielded lower flotation recovery of the gold . bogoso initiated mining at the bogoso north pit in october to supplement the chujah main pit ore. see additional discussion of wassa and bogoso 's operations below . our 2010 general and administrative expense was $ 17.1 million , up $ 2.9 million over the 2009 level . the increase was mostly due to higher community development spending in ghana and to higher stock-based compensation expense . the corporate office overhead expense , excluding stock based compensation expense , was up 5 % from 2009. property holding costs are primarily the costs incurred in care and maintenance activities at the prestea underground project . bogoso/prestea operations 2010 compared to 2009 bogoso/prestea gold shipments totaled 170,973 ounces
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we completed the acquisition of repconstrickland , inc. ( “ rsi ” ) during 2013 , and its results have been included in our united states industrial services segment since its acquisition . in addition , we completed two other acquisitions during 2013 , and their results have been included in our united states mechanical construction and facilities services segment . these acquired businesses expanded our service capabilities into new technical areas . story_separator_special_tag backlog is comprised of : ( a ) original contract amounts , ( b ) change orders for which we have received written confirmations from our customers , ( c ) pending change orders for which we expect to receive confirmations in the ordinary course of business and ( d ) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which we consider recovery to be probable . such claim amounts were immaterial for all periods presented . our backlog does not include anticipated revenues from unconsolidated joint ventures or variable interest entities and anticipated revenues from pass-through costs on contracts for which we are acting in the capacity of an agent and which are reported on the net basis . we believe our backlog is firm , although many contracts are subject to cancellation at the election of our customers . historically , cancellations have not had a material adverse effect on us . cost of sales and gross profit the following table presents cost of sales , gross profit ( revenues less cost of sales ) , and gross profit margin ( gross profit as a percentage of revenues ) for the years ended december 31 , 2014 and 2013 ( in thousands , except for percentages ) : replace_table_token_10_th our gross profit for the year ended december 31 , 2014 was $ 907.2 million , an $ 85.6 million increase compared to the gross profit of $ 821.6 million for the year ended december 31 , 2013. the increase in gross profit was primarily attributable to improved profitability within all of our reportable segments , except for our united states electrical construction and facilities services segment . gross profit in 2013 within our united states mechanical construction and facilities services segment was negatively impacted by aggregate losses of approximately $ 24.5 million from one of our subsidiaries at two projects located in the southeastern united states . companies acquired in 2013 included in our united states industrial services segment and our united states mechanical construction and facilities services segment contributed an aggregate of $ 35.9 million to gross profit in 2014. as previously discussed under `` impact of acquisitions '' above , this amount reflects acquired companies ' gross profit in the current reported period only for the time period these entities were not owned by emcor in the comparable prior reported period . our gross profit margin was 14.1 % and 13.0 % for 2014 and 2013 , respectively . gross profit margin for 2014 increased within most of our reportable segments . our consolidated gross profit margin benefited from an increase in revenues from our united states industrial services segment , which historically generates higher gross profit margins than our other reportable segments . gross profit margin for 2013 was adversely impacted by the two significant project write-downs reported in our united states mechanical construction and facilities services segment , resulting in a 0.4 % impact on consolidated gross profit margin . selling , general and administrative expenses the following table presents selling , general and administrative expenses , and selling , general and administrative expenses as a percentage of revenues , for the years ended december 31 , 2014 and 2013 ( in thousands , except for percentages ) : replace_table_token_11_th our selling , general and administrative expenses for the year ended december 31 , 2014 were $ 626.5 million , a $ 45.8 million increase compared to selling , general and administrative expenses of $ 580.6 million for the year ended december 31 , 2013. selling , general and administrative expenses as a percentage of revenues were 9.8 % and 9.2 % for the years ended december 31 , 2014 and 2013 , respectively . this increase in selling , general and administrative expenses primarily resulted from : ( a ) $ 26.6 million of expenses directly related to companies acquired in 2013 , including amortization expense of $ 8.2 million attributable to identifiable intangible assets , ( b ) higher employee related costs such as incentive compensation and employee benefits and ( c ) higher legal costs , including the unfavorable settlement of a legal matter . see “ impact of acquisitions ” discussion above for further information regarding companies acquired in 2013. in addition , our selling , general and administrative expenses as a percentage of revenues increased due to higher revenues from our united states industrial services segment , which has a higher fixed cost structure than our other reportable segments . selling , general and administrative expenses for the year ended december 31 , 2013 included $ 6.1 million of transaction costs associated with the acquisition of rsi . selling , general and administrative expenses for the year ended december 31 , 2013 were reduced by $ 6.8 million of income attributable to the reversal of contingent consideration accruals relating to acquisitions made prior to 2013 . 23 restructuring expenses restructuring expenses were $ 1.2 million and $ 0.6 million for 2014 and 2013 , respectively . the 2014 restructuring expenses included $ 0.6 million of employee severance obligations and $ 0.6 million relating to the termination of leased facilities . the 2013 restructuring expenses included $ 0.5 million of employee severance obligations and $ 0.1 million relating to the termination of leased facilities . as of december 31 , 2014 and 2013 , the balance of restructuring related obligations yet to be paid was $ 0.3 million and $ 0.2 million , respectively . story_separator_special_tag the majority of obligations outstanding as of december 31 , 2013 were paid during 2014. the majority of obligations outstanding as of december 31 , 2014 will be paid during 2015. no material expenses in connection with restructuring from continuing operations are expected to be incurred during 2015. gain on sale of building on july 22 , 2014 , we sold a building and land owned by one of our subsidiaries reported in the united states mechanical construction and facilities services segment . we recognized a gain of approximately $ 11.7 million on this transaction in the third quarter of 2014 , which has been classified as a “ gain on sale of building ” in the consolidated statements of operations . impairment loss on goodwill and identifiable intangible assets in conjunction with our 2014 annual impairment test on october 1 , we recognized a $ 1.5 million non-cash impairment charge related to subsidiary trade names within the united states mechanical construction and facilities services segment and the united states building services segment . the 2014 impairment primarily resulted from lower forecasted revenues from two companies within these segments . no impairment of our identifiable intangible assets was recognized for the year ended december 31 , 2013. additionally , no impairment of our goodwill was recognized for the years ended december 31 , 2014 and 2013. operating income ( loss ) the following table presents by segment our operating income ( loss ) ( gross profit less selling , general and administrative expenses and restructuring expenses ) , and each segment 's operating income ( loss ) as a percentage of such segment 's revenues from unrelated entities , for the years ended december 31 , 2014 and 2013 ( in thousands , except for percentages ) : replace_table_token_12_th as described in more detail below , we had operating income of $ 289.9 million for 2014 compared to operating income of $ 240.4 million for 2013. operating margin was 4.5 % and 3.8 % for 2014 and 2013 , respectively . included within operating income for 2014 was an $ 11.7 million gain on the sale of a building , resulting in a 0.2 % impact on our consolidated operating margin for 2014. operating income for 2013 was negatively impacted by aggregate losses of approximately $ 24.5 million from one of our subsidiaries at two projects located in the southeastern united states , resulting in a 0.4 % impact on our consolidated operating margin for 2013 . 24 operating income of our united states electrical construction and facilities services segment for the year ended december 31 , 2014 was $ 90.9 million compared to operating income of $ 98.1 million for the year ended december 31 , 2013. the decrease in operating income for the year ended december 31 , 2014 was primarily the result of a decrease in gross profit attributable to institutional , transportation , manufacturing and water and wastewater construction projects , as well as an increase in selling , general and administrative expenses , mainly attributable to employment costs . this segment was also negatively impacted by project losses incurred from one of our subsidiaries whose operations we are in the process of closing . the decrease in operating margin for the year ended december 31 , 2014 was primarily the result of an increase in the ratio of selling , general and administrative expenses to revenues . our united states mechanical construction and facilities services segment operating income for the year ended december 31 , 2014 was $ 114.4 million , a $ 20.7 million increase compared to operating income of $ 93.8 million for the year ended december 31 , 2013. operating income was favorably impacted by an increase in gross profit from institutional , commercial , healthcare and hospitality construction projects , partially offset by a decrease in gross profit from manufacturing and transportation construction projects . the results for 2014 included the receipt of $ 3.0 million from former shareholders of a company we had acquired as a result of the settlement of a claim by us under the acquisition agreement ; this payment has been recorded as a reduction of `` cost of sales '' in the consolidated statements of operations . the results for 2013 included aggregate losses of approximately $ 24.5 million from one of our subsidiaries at two projects located in the southeastern united states , resulting in a 1.1 % impact on this segment 's operating margin , partially offset by $ 6.7 million of income attributable to the reversal of contingent consideration accruals related to acquisitions made prior to 2013. companies acquired in 2013 generated operating income of $ 0.9 million , net of amortization expense of $ 0.2 million attributable to identifiable intangible assets , for the year ended december 31 , 2014. see “ impact of acquisitions ” discussion above for further information . the increase in operating margin for the year ended december 31 , 2014 was attributable to an increase in gross profit margin . operating income of our united states building services segment was $ 65.9 million and $ 67.2 million in 2014 and 2013 , respectively . the decrease in operating income was primarily attributable to a decrease in operating income from this segment 's : ( a ) commercial site-based services operations , due to : ( i ) decreased volume from supplier management contracts and ( ii ) higher legal costs , including the unfavorable settlement of a legal matter , and ( b ) energy services operations , due to a reduction of large project work . these decreases were partially offset by an increase in gross profit from this segment 's : ( a ) mobile mechanical services operations , partially due to increased profitability in projects , retrofits and repair services work and ( b ) government site-based services operations , partially due to the successful close-out of two large long-term joint venture projects and reduced selling , general and administrative expenses .
| our united states mechanical construction and facilities services segment revenues for the year ended december 31 , 2014 were $ 2,201.2 million , a $ 128.6 million decrease compared to revenues of $ 2,329.8 million for the year ended december 31 , 2013. this decrease in revenues was primarily attributable to a decline in revenues from manufacturing construction projects , partially as the result of the completion in 2013 of several large projects within this market sector , which were not replaced . this decrease was partially offset by : ( a ) an increase in revenues from commercial , hospitality and institutional construction projects and ( b ) incremental revenues of $ 19.2 million generated by companies acquired in 2013. see “ impact of acquisitions ” discussion above for further information . revenues of our united states building services segment were $ 1,721.3 million and $ 1,795.0 million in 2014 and 2013 , respectively . this decrease in revenues was primarily attributable to decreased revenues from : ( a ) our commercial site-based services operations , as a result of a decline in revenues from supplier management contracts , including a large contract that was terminated by agreement of both parties , ( b ) our energy services operations , due to a reduction in large project work , and ( c ) our government site-based services operations , as a result of the completion of a large long-term site-based joint venture project located in the pacific northwest not renewed pursuant to rebid . these decreases were partially offset by an increase in revenues from our mobile mechanical service operations , primarily within the california and new england markets . revenues of our united states industrial services segment for the year ended december 31 , 2014 increased by $ 320.6 million compared to the year ended december 31 , 2013. for the seven months ended july 31 , 2014 , rsi generated incremental revenues of $ 212.0 million . as previously discussed under `` impact of acquisitions '' above , this amount reflects rsi 's revenues in the current reported period only for the time period rsi was not owned by emcor in the comparable prior reported period . the increase in revenues was also attributable to an increased demand for our industrial field services operations , partially offset by a decrease
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not only were sales impacted by the uncertainty around the exit vote , the significant decline in the british pound led to a translation effect on sales in the u.k. as reported in u.s. dollars . in local currency , the sales decline in the u.k. was 13 % , but when translated into u.s. dollars the decline was over 25 % . this decrease was partially offset by double digit increases in other countries , notably germany , spain and italy . on a market segment basis , the decline was most significant in the corporate office market ( down 6 % ) , which represents the majority of sales within europe . with the exception of the hospitality ( up 19 % ) and healthcare ( up 17 % ) market segments , all other non-office market segments in the region were down year over year , with the most significant declines occurring in the education ( down 29 % ) and government ( down 13 % ) market segments . in the asia-pacific region , our weighted average selling price per square meter declined approximately 1 % in 2016 compared with 2015. the 2 % sales increase in the region was evenly split between australia and asia , with both geographic markets seeing a 2 % increase in revenue . in local currency , the increase in australia was approximately 3 % . the increase in sales in the asia-pacific region was experienced in the corporate office market segment ( up 5 % ) , which represents the majority of sales within the region . this increase was a result of large development projects that led to increases in the first half of the year , particularly in australia . the only other market segment in the region that experienced an increase of significance was the hospitality segment ( up 24 % ) , due to investment in additional selling resources in the region which led to greater market share . within the region , the sales increases in corporate and hospitality segments were offset by declines in the retail ( down 31 % ) and education ( down 11 % ) market segments . 23 cost and expenses the following table presents our overall cost of sales and selling , general and administrative expenses during the past three years : replace_table_token_8_th for 2017 , our costs of sales increased $ 20.4 million ( 3.5 % ) compared with 2016. fluctuations in currency exchange rates did not have a significant impact ( less than 1 % ) on the comparison . in absolute dollars , the increase in costs of sales was a result of the higher sales for 2017 as compared to 2016. as noted above , sales increased 3.9 % in 2017. as a percentage of sales , our costs of sales improved to 61.3 % in 2017 versus 61.5 % in 2016. this improvement was a result of ( 1 ) productivity initiatives , including our investment in our manufacturing facilities in lagrange georgia , ( 2 ) lower cost of sales as a percentage of sales due to the introduction of our lvt product offerings , which commanded margins in 2017 that were accretive to our modular carpet products , and ( 3 ) non-recurring charges in 2016 related to the transition to a centralized warehouse and distribution center in our americas business . these benefits were partially offset by ( 1 ) higher raw materials costs due to input cost inflation , particularly in our european business , and ( 2 ) negative gross margin impacts due to the exit of our flor specialty retail business . our flor business delivers higher gross margins than our commercial business , and with the closure of the specialty retail stores the decline in sales had a negative impact on our cost of sales as a percentage of sales . for 201 6 , our cost of sales decreased $ 29.0 million ( 4.7 % ) compared with 2015. fluctuations in currency exchange rates did not have a significant impact ( less than 1 % ) on the comparison . in absolute dollars , the decrease in cost of sales was due to lower sales and production versus the prior year , as production for 2016 was down 11 % in americas , 3 % in europe and 3 % in asia-pacific versus 2015. as a percentage of sales , our cost of sales declined to 61.5 % in 2016 versus 61.8 % in 2015. the most significant reason for this decline was lower raw materials costs during the year as a result of lower feedstock prices for our raw materials , primarily yarn . these lower prices produced a benefit in cost of sales of approximately $ 12 million , meaning that our raw materials costs for 2016 were lower by this amount . we also experienced more favorable production and utilization efficiencies in 2016 versus 2015. our cost of sales was , however , negatively impacted by approximately $ 5 million in the second half of 2016 , as there were additional costs within our americas business as a result of the transition to a new centralized warehouse and distribution center operated by a third party for the region . for 2017 , our sg & a expenses increased $ 5.0 million ( 1.9 % ) versus 2016. currency fluctuations had only a slight ( less than 1 % ) unfavorable impact on sg & a expenses . the increase in sg & a expenses during the year was due to ( 1 ) higher incentive-based compensation ( approximately $ 6 million ) and performance-based stock compensation ( approximately $ 1.5 million ) as performance targets were met to a higher degree in 2017 as comparted to 2016 , and ( 2 ) higher administrative expenses of $ 5 million as we centralize certain support functions . story_separator_special_tag these increases were partially offset by ( 1 ) lower marketing expenses of $ 3.9 million , a result of our restructuring efforts as well as global consolidation of costs for marketing expenditures leading to lower levels of total spend , and ( 2 ) lower selling costs of $ 4.2 million due primarily to exiting our flor specialty retail business in 2017. despite the higher sg & a expense in absolute dollars , due to the increase in sales noted above , sg & a expenses declined as a percentage of sales in 2017 to 27.0 % versus 27.5 % in 2016. for 2016 , our sg & a expenses decreased $ 5.4 million ( 2.0 % ) versus 2015. currency fluctuations had only a slight ( less than 1 % ) favorable impact on sg & a expenses . on an absolute dollar basis , the decrease was almost entirely related to lower administrative expenses of $ 9.4 million resulting from lower incentive-based compensation , including share-based compensation , due to performance targets not being met in 2016 to the same degree as in 2015. these declines were primarily at the corporate and americas level . other declines were lower selling expenses of $ 1.2 million due to reduced commissions on lower sales volumes . these decreases were partially offset by higher marketing expenses in 2016 of approximately $ 5.2 million , as we continued to expand our marketing efforts related to the early rollout of our modular resilient flooring ( “ mrf ” ) products as well as other initiatives to drive product adoption . these marketing increases were most significant in the americas region ( up $ 1.7 million ) due to the mrf rollout and in the asia-pacific region ( up $ 1.9 million ) , primarily in asia related to additional customer events , product rollout support and increased marketing management . despite the overall decline in sg & a expenses in absolute dollars , due to the lower sales in 2016 versus 2015 our sg & a expenses increased as a percentage of sales to 27.5 % in 2016 versus 26.9 % in 2015 , as the decline in sg & a expenses was less than the decline in net sales . 24 interest expense for 2017 , our interest expense increased $ 1.0 million to $ 7.1 million , versus $ 6.1 million in 2016. this increase was a result of ( 1 ) higher average interest rates under our syndicated credit facility during 2017 ( the average interest rate for 2016 was 2.5 % as compared to 2.9 % for 2017 ) , and ( 2 ) in 2017 we fixed the variable interest rate on $ 100 million of our term loan borrowings under the syndicated credit facility by entering into an interest rate swap transaction . the effect of this interest rate swap was to increase the interest rate on the $ 100 million notional amount of the swap above the variable rate in effect for our other term loan borrowings under the syndicated credit facility . for 2016 , our interest expense decreased $ 0.3 million to $ 6.1 million , versus $ 6.4 million in 2015. this decrease was due to lower average outstanding debt balances in 2016 versus 2015. during 2016 , we repaid a net amount of $ 6.2 million under our syndicated credit facility , and this lower level of debt led to lower interest expense during 2016. we did incur additional syndicated credit facility borrowings of approximately $ 63.5 million in december of 2016 , but this debt was outstanding for only the final month of 2016 and did not have a significant impact on interest expense ( less than $ 0.1 million ) . tax on december 22 , 2017 , the u.s. tax cuts and jobs act ( the “ tax act ” ) was enacted into law . among the significant changes resulting from the law , the tax act reduces the u.s. federal income tax rate from 35 % to 21 % effective january 1 , 2018 and creates a modified territorial tax system with a one-time mandatory “ transition tax ” on previously unrepatriated foreign earnings . due to the tax legislation , t he company has recorded a provisional tax expense of $ 3.5 million related to the remeasurement of its net deferred tax assets . the company also recorded a provisional tax expense of $ 11.7 million related to the one-time transition toll tax . these amounts are considered provisional because they use reasonable estimates of which tax returns have not been filed and because estimated amounts may be impacted by future regulatory and accounting guidance if and when issued . the company will adjust these provisional amounts as further information becomes available and as we refine our calculations . please see item 8 , note 13 entitled “ taxes on income ” for further information on the financial statement impact of the tax act . our effective tax rate in 2017 was 47.0 % , compared with an effective tax rate of 31.6 % in 2016. the increase in our effective tax rate in 2017 compared to 2016 was primarily due to a $ 15.2 million tax charge for the impacts of the tax act as discussed above and an increase in u.s. earnings resulting in more u.s. state tax expense . our effective tax rate in 2016 was 31.6 % , compared with an effective tax rate of 31.5 % in 2015. the 2016 effective tax rate was favorably impacted by a higher portion of income earned in foreign jurisdictions which are taxed at lower tax rates than the u.s federal tax rate .
| replace_table_token_7_th net sales for 2017 compared with 2016 for 2017 , our net sales increased $ 37.8 million ( 3.9 % ) as compared to 2016. fluctuations in currency exchange rates had a positive impact on the comparison of approximately $ 5.5 million , meaning that if currency levels had remained constant year over year our 2017 sales would have been lower by this amount . on a geographic basis , we experienced sales growth across all our regions . sales in the americas were up 3.5 % , sales in europe were up 2.0 % in u.s. dollars ( 1.5 % increase in local currencies ) , and sales in asia-pacific were up 8.7 % . in the americas , our weighted average selling price per square yard for our modular carpet decreased 1 % in 2017 as compared to 2016. the sales increase in the americas was due primarily to the introduction of our lvt products in early 2017 , as our modular carpet sales in the americas declined versus 2016. this decline in modular carpet sales was due entirely to the closure of our flor specialty retail stores in the first quarter of 2017 , as our commercial modular business was up approximately 1 % in 2017 as compared to 2016. the corporate office market segment increased 2 % for the year . other market segments showing growth were the government ( up 19 % ) , retail ( up 5 % ) and education ( up 4 % ) market segments . the increase in the government market segment was seen across most government customers , with sales to state and municipal governments representing the most significant increase . the increase in retail was due to the performance of our interface services business , which has a larger percentage of its sales to the retail segment . these increases were offset by declines in the hospitality ( down 7 % ) and healthcare ( down 6 % ) market segments . 22 in europe , our weighted average selling price per square meter in creased 3 % in 2017 compared with 2016. sales in the region were up in both u.s. dollars ( 2 % ) and local currency ( 1.5 % ) . within the region , the weakening of the british pound
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alere 's results are included in abbott 's diagnostic products reportable segment from the date of acquisition . worldwide diagnostic sales increased 33.6 percent in 2018 and 16.7 percent in 2017 , excluding the impact of foreign exchange . excluding the impact of the alere acquisition , as well as the impact of foreign exchange , sales in the diagnostic products segment increased 6.5 percent in 2018 and 5.5 percent in 2017. this growth includes the continued roll-out of alinity® , which is abbott 's integrated family of next-generation diagnostic systems and solutions that are designed to increase efficiency by running more tests in less space , generating test results faster and minimizing human errors while continuing to provide quality results . abbott has regulatory approvals in the u.s. , europe , china , and other markets for the `` alinity c '' and `` alinity i '' instruments for clinical chemistry and immunoassay diagnostics , respectively . in 2018 , abbott accelerated the launch of alinity in europe and other international markets after a broad range of assays obtained regulatory approval and were added to the test menu . abbott also continued the roll-out of `` alinity s '' for blood and plasma screening . margin improvement continued to be a key focus for the diagnostics business in 2018 and 2017. while operating margins of 24.9 percent of sales in 2018 have remained relatively unchanged from the 24.8 percent of sales reported in 2016 , this reflects dilution to the operating margin profit from the 24 acquisition of alere and the negative impact of foreign exchange , offset by the continued execution of efficiency initiatives in the manufacturing and supply chain functions . in abbott 's worldwide nutritional products business , sales over the last three years were positively impacted by demographics such as an aging population and an increasing rate of chronic disease in developed markets and the rise of a middle class in many emerging markets , as well as by numerous new product introductions that leveraged abbott 's strong brands . in 2018 , excluding the impact of foreign exchange , the nutritional business experienced above-market growth in the worldwide pediatric business driven by market leading brands similac® and pedialyte® in the u.s. as well as growth across several markets in asia . worldwide , adult nutrition sales increased in 2018 led by the growth of ensure® , abbott 's market-leading complete and balanced nutrition brand , and glucerna® , abbott 's market-leading diabetes-specific nutrition brand . in 2017 , the nutritionals business experienced growth in the u.s. driven by above-market performance in abbott 's infant and toddler brands . internationally , 2017 sales growth in china and india was partially offset by challenging market conditions in the infant formula market in various emerging markets . with respect to the profitability of the nutritional products business , manufacturing and distribution process changes , as well as other cost reductions , drove margin improvements across the business over the last three years although such improvements were offset by inflation on commodity costs . the decrease in operating margins for this business from 24.1 percent of sales in 2016 to 22.9 percent in 2018 was primarily due to negative impact of foreign exchange . the established pharmaceutical products segment focuses on the sale of its products in emerging markets . excluding the impact of foreign exchange , established pharmaceutical sales increased 7.0 percent in 2018 and 9.5 percent in 2017. the sales increase in 2018 was driven by double-digit growth in india and china . the sales increase in 2017 was primarily driven by double-digit growth in china and various countries in latin america . operating margins increased from 18.7 percent of sales in 2016 to 20.2 percent in 2018 primarily due to the continued focus on cost reduction initiatives . in its diabetes business , abbott received u.s. fda approval for its freestyle libre® 14 day sensor , making it the longest lasting wearable glucose sensor available . the freestyle libre system is the only continuous glucose monitoring system that does not require any user calibration . in conjunction with the funding of the st. jude medical and alere acquisitions and the assumption of st. jude medical 's and alere 's existing debt , abbott 's total short-term and long-term debt increased from approximately $ 9.0 billion at december 31 , 2015 to $ 27.9 billion at december 31 , 2017. at the beginning of 2018 , abbott committed to reducing its debt levels and in 2018 abbott repaid approximately $ 8.3 billion of debt , net of borrowings , bringing its total debt to $ 19.6 billion . abbott declared dividends of $ 1.16 per share in 2018 compared to $ 1.075 per share in 2017 , an increase of approximately 8 percent . dividends paid totaled $ 1.974 billion in 2018 compared to $ 1.849 billion in 2017. the year-over-year change in the amount of dividends paid reflects the increase in the dividend rate . in december 2018 , abbott increased the company 's quarterly dividend by approximately 14 percent to $ 0.32 per share from $ 0.28 per share , effective with the dividend paid in february 2019. in 2019 , abbott will focus on continuing to invest in product development areas that provide the opportunity for strong sustainable growth over the next several years . in its diagnostics business , abbott will continue to focus on driving market adoption and geographic expansion of its alinity suite of diagnostics instruments . in the cardiovascular and neuromodulation business , abbott will continue to focus on expanding its market position in various areas including electrophysiology , heart failure , and structural heart . in its nutritionals business , abbott will continue to focus on driving growth globally and further enhancing its portfolio with the introduction of several new science-based products . in the established pharmaceuticals business , abbott will continue to focus on growing its business with the depth and breadth 25 of its portfolio in emerging markets . story_separator_special_tag in its diabetes care business , abbott will focus on driving continued market adoption of its freestyle libre continuous glucose monitoring system . critical accounting policies sales rebates in 2018 , approximately 45 percent of abbott 's consolidated gross revenues were subject to various forms of rebates and allowances that abbott recorded as reductions of revenues at the time of sale . most of these rebates and allowances in 2018 are in the nutritional products and diabetes care segments . abbott provides rebates to state agencies that administer the special supplemental nutrition program for women , infants , and children ( wic ) , wholesalers , group purchasing organizations , and other government agencies and private entities . rebate amounts are usually based upon the volume of purchases using contractual or statutory prices for a product . factors used in the rebate calculations include the identification of which products have been sold subject to a rebate , which customer or government agency price terms apply , and the estimated lag time between sale and payment of a rebate . using historical trends , adjusted for current changes , abbott estimates the amount of the rebate that will be paid , and records the liability as a reduction of gross sales when abbott records its sale of the product . settlement of the rebate generally occurs from one to six months after sale . abbott regularly analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs . rebates and chargebacks charged against gross sales in 2018 , 2017 and 2016 amounted to approximately $ 3.0 billion , $ 2.8 billion and $ 2.5 billion , respectively , or 19.0 percent , 20.5 percent and 22.9 percent of gross sales , respectively , based on gross sales of approximately $ 16.0 billion , $ 13.9 billion and $ 10.7 billion , respectively , subject to rebate . a one-percentage point increase in the percentage of rebates to related gross sales would decrease net sales by approximately $ 160 million in 2018. abbott considers a one-percentage point increase to be a reasonably likely increase in the percentage of rebates to related gross sales . other allowances charged against gross sales were approximately $ 175 million , $ 166 million and $ 160 million for cash discounts in 2018 , 2017 and 2016 , respectively , and $ 191 million , $ 204 million and $ 242 million for returns in 2018 , 2017 and 2016 , respectively . cash discounts are known within 15 to 30 days of sale , and therefore can be reliably estimated . returns can be reliably estimated because abbott 's historical returns are low , and because sales returns terms and other sales terms have remained relatively unchanged for several periods . management analyzes the adequacy of ending rebate accrual balances each quarter . in the domestic nutritional business , management uses both internal and external data available to estimate the accruals . in the wic business , estimates are required for the amount of wic sales within each state where abbott holds the wic contract . the state where the sale is made , which is the determining factor for the applicable rebated price , is reliably determinable . rebated prices are based on contractually obligated agreements generally lasting a period of two to four years . except for a change in contract price or a transition period before or after a change in the supplier for the wic business in a state , accruals are based on historical redemption rates and data from the u.s. department of agriculture ( usda ) and the states submitting rebate claims . the usda , which administers the wic program , has been making its data available for many years . management also estimates the states ' processing lag time based on sales and claims data . inventory in the retail distribution channel does not vary substantially . management has access to several large customers ' inventory management data , which allows management to make reliable estimates of inventory in the retail distribution channel . at december 31 , 2018 , abbott had wic business in 27 states . historically , adjustments to prior years ' rebate accruals have not been material to net income . abbott employs various techniques to verify the accuracy of claims submitted to it , and where possible , works with the organizations submitting claims to gain insight into changes that might affect the rebate amounts . for government agency programs , the calculation of a rebate involves interpretations of relevant regulations , which are subject to challenge or change in interpretation . 26 income taxes abbott operates in numerous countries where its income tax returns are subject to audits and adjustments . because abbott operates globally , the nature of the audit items is often very complex , and the objectives of the government auditors can result in a tax on the same income in more than one country . abbott employs internal and external tax professionals to minimize audit adjustment amounts where possible . in accordance with the accounting rules relating to the measurement of tax contingencies , in order to recognize an uncertain tax benefit , the taxpayer must be more likely than not of sustaining the position , and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit . application of these rules requires a significant amount of judgment . in the u.s. , abbott 's federal income tax returns through 2016 are settled except for the federal income tax returns of the former alere consolidated group which are settled through 2014 and the former st. jude medical consolidated group which are settled through 2013. undistributed foreign earnings remain indefinitely reinvested in foreign operations .
| percent in 2018 and 2.2 percent in 2017. the 2017 sales growth for established pharmaceuticals ' other emerging markets includes the unfavorable impact of venezuelan operations . excluding venezuela and the effect of foreign exchange , sales in other emerging markets increased 7.5 percent in 2017. total nutritional products sales increased 4.9 percent in 2018 and 0.6 percent in 2017 , excluding the unfavorable impact of foreign exchange . the increases in 2018 and 2017 u.s. pediatric nutritional sales primarily reflect continued above-market performance in abbott 's infant and toddler brands , including similac and pedialyte . 2018 international pediatric nutritional sales increased primarily due to growth in asia and latin america . the 2017 decrease in international pediatric nutritional sales was driven by challenging market conditions in the infant formula market in various emerging markets , partially offset by growth in china and india . the 2018 sales increase in the international adult nutritional business was led by growth of ensure , abbott 's market-leading complete and balanced nutrition brand , and glucerna , abbott 's market-leading diabetes-specific nutrition brand in asia and latin america . u.s. adult nutritional business sales decreased in 2018 primarily driven by the wind down of a non-core product line . excluding the unfavorable impact of foreign exchange , the 2017 increase in international adult nutritional sales was due primarily to growth in ensure , as well as volume growth in emerging markets and continued expansion of the adult nutrition category internationally . u.s. adult nutritional revenues decreased in 2017 due to competitive and market dynamics . total diagnostic products sales increased 33.6 percent in 2018 and 16.7 percent in 2017 , excluding the impact of foreign exchange . the sales increases in 2018 and 2017 included the acquisition of alere , which was completed on october 3 , 2017. excluding the impact of the acquisition , as well as the impact of foreign exchange , sales in the diagnostic products segment in
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under the domestic program , title passes primarily at the time of shipment . estimates for possible returns are based upon historical return rates and netted against revenues . except in connection with infrequent sales with specific arrangements to the contrary , returns are not permitted unless the goods are defective . in addition to the distribution of products , the company grants licenses for the right to use the company 's trademarks for a stated term for the manufacture and or sale of consumer electronics and other products under agreements which require payment of either i ) a non-refundable minimum guaranteed royalty or , ii ) the greater of the actual royalties due ( based on a contractual calculation , normally comprised of actual product sales by the licensee multiplied by a stated royalty rate , or sales royalties ) or a minimum guaranteed royalty amount . in the case of ( i ) , such amounts are recognized as revenue on a straight-line basis over the term of the license agreement . in the case of ( ii ) , sales royalties in excess of guaranteed minimums are accounted for as variable fees and are not recognized as revenue until the company has ascertained that the licensee 's sales of products have exceeded the guaranteed minimum . in effect , the company recognizes the greater of sales royalties earned to date or the straight-line amount of minimum guaranteed royalties to date . in the case where a royalty is paid to the company in advance , the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above . inventories . inventories are stated at the lower of cost or market . cost is determined using the first-in , first-out basis . the company records inventory reserves to reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory reserves may be required . conversely , if market conditions improve , such reserves are reduced . trade accounts receivable . the company extends credit based upon evaluations of a customer 's financial condition and provides for any anticipated credit losses in the company 's financial statements based upon management 's estimates and ongoing reviews of recorded allowances . if the financial condition of a customer deteriorates , resulting in an impairment of that customer 's ability to make payments , additional reserves may be required . conversely , reserves are reduced to reflect credit and collection improvements . 24 income taxes . the company records a valuation allowance to reduce the amount of its deferred tax assets to the amount that management estimates is more likely than not to be realized . while management considers future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance , in the event that management determines that a deferred tax asset will likely be realized in the future in excess of the net recorded amount , an adjustment to the deferred tax asset would increase income in the period such determination was made . likewise , if it is determined that all or part of a net deferred tax asset will likely not be realized in the future , an adjustment to the deferred tax asset would be charged to income in the period such determination was made . sales return reserves . management must make estimates of potential future product returns related to current period product revenue . management analyzes historical returns , current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns . management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period . additional reserves may be required if actual sales returns increase above the historical return rates . conversely , the sales return reserve could be decreased if the actual return rates are less than the historical return rates , which were used to establish the reserve . sales allowance and marketing support accruals . sales allowances , marketing support programs , promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with asc topic 605 , revenue recognition , subtopic 50 customer payments and incentives and securities and exchange commission staff accounting bulletins 101 revenue recognition in financial statements , and 104 revenue recognition , corrected copy ( sab 's 101 and 104 ) . at the time of sale , the company reduces recognized gross revenue by allowances to cover , in addition to estimated sales returns as required by asc topic 605 , revenue recognition. , subtopic 15 products , ( i ) sales incentives offered to customers that meet the criteria for accrual under asc topic 605 , subtopic 50 and ( ii ) under sab 's 101 and 104 , an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover . accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that percentage of shipped revenue fails to meet the collectability criteria within sab 104 's and 101 's four revenue recognition criteria , all of which are required to be met in order to recognize revenue . if additional marketing support programs , promotions and other volume-based incentives are required to promote the company 's products subsequent to the initial sale , then additional reserves may be story_separator_special_tag under the domestic program , title passes primarily at the time of shipment . estimates for possible returns are based upon historical return rates and netted against revenues . except in connection with infrequent sales with specific arrangements to the contrary , returns are not permitted unless the goods are defective . in addition to the distribution of products , the company grants licenses for the right to use the company 's trademarks for a stated term for the manufacture and or sale of consumer electronics and other products under agreements which require payment of either i ) a non-refundable minimum guaranteed royalty or , ii ) the greater of the actual royalties due ( based on a contractual calculation , normally comprised of actual product sales by the licensee multiplied by a stated royalty rate , or sales royalties ) or a minimum guaranteed royalty amount . in the case of ( i ) , such amounts are recognized as revenue on a straight-line basis over the term of the license agreement . in the case of ( ii ) , sales royalties in excess of guaranteed minimums are accounted for as variable fees and are not recognized as revenue until the company has ascertained that the licensee 's sales of products have exceeded the guaranteed minimum . in effect , the company recognizes the greater of sales royalties earned to date or the straight-line amount of minimum guaranteed royalties to date . in the case where a royalty is paid to the company in advance , the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above . inventories . inventories are stated at the lower of cost or market . cost is determined using the first-in , first-out basis . the company records inventory reserves to reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory reserves may be required . conversely , if market conditions improve , such reserves are reduced . trade accounts receivable . the company extends credit based upon evaluations of a customer 's financial condition and provides for any anticipated credit losses in the company 's financial statements based upon management 's estimates and ongoing reviews of recorded allowances . if the financial condition of a customer deteriorates , resulting in an impairment of that customer 's ability to make payments , additional reserves may be required . conversely , reserves are reduced to reflect credit and collection improvements . 24 income taxes . the company records a valuation allowance to reduce the amount of its deferred tax assets to the amount that management estimates is more likely than not to be realized . while management considers future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance , in the event that management determines that a deferred tax asset will likely be realized in the future in excess of the net recorded amount , an adjustment to the deferred tax asset would increase income in the period such determination was made . likewise , if it is determined that all or part of a net deferred tax asset will likely not be realized in the future , an adjustment to the deferred tax asset would be charged to income in the period such determination was made . sales return reserves . management must make estimates of potential future product returns related to current period product revenue . management analyzes historical returns , current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns . management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period . additional reserves may be required if actual sales returns increase above the historical return rates . conversely , the sales return reserve could be decreased if the actual return rates are less than the historical return rates , which were used to establish the reserve . sales allowance and marketing support accruals . sales allowances , marketing support programs , promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with asc topic 605 , revenue recognition , subtopic 50 customer payments and incentives and securities and exchange commission staff accounting bulletins 101 revenue recognition in financial statements , and 104 revenue recognition , corrected copy ( sab 's 101 and 104 ) . at the time of sale , the company reduces recognized gross revenue by allowances to cover , in addition to estimated sales returns as required by asc topic 605 , revenue recognition. , subtopic 15 products , ( i ) sales incentives offered to customers that meet the criteria for accrual under asc topic 605 , subtopic 50 and ( ii ) under sab 's 101 and 104 , an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover . accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that percentage of shipped revenue fails to meet the collectability criteria within sab 104 's and 101 's four revenue recognition criteria , all of which are required to be met in order to recognize revenue . if additional marketing support programs , promotions and other volume-based incentives are required to promote the company 's products subsequent to the initial sale , then additional reserves may be
| the major elements which contributed to the overall decrease in net product sales were as follows : i ) houseware product net sales decreased $ 50.7 million , or 43.1 % , to $ 66.9 million in fiscal 2014 as compared to $ 117.6 million in fiscal 2013 , principally driven by a decrease in sales of all products offered by the company in the category , which is comprised of microwave ovens , compact refrigerators and wine coolers . as previously reported by the company , the company was informed by wal-mart that , commencing in the spring of 2013 , wal-mart would discontinue purchasing from emerson two microwave oven products that had been sold by the company to wal-mart . emerson continued shipping these products to wal-mart throughout the remainder of fiscal 2013 ( the year ending march 31 , 2013 ) , with sales of such products declining through the fourth quarter of fiscal 2013. during fiscal 2013 , these two microwave oven products comprised , in the aggregate , approximately $ 36.1 million , or 29.7 % , of the company 's net product sales . emerson anticipates that the full impact of wal-mart 's decision has been realized by the company in fiscal 2014 , which began on april 1 , 2013. as previously disclosed by the company , the complete loss of , or significant reduction in , business with either of the company 's key customers will have a material adverse effect on the company 's business and results of operations . accordingly , wal-mart 's decision has had a material adverse effect on the company 's business and results of operations . the company is considering various strategic initiatives , including a complete analysis of its current and prospective product lines and pricing strategies , although there can be no assurance that the company will be able to increase sales of such products at levels sufficient to offset the adverse impact of wal-mart 's decision , if at all . as a result of the above , during the twelve months ending march 31 , 2014 , sales of these two products by the company were nil as compared to approximately $ 36.1 million net sales of these two products by the company during the twelve
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to the extent we do not meet our financial projections , are unable to mitigate the impact of ongoing tariffs , are impacted by the coronavirus outbreak , or are not successful in implementing or realizing the savings anticipated from our 18 restructuring initiatives , our business , financial position , results of operations and cash flows would be adversely affected . reverse stock split in march 2020 , we successfully completed a 1-for-9 reverse stock split of our company 's issued and outstanding shares of common stock in order to regain compliance with nasdaq 's minimum bid price requirement . unless otherwise indicated , the financial statements and accompanying notes included in this annual report on form 10-k give effect to the reverse stock split as if it occurred at the first period presented . summary of critical accounting policies and estimates the following summary of our critical accounting policies is presented to assist in understanding our consolidated financial statements . the consolidated financial statements and notes are representations of our management , who are responsible for their integrity and objectivity . these accounting policies conform to accounting principles generally accepted in the united states of america and have been consistently applied in the preparation of the consolidated financial statements . additional information about our accounting policies and estimates may be found in note 1 to our consolidated financial statements included in this report . we make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses . the accounting policies described below are those we consider critical in preparing our financial statements . some of these policies include significant estimates made by management using information available at the time the estimates were made . however , these estimates could change materially if different information or assumptions were used . revenue recognition we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what we expect to receive in exchange for the goods or services . our principal activity from which we generate revenue is product sales . revenue is measured based on consideration specified in a contract with a customer . the company recognizes revenue when it satisfies a performance obligation in a contract by transferring control over a product to a customer when product delivery occurs . a performance obligation is a promise in a contract to transfer a distinct product to the customer , which for the company is transfer of juvenile products to its customers . the transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation . a transaction price is the amount of consideration the company expects to receive under the arrangement . the company is required to estimate variable consideration ( if any ) and to factor that estimation into the determination of the transaction price . the company conducts its business with customers through valid purchase or sales orders each of which is considered a separate contract because individual orders are not interdependent on one another . product transaction prices on a purchase or sale order are discrete and stand-alone . purchase or sales orders may be issued under either a customer master service agreement or a reseller allowance agreement . purchase or sales orders , master service agreements , and reseller allowance agreements which are specific and unique to each customer , may include product price discounts , markdown allowances , return allowances , and or volume rebates which reduce the consideration due from customers . variable consideration is estimated using the most likely amount method , which is based on our historical experience as well as current information such as sales forecasts . 19 contracts may also include cooperative advertising arrangements where the company allows a discount from invoiced product amounts in exchange for customer purchased advertising that features the company 's products . these allowances are generally based upon product purchases or specific advertising campaigns . such allowances are accrued when the related revenue is recognized . these cooperative advertising arrangements provide a distinct benefit and fair value and are accounted for as direct selling expenses . trade receivables trade receivables are carried at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts . the allowance for doubtful accounts represents adjustments to customer trade accounts receivable for amounts deemed uncollectible . the allowance for doubtful accounts reduces gross trade receivables to their estimated net realizable value . the company estimates doubtful accounts based on historical bad debts , factors related to specific customers ' ability to pay and current economic trends . the company writes off accounts receivable against the allowance when a balance is determined to be uncollectible . amounts are considered to be uncollectable based upon historical experience and management 's evaluation of outstanding accounts receivable . inventory valuation inventory is comprised of finished goods and is stated at the lower of cost , inclusive of freight and duty , or market ( net realizable value ) using the first-in , first-out ( fifo ) method or net realizable value . our warehousing costs are charged to expense as incurred . we regularly review slow-moving and excess inventory and write-down inventories as appropriate . management uses estimates to record write-downs based on its review of inventory by product category including length of time on hand and estimates of future orders for each product . changes in consumer preferences , as well as demand for products , customer buying patterns and inventory management could impact the inventory valuation . long-lived assets with finite lives we review long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable . story_separator_special_tag an asset is considered to be impaired when its carrying amount exceeds both the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition and the asset 's fair value . long-lived assets include property and equipment and finite-lived intangible assets . the amount of impairment loss , if any , is charged by us to current operations . indefinite-lived intangible assets we account for indefinite-lived intangible assets in accordance with accounting guidance that requires indefinite-lived intangible assets be tested annually for impairment and more frequently if events or changes in circumstances indicate that the asset might be impaired . our annual impairment testing is conducted in the fourth quarter of every year . we test indefinite-lived intangible assets for impairment by comparing the asset 's fair value to its carrying amount . if the fair value is less than the carrying amount , the excess of the carrying amount over fair value is recognized as an impairment charge and the adjusted carrying amount becomes the asset 's new accounting basis . management also evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life . if an intangible asset that is not being amortized is subsequently determined to have a finite useful life , it is amortized prospectively over its estimated remaining useful life . 20 income taxes income taxes are computed using the asset and liability method of accounting . under the asset and liability method , a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry forwards . the measurement of deferred income tax assets is adjusted by a valuation allowance , if necessary , to recognize future tax benefits only to the extent , based on available evidence , it is more likely than not that such benefit will be realized . we recognize interest and penalties , if any , related to uncertain tax positions in interest expense . on a global basis , the open tax years subject to examination by major taxing jurisdictions in which we operate is between 2013 and 2019. story_separator_special_tag in fiscal 2019. for fiscal 2019 , net cash provided by financing activities was approximately $ 719 to fund our capital expenditures . for fiscal 2018 , net cash used in financing activities was approximately $ 1,999 , reflecting repayments on our credit facility and the proceeds from our new term loan . based primarily on the above factors , net cash decreased for fiscal 2019 by $ 326 , resulting in a cash balance of approximately $ 395 at fiscal year end . the following table summarizes our significant contractual commitments at fiscal 2019 year end : replace_table_token_2_th estimated future interest payments on our revolving facility and term loan facility are based upon the interest rates in effect at december 28 , 2019. capital resources in addition to operating cash flow , we also rely on our asset-based revolving credit facility with bank of america , n.a . and our term loan agreement with pathlight capital to meet our financing requirements , which is subject to changes in our inventory and account receivable levels . we regularly evaluate market conditions , our liquidity profile , and various financing alternatives for opportunities to enhance our capital structure . if we are unable to meet our current financial projections , do not adequately control expenses , or adjust our operations accordingly , we may experience constraints on our liquidity and may not meet the financial and other covenants under our credit facility and term loan agreement , which could impact our availability . there is no assurance that we will meet all of our financial or other covenants in the 23 future , or that our lenders will grant waivers or agree to amend the terms of our agreements with them if there are covenant violations . in such case , we may be required to seek to raise additional funds through debt or equity financings , restructure our existing debt , engage in strategic collaborations , and or a strategic transaction that is in the best interest of our stockholders . any such financing or strategic transaction could result in significant dilution to our existing stockholders , depending on the terms of the transaction . if we are unable to identify a strategic transaction , raise additional funds , and or restructure our existing debt , our operations could be limited and we may not be able to meet all of our obligations under our credit facility and term loan agreement . based on past performance and current expectations , we believe that our anticipated cash flow from operations and availability under our existing credit facility are sufficient to fund our working capital , capital expenditures and debt service requirements for at least the next 12 months . credit facilities we and our wholly owned subsidiary , summer infant ( usa ) , inc. , are parties to a second amended and restated loan and security agreement with bank of america , n.a. , as agent , that provides for a $ 48,000 asset-based revolving credit facility ( as it may be amended from time to time , the `` restated bofa agreement '' ) . total borrowing capacity under the restated bofa agreement is based on a borrowing base , which is defined as 85 % of eligible receivables plus the lesser of ( i ) 70 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of eligible inventory , less applicable reserves . loans under the restated bofa agreement are scheduled to mature on june 28 , 2023 ( subject to customary early termination provisions ) .
| the additional tariffs imposed in fiscal 2019 depressed our gross margins throughout the fiscal year as compared to fiscal 2018. by the fourth quarter , however , we were able to offset much of the existing tariffs through increased customer prices , 21 supplier cost concessions , and moving certain production to other lower or non-tariff countries . in addition , in december 2019 , the office of the u.s. trade representative announced the exclusion of tariffs on metal baby gates effective immediately and retroactive to september 2018 resulting in a $ 1,848 tariff refund due to the company . we recorded $ 1,470 of the tariff refund as a benefit to cost of sales in the fourth quarter of 2019 to reflect the portion attributable to fiscal 2019. the remaining $ 378 of the tariff refund will be taken as a benefit when the remaining tariffed metal baby gate inventory held as of december 28 , 2019 is sold off in fiscal 2020. general and administrative expenses declined 10.4 % to $ 34,823 for fiscal 2019 compared to $ 38,880 for fiscal 2018 and decreased as a percent of sales to 20.1 % for fiscal 2019 from 22.4 % for fiscal 2018. the decrease in dollars and as a percent of sales was primarily attributable to lower labor and other costs as a result of cost reduction actions taken in the three months ended march 30 , 2019 and a non-recurring $ 1,813 increase in our allowance for bad debts due to the liquidation of tru 's u.s. assets in fiscal 2018. selling expenses increased by 17.0 % to $ 14,540 for fiscal 2019 from $ 12,430 for fiscal 2018 and as a percent of sales to 8.4 % for fiscal 2019 from 7.1 % for fiscal 2018. the increase in selling expense dollars and as a percent of net sales for the fiscal 2019 was primarily attributable to increased cooperative advertisement and consumer advertisement costs primarily for new product launches and on-line marketing initiatives as compared to fiscal 2018 , which also included a larger component of direct import sales . depreciation and
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we have found 45 this strategy to drive strong results for liveperson , as we have seen a greater than 40 % conversion rate on opportunities that were created or advanced as part of the customer summits . by year end 2018 , we had brought more than 200 customers live on messaging and increased adoption within our enterprise customers to more than 40 % . in addition , more than 50 % of messaging conversations had automation attached . we will continue to focus on building awareness for conversational commerce and driving adoption of messaging and ai across our customer base . increase volumes on liveengage by deploying a broad messaging ecosystem and expanding customer use cases . our strategy is to drive higher volumes on liveengage by going both wide across messaging endpoints and deep across consumer use cases . liveperson offers a platform usage pricing model , where customers are offered access to our entire suite of messaging technologies across their entire agent pool for a pre-negotiated cost per interaction . we believe that over time this model will drive higher revenue for liveperson by reducing barriers to adoption of new messaging endpoints and use cases . in order to go wide across messaging endpoints , it is imperative that liveengage integrates to all of the messaging apps that consumers prefer to use for communication . for example , if a consumer is an avid whatsapp user , and a brand only offers sms as a messaging option , that consumer may be reluctant to try messaging the brand . therefore , a key strategy of our has been to build one of the industry 's broadest ecosystems of messaging endpoints . in june 2016 , we launched with in-app messaging . in 2017 , we introduced facebook messenger , sms , web messaging and ivr deflection integrations . in 2018 , we added apple business chat , google rich business messenger , line , whatsapp , alexa , google home , google ad lingo and twitter . each channel added opens the door to hundreds of millions of new consumers , providing brands a greater opportunity to shift share away from their legacy contact center channels into messaging . liveperson makes the management of all these disparate channels seamless to the brand . the liveengage intelligent routing , queuing and prioritization software orchestrates these conversations at scale , regardless of which messaging endpoint they originated from , so that human and bot agents can engage with all customers through just one console . in order to go deep across customer use cases , we are focused on extending liveengage beyond just taking share of the 270 billion calls made to customer service 1-800 numbers each year , into sales , marketing and brick and mortar conversations . for example , in 2018 , a home improvement retailer launched a bot that autonomously sells millions of dollars of grills ; a leading global concessions manager launched a service that lets patrons in a sports arena order beverages to their seats through apple business chat ; and a telecommunications company used liveengage to drive pre-sales for an iphone series launch . we believe that this strategy has influenced liveperson 's enterprise and mid-market revenue retention rate , ( the trailing-twelve-month change in total revenue from existing customers after upsells , downsells and attrition ) which was greater than 110 % in 2018. the benefit can also be seen in liveperson 's average revenue per user ( arpu ) for our enterprise and mid-market customers , which increased more than 25 % in 2018 to approximately $ 285,000 from approximately $ 225,000 in 2017. for this same customer set , when examining only the subset that have adopted messaging , the arpu in 2018 increased to approximately $ 500,000. when examining customers that have adopted at least three endpoints , the apru in 2018 increased into the low seven figures . we believe these arpu trends are a clear indication of how liveperson 's strategy to drive messaging adoption has successfully influenced our revenue growth by taking share from legacy communication channels . we will continue to focus on adding new messaging endpoints and driving higher adoption of each of these channels within our customer base . globalize r & d to attract the industry 's best ai , machine learning and conversational talent . we believe that ai and machine learning are critical to successfully scaling conversational commerce , and that in order to develop the industry 's leading technology , we need to open offices where the best talent is located . to spearhead that globalization effort , in 2018 , liveperson recruited alex spinelli , key architect of the alexa operating system at amazon.com , as our global cto . under mr. spinelli 's leadership , we opened an advanced technology center in seattle , washington , in 2018 , expanded our mannheim , germany development center , and added key development talent through the acquisitions of botcentral in mountain view , california and conversable in austin , texas . we added more than 70 machine learning , ai and conversational commerce developers in 2018 , recruiting top talent from firms such as nike , amazon.com , microsoft and target . we expect to continue adding industry leading development talent across our global offices in 2019. bring to market best-in-class ai and machine learning technologies designed for conversational commerce . we believe that over the past few years many first generation ai and bots have created frustrating experiences for consumers and businesses alike , which in turn has eroded trust in automation . many of these solutions have proven difficult to build and scale , and have been limited by stand alone implementations that lacked the measurement , reporting and human oversight of conversational commerce platforms such as liveengage . story_separator_special_tag in december 2018 , liveperson announced maven , a patent pending ai engine that is designed to overcome these shortcomings and help brands rapidly bring to market conversational ai that can scale to millions of interactions , while increasing customer satisfaction and conversion rates . unlike alternative solutions designed solely for it departments , maven was built to be used by developers and contact center agents . by putting the power of conversational design and bot management in the hands of contact center agents , maven gives brands the ability to leverage the employees closest to the customer , those who are most versed in the voice of the brand , and with the most expertise in how to craft successful outcomes for customer service and sales journeys . 46 some of the key innovations behind maven include : bot building software that is based on dialogue instead of workflow or code , so non-technical employees like contact center agents can design automations the ability to bootstrap conversations with existing transcripts , reducing design effort and speeding time to market the establishing of contact center agents as bot managers , ensuring that every conversation is safeguarded by a human and that agents are continuously training the ai to be smarter and drive more successful outcomes powerful assist technology that multiplies the efficiency of agents by analyzing intents in real time and then suggesting next best actions , predefined content , and bots that can take over transactional work pre-built templates for target verticals that provide out of the box support for the top intents and back-end integrations third-party ai nlu integration , so customers are n't boxed into one vendor ai analytics and reporting tailored to conversational commerce our strategy is to continue to enhance the maven ai engine and related products , leveraging our global r & d footprint and substantial library of mobile and online conversational data , with the aim of increasing agent efficiency , decreasing customer care costs , improving the customer experience and increasing customer lifetime value . sustain our leadership position by aligning brands to a vision that transforms how they communicate with consumers and delivers a superior return on investment . we believe that most online retailers view messaging and conversational commerce as a feature . they are content with building integrations to a messaging endpoint and offering messaging as just another product in their suite . liveperson holds the perspective that conversational commerce requires an operational transformation that changes how brands engage with consumers across service , sales , marketing and brick and mortar . brands must adapt their contact centers to an asynchronous messaging environment and leverage a combination of human agents , bots and ai to achieve scale and efficiencies . when done right , the entire consumer lifecycle with a brand will be maintained within the conversational commerce relationship , and traffic will steadily shift away from lower returning voice calls , websites and apps to higher returning messaging endpoints . we believe that liveperson is uniquely positioned to deliver this transformation due to its technology and expertise : the liveengage enterprise-class , automation-first , cloud-based platform , was designed for ai-assisted and human-powered messaging in mobile and online channels . the platform offers best-in-class security and scalability , offers the broadest ecosystem of messaging endpoints , is designed for ease of use , and features an ai engine custom built for conversational commerce , robust real-time reporting , role-based real-time analytics , predictive intelligence , and innovations in customer satisfaction and connection measurement . additionally , liveengage is an open platform with pre-built , enterprise-grade integrations into back-end systems as well as the ability to work across natural language understanding ( nlu ) providers . liveperson has deep domain expertise across verticals and messaging endpoints , a global footprint , referenceable enterprise brands and a team of technical , solutions and consulting professionals to assist customers along their transformational journeys . we are positioned as an authority in conversational commerce , publishing a proprietary conversational quotient tm index that measures each customer across multiple key indicators to ascertain their level of conversational maturity . each business is then benchmarked against industry peers to determine their relative progression . we have developed a transformation model that is introduced to existing and prospective customers to help guide them on their journeys from legacy and oftentimes inefficient legacy voice , email and chat solutions to modern conversational ones powered by messaging and ai . we believe that liveperson 's differentiated approach to the conversational commerce industry , combined with our unique technology and expertise has established us as a market leader , with an ability to deliver superior returns on investment . liveperson customers typically manage as many as 40 messaging conversations at a time , as compared to one at a time for a voice agent and two to four at a time for a good chat agent . adding ai and bots provides even greater scale to the number of conversations managed . our customers often see labor efficiency gains of at least two times that of voice agents , effectively cutting labor costs by at least 50 % . furthermore , our ability to deliver more convenient , personalized and content-rich conversations often drives increases in customer satisfaction of up to 20 percentage points and increases in sales conversions of up to 20 % , while enhancing average order value , customer retention and loyalty . strengthen our position in both existing and new industries . we plan to continue to develop its market position by increasing our customer base , and expanding within our installed base . we will continue to focus primarily on key target markets : consumer/retail , telecommunications , financial services , travel/hospitality , technology and automotive within both our enterprise and mid-market sectors , as well as the small business ( smb ) sector . healthcare , insurance , real estate and energy utilities are new target industries and natural extensions of our primary target markets .
| this is partially offset by increases in revenue from new customers of approximately $ 10.1 million and revenue from professional services of approximately $ 0.7 million . 51 the overall increase in business revenue in 2018 is primarily attributable to the company 's renewed selling focus after completing the migration to liveengage in 2017. liveperson has also developed a large ecosystem of conversational messaging endpoints that integrates to our platform and is driving adoption of these endpoints along with bots and ai . the business revenue decrease in 2017 , primarily reflects the carry-over effect from the 2016 migration to the liveengage platform and the end of life of the legacy offering in the second quarter of 2017. acquisitions during the year ended december 31 , 2018 did not have a material impact on revenue . consumer revenue increased by 12 % to $ 19.6 million for the year ended december 31 , 2018 , from $ 17.5 million for the year ended december 31 , 2017 . this increase is primarily attributable to an increase in chat minutes and price per minute . consumer revenue increased by 7 % to $ 17.5 million for the year ended december 31 , 2017 , from $ 16.3 million for the year ended december 31 , 2016 . this increase is primarily attributable to an increase in price per minute . cost of revenue - business cost of revenue consists of compensation costs relating to employees who provide customer service to our customers , compensation costs relating to our network support staff , the cost of supporting our server and network infrastructure , and allocated occupancy costs and related overhead . replace_table_token_10_th cost of revenue increased by 7 % to $ 58.4 million for the year ended december 31 , 2018 , from $ 54.6 million for the year ended december 31 , 2017 . this increase in expense is primarily attributable to an increase in business services and outsourced subcontracted labor of approximately $ 2.8 million , in
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these assumptions are inherently subject to significant business and economic uncertainties and contingencies , many of which are beyond our control . our estimates therefore may prove inaccurate , and the actual value of end customer contracts delivered to us in a given period to differ from our estimate of opportunity under management . these business and economic uncertainties and contingencies include : the extent to which clients deliver a greater or lesser value of end customer contracts than may be required or otherwise expected ; changes in the pricing or terms of service contracts offered by our clients ; increases or decreases in the end customer base of our clients ; the extent to which the renewal rates we achieve on behalf of a client early in an engagement affect the amount of opportunity that the client makes available to us later in the engagement ; client cancellations of their contracts with us ; and changes in our clients ' businesses , sales organizations , management , sales processes or priorities ; as well as other factors discussed in part 1. item 1.a . entitled `` risk factors '' of this annual report on form 10-k. our revenue also depends on our booking rates and commissions . our bookings represent the total amount of opportunity under management that we renew on behalf of our clients . our commission rate is an agreed-upon percentage of the renewal value of end customer contracts that we sell on behalf of our clients . our booking rate is impacted principally by our ability to successfully sell service contracts on behalf of our clients . other factors impacting our booking rate include : the manner in which our clients price their service contracts for sale to their end customers ; the stage of life-cycle associated with the products and underlying technologies covered by the service contracts offered to the end customer ; the extent to which our clients or their competitors introduce new products or underlying technologies ; the nature , size and age of the service contracts ; and the extent to which we have managed the renewals process for similar products and underlying technologies in the past . in determining commission rates for an individual engagement , various factors , including our booking rate , as described above , are evaluated . these factors include : historical , industry specific and client specific renewal rates for similar service contracts ; the magnitude of the opportunity under management in a particular engagement ; the number of end customers associated with these opportunities ; and the opportunity to receive additional performance commissions when we exceed certain renewal levels . we endeavor to set our commission rates at levels commensurate with these factors and other factors that may be relevant to a particular engagement . accordingly , our commission rates vary , often significantly , from engagement to engagement . in addition , we sometimes agree to lower commission rates for engagements with significant opportunity under management . 29 number of engagements . we track the number of engagements we have with our clients . we often have multiple engagements with a single client , particularly where we manage the sales of service renewals relating to different product lines , technologies , types of contracts or geographies for the client . when the set of renewals we manage on behalf of a client is associated with a separate client contract or a distinct product set , type of end customer contract or geography and therefore requires us to assign a service sales team to manage the renewals , we designate the set of renewals and associated revenues and costs as a unique engagement . for example , we may have one engagement consisting of a service sales team selling maintenance contract renewals of a particular product for a client in the united states and another engagement consisting of a sales team selling warranty contract renewals of a different product for the same client in europe . these would count as two engagements . we had 143 , 154 and 191 engagements as of december 31 , 2016 , 2015 and 2014 , respectively . factors affecting our performance sales cycle . we sell our integrated solution through our sales organization . at the beginning of the sales process , our quota-carrying sales representatives contact prospective clients and educate them about our offerings . educating prospective clients about the benefits of our solution can take time , as many of these prospects have not historically relied upon integrated solutions like ours for service revenue management , nor have they typically put out a formal request for proposal or otherwise made a decision to focus on this area . as part of our sales process , our solutions design team performs a service performance analysis of our prospect 's service revenue . this includes an analysis of best practices , and benchmarks the prospect 's service revenue against industry peers . through this process , which typically takes several weeks , we are able to assess the characteristics and size of the prospect 's service revenue , identify potential areas of performance improvement , and formulate our proposal for managing the prospect 's service revenue . the length of our sales cycle for a new client , inclusive of the service performance analysis process and measured from our first formal discussion with the client until execution of a new client contract , is typically longer than six months and has increased in recent periods . implementation cycle . after entering into an engagement with a new client , and to a lesser extent after adding an engagement with an existing client , we incur sales and marketing expenses related to the commissions owed to our sales personnel . these commissions are based on the estimated total contract value , with a material portion of the commission expensed upfront and the remaining portion expensed ratably over a period of twelve to fourteen months . story_separator_special_tag we also make upfront investments in technology and personnel to support the engagement . these expenses are typically incurred one to three months before we begin generating sales and recognizing revenue . accordingly , in a given quarter , an increase in new clients , and , to a lesser extent , an increase in engagements with existing clients , or a significant increase in the contract value associated with such new clients and engagements , will negatively impact our gross margin and operating margins until we begin to achieve anticipated sales levels associated with the new engagements , which is typically two to three quarters after we begin selling contracts on behalf of our clients . although we expect new client engagements to contribute to our operating profitability over time , in the initial periods of a client relationship , the near term impact on our profitability can be negatively impacted by slower-than anticipated growth in revenues for these engagements as well as the impact of the upfront costs we incur , the lower initial level of associated service sales team productivity and lack of mature data and technology integration with the client . as a result , an increase in the mix of new clients as a percentage of total clients may initially have a negative impact on our operating results . similarly , a decline in the ratio of new clients to total clients may positively impact our near-term operating results . contract terms . a significant portion of our revenue comes from our pay-for-performance model . under our pay-for-performance model , we earn commissions based on the value of service contracts we sell on behalf of our clients . in some cases , we earn additional performance-based commissions for exceeding pre-determined service renewal targets . our new client contracts typically have an initial term between two and four years . our contracts generally require our clients to deliver a minimum value of qualifying service revenue contracts for us to renew on their behalf during a specified period . to the extent that our clients do not meet their minimum contractual commitments over a specified period , they may be subject to fees for the shortfall . our client contracts are cancelable on relatively short notice , subject in most cases to the payment of an early termination fee by the client . the amount of this fee is based on the length of the remaining term and value of the contract . 30 we invoice our clients on a monthly basis based on commissions we earn during the prior month , and with respect to performance-based commissions , on a quarterly basis based on our overall performance during the prior quarter . revenue is recognized in the period in which our services are performed or , in the case of performance commissions , when the performance condition is achieved . because the invoicing for our services generally coincides with or immediately follows the sale of service contracts on behalf of our clients , we do not generate or report a significant deferred revenue balance . however , the combination of factors including minimum contractual commitments , the performance improvement potential , our success in generating improved renewal rates for our clients , and our clients ' historical renewal rates may all affect our performance favorably or unfavorably . m & a activity . our clients , particularly those in the technology sector , participate in an active environment for mergers and acquisitions . large technology companies have maintained active acquisition programs to increase the breadth and depth of their product and service offerings and small and mid-sized companies have combined to better compete with large technology companies . a number of our clients have merged , purchased other companies or been acquired by other companies . we expect merger and acquisition activity to continue to occur in the future . the impact of these transactions on our business can vary . acquisitions of other companies by our clients can provide us with the opportunity to pursue additional business to the extent the acquired company is not already one of our clients . similarly , when a client is acquired , we may be able to use our relationship with the acquired company to build a relationship with the acquirer . in some cases we have been able to maintain our relationship with an acquired client even where the acquiring company handles its other service contract renewals through internal resources . in other cases , however , acquirers have elected to terminate or not renew our contract with the acquired company . economic conditions and seasonality . an improving economic outlook generally has a positive , but mixed , impact on our business . as with most businesses , improved economic conditions can lead to increased end customer demand and sales . in particular , within the technology sector , we recently experienced the effect of the economic downturn , which led many companies to cut their expenses by choosing to let their existing maintenance , support and subscription agreements lapse . an improving economy may have the opposite effect . however , an improving economy may also cause companies to purchase new hardware , software and other technology products , which we generally do not sell on behalf of our clients , instead of purchasing maintenance , support and subscription services for existing products . to the extent this occurs , it would have a negative impact on our opportunities in the near term that would partially offset the benefits of an improving economy . we believe uncertainty in the economy , combined with shifting market forces toward subscription-based models , may impact a number of our clients and prospective clients , particularly in the traditional enterprise software and hardware segments . these forces have placed pressure on end customer demand for their renewal contracts and also have led to some slower decision making in general . this economic and industry environment has adversely affected the conversion rates for end customers and contracts .
| in 2014 , net cash used in operating activities was $ 23.8 million . our net loss during the period was $ 95.2 million , which was impacted by non-cash charges of $ 13.2 million for depreciation and amortization , $ 7.5 million of amortization of debt discount and issuance costs , $ 20.9 million for stock-based compensation and $ 25.1 million for goodwill and other intangibles impairment . cash provided by operations as a result of changes in our working capital , including a $ 3.7 million decrease in accounts receivable , a $ 0.5 million increase in accrued taxes and a $ 1.1 million increase in accrued liabilities and other . uses of cash were related to a $ 0.6 million increase in prepaid expenses and a $ 0.3 million decrease in accounts payable . investing activities in 2016 cash used in investing activities was principally related to the net purchase , sale and maturities of short-term investments of $ 2.6 million and for purchases of property and equipment of $ 26.3 million , which includes $ 13.1 million of internally developed software costs . in 2015 cash used in investing activities was principally related to the net purchase , sale and maturities of short-term investments of $ 12.0 million and for purchases of property and equipment of $ 12.0 million which includes $ 7.2 million of internally developed software costs . in 2014 cash used in investing activities was principally related to the net purchase , sale and maturities of short-term investments of $ 20.0 million , acquisition of scout analytics of $ 32.6 million and for the purchases of property and equipment of $ 9.4 million . financing activities cash provided by financing activities was $ 0.9 million during 2016 and consisted primarily of option exercises and the purchase of common stock under our employee stock purchase plan offset by $ 8.9 million from the repurchase of common stock . cash provided by financing activities
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we are well positioned to capitalize on 5g carrier deployments with the refresh of our mx 5g product and contrail solutions as well as our new partnership with ericsson to accelerate 5g initiatives by leveraging each company 's complementary portfolios to drive our competitive advantage in the marketplace . we believe these products and partnership position juniper for improved service provider spending in late 2019. we remain confident in our strategy and we are executing against our innovation roadmap , as each of our industry verticals transitions to cloud architectures . we believe our understanding of high-performance networking technology and cloud architecture , and our strategy , position us to capitalize on the industry transition to more automated , cost-efficient , scalable networks . in 2018 , we continued to execute on our product and solutions strategy and announced several new innovations , including a new 400g optimized routing platform ; a new high-performance mx series 5g universal routing platform with new programmable silicon ; an upgrade to our high-end srx firewall offering with our spc3 advanced security acceleration line card ; and our multi-cloud orchestration and telemetry platform including contrail edge cloud and contrail enterprise multicloud , each of which , we believe , will help strengthen our position across our core markets . we also announced new initiatives under an existing partnership with nutanix , which we expect will help strengthen our ability to capitalize on multicloud with our contrail enterprise multicloud integration with nutanix 's application programming interface , or apis to provide enhanced network visibility . in late 2018 , we completed the acquisition of htbase , a software company that has developed a unique and disruptive platform for software-defined enterprise multicloud , which we expect will accelerate our leadership in multicloud and function with the compute orchestration capabilities of contrail enterprise multicloud . we will continue to look at targeted and strategic acquisitions that we believe can complement our portfolio , operations , r & d strategy , and overall business . in 2019 , we believe we will continue to experience weakness with our cloud customers in the near-term , as deployment cycles remain difficult to predict ; however , we remain confident in our competitive position with our strategic cloud customers . we are taking a number of actions that we believe will help juniper achieve year-over-year revenue growth at some point in the second half of 2019 such as : ( 1 ) new product offerings which include new mx line cards to capitalize on 5g carrier initiatives ; 400g platforms to capture data center footprint ; and new enhancements to our contrail enterprise multicloud platform that make it simpler and more cost effective , ( 2 ) transitioning our sales organization to better align with our sales strategy , and ( 3 ) monetizing our software offerings through subscriptions . further , we believe the 400g upgrade cycle , 5g deployments , and enterprise multicloud initiatives each represent large opportunities where are well positioned to benefit over the next several years . 42 financial results and key performance metrics overview on january 1 , 2018 , we adopted financial accounting standards board , or fasb , accounting standards update , or asu , no . 2014-09 ( topic 606 ) - revenue from contracts with customers , which we refer to as topic 606. the standard provides guidance for revenue recognition that superseded the revenue recognition requirements in accounting standards codification topic 605 , revenue recognition , which we refer to as topic 605 , and most industry specific guidance . see note 2 , significant accounting policies , in the notes to consolidated financial statements in item 8 of part ii of this report for further discussion on the adoption of topic 606. results for reporting periods beginning after january 1 , 2018 are presented under topic 606 , while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under topic 605. the following table provides an overview of our financial results and key financial metrics ( in millions , except per share amounts , percentages , and days sales outstanding , or dso ) : replace_table_token_5_th ( * ) dso is for the fourth quarter ended december 31 , 2018 , 2017 and 2016 . net revenues : during 2018 , net revenues decreased compared to 2017 , primarily due to lower routing product revenues from our cloud and service provider verticals in the americas . we experienced ongoing networking architectural transitions and a slower than expected pace of deployments for certain large cloud customers as well as a decline in our service provider business due to the timing of deployments . the year-over-year decline in product net revenues was partially offset by broad-based revenue growth in our enterprise vertical . excluding the impact of topic 606 , our service net revenues would have increased during the 2018 , compared to 2017 , primarily due to strong renewal and attach rates of support contracts . of our top ten customers for 2018 , five were cloud , four were service provider , and one was an enterprise . 43 during 2018 , the adoption of topic 606 resulted in a decrease in revenue recognition of $ 22.6 million due to lower service revenues , partially offset by higher product revenues . service revenues during 2018 were lower by $ 122.9 million under topic 606 , compared to topic 605 , primarily due to the impact of revenue allocation between products and services . product revenues during 2018 were higher by $ 100.3 million under topic 606 , compared to topic 605 , primarily due to the impact of revenue allocation between products and services and the timing of revenue recognition of certain contracts that were precluded by topic 605 , partially offset by variable consideration . the product revenues increase from topic 606 was primarily allocated between routing and switching . story_separator_special_tag gross margin : our gross margin as a percentage of net revenues decreased during 2018 , compared to 2017 , primarily due to lower net revenues and product mix , resulting from the year-over-year decline in routing revenues from our cloud and service provider verticals , and to a lesser extent , the impact of topic 606 , partially offset by improvements in our cost structure . operating margin : during 2018 , compared to 2017 , operating income as a percentage of net revenues decreased primarily due to the drivers described in the gross margin discussion above , partially offset by a net decrease in our operating expenses during 2018 , compared to 2017 , as a result of lower restructuring charges . net income : during 2018 , net income increased compared to 2017 , primarily driven by a lower statutory tax rate due to the tax act and tax benefits related to items unique to 2018. see note 14 , income taxes , in the notes to consolidated financial statements in item 8 of part ii of this report , for further discussion . operating cash flows : net cash provided by operations decreased in 2018 , compared to 2017 , primarily due to higher cash collections from customers during 2017 related to service renewals invoiced during the fourth quarter of 2016 , partially offset by a decline in cash paid for personnel-related costs , principally as a result of a reduction in headcount and lower incentive compensation , and a decrease in payments to suppliers . capital return : in 2018 , we repurchased 29.3 million shares of our common stock for an aggregate amount of $ 750.0 million through the completion of a $ 750.0 million accelerated share repurchase program , or asr . during 2018 , we also paid a quarterly cash dividend of $ 0.18 per share , for an aggregate amount of $ 249.3 million . dso : dso is calculated as the ratio of ending accounts receivable , net of allowances , divided by net revenues for the preceding 90 days . dso for the quarter ended december 31 , 2018 decreased , compared to the quarter ended december 31 , 2017 , primarily due to lower overall invoicing volume , partially offset by lower revenues . deferred revenue : total deferred revenue decreased as of december 31 , 2018 , compared to december 31 , 2017 , due to the impact of adoption of topic 606. see note 2 , significant accounting policies , in the notes to consolidated financial statements in item 8 of part ii of this report , for further discussion . critical accounting policies and estimates the preparation of the financial statements and related disclosures in conformity with u.s. gaap requires us to make judgments , assumptions , and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes . on an ongoing basis , we evaluate our estimates , including those related to sales returns , pricing credits , warranty costs , allowance for doubtful accounts , impairment of long-term assets , especially goodwill and intangible assets , contract manufacturer liabilities , assumptions used in the valuation of share-based compensation , and litigation . we base our estimates and assumptions on current facts , historical experience , and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . for further information about our significant accounting policies , see note 2 , significant accounting policies , in notes to consolidated financial statements in item 8 of part ii of this report , which describes the significant accounting policies and methods used in the preparation of the consolidated financial statements . the accounting policies described below are significantly affected by critical accounting estimates . such accounting policies require significant judgments , assumptions , and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies . to the extent there are material differences between our estimates and the actual results , our future consolidated results of operations may be affected . 44 goodwill : we make significant estimates , assumptions , and judgments when valuing goodwill and other intangible assets in connection with the initial purchase price allocation of an acquired entity , as well as when evaluating impairment of goodwill and other intangible assets on an ongoing basis . these estimates are based upon a number of factors , including historical experience , market conditions , and information obtained from the management of the acquired company . critical estimates in valuing certain intangible assets include , but are not limited to , historical and projected customer retention rates , anticipated growth in revenue from the acquired customer and product base , and the expected use of the acquired assets . these factors are also considered in determining the useful life of the acquired intangible assets . the amounts and useful lives assigned to identified intangible assets impacts the amount and timing of future amortization expense . goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recorded . the excess of the purchase price over the estimated fair value of net assets of businesses acquired in a business combination is recognized as goodwill . we evaluate our goodwill for impairment on an annual basis , as of november 1 st , or more frequently if an event occurs or facts and circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying amount . goodwill is tested for impairment at the reporting unit level , which is one level below our operating segment level , by comparing the reporting unit 's carrying value , including goodwill , to the fair value of the reporting unit .
| 2018 compared to 2017 net cash provided by investing activities increased in 2018 , compared to 2017 , primarily due to the liquidation of repatriated offshore investments to fund the accelerated share repurchase program discussed below . 2017 compared to 2016 net cash used in investing activities decreased in 2017 , compared to 2016 , primarily due to lower payments for business combinations and capital expenditures and the receipt of $ 75.0 million in proceeds from the pulse note , partially offset by higher net purchases of available-for-sale debt securities . 55 financing activities financing cash flows consist primarily of repurchases and retirement of common stock , payment of cash dividends to stockholders , issuance and repayment of long-term debt , and proceeds from the issuance of shares of common stock through employee equity incentive plans . 2018 compared to 2017 net cash used in financing activities increased in 2018 , compared to 2017 , primarily due to an increase in payments of cash dividends and higher repurchases of our common stock , as a result of the accelerated share repurchase program , or asr , described further below . 2017 compared to 2016 net cash used in financing activities increased in 2017 , compared to 2016 , primarily due to an increase in repurchases and retirement of our common stock in 2017. in 2016 , we raised $ 494.0 million from our 2019 notes and 2024 notes and repaid $ 300.0 million of our 2016 notes . capital return the following table summarizes our dividends paid and stock repurchase activities ( in millions , except per share amounts ) : replace_table_token_13_th in january 2018 , our board of directors , which we refer to as the board , approved a $ 2.0 billion share repurchase program , which we refer to as the 2018 stock repurchase program . the 2018 stock repurchase program replaces the previous authorization approved by the board in 2014. as part of the 2018 stock repurchase program , we entered into an asr to repurchase $ 750.0 million
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adjusted ebitda and adjusted ebitda margin adjusted ebitda of $ 3,468.0 increased 11 % , or $ 352.5 , primarily due to positive pricing and higher volumes , partially offset by unfavorable currency . adjusted ebitda margin of 38.9 % increased 400 bp , primarily due to higher volumes , positive pricing , and the india contract modification . the india contract modification contributed 80 bp . effective tax rate the effective tax rate equals the income tax provision divided by income from continuing operations before taxes . the effective tax rate was 21.0 % and 26.0 % in fiscal years 2019 and 2018 , respectively . the current year rate was lower primarily due to impacts related to the enactment of the u.s. tax cuts and jobs act ( the “ tax act '' ) in 2018 , which significantly changed existing u.s. tax laws , including a reduction in the federal corporate income tax rate from 35 % to 21 % , a deemed repatriation tax on unremitted foreign earnings , as well as other changes . as a result of the tax act , our income tax provision reflects discrete net income tax costs of $ 43.8 and $ 180.6 in fiscal years 2019 and 2018 , respectively . the current year included a cost of $ 56.2 ( $ .26 per share ) for the reversal of a benefit recorded in 2018 related to the u.s. taxation of deemed foreign dividends . we recorded this reversal based on regulations issued in 2019. the 2019 reversal was partially offset by a favorable adjustment of $ 12.4 ( $ .06 per share ) that was recorded as we completed our estimates of the impacts of the tax act . this adjustment is primarily related to foreign tax items , including the deemed repatriation tax for foreign tax redeterminations . in addition , the current year rate included a net gain on the exchange of two equity affiliates of $ 29.1 , which was not a taxable transaction . the higher 2018 expense resulting from the tax act was partially offset by a $ 35.7 tax benefit from the restructuring of foreign subsidiaries , a $ 9.1 benefit from a foreign audit settlement agreement , and higher excess tax benefits on share-based compensation . the adjusted effective tax rate was 19.4 % and 18.6 % in fiscal years 2019 and 2018 , respectively . the lower prior year rate was primarily due to the $ 9.1 benefit from a foreign audit settlement agreement and higher excess tax benefits on share-based compensation . 25 refer to note 23 , income taxes , to the consolidated financial statements for additional information . discontinued operations in fiscal year 2018 , income from discontinued operations , net of tax , of $ 42.2 included an income tax benefit of $ 25.6 resulting from the resolution of uncertain tax positions taken in conjunction with the disposition of our former european homecare business in fiscal year 2012. in addition , we recorded an after-tax benefit of $ 17.6 resulting from the resolution of certain post-closing adjustments associated with the sale of our former performance materials division . these benefits were partially offset by an after-tax loss of $ 1.0 related to energy-from-waste . segment analysis industrial gases – americas replace_table_token_7_th sales % change from prior year volume 1 % price 3 % energy and natural gas cost pass-through — % currency ( 1 ) % total industrial gases – americas sales change 3 % sales of $ 3,873.5 increased 3 % , or $ 114.7 , as positive pricing of 3 % and higher volumes of 1 % were partially offset by a negative impact from currency of 1 % . the pricing improvement was primarily driven by our merchant business . energy and natural gas cost pass-through to customers was flat versus the prior year . operating income of $ 997.7 increased 8 % , or $ 69.8 , as higher pricing , net of power and fuel costs , of $ 85 and favorable volumes of $ 34 were partially offset by higher costs of $ 44 and unfavorable currency impacts of $ 5. the higher costs were primarily driven by distribution costs . operating margin of 25.8 % increased 110 bp as positive pricing and higher volumes were partially offset by unfavorable costs . equity affiliates ' income of $ 84.8 increased 3 % , or $ 2.8 , primarily due to positive pricing and lower costs , partially offset by unfavorable impacts from currency . 26 industrial gases – emea replace_table_token_8_th sales % change from prior year volume 2 % price 3 % energy and natural gas cost pass-through — % currency ( 5 ) % other ( a ) ( 9 ) % total industrial gases – emea sales change ( 9 ) % ( a ) includes the impact from the modification of a hydrogen supply contract to a tolling arrangement in india in december 2018 ( `` the india contract modification '' ) . sales of $ 2,002.5 decreased 9 % , or $ 190.8 , as the negative impact from the india contract modification of 9 % and unfavorable currency impacts of 5 % were partially offset by positive pricing of 3 % and higher volumes of 2 % . the negative currency impact was mainly driven by the euro and british pound sterling . the pricing improvement was mostly attributable to our merchant business . the volume increase was primarily driven by acquisition activity as our base business remained stable . energy and natural gas cost pass-through to customers was flat versus the prior year . operating income of $ 472.4 increased 6 % , or $ 26.6 , primarily due to higher pricing , net of power and fuel costs , of $ 60 , partially offset by unfavorable currency impacts of $ 25 and higher costs of $ 10. operating margin of 23.6 % increased 330 bp as favorable pricing and the impact of the india tolling arrangement were partially offset by higher costs . story_separator_special_tag equity affiliates ' income of $ 69.0 increased 13 % , or $ 7.9 , primarily due to the jazan gas projects company joint venture . industrial gases – asia replace_table_token_9_th sales % change from prior year volume 9 % price 3 % energy and natural gas cost pass-through — % currency ( 4 ) % total industrial gases – asia sales change 8 % 27 sales of $ 2,663.6 increased 8 % , or $ 205.6 , as higher volumes of 9 % and positive pricing of 3 % were partially offset by unfavorable currency impacts of 4 % . the volume increase was primarily driven by new plants onstream , mainly the lu'an gasification project , and base business growth , partially offset by the impact of a prior year equipment sale resulting from a contract termination . pricing improved across asia , primarily driven by our merchant business . the unfavorable currency impact was primarily attributable to the chinese renminbi . energy and natural gas cost pass-through to customers was flat versus the prior year . operating income of $ 864.2 increased 25 % , or $ 174.3 , due to higher volumes of $ 117 , favorable pricing , net of power and fuel costs , of $ 73 , and lower net operating costs of $ 14 , partially offset by unfavorable currency impacts of $ 30. operating margin of 32.4 % increased 430 bp , primarily due to higher volumes and positive pricing . equity affiliates ' income of $ 58.4 was flat versus the prior year . industrial gases – global the industrial gases – global segment includes sales of cryogenic and gas processing equipment for air separation and centralized global costs associated with management of all the industrial gases segments . replace_table_token_10_th sales of $ 261.0 decreased 40 % , or $ 175.1 . the decrease in sales was primarily driven by lower sale of equipment activity as we near completion on the multiple air separation units that will serve saudi aramco 's jazan oil refinery and power plant in saudi arabia . we expect to complete this project by the end of the first quarter of fiscal year 2020. operating loss of $ 11.7 decreased $ 65.6 from operating income of $ 53.9 in the prior year , primarily due to the lower sale of equipment activity . corporate and other the corporate and other segment includes our lng , turbo machinery equipment , and helium storage and distribution sale of equipment businesses and corporate support functions that benefit all segments . the results of the corporate and other segment also include income and expense that is not directly associated with the other segments , such as foreign exchange gains and losses . replace_table_token_11_th sales of $ 118.3 increased 41 % , or $ 34.3 , primarily due to higher turbo machinery activity . operating loss of $ 152.8 decreased 13 % , or $ 23.2 , primarily due to income generated from turbo machinery and lower corporate costs . 28 reconciliations of non-gaap financial measures millions of dollars unless otherwise indicated , except for per share data the company presents certain financial measures on a non-gaap ( “ adjusted ” ) basis . on a consolidated basis , these measures include adjusted diluted earnings per share ( `` eps '' ) , adjusted ebitda , adjusted ebitda margin , and adjusted effective tax rate . on a segment basis , these measures include adjusted ebitda and adjusted ebitda margin . in addition to these measures , which are presented above , we also include certain supplemental non-gaap financial measures that are presented below to help the reader understand the impact that our non-gaap adjustments have on the calculation of our adjusted diluted eps . for each non-gaap financial measure , we present below a reconciliation to the most directly comparable financial measure calculated in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . the company 's non-gaap measures are not meant to be considered in isolation or as a substitute for the most directly comparable measure calculated in accordance with gaap . the company believes these non-gaap measures provide investors , potential investors , securities analysts , and others with useful information to evaluate the performance of the business because such measures , when viewed together with financial results computed in accordance with gaap , provide a more complete understanding of the factors and trends affecting the company 's historical financial performance and projected future results . in many cases , non-gaap measures are determined by adjusting the most directly comparable gaap measure to exclude certain disclosed items , or “ non-gaap adjustments , ” that the company believes are not representative of underlying business performance . for example , the company previously excluded certain expenses associated with cost reduction actions , impairment charges , and gains on disclosed transactions . the reader should be aware that the company may recognize similar losses or gains in the future . readers should also consider the limitations associated with these non-gaap measures , including the potential lack of comparability of these measures from one company to another . the tax impact on our pre-tax non-gaap adjustments reflects the expected current and deferred income tax impact of the transactions . these tax impacts are primarily driven by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions . 29 consolidated results the tables below provide a reconciliation to the most directly comparable gaap measure for each of the major components used to calculate adjusted diluted eps , which the company views as a key performance metric . we believe it is important for the reader to understand the per share impact of our non-gaap adjustments as management does not consider these impacts when evaluating underlying business performance . the measures presented are based on continuing operations .
| 21 changes in diluted eps attributable to air products replace_table_token_3_th replace_table_token_4_th 22 2020 outlook in fiscal year 2020 , we intend to grow our earnings by continuing to improve our base businesses and execute against our capital deployment strategy . backed by our current financial position , we will strive to continue to win and invest in key growth projects , including large gasification projects that are consistent with our onsite business model . we expect earnings to grow from an investment in a new equity affiliate that will acquire the gasification , power , and industrial gas assets at jazan economic city , saudi arabia ( `` the jazan gas and power project '' ) . the above guidance should be read in conjunction with the forward-looking statements of this annual report on form 10-k. results of operations discussion of consolidated results replace_table_token_5_th sales sales % change from prior year volume 2 % price 3 % energy and raw material cost pass-through — % currency ( 3 ) % other ( a ) ( 2 ) % total consolidated sales change — % ( a ) includes the impact from the modification of a hydrogen supply contract to a tolling arrangement in india in december 2018 ( `` the india contract modification '' ) . sales of $ 8,918.9 were flat as favorable pricing of 3 % and higher volumes of 2 % were offset by negative currency impacts of 3 % and the impact of the india contract modification of 2 % . the pricing improvement was primarily attributable to our merchant business across the regional segments . volumes were higher from new projects , mainly the lu'an project in asia , and positive base business growth . these drivers were partially offset by lower jazan sale of equipment activity , which negatively impacted volumes by 2 % , and a prior year equipment sale resulting from a contract termination in asia . unfavorable currency impacts were driven by the chinese renminbi , euro , and british pound sterling . energy and natural gas cost pass-through to customers was flat versus the prior year .
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words such as `` may , '' `` will , '' `` expect , '' `` believe , '' `` anticipate , '' `` estimate , '' `` project , '' or `` continue '' or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements . you are cautioned not to place undue reliance on the forward-looking statements , which speak only as of the date of this report . all forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements . general tomi environmental solutions , inc. is positioned as a global bacteria , viral , mold decontamination and infectious disease control company , providing green energy-efficient environmental solutions for indoor surface and air decontamination through sales , service and licensing of our platform of steramist hydrogen peroxide aerosols , ultra-violet ozone generators and ultra-violet germicidal irradiation ( `` uvgi '' ) products and technologies . our effort to offer products and services which combat bacterial and viral outbreaks in hospitals was in 2011 enhanced by the addition of a newly developed line of fixed and portable units owned and manufactured by l-3 communications ( `` l-3 '' ) . this technology is bit ( binary ionization technology ) and is sold under the brand name of steramist . steramist utilizes a patented hydrogen peroxide misting technique ( bit technology ) and was designed by l-3 as a cost-effective method to control the spread of infectious diseases including neutralizing bio-terrorism pathogens such as anthrax . we believe that reducing healthcare associated infections ( `` hais '' ) , which are the fourth leading cause of death in the united states and cost the healthcare system approximately $ 40 billion annually , provide significant opportunities for our products . ten percent of inpatients contract infections from hospitals , resulting in more than 2,000,000 illnesses and over 100,000 deaths per annum . according to published studies , generic hospital cleaning procedures leave between 30 % -60 % of microorganisms depending upon the process . tomi 's products safely and effectively kill 99.9999 % of all known pathogens as a part of its service to healthcare facilities such as hospitals for the decontamination of bacteria and other pathogens within these facilities . in comparison to most of its competitors , the steramist product has a higher kill level , leaves no residue , is not effected by humidity , has a shorter treatment time and converts to oxygen and water . 9 other vertical industry applications for steramist in no particular order are : the professional remediation industry , first responders , food safety industry , athletics , hospitality industry , transportation , education , entertainment , homeland defense , and various branches of the military . our steramist and other products are currently being used in a broad spectrum of commercial structures including medical facilities , office buildings , hotels , schools , pharmaceutical companies , clean rooms , remediation companies , military barracks , and athletic facilities . the products and services that we offer have are also being used in single-family homes and multi-unit residences . we intend to generate and support research on other surface and air remediation solutions including hydroxyl radicals and other reactive oxygen species ( `` ros '' ) and to form business alliances with major remediation companies , construction companies and corporations specializing in disaster relief in north america , south america , central america , europe , the middle east and the far east to assist in expanding our sales . the company began sales to international locations during the third quarter of 2010. in february 2012 , the company entered into a sales and distribution agreement covering latin america and the caribbean and subsequently sold its first steramist unit in latin america in march 2012 and repeated orders in the third quarter of 2012. in april 2012 , we completed our first sale in panama arising from this new agreement . we also made continued aerosol solution sales under our ongoing program with sinai hospital in baltimore , maryland , northwest hospital in randallstown , maryland . steramist is also being used by baptist hospital in little rock , arkansas , and geisenger medical center in danville , pennsylvania . our decontamination system is currently being tested in two other major u.s. hospitals . the company recently completed an official pilot study at the request of panama social security program ( css ) , successfully remediating biological/bacterial colonies . as a result , the company was engaged to expand this program in multiple panamanian hospitals . we continue to pursue complementary business opportunities in manufacturing reactive oxygen species related products , testing labs and other indoor air treatment and maintenance products . when we complete the sale of equipment to customers , our services usually include providing initial and ongoing training to customer employees . in 2011 , we made our first sale of a steramist hydrogen peroxide aerosol unit to a major metropolitan hospital that is now expanding its program to use this equipment for additional rooms and facilities . business outlook tomi 's business growth objective is to be `` the global leader in decontamination and infectious disease control '' by developing and acquiring a premier platform of hydrogen peroxide aerosols , uv ozone generators and other green uvgi products and technologies . story_separator_special_tag we also intend to generate and support research on other air remediation solutions including hydroxyl radicals and other reactive oxygen species ( `` ros '' ) and to form business alliances with major remediation companies , construction companies and corporations specializing in disaster relief along with expanding our sales in north america , south america , central america and the far east . story_separator_special_tag cash and cash equivalents , accounts payable , other accrued expenses and notes payables approximate fair value because of the short maturity of these items . stock-based compensation we account for stock-based compensation in accordance with fasb asc 718 , compensation - stock compensation . under the provisions of fasb asc 718 , stock-based compensation cost is estimated at the grant date based on the award 's fair value and is recognized as expense over the requisite service period . the company currently has one active stock-based compensation plan , tomi environmental solutions , inc. stock option and restricted stock plan ( the `` plan '' ) . the plan calls for the company through a committee of its board of directors , to issue up to 2,500,000 shares of restricted common stock or stock options . the company generally issues grants to its employees , consultants , and board members . stock options are granted with an exercise price equal to the closing price of its common stock on the date of grant with a term no greater than 10 years . generally , stock options vest over two to four years . incentive stock options granted to shareholders who own 10 % or more of the company 's outstanding stock are granted at an exercise price that may not be less than 110 % of the closing price of the company 's common stock on the date of grant and have a term no greater than five years . at the date of grant , the company determines the fair value of the stock option award and recognizes compensation expense over the requisite service period , which is generally the vesting period of the award . the fair value of the stock option award is calculated using the black-scholes option-pricing model . as of december 31 , 2012 , the company issued 100,000 options under the plan . recent accounting pronouncements in july 2012 , the financial accounting standards board ( `` fasb '' ) issued asu no . 2012-02 , `` testing indefinite-lived intangible assets for impairment '' ( `` asu 2012-02 '' ) . asu 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired . if based on its qualitative assessment an entity concludes that it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount , quantitative impairment testing is required . however , if an entity concludes otherwise , quantitative impairment testing is not required . asu is effective for annual and interim impairment tests performed for fiscal years beginning after september 15 , 2012 , with early adoption permitted . asu 2012-02 is not expected to have a material impact on the company 's financial position or results of operations . in december 2011 , the financial accounting standards board ( `` fasb '' ) issued asu no . 2011-11 , `` balance sheet ( topic 210 ) : disclosures about offsetting assets and liabilities '' ( `` asu 2011-11 '' ) . asu 2011-11 enhances current disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement , irrespective of whether they are offset on the statement of financial position . entities are required to provide both net and gross information for these assets and liabilities in order to facilitate comparability between financial statements prepared on the basis of u.s. gaap and financial statements prepared on the basis of ifrs . asu 2011-11 is effective for annual reporting periods beginning on or after january 1 , 2013 , and interim periods within those annual periods . asu 2011-11 is not expected to have a material impact on the company 's financial position or results of operations . in september 2011 , the fasb issued accounting standards update no . 2011-08 ( `` asu 2011-08 '' ) , which updates the guidance in asc topic 350 , intangibles - goodwill & other . the amendments in asu 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in asc topic 350. the more-likely-than-not threshold is defined as having a likelihood of more than fifty percent . if , after assessing the totality of events or circumstances , an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , then performing the two-step impairment test is unnecessary . the amendments in asu 2011-08 include examples of events and circumstances that an entity should consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . however , the examples are not intended to be all-inclusive and an entity may identify other relevant events and circumstances to consider in making the determination . the examples in this asu 2011-08 supersede the previous examples under asc topic 350 of events and circumstances an entity should consider in determining whether it should test for impairment between annual tests , and also supersede the examples of events and circumstances that an entity having a reporting unit
| our liquid assets generally consist of unpledged assets and cash and cash equivalents . contractual obligations none . off-balance sheet arrangements none . critical accounting policies and 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 accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the estimation process requires assumptions to be made about future events and conditions , and as such , is inherently subjective and uncertain . actual results could differ materially from our estimates . the sec defines critical accounting policies as those that are , in management 's view , most important to the portrayal of our financial condition and results of operations and most demanding of our judgment . we consider the following policies to be critical to an understanding of our consolidated financial statements and the uncertainties associated with the complex judgments made by us that could impact our results of operations , financial position and cash flows . income ( loss ) per share the computation of income ( loss ) per share is based on the weighted average number of common shares outstanding during the periods presented . diluted income ( loss ) per common share is computed based on the weighted average number of common shares outstanding plus the dilutive effect of common stock equivalents . revenue recognition for revenue from services and product sales , the company recognized revenue in accordance with staff accounting bulletin no . 104 , `` revenue recognition '' ( sab no . 104 ) , which superseded staff accounting bulletin no . 101 , `` revenue recognition in financial statements '' ( sab no . 101 ) . sab no . 104 requires that four basic criteria must be met before
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through various local service agreements , we provided sales , programming and other services to 30 full power television stations owned and or operated by independent third parties , including stations owned by mission , marshall , white knight and parker . see note 2 to our consolidated financial statements in part iv , item 15 of this annual report on form 10-k for a discussion of the local service agreements we have with these entities . the operating revenue of our stations is derived primarily from broadcast and website advertising revenue , which is affected by a number of factors , including the economic conditions of the markets in which we operate , the demographic makeup of those markets and the marketing strategy we employ in each market . most advertising contracts are short-term and generally run for a few weeks . for the years ended december 31 , 2015 and 2014 , revenue generated from local broadcast advertising represented 70.6 % and 71.7 % , respectively , of our consolidated spot revenue ( total of local and national broadcast advertising revenue , excluding political advertising revenue ) . the remaining broadcast advertising revenue represents inventory sold for national or political advertising . all national and political revenue is derived from advertisements placed through advertising agencies . the agencies receive a commission rate of 15.0 % of the gross amount of advertising schedules placed by them . while the majority of local spot revenue is placed by local agencies , some advertisers place their schedules directly with the stations ' local sales staff , thereby eliminating the agency commission . each station also has an agreement with a national representative firm that provides for sales representation outside the particular station 's market . advertising schedules received through the national representative firm are for national or large regional accounts that advertise in several markets simultaneously . national commission rates vary within the industry and are governed by each station 's agreement . another source of revenue for the company that has been growing significantly in recent years relates to retransmission of our station signals by cable , satellite and other mvpds . mvpds generally pay for retransmission rights on a rate per subscriber basis . the growth of this revenue stream has primarily related to increases in the subscriber rates paid by mvpds . most of our stations have a network affiliation agreement pursuant to which the network provides programming to the station during specified time periods , including prime time , in exchange for network affiliation fees and the right to sell a portion of the advertising time during these broadcasts . network affiliation fees have been increasing industry wide and will continue to increase over the next several years . 34 each station acquires licenses to broadcast programming in non-news and non-network time periods . the licenses are either purchased from a program distributor for cash and or the program distributor is allowed to se ll some of the advertising inventory as compensation to eliminate or reduce the cash cost for the license . the latter practice is referred to as barter broadcast rights . barter broadcast rights are recorded at management 's estimate of the value of the adve rtising time exchanged using historical advertising rates , which approximates the fair value of the program material received . the programming expense is recognized over the license period or period of usage , whichever ends earlier . our primary operating expenses include employee salaries , commissions and benefits , newsgathering and programming costs . a large percentage of the costs involved in the operation of our stations and the stations we provide services to remains relatively fixed . regulatory developments as a television broadcaster , the company is highly regulated and its operations require that it retain or renew a variety of government approvals and comply with changing federal regulations . in 2014 , the fcc modified its television ownership rules such that a television station licensee that sells more than 15 percent of the weekly advertising inventory of another television station in the same designated market area is deemed to have an attributable ownership interest in that station . parties to existing jsas that were deemed attributable interests and do not comply with the fcc 's local television ownership rule have until september 30 , 2025 to come into compliance . the company expects ultimately to incur additional costs in complying with this new rule , although , given recent legislation extending the compliance deadline until september 30 , 2025 , the company does not expect the 2014 rule change to impact its jsa revenue in the near term . if the company is ultimately unable to obtain waivers from the fcc and is required to amend or terminate its existing agreements , however , the company could have a reduction in revenue and increased costs if it is unable to successfully implement alternative arrangements that are as beneficial as the existing jsas . various parties , including us ( and mission , which has intervened ) , have appealed this new rule to the u.s. court of appeals for the d.c. circuit , which has recently transferred the appeal to the u.s. court of appeals for the third circuit , which has scheduled oral argument for april 19 , 2016. in march 2014 , the fcc 's media bureau issued a public notice announcing “ processing guidelines ” for certain pending and future applications for fcc approval of television station acquisitions . the public notice indicates that the fcc will “ closely scrutinize ” applications which propose a jsa , ssa or local marketing agreement ( “ lma ” ) between television stations , combined with an option , a similar “ contingent interest , ” or a loan guarantee . these new processing guidelines have impacted the company 's previously announced acquisitions and may affect the company 's acquisition of additional stations in the future . also in march 2014 , the fcc amended its rules governing retransmission consent negotiations . story_separator_special_tag the amended rule initially prohibited two non-commonly owned stations ranked in the top four in viewership in a market from negotiating jointly with mvpds . on december 5 , 2014 , federal legislation extended the joint negotiation prohibition to all non-commonly owned television stations in a market . mission , marshall , parker and white knight are now required to separately negotiate their future retransmission consent agreements with mvpds for certain of their stations . we can not predict at this time the impact this amended rule will have on future negotiations with mvpds and the impact , if any , it will have on the company 's revenues and expenses . seasonality advertising revenue is positively affected by national and regional political election campaigns and certain events such as the olympic games or the super bowl . the company 's stations ' advertising revenue is generally highest in the second and fourth quarters of each year , due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to , and including , the holiday season . in addition , advertising revenue is generally higher during even-numbered years , when state , congressional and presidential elections occur and from advertising aired during the olympic games . 2015 was not an election year or an olympic year . 35 historical performance revenue the following table sets forth the amounts of the company 's principal types of revenue ( in thousands ) and each type of revenue ( other than trade and barter ) and agency commissions as a percentage of total gross revenue for the years ended december 31 : replace_table_token_9_th story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:10pt ; margin-left:2.26 % ; text-indent:0 % ; font-weight : bold ; font-style : italic ; font-family : times new roman ; font-size:10pt ; text-transform : none ; font-variant : normal ; '' > interest expense , net interest expense , net was $ 80.5 million for the year ended december 31 , 2015 , compared to $ 62.0 million for the same period in 2014 , an increase of $ 18.6 million , or 30.0 % , primarily attributable to increased borrowings during 2015 and 2014 to fund the company 's acquisitions . income taxes income tax expense was $ 48.7 million for the year ended december 31 , 2015 , compared to $ 46.1 million for the same period in 2014 , an increase of $ 2.6 million , or 5.6 % . the effective tax rates during the years ended december 31 , 2015 and 2014 were 38.9 % and 41.7 % , respectively . our station acquisitions reduced our blended state tax rate resulting in an income tax benefit in 2015 of $ 2.4 million , or a 1.9 % impact to the effective tax rate and additional income tax expense in 2014 of $ 0.6 million , or a 0.6 % impact to the effective tax rate . year ended december 31 , 2014 compared to year ended december 31 , 2013 revenue gross local advertising revenue was $ 279.2 million for the year ended december 31 , 2014 , compared to $ 265.4 million for the same period in 2013 , an increase of $ 13.8 million , or 5.2 % . gross national advertising revenue was $ 109.9 million for the year ended december 31 , 2014 , compared to $ 113.4 million for the same period in 2013 , a decrease of $ 3.5 million , or 3.1 % . the net increase in local and national advertising revenue was primarily attributable to incremental revenue from our newly acquired stations of $ 12.7 million , net of a terminated outsourcing agreement of one station . during 2014 , our legacy stations ' local and national advertising revenue decreased by $ 2.4 million compared to the same period in 2013 , which reflected the changes in the mix between our legacy stations ' local , national and political advertising revenue , partially offset by increases in advertising revenue from the olympics in our nbc affiliate stations during the first quarter of 2014. our largest advertiser category , automobile , represented approximately 25.3 % and 25.0 % of our local and national advertising revenue for the years ended december 31 , 2014 and 2013 , respectively . overall , including past results of our newly acquired stations , automobile revenues were relatively flat . the other categories representing our top five were fast food/restaurants and furniture , which declined this year , and attorneys and radio/tv/cable/newspaper , which increased in 2014. gross political advertising revenue was $ 64.3 million for the year ended december 31 , 2014 , compared to $ 5.2 million for the same period in 2013 , an increase of $ 59.1 million , due to 2014 being an election year . retransmission compensation was $ 155.0 million for the year ended december 31 , 2014 , compared to $ 101.1 million for the same period in 2013 , an increase of $ 53.8 million , or 53.2 % . the increase in retransmission compensation was primarily attributable to the result of contracts providing for higher rates per subscriber during the year on our legacy stations and $ 10.8 million incremental revenue from our newly acquired stations . digital media revenue , representing advertising revenue on our stations ' web and mobile sites and revenue from our digital business , was $ 46.7 million for the year ended december 31 , 2014 , compared to $ 30.8 million for the same period in 2013 , an increase of $ 15.8 million or 51.4 % . the increase was primarily attributable to the $ 19.4 million incremental revenue from our newly acquired stations and entities , and a $ 3.1 million increase in revenue from our legacy stations primarily attributable to increased advertising revenue from new product offerings during the year and from the olympics in the first quarter of 2014. this was partially offset by a $ 6.3 million decrease in revenue due to the termination of certain customer contracts .
| gross political advertising revenue was $ 12.7 million for the year ended december 31 , 2015 , compared to $ 64.3 million for the same period in 2014 , a decrease of $ 51.6 million , as 2015 was not an election year . retransmission compensation was $ 298.0 million for the year ended december 31 , 2015 , compared to $ 155.0 million for the same period in 2014 , an increase of $ 143.1 million , or 92.3 % . the increase in retransmission compensation was attributable to a $ 70.7 million increase on our legacy stations , primarily related to the 2014 and 2015 renewals of contracts providing for higher rates per subscriber , and incremental revenue from our newly acquired stations of $ 72.4 million . digital media revenue , representing advertising revenue on our stations ' web and mobile sites and revenue from our other digital operations , was $ 89.9 million for the year ended december 31 , 2015 , compared to $ 46.7 million for the same period in 2014 , an increase of $ 43.2 million or 92.5 % . the increase was primarily attributable to the $ 39.3 million in incremental revenue from our newly acquired stations and entities , and a $ 2.9 million increase in revenue from our legacy stations . operating expenses corporate expenses , related to costs associated with the centralized management of our stations , were $ 44.9 million for the year ended december 31 , 2015 , compared to $ 35.2 million for the same period in 2014 , an increase of $ 9.7 million , or 27.5 % . this was primarily attributable to an increase in stock-based compensation expense of $ 3.8 million due to equity incentive awards in 2015 , an increase in payroll expense of $ 1.6 million related to the increased number of stations , an increase in legal and professional fees of $ 2.4 million primarily associated with our acquisitions of stations and entities , and costs incurred attributable to the management of new vies of $ 1.2 million .
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on june 27 , 2017 , ambac assurance entered into a termination agreement with various parties , including a special purpose entity augusta funding limited iv ( `` augusta '' ) , in connection with the commutation of an interest rate swap between augusta and ambac assurance 's wholly-owned subsidiary , ambac financial services ( `` afs '' ) . during the second quarter , afs made net settlement payments of approximately $ 103.6 million , including $ 94.4 million under the termination agreement . at march 31 , 2017 , ambac had recorded a mark-to-market liability under this swap transaction of $ 147.0 million ( net of an ambac assurance cva of $ 42.9 million ) , resulting in a gain of approximately $ 43.4 million during 2017. in july 2017 , augusta redeemed its outstanding ambac assurance-insured debt and ambac recognized approximately $ 2.6 million in accelerated premiums in 2017 relating to this redemption . the ambac-insured augusta net par outstanding was $ 185 million at the time of redemption and was adversely classified . ambac u.k. worked to facilitate an international asset-backed issuer 's refinancing of £188.1 million of insured debt and which paid ambac uk a termination premium of £12.6 million , resulting in accelerated premiums earned of $ 11.2 million in 2017 ; ambac worked closely with servicers and owners of master servicing rights to exercise clean-up calls on 20 rmbs transactions , resulting in a benefit in losses and loss expenses of $ 21.8 million and reducing adversely classified net par exposure by $ 422.5 million ; ambac assurance commuted its policy on a long time distressed municipality ( $ 44.6 million of net par exposure ) ; aided in the refinancing of more than 50 % ( $ 144.7 million of net par exposure ) of its exposure to chicago , il board of education general obligation bonds , resulting in an aggregate losses and loss expenses benefit of $ 4.1 million ; and negotiated with a distressed domestic asset-backed vie that was previously consolidated by ambac to settle all of their assets and refinance its ambac-insured debt ( $ 30.8 million of net par exposure ) . during 2017 , ambac assurance purchased the remaining $ 4.0 million of unpaid accrued interest related to certain surplus notes that were previously repurchased under call options . ambac recognized a realized gain on these purchases of $ 1.1 million in the consolidated statements of total comprehensive income ( loss ) . on february 12 , 2018 , the second amended plan of rehabilitation of the segregated account became effective and ambac and ambac assurance consummated a series of transactions that generally involved ( i ) the exchange of certain surplus notes held by holders of surplus notes that elected to participate in a voluntary exchange transaction and ( ii ) the satisfaction and discharge of all deferred amounts of the segregated account , in each case for an effective consideration package comprised of cash , new secured notes and certain existing surplus notes and ( iii ) the exit from rehabilitation of the segregated account ( the “ rehabilitation exit transactions ” ) . see note 1. background and business description to the consolidated financial statements , included in part ii , item 8 in this form 10-k for details regarding the rehabilitation exit transactions . the following table provides a comparison of total and adversely classified credits ( `` acc '' ) net par outstanding in the insured portfolio at december 31 , 2017 and 2016 . net par exposures within the u.s. public finance market includes capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds . | ambac financial group , inc. 30 2017 form 10-k | replace_table_token_7_th the overall reduction in total net par outstanding resulted from scheduled maturities , amortizations , commutations , refundings , refinancings and calls , including reductions as a result of the activities of ambac and its subsidiaries as noted above . the decrease in adversely classified credit exposures are primarily due to ( i ) calls , refundings , and paydowns or negotiated refinancings and commutations with a large portion of the decrease related to residential mortgage-backed securities and ( ii ) the upgrade of several remediated public finance transactions , partially offset by ( iii ) the downgrades of a military housing transaction and an italian sub-sovereign transaction . although our insured portfolio generally performed satisfactorily in 2017 , we continued to experience stress in certain sectors and insured exposures , most notably within our approximately $ 2.0 billion of exposure to puerto rico consisting of several different issuing entities ( all adversely classified ) . each puerto rico issuing entity has its own credit risk profile attributable to discreet revenue sources , direct general obligation pledges and or general obligation guarantees . refer to `` financial guarantees in force '' below in this management discussion and analysis regarding the different issuing entities that encompass ambac 's exposures to puerto rico . in 2017 , ambac established a new non-adversely classified credit category of watch list . watch list credits are currently fully performing but demonstrate the potential for future material adverse development due to such factors as long-term uncertainty about a particular sector , a certain structural element related to the issuer or transaction , or overall financial and economic sustainability . total net par exposures of watch list credits are $ 11.1 billion at december 31 , 2017. ambac : as of december 31 , 2017 total cash and investments of ambac were $ 368.2 million , which include the following : asset backed and short-term securities of $ 96.3 million ambac-insured securities with a fair value of $ 5.9 million ambac assurance surplus notes with a fair value of $ 201.3 million , which are eliminated in consolidation residual equity interest in the corolla trust that was created in 2014 to monetize ambac 's ownership interest in junior surplus notes issued by the segregated account . story_separator_special_tag ambac carries this interest using the equity method . additionally , at december 31 , 2017 ambac held $ 35.0 million par amount of the debt issued by this vie . the total carrying value of ambac 's equity and debt interests in corolla trust was $ 64.7 million at december 31 , 2017 . refer to note 3. special purpose entities , including variable interest entities to the consolidated financial statements included in part ii , item 8 in this form 10-k , for more information on the corolla trust . during 2017 , ambac purchased ( $ 101.8 million ) and exchanged ambac-insured bonds ( fair value of $ 79.3 million ) to extinguish ( on a consolidated basis ) $ 108.1 million par of ambac assurance surplus notes and $ 39.1 million par of segregated account surplus notes . ambac recognized $ 3.8 million of gains on the extinguishment of debt in the consolidated statements of income ( loss ) as a result of these transactions during the year ended december 31 , 2017. as a result of positive taxable income at ambac assurance in 2016 , ambac received $ 28.7 million in tax tolling payments in may 2017. as a result of filing its 2016 tax return , ambac received an additional $ 0.6 million of tolling payments in december 2017 . for the year ended december 31 , 2017 , $ 30.5 million of tolling payments were accrued which are expected to be paid to ambac no later than forty-five days after april 15 , 2018. there are no assurances that ambac assurance will be able to generate taxable income and therefore make tolling payments to ambac in the future , which may ultimately constrain ambac 's access to capital and liquidity to support it operations and strategic initiatives . financial statement impacts of foreign currency : the impact of foreign currency as reported in ambac 's consolidated statement of total comprehensive income for the year ended december 31 , 2017 included the following : ( $ in millions ) net income ( 1 ) $ 21.1 changes in other comprehensive income : gain ( losses ) on foreign currency translation 73.6 unrealized gains ( losses ) on non-functional currency available-for-sale securities ( 19.7 ) total changes in other comprehensive income 53.9 impact on total comprehensive income ( loss ) $ 75.0 ( 1 ) a portion of ambac uk 's , and to a lesser extent ambac assurance 's , assets and liabilities are denominated in currencies other than its functional currency and accordingly , we recognized net foreign currency transaction gains/ ( losses ) as a result of changes to foreign currency rates through our consolidated statement of total comprehensive income ( loss ) . refer to note 2. basis of presentation and significant accounting policies to the consolidated financial statements included in part ii , item 8 in this form 10-k for further details on transaction gains and losses . future changes to currency rates may adversely affect our financial results . refer to part ii , item 7a `` quantitative and qualitative disclosures about market risk '' for further information on the impact of future currency rate changes on ambac 's financial instruments . critical accounting policies and estimates ambac 's consolidated financial statements have been prepared in accordance with gaap . this section highlights accounting estimates management views as critical because they require management to make difficult and subjective judgments regarding matters that are inherently uncertain and subject to change . these estimates are evaluated on an on-going basis based on historical developments , market conditions , industry trends and other information that is reasonable under the circumstances . there can be no assurance that actual results will conform to estimates and that reported results of operations will not be materially adversely affected by the need to make future accounting adjustments to reflect changes in these estimates from time to time . | ambac financial group , inc. 31 2017 form 10-k | management has identified the following critical accounting policies and estimates : ( i ) valuation of loss and loss expense reserves , ( ii ) valuation of certain financial instruments and ( iii ) valuation of deferred tax assets . management has discussed each of these critical accounting policies and estimates with the audit committee , including the reasons why they are considered critical and how current and anticipated future events impact those determinations . additional information about these policies can be found in note 2. basis of presentation and significant accounting policies to the consolidated financial statements included in part ii , item 8 in this form 10-k. valuation of losses and loss expense reserves : the loss and loss expense reserves ( `` loss reserves '' ) discussed in this section relate only to ambac 's non-derivative insurance policies issued to beneficiaries , including unconsolidated vies . ambac 's loss reserves include loss reserve components of an insurance policy , including unpaid claims and the present value ( `` pv '' ) of expected net cash flows required to be paid under an insurance contract . unpaid claims , which include accrued interest , represent claims that were not paid for policies allocated to the segregated account . the pv of expected net cash flows represents the pv of expected cash outflows less the pv of expected cash inflows discounted at a risk-free discount rate . while unpaid claims are known and therefore not a subjective estimate , expected future losses , net of expected future recoveries , are inherently uncertain . as such , the remaining discussion is limited to addressing expected future losses , net of expected future recoveries .
| changes in the collectability of certain structured finance premium receivables resulted in an increase in net premiums earned of $ 0.3 million , $ 0.8 million and $ 0.5 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . changes in the collectability of a certain international finance premium receivable resulted in a decrease in net premiums earned of $ 0.4 million for the year ended december 31 , 2017 . pre-refundings of insured securities , primarily public finance transactions . since the maturity date of pre-refunded securities is shortened ( to a specified call date from its previous legal maturity ) , normal net premiums earned will increase over the remaining period of the related policy . the strengthening or weakening of the u.s. dollar relative to the british pound since ambac 's wholly-owned uk subsidiary , ambac uk , operates in the united kingdom and the british pound is its functional currency . normal net premiums earned and accelerated premiums are reconciled to total net premiums earned in the table below , including a breakdown of net premiums earned by market : replace_table_token_25_th net investment income . net investment income primarily consists of interest receipts and net discount accretion on fixed | ambac financial group , inc. 50 2017 form 10-k | income securities classified as available-for-sale , including $ 262.1 million , $ 195.4 million and $ 175.2 million in 2017 , 2016 and 2015 , respectively related to investments in ambac-insured securities . also , included in net investment income are net mark-to-market gains of $ 18.2 million , $ 27.7 million and $ 12.6 million in years ended 2017 , 2016 and 2015 , respectively , arising from pooled fund investments and certain other investments that are classified as trading securities with changes in market value recognized in earnings . most trading securities are in the ambac uk portfolio and consist of pooled fund investments in diversified asset classes including equities , hedge funds , loans , insurance-linked securities and property . ambac assurance has also invested in loan funds as part of its overall portfolio allocation strategy . in 2017 , ambac invested in debt
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partially offsetting these increases was unfavorable foreign currency exchange ( approximately $ 65 million ) , primarily driven by the strengthening of the us dollar against the canadian dollar . the increase in licensed store revenues was primarily due to increased product sales to and royalty revenues from our licensees as a result of an increase in comparable store sales and the opening of 381 net new licensed stores over the past 12 months . operating expenses cost of sales including occupancy costs as a percentage of total net revenues decreased 80 basis points , primarily due to sales leverage ( approximately 40 basis points ) and lower commodity costs ( approximately 30 basis points ) , mainly coffee . store operating expenses as a percentage of total net revenues decreased 80 basis points . as a percentage of company-operated store revenues , store operating expenses decreased 70 basis points , mainly driven by sales leverage ( approximately 60 basis points ) . general and administrative expenses as a percentage of total net revenues decreased 30 basis points primarily due to lapping of costs associated with our leadership conference held in the prior year ( approximately 20 basis points ) and sales leverage ( approximately 10 basis points ) . the combination of these changes resulted in an overall increase in operating margin of 190 basis points over fiscal 2013 . 26 emea replace_table_token_14_th revenues emea total net revenues for fiscal 2014 increased $ 135 million , or 12 % , over the prior year primarily due to an increase in company-operated stores revenues ( approximately $ 81 million ) . this increase was primarily driven by favorable foreign currency exchange ( approximately $ 47 million ) and a 5 % increase in comparable store sales ( approximately $ 42 million ) , attributable to a 3 % increase in number of transactions and a 2 % increase in average ticket . licensed store revenues grew $ 48 million , or 25 % , primarily due to increased product and equipment sales to and royalty revenues from our licensees , primarily resulting from the opening of 180 net new licensed stores over the past 12 months and improved comparable store sales . operating expenses cost of sales including occupancy costs as a percentage of total net revenues decreased 90 basis points , primarily driven by lower coffee costs ( approximately 50 basis points ) , sales leverage ( approximately 40 basis points ) and favorable foreign currency fluctuations ( approximately 40 basis points ) . this favorability was partially offset by lapping a reduction to the estimated asset retirement obligations of our store leases in the region in fiscal 2013 ( approximately 60 basis points ) . store operating expenses as a percentage of total net revenues decreased 100 basis points primarily due to sales leverage from more licensed stores in the region compared to the prior year . as a percentage of company-operated store revenues , store operating expenses decreased 30 basis points mainly due to sales leverage . other operating expenses as a percentage of total net revenues increased 40 basis points over fiscal 2013. excluding the impact of company-operated store revenues , other operating expenses increased 30 basis points , driven by increased costs to grow our non-retail operations in the region ( approximately 40 basis points ) . general and administrative expenses as a percentage of total net revenues decreased 160 basis points , primarily due to sales leverage and reduced support costs , largely driven by the shift to more licensed stores . the combination of these changes resulted in an overall increase in operating margin of 370 basis points over fiscal 2013 . 27 china/asia pacific replace_table_token_15_th revenues china/asia pacific total net revenues for fiscal 2014 increased $ 213 million , or 23 % , primarily due to increased revenues from company-operated stores ( contributing $ 188 million ) . this increase was primarily driven by the opening of 250 net new company-operated stores over the past 12 months ( approximately $ 154 million ) and a 7 % increase in comparable store sales ( approximately $ 44 million ) , mainly attributable to a 6 % increase in the number of transactions . licensed store revenues contributed $ 25 million to the increase in total net revenues , mainly due to higher royalty revenues from and product sales to licensees , as a result of 492 net new licensed store openings over the past 12 months and an increase in comparable store sales . operating expenses cost of sales including occupancy costs as a percentage of total net revenues decreased 50 basis points , primarily due to sales leverage ( approximately 40 basis points ) . store operating expenses as a percentage of total net revenues increased 110 basis points , or 40 basis points as a percentage of company-operated store revenues , over the prior year period , as a result of company-operated store growth outpacing licensed store growth . other operating expenses as a percentage of total net revenues decreased 80 basis points . excluding the impact of company-operated store revenues , other operating expenses decreased 100 basis points , largely due to cost management ( approximately 60 basis points ) and sales leverage ( approximately 40 basis points ) . income from equity investees increased $ 12 million , primarily driven by improved performance from our joint venture operations in china , south korea and japan . this increase was partially offset by unfavorable foreign currency fluctuations , driven by the weakening of the japanese yen against the us dollar and lapping a reduction to the estimated asset retirement obligations of our store leases in the region in fiscal 2013. these fluctuations , paired with the accelerated growth in segment revenues resulting from the shift in the composition of the store portfolio to more company-operated stores , resulted in income from equity investees declining 210 basis points as a percentage of total net revenues . story_separator_special_tag the combination of these changes resulted in an overall decline in operating margin of 200 basis points over fiscal 2013 . 28 channel development replace_table_token_16_th revenues channel development total net revenues for fiscal 2014 increased $ 147 million , or 11 % , over the prior year , primarily driven by increased sales of premium single-serve products ( approximately $ 111 million ) and increased foodservice sales ( approximately $ 24 million ) . operating expenses cost of sales as a percentage of total net revenues decreased 570 basis points , largely due to lower coffee costs ( approximately 440 basis points ) and other cost of goods sold efficiencies ( approximately 150 basis points ) . other operating expenses as a percentage of total net revenues decreased 70 basis points , primarily driven by sales leverage ( approximately 40 basis points ) . income from equity investees increased $ 4 million , driven by higher income from our north american coffee partnership joint venture , primarily due to strong sales of bottled frappuccino ® beverages . the growth in segment revenues resulted in our joint venture income declining 40 basis points as a percentage of total net revenues . the combination of these changes contributed to an overall increase in operating margin of 630 basis points over fiscal 2013 . 29 all other segments replace_table_token_17_th all other segments includes teavana , seattle 's best coffee , evolution fresh , and digital ventures . total net revenues for all other segments increased $ 107 million , primarily due to having an additional quarter of teavana revenues in fiscal 2014 as teavana was acquired at the beginning of the second quarter of fiscal 2013 ( approximately $ 92 million ) . total operating expenses increased $ 99 million , primarily due to having an additional quarter of teavana expenses in fiscal 2014 as teavana was acquired at the beginning of the second quarter of fiscal 2013. results of operations — fiscal 2013 compared to fiscal 2012 consolidated results of operations ( in millions ) : revenues replace_table_token_18_th total net revenues were $ 14.9 billion for fiscal 2013 , an increase of $ 1.6 billion , or 12 % , over fiscal 2012 , primarily due to increased revenues from company-operated stores ( contributing $ 1.3 billion ) . the increase in company-operated store revenue was driven by an increase in comparable store sales ( 7 % , or approximately $ 720 million ) and incremental revenues from 492 net new company-operated store openings over the past 12 months ( approximately $ 386 million ) . licensed store revenue growth contributed $ 150 million to the increase in total net revenues in fiscal 2013 , primarily due to higher product sales to and royalty revenues from our licensees , as a result of improved comparable store sales and the opening of 843 net new licensed stores over the past 12 months . cpg , foodservice and other revenues increased $ 181 million , primarily driven by increased sales of premium single-serve products ( approximately $ 116 million ) and increased foodservice sales ( approximately $ 35 million ) . 30 operating expenses replace_table_token_19_th cost of sales including occupancy costs as a percentage of total net revenues decreased 90 basis points , primarily due to lower commodity costs ( approximately 50 basis points ) , driven by a decrease in coffee costs . store operating expenses as a percentage of total net revenues decreased 70 basis points . as a percentage of company-operated store revenues , store operating expenses decreased 90 basis points , primarily driven by sales leverage in our americas segment ( approximately 90 basis points ) and store portfolio optimization initiatives in europe that began in the fourth quarter of fiscal 2012 ( approximately 50 basis points ) . this was partially offset by the addition of teavana and continued investment in our emerging brands ( approximately 60 basis points ) . other operating expenses as a percentage of total net revenues decreased 20 basis points . as a percentage of non-company-operated store revenues , other operating expenses decreased 80 basis points , primarily driven by sales leverage ( approximately 50 basis points ) and decreased marketing expenses ( approximately 20 basis points ) . general and administrative expenses as a percentage of total net revenues increased 30 basis points , primarily driven by increased costs to support overall company growth and the costs related to our october global leadership conference . income from equity investees increased $ 41 million , primarily due to increased income from of our joint venture operations in japan and china , as well as improved performance from our north american coffee partnership joint venture , which produces , bottles and distributes our ready-to-drink beverages . litigation charge of $ 2,784.1 million reflects the accrual we recorded as a result of the conclusion of the arbitration with kraft . this charge includes $ 2,227.5 million in damages and $ 556.6 million in estimated interest and attorneys ' fees . the combination of the above resulted in an operating loss of $ 325.4 million and operating margin of ( 220 ) basis points . 31 other income and expenses replace_table_token_20_th net interest income and other increased $ 29 million over the prior year , primarily due to gains on the sale of the equity in our chile and argentina joint ventures in the fourth quarter of fiscal 2013 ( approximately $ 45 million ) and in mexico in the second quarter of fiscal 2013 ( approximately $ 35 million ) . these gains were partially offset by the absence of additional income recognized in the prior year associated with unredeemed gift cards following a court ruling related to state unclaimed property laws ( approximately $ 29 million ) . also offsetting the gains were unfavorable mark-to-market adjustments in fiscal 2013 compared to favorable mark-to-market adjustments in fiscal 2012 from derivatives used to manage our risk of commodity price fluctuations ( approximately $ 24 million ) .
| overview starbucks results for fiscal 2014 demonstrate the continued strength of our global business model and our ability to successfully execute new growth initiatives in a disciplined manner . all reportable segments contributed to strong revenue growth and collectively drove an increase in consolidated operating income and operating margin expansion . the americas segment continued its strong performance in fiscal 2014 , with revenues growing 9 % to $ 12.0 billion , primarily driven by comparable store sales growth of 6 % , comprised of a 3 % increase in average ticket and a 2 % increase in number of transactions . enhanced food offerings , including the full rollout of our la boulange food platform in the us , the impact of price increases in our retail stores and successful promotional beverages contributed to the growth in comparable store sales . americas operating margin grew 190 basis points to 23.4 % in fiscal 2014 , primarily driven by sales leverage and lower commodity costs . looking forward , we expect to continue to drive revenue growth and margin expansion through new stores and continued product innovation , targeted at driving growth across all geographies and all dayparts . we plan to continue to expand our beverage platforms and elevate our food program , in part with continued enhancements to our lunch options . in the emea segment , fiscal 2014 benefited from the significant performance improvement of this segment , reaching double-digit revenue growth and increased profitability compared to the prior year . revenues grew 12 % to $ 1.3 billion , primarily driven by favorable foreign currency exchange and comparable store sales growth of 5 % . incremental revenues from 180 net new licensed store openings over the past year also contributed . emea operating margin expanded 370 basis points to 9.2 % in fiscal 2014 , primarily due to sales leverage and continued cost management , largely driven by the shift in our store portfolio to more licensed stores in this segment . we expect our continued
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our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values , including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses . however , if actual results are not consistent with our estimates and assumptions , our operating results could be adversely affected . share-based payments . we account for share-based payments in accordance with the provisions of asc 718 , compensation – stock compensation ( “ asc 718 ” ) . to determine the fair value of our stock option awards , we use the black-scholes option pricing model , which requires management to apply judgment and make assumptions to determine the fair value of our awards . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( the “ expected term ” ) and the estimated volatility of the price of our common stock over the expected term . 22 we calculate a weighted-av erage expected term based on historical experience . expected stock price volatility is based on a combination of historical volatility of our common stock and implied volatility . we choose to use a combination of historical and implied volatility as we bel ieve that this combination is more representative of future stock price trends than historical volatility alone . changes in these assumptions can materially affect the estimate of the fair value of our share-based payments and the related amount recognized in our consolidated financial statements . income taxes . we calculate income taxes in accordance with asc 740 , income taxes ( “ asc 740 ” ) , which requires the use of the asset and liability method . under this method , deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to asc 740. deferred tax assets and liabilities are measured using the tax rates , based on certain judgments regarding enacted tax laws and published guidance , in effect in the years when those temporary differences are expected to reverse . a valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized . changes in our level and composition of earnings , tax laws or the deferred tax valuation allowance , as well as the results of tax audits , may materially impact the effective income tax rate . we evaluate our income tax positions in accordance with asc 740 which prescribes a comprehensive model for recognizing , measuring , presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return , including a decision whether to file or not to file in a particular jurisdiction . under asc 740 , a tax benefit from an uncertain position may be recognized only if it is “ more likely than not ” that the position is sustainable based on its technical merits . the calculation of the deferred tax assets and liabilities , as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions . we believe that our assumptions and estimates are reasonable , although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities , valuation allowances or net income . key performance indicators our management evaluates the following items , which are considered key performance indicators , in assessing our performance : comparable sales — comparable sales provide a measure of sales growth for stores and channels open at least one year over the comparable prior year period . in fiscal years following those with 53 weeks , the prior year period is shifted by one week to compare similar calendar weeks . a store is included in comparable sales in the thirteenth month of operation . however , stores that have a gross square footage increase of 25 % or greater due to a remodel are removed from the comparable sales base , but are included in total sales . these stores are returned to the comparable sales base in the thirteenth month following the remodel . sales from company-owned stores , as well as sales from aeo direct , are included in total comparable sales . sales from licensed stores are not included in comparable sales . individual american eagle outfitters and aerie brand comparable sales disclosures represent sales from stores and aeo direct . aeo direct sales are included in the individual american eagle outfitters and aerie brand comparable sales metric for the following reasons : our approach to customer engagement is “ omni-channel ” , which provides a seamless customer experience through both traditional and non-traditional channels , including four wall store locations , web , mobile/tablet devices , social networks , email , in-store displays and kiosks . additionally , we fulfill online orders at stores through our buy online , ship from store capability , maximizing store inventory exposure to digital traffic and accept digital returns in stores . we also offer a reserve online , pick up in store service to our customers and give them the ability to look up in store inventory from all digital channels ; and shopping behavior has continued to evolve across multiple channels that work in tandem to meet customer needs . management believes that presenting a brand level performance metric that includes all channels ( i.e. , stores and aeo direct ) to be the most appropriate given customer behavior . our management considers comparable sales to be an important indicator of our current performance . story_separator_special_tag comparable sales results are important to achieve leveraging of our costs , including store payroll , store supplies , rent , etc . comparable sales also have a direct impact on our total net revenue , cash and working capital . 23 gross profit — gross profit measures whether we are optimizing the profitability of our sales . gross profit is the difference between total net revenue and cost of sales . cost of sales consists of : merchandise costs , including design , sourcing , importing and inbound freight costs , as well as markdowns , shrinkage and certain promotional costs ( collectively “ merchandise costs ” ) and buying , occu pancy and warehousing costs . design costs consist of : compensation , rent , depreciation , travel , supplies and samples . buying , occupancy and warehousing costs consist of : compensation , employee benefit expenses and travel for our buyers and certain senior merchandising executives ; rent and utilities related to our stores , corporate headquarters , distribution centers and other office space ; freight from our distribution centers to the stores ; compensation and supplies for our distribution centers , including purchasing , receiving and inspection costs ; and shipping and handling costs related to our e-commerce operation . the inability to obtain acceptable levels of sales , initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations . operating income — our management views operating income as a key indicator of our performance . the key drivers of operating income are comparable sales , gross profit , our ability to control selling , general and administrative expenses , and our level of capital expenditures . management also uses earnings before interest and taxes as an indicator of operating results . return on invested capital — our management uses return on invested capital as a key measure to assess our efficiency at allocating capital to profitable investments . this measure is critical in determining which strategic alternatives to pursue . omni-channel sales performance — our management utilizes the following quality of sales metrics in evaluating our omni-channel sales performance : comparable sales , average unit retail price ( “ aur ” ) , units per transaction ( “ upt ” ) , average transaction value , transactions , customer traffic and conversion rates . inventory turnover — our management evaluates inventory turnover as a measure of how productively inventory is bought and sold . inventory turnover is important as it can signal slow-moving inventory . this can be critical in determining the need to take markdowns on merchandise . cash flow and liquidity — our management evaluates cash flow from operations , investing and financing in determining the sufficiency of our cash position . free cash flow has historically been sufficient to cover our uses of cash . our management believes that free cash flow will be sufficient to fund anticipated capital expenditures , dividends and working capital requirements . story_separator_special_tag style= '' text-align : center ; margin-top:0pt ; margin-bottom:0pt ; margin-left:0pt ; ; text-indent:0pt ; ; font-weight : bold ; color : # 000000 ; font-size:8pt ; font-family : arial ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > january 28 , 2017 net income per diluted share - gaap basis $ 1.16 add : asset impairment & restructuring ( 1 ) 0.07 add : tax ( 2 ) 0.02 net income per diluted share - non-gaap basis $ 1.25 ( 1 ) $ 21.2 million pre-tax asset impairments and restructuring charges relating to our wholly-owned businesses in the united kingdom and asia . ( 2 ) gaap tax rate included impact of valuation allowances on asset impairment and restructuring charges . excluding the impact of those items resulted in a 35.6 % tax rate for the year . 25 we ended the year with $ 413.6 million in cash , a 9 % increase from $ 378.6 million in cash last year . during the year , we generated $ 394.4 million of cash from operations . the cash from operations was offset by $ 169.5 million of capital expenditures , the repurchase of 6.0 million shares for $ 87.7 million and dividend paym ents of $ 88.5 million . merchandise inventory at the end of fiscal 2017 was $ 398.2 million , an increase of 11 % to last year , reflecting investments in bottoms , women 's tops and aerie apparel to support strong sales trends . we ended the year with no long-te rm debt . the following table shows , for the periods indicated , the percentage relationship to total net revenue of the listed items included in our consolidated statements of operations . replace_table_token_7_th comparison of fiscal 2017 to fiscal 2016 total net revenue total net revenue this year increased 5 % to $ 3.796 billion compared to $ 3.610 billion . for fiscal 2017 , total comparable sales increased 4 % compared to a 3 % increase for fiscal 2016. by brand , including the respective aeo direct revenue , american eagle brand comparable sales were up 2 % or $ 49.8 million , and aerie brand increased 27 % , or $ 83.4 million . ae brand men 's and women 's comparable sales increased in the low-single digits . for the year , total transactions increased in the mid-single digits . upt and average transaction value decreased in the low-single digits while aur increased in the low-single digits . gross profit gross profit increased slightly at $ 1.371 billion from $ 1.367 billion last year . on a consolidated basis , gross profit as a percent to total net revenue decreased by 180 basis points to 36.1 % from 37.9 % last year . gross profit this year includes $ 1.7 million , or 10 basis points , of inventory charges related to restructuring activities in our united kingdom and asia markets .
| we believe that this non-gaap information is useful as an additional means for investors to evaluate our operating performance , when reviewed in conjunction with our gaap financial statements . these amounts are not determined in accordance with gaap and , therefore , should not be used exclusively in evaluating our business and operations . the table below reconciles the gaap financial measure to the non-gaap financi al measure discussed above . earnings per share for the fiscal year ended february 3 , 2018 net income per diluted share - gaap basis $ 1.13 add : asset impairment & restructuring ( 1 ) 0.08 add : joint business venture charges ( 2 ) 0.03 less : u.s. tax reform impact ( 3 ) ( 0.08 ) net income per diluted share - non-gaap basis $ 1.16 ( 1 ) $ 22.3 million pre-tax restructuring charges , consisting of : inventory charges related to the restructuring of the united kingdom , hong kong , and china ( $ 1.7m ) , recorded as a reduction of gross profit lease buyouts , store closure charges and severance and related charges ( $ 19.9m ) , which includes charges for the united kingdom , hong kong , and china and corporate overhead reductions , recorded within restructuring charges . ( 2 ) $ 8.0 million of net pre-tax charges related to the exit of a joint business venture , recorded within other ( expense ) income , net . ( 3 ) $ 14.9 million of after-tax benefit resulting from the estimated impact of u.s. tax legislation enacted on december 22 , 2017 , referred to as the tax cuts and jobs act and related actions , specifically : the benefit of a lower blended u.s. corporate tax rate in fiscal 2017 the net benefit from the re-measurement of deferred tax balances and the one-time transition tax on un-repatriated earnings of foreign subsidiaries the acceleration of certain deductions into fiscal 2017 earnings per share for the fiscal year ended < p
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we have partnered with our customers to monitor consumer demand changes and address the shift to at-home versus away-from-home consumption . we estimate that away-from-home consumption has historically represented approximately 20 % of our consolidated sales . the effects of covid-19 on consumer behavior have , on a net basis , favorably impacted the operating results of our consumer segment and unfavorably impacted the operating results of our flavor solutions segment during the year ended november 30 , 2020. the impact of covid-19 on our consumer segment during fiscal 2020 resulted in a significant increase in at-home consumption and related demand for our products . the unfavorable impact on our flavor solutions segment during the same periods was principally attributable to decreased demand from certain customers that were affected by government mandates related to covid-19 in many of our markets . those measures required closures of , or capacity limitations on , dine-in restaurants or restricted operations of those restaurants to carry-out or delivery only and also restricted operations of quick service restaurants to drive-through pick-up or delivery . the resulting negative demand impacts in our flavor solutions segment were partially offset by increased at-home consumption from certain customers in our flavor solutions segment that use our products to flavor their own brands for at-home consumption . the impact of covid-19 on our consumer segment and flavor solutions segment moderated during our fourth quarter of fiscal 2020. during that quarter , our sales increased by 4.9 % over the comparable period in 2019 , driven by a 5.9 % increase in sales of our consumer segment and a 3.1 % increase in sales of our flavor solutions segment . the 5.9 % fourth quarter growth in sales of our consumer segment was moderated by the lack of availability of certain of our consumer products in the u.s. following the sustained increase in demand earlier in 2020 that caused us to suspend or curtail production of some secondary products in the fourth quarter to protect the supply of our top selling holiday items . upon worsening covid-19 infection levels in certain localities in late fiscal 2020 and in early fiscal 2021 , local governmental authorities have either re-imposed some or all of earlier restrictions or imposed other restrictions , all in an effort to check the spread of covid-19 . in early fiscal 2021 , vaccines effective in combatting covid-19 were approved by health agencies in certain countries/regions in which we operate ( including the u.s. , u.k. , european union , canada and mexico ) and began to be administered . however , initial quantities of vaccines are limited and vaccine distributions , controlled by local authorities , are being allocated , generally first to front-line health care workers and other essential workers and next to those members of individual populations believed most susceptible to severe effects from covid-19 . full administration of the covid-19 vaccines is unlikely to occur in most jurisdictions until mid- to late-2021 . the pace and shape of the covid-19 recovery described above as well as the impact and extent of potential resurgences is not presently known . these and other uncertainties with respect to covid-19 could result in changes to our current expectations in addition to a number of adverse impacts to our business , including but not limited to additional disruption to the economy and consumers ' willingness and ability to spend , temporary or permanent closures by businesses that consume our products , such as restaurants , additional work restrictions , and supply chains being interrupted , slowed , or rendered inoperable or , in the case of significant increased demand for our product , incapable of fulfilling that increased demand . as a result , it may be challenging to obtain and process raw materials to support our business needs , and individuals could become ill , quarantined , or otherwise unable to work and or travel due to health reasons or governmental restrictions . also , governments may impose other laws , regulations or taxes which could adversely impact our business , financial condition or results of operations . further , if our customers ' businesses are similarly affected , they might delay or reduce purchases from us . the potential effects of covid-19 also could impact us in a number of other ways including , but not limited to , variations in the level of our 20 profitability , laws and regulations affecting our business , fluctuations in foreign currency markets , the availability of future borrowings , the cost of borrowings , valuation of our pension assets and obligations , credit risks of our customers and counterparties , and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets . sales growth : over time , we expect to grow sales with similar contributions from : 1 ) our base business – driven by brand marketing support , category management , and differentiated customer engagement ; 2 ) new products ; and 3 ) acquisitions . base business – we expect to drive sales growth by optimizing our brand marketing investment through improved speed , quality and effectiveness . we measure the return on our brand marketing investment and have identified digital marketing as one of our highest return investments in brand marketing support . through digital marketing , we are connecting with consumers in a personalized way to deliver recipes , provide cooking advice and discover new products . new products – for our consumer segment , we believe that scalable and differentiated innovation continues to be one of the best ways to distinguish our brands from our competition , including private label . we are introducing products for every type of cooking occasion , from gourmet , premium items to convenient and value-priced flavors . for flavor solutions customers , we are developing seasonings for snacks and other food products , as well as flavors for new menu items . story_separator_special_tag we have a solid pipeline of flavor solutions aligned with our customers ' new product launch plans , many of which include “ better-for-you ” innovation . with over 20 product innovation centers around the world , we are supporting the growth of our brands and those of our flavor solutions customers with products that appeal to local consumers . acquisitions – acquisitions are expected to approximate one-third of our sales growth over time . since the beginning of 2015 , we have completed nine acquisitions , which are driving sales in both our consumer and flavor solutions segments . we focus on acquisition opportunities that meet the growing demand for flavor and health . geographically , our focus is on acquisitions that build scale where we currently have presence in both developed and emerging markets . our acquisitions have included bolt-on opportunities as well as the following recent acquisitions : on december 30 , 2020 , we acquired fona international , llc and certain of its affiliates ( fona ) , a privately owned company , for approximately $ 710 million , net of cash acquired , subject to certain customary purchase price adjustments . we financed this fiscal 2021 acquisition with cash and short-term borrowings . fona is a leading manufacturer of clean and natural flavors providing solutions for a diverse customer base across various applications for the food , beverage and nutritional markets which expands the breadth of our flavor solutions segment into attractive categories , as well as extends our technology platform , strengthens our capabilities , and accelerates the strategic migration of our portfolio to more value-added and technically insulated products . on november 30 , 2020 , we acquired the parent company of cholula hot sauce® ( cholula ) from l catterton for approximately $ 803 million , net of cash acquired , subject to certain customary purchase price adjustments . cholula is a strong addition to mccormick 's global branded flavor portfolio , which broadens the company 's offering in the high growth hot sauce category to consumers and foodservice operators and accelerates our condiment growth opportunities with a complementary authentic mexican flavor hot sauce in both our consumer and flavor solutions segments . on august 17 , 2017 , we acquired reckitt benckiser 's food division ( rb foods ) for approximately $ 4.2 billion . the acquired market-leading brands of rb foods included french's® , frank 's redhot® and cattlemen's® , which are a natural strategic fit with our robust global branded flavor portfolio . we believe that these additions moved us to a leading position in the attractive u.s. condiments category and provide significant international growth opportunities for our consumer and flavor solutions segments . the fona and cholula acquisitions are expected to contribute more than one-third of our sales growth in 2021. the rb foods acquisition contributed more than one-third of our sales growth in 2018 and 2017. cost savings and business transformation : we are fueling our investment in growth with cost savings from our cci program , an ongoing initiative to improve productivity and reduce costs throughout the organization , that also includes savings from the organization and streamlining actions described in note 3 of notes to our consolidated financial statements . in addition to funding brand marketing support , product innovation and other growth initiatives , our cci program helps offset higher costs and is contributing to higher operating income and earnings per share . 21 we are making investments to build the mccormick of the future , including in our global enablement ( ge ) organization to transform mccormick through globally aligned , innovative services to enable growth . as more fully described in note 3 of notes to our consolidated financial statements , we expect to incur special charges of approximately $ 60 million to $ 65 million associated with our ge initiative of which approximately $ 39.9 million have been recognized through november 30 , 2020. as technology provides the backbone for this greater process alignment , information sharing and scalability , we are also making investments in our information systems . from late 2018 through early 2020 , we progressed in implementing our global enterprise resource planning ( erp ) replacement program which will enable us to accelerate the transformation of our ways of working and provide a scalable platform for growth . in the second quarter of fiscal 2020 , we elected to pause activity related to our erp for the balance of fiscal 2020 due , in part , to covid-19 restrictions that restricted necessary travel by internal and external erp team members and made it difficult for local mccormick personnel to actively participate in the erp development , data cleansing , and testing prior to then scheduled pilots later in fiscal 2020. in addition , the pause of this activity enabled all mccormick employees to focus their activities on the three priorities previously described under the heading “ impact of covid-19 pandemic ” for navigating through the period of volatility and uncertainty associated with various stages of the covid-19 pandemic . we expect that , in total over the course of the erp replacement program from late 2018 through 2023 , we will invest from approximately $ 350 million to $ 400 million , including expenses related to the go-live activities in our operations , to enable the anticipated completion of the global roll out of our new information technology platform in 2022. of that projected , $ 350 million to $ 400 million , we expect capitalized software to account for approximately 50 % and program expenses to account for approximately 50 % .
| during 2020 , covid-19 related 22 expenses included certain actions taken in response to the pandemic , including the impact of temporary arrangements that increased salaries and benefits paid to our manufacturing employees , measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning between shifts that reduced productivity , and impact of lower production volumes of flavor solutions inventories . excluding special charges together with , for 2020 , transaction and integration expenses related to our acquisitions of cholula and fona , adjusted operating income was $ 1,018.8 million in 2020 , an increase of 4.1 % , compared to $ 978.5 million in the year-ago period . in constant currency , adjusted operating income rose 4.8 % . for further details and a reconciliation of non-gaap to reported amounts , see the subsequent discussion under the heading `` non-gaap financial measures '' . diluted earnings per share was $ 2.78 in 2020 and $ 2.62 in 2019. the year-on-year increase in earnings per share was driven mainly by higher operating income and decreased interest expense . those favorable impacts in 2020 were partially offset by the impact of a higher effective tax rate , a decrease in other income and the impact of higher shares outstanding . special charges , and in 2020 , transaction and integration expenses lowered earnings per share by $ 0.05 and $ 0.06 in 2020 and 2019 , respectively . excluding the effects of special charges , transaction and integration expenses , and the non-recurring benefit of the u.s. tax act , adjusted diluted earnings per share was $ 2.83 in 2020 and $ 2.68 in 2019 , or an increase of 5.6 % . 2021 outlook in 2021 , we expect to grow net sales over the 2020 level by 7 % to 9 % , including an estimated 2 % favorable impact from currency rates , or 5 to 7 % on a constant currency basis . that anticipated 2021 sales growth includes the incremental impact of the cholula and fona acquisitions , which we expect to comprise 3.5 % to 4.0 % of the expected 7 % to 9 %
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according to the february 2011 blue chip economic indicators , gdp growth is estimated to be 3.5 % in the first quarter of 2011 . 2010 annual growth was 2.9 % , an improvement over the 2.6 % contraction in 2009. the outlook for 2011 has improved , with growth now projected at 3.2 % in 2011 compared to 2.6 % growth in the december 2010 blue chip consensus forecast . the more positive outlook reflects increased consumer spending and gains in the manufacturing and service sectors , which suggest that the economy may be starting a transition from recovery to expansion . economic growth has not yet translated into job growth . the u.s. unemployment rate was 9.4 % in december 2010 , down from 9.8 % in november 2010. since december 2009 , total payroll employment has increased by 1.1 million , averaging a very low 94,000 jobs per month . although 2010 was the best year for job growth since 2007 , the growth remains small relative to the 8.5 million jobs lost since the great recession began . the february 2011 blue chip consensus is for the unemployment rate to average 9.3 % in 2011. japan 's economic growth was a strong 3.1 % in 2010 , but is forecast to decline to 1.5 % in 2011 according to the government . slower growth is expected due to the end of government stimulus measures and a decline in exports . deflation is also expected to continue in 2011 , but consumer prices should fall at a lower rate than in 2009 and 2010. in 2010 , the hawaii economy benefited from economic growth in both the u.s. and japan . uhero projects that following a 0.1 % contraction in 2009 , hawaii 's economy ( real gdp ) grew by 1.1 % in 2010 and will continue to expand by 2.7 % in 2011. the visitor industry has provided a much needed boost to hawaii 's economy . in 2010 , total visitor arrivals were up 8.7 % over 2009. total visitor expenditures rose 16.2 % in 2010 due to the increase in visitor arrivals as well as higher average daily visitor spending . in 2011 , uhero projects further growth with arrivals up 3.8 % , with the growth moderated by challenging global economic conditions . hawaii 's construction industry continued to struggle in 2010 , but uhero economists believe we are at the cycle 's bottom . for the first eleven months of 2010 , the value of total private building permits in the state of hawaii declined by 0.8 % from the same period in 2009 ( permits for new residential construction and additions and alterations declined , but commercial and industrial permit values increased ) . statewide , construction jobs were down 5.5 % year-to-date in november 2010 compared to 2009 , however , for the last two months there has been year-over-year growth . uhero is forecasting that construction jobs will increase by 0.9 % in 2011. hawaii 's resale housing market in 2010 improved based on number of sales , but has struggled in terms of price . for the year 2010 , oahu single-family home resales were up 13.4 % compared to 2009 , with condominium resales up 10.3 % . the median sales price for single-family homes was up 3.1 % year-over-year , while the median sales price for condominiums remained flat . similarly on maui , kauai and the island of hawaii , residential and condominium sales volumes were up by double digit percentages in 2010 compared to 2009. however , median sale prices were down on all three islands with the exception of residential sales on 43 kauai . the neighbor island markets have been affected by the downturn more than oahu due to a higher proportion of vacation home development and purchases during the last real estate boom . in 2010 , the hawaii job market had not yet benefited from the positive trends in the visitor industry . although job losses slowed from the 4.4 % decline experienced in 2009 , uhero projects total payroll jobs will end 2010 down 0.5 % , followed by an increase of 1.3 % in 2011. furloughs for county employees in all four counties were implemented for the fiscal year beginning july 1 , 2010 and state employee furloughs , with the exception of teachers , continued . hawaii 's preliminary seasonally adjusted unemployment rate in december 2010 was 6.4 % , which remains well below the national unemployment rate of 9.4 % and is seventh lowest in the nation , but is much higher than the 4.1 % rate experienced just two years ago . there is some reason for optimism , according to uhero economists , gradual progress in the transition to a jobs recovery is confirmed by lower initial unemployment insurance claims in recent months. real personal income ( which includes unemployment compensation ) growth in hawaii in 2010 is expected to be 0.3 % according to uhero 's estimate , following two consecutive years of decline . the expectation is for growth of 2.3 % in 2011 as the recovery in the visitor industry and resumption of job growth start to have an impact . the price of a barrel of west texas intermediate crude oil averaged $ 79 in 2010 and $ 85 in the fourth quarter of 2010 according to the u.s. energy information administration january 2011 short-term energy outlook . the forecast for 2011 is an average of $ 93 per barrel . interest rates during 2011 are expected to remain low , putting downward pressure on yields of loans and investments . although still at historical lows , long-term rates increased during the fourth quarter of 2010 , dampening the momentum gained in the housing market during previous quarters . based on comments from the federal open market committee , the fed will continue to support the current low rate environment until a broader recovery in the labor market and overall economy is realized , as long as core inflation levels remain reasonable . story_separator_special_tag with the recession over , hawaii showed signs of positive economic activity in 2010 , while one of the key indicators , job growth , continued to lag behind . the outlook for 2011 is for continued improvement and for the recovery to spread beyond just the visitor industry . major tax legislation in 2010. congress enacted several bills in 2010 dealing with health care reform , job creation and economic stimulus . two bills enacted in the latter half of the year contained major tax provisions directly affecting the company . the first was the small business jobs act of 2010 , which included the extension of 50 % bonus depreciation for all businesses retroactive to january 1 , 2010. the second was the tax relief , unemployment insurance reauthorization and job creation act of 2010. this legislation included the extension of the lower individual income tax rates on income , dividends and capital gains ; the increase in the estate and gift tax exemption amounts ; and a 2 % reduction in social security tax on employees and self-employed individuals . also , businesses received an extension of 50 % bonus depreciation for property placed into service before january 1 , 2013 and 100 % bonus depreciation for property acquired between september 8 , 2010 and january 1 , 2012. for the company , the bonus depreciation provisions resulted in an increase in federal tax depreciation of approximately $ 75 million for 2010 , primarily attributable to heco and its subsidiaries . the company is still evaluating the impact of this additional bonus depreciation for 2011 since the transition rules related to the definition of property qualified for 100 % bonus depreciation are still unclear . a number of energy-related tax breaks were also extended , including the biodiesel credit through 2012 and the grants in lieu of the electricity production credit through 2011. the company will continue to analyze these 2010 acts for their impacts on results of operations , financial condition and cash flows and for the opportunities they present . 44 results of operations . replace_table_token_20_th nm not meaningful . see executive overview and strategy above for a discussion of the hei consolidated results of operations . also , see other segment , electric utility and bank sections below for discussions of those segments . retirement benefits . the company 's reported costs of providing retirement benefits are dependent upon numerous factors resulting from actual plan experience and assumptions about future experience . for example , retirement benefits costs are impacted by actual employee demographics ( including age and compensation levels ) , the level of contributions to the plans , plus earnings and realized and unrealized gains and losses on plan assets , and changes made to the provisions of the plans . during 2011 , changes to the early retirement reduction factors are being phased in with regard to new retirement benefit accruals . the change is expected to decrease ongoing cost through a reduction in service cost . ( see note 9 of hei 's notes to consolidated financial statements for a listing of plans that have been frozen in prior years . no other changes were made to the retirement benefit plans ' provisions in 2010 , 2009 and 2008 that have had a significant impact on costs . ) costs may also be significantly affected by changes in key actuarial assumptions , including the expected return on plan assets and the discount rate . the company 's accounting for retirement benefits is adjusted to account for the impact of decisions by the public utilities commission of the state of hawaii ( puc ) . changes in obligations associated with the factors noted above may not be immediately recognized as costs on the income statement , but generally are recognized in future years over the remaining average service period of plan participants . the assumptions used by management in making benefit and funding calculations are based on current economic conditions . changes in economic conditions will impact the underlying assumptions in determining retirement benefits costs on a prospective basis . for 2010 , the company 's retirement benefit plans ' assets generated a gain , net of investment management fees , of 16.6 % , resulting in net earnings and unrealized gains of $ 145 million , compared to net earnings and unrealized gains of $ 186 million for 2009 and net losses and unrealized losses of $ 287 million for 2008. the market value of the retirement benefit plans ' assets as of december 31 , 2010 was $ 983 million . see liquidity and capital resources below for the company 's cash contributions to the retirement benefit plans . the company expects that the minimum required contribution to the qualified retirement plans calculated in accordance with the pension protection act of 2006 and the expected timing of the cash requirement based on the value of plan assets as of december 31 , 2010 will be as set forth below for plan years 2011 and 2012. the minimum required contribution may differ from the cash funding for each plan year because the rules under the internal revenue code allow the company to make its last installment contribution as late as september of the following year . in addition , the company is allowed to elect to apply any credit balance against the minimum required contribution . further , pension tracking mechanisms 45 generally require the electric utilities to fund only the minimum level required under the law until the existing pension assets are reduced to zero , at which time the electric utilities would make contributions to the pension trust in the amount of the actuarially calculated net periodic pension costs , except when limited by the employee retirement income security act of 1974 , as amended ( erisa ) , minimum contribution requirements or the maximum contribution limitation on deductible contributions imposed by the internal revenue code .
| fuel oil expense in 2010 increased by 34 % due primarily to higher fuel costs , partly offset by lower kwhs generated and improved operating unit efficiency . purchased power expenses in 2010 increased by 10 % due primarily to higher purchased energy costs , partly offset by lower kwhs purchased . higher fuel costs are generally passed on to customers . other expenses increased 9 % ( $ 61 million ) ( 12 % and $ 78 million excluding dsm expenses ) in 2010 due primarily to increases of 16 % ( $ 30 million ) in taxes , other than income taxes , primarily due to the increase in revenues , 6 % ( $ 22 million ) in other o & m expenses and 4 % ( $ 5 million ) in depreciation expenses due to 2009 plant additions . other operation expenses increased by $ 3 million in 2010 when compared to 2009 due primarily to higher administrative and general expenses ( $ 17 million ) including higher employee benefits expense due to higher retirement benefit expense ( $ 7 million ) and higher production and transmission and distribution expense ( $ 6 million ) to maintain reliable operations , offset in part by lower dsm ( $ 17 million ) and bad debt expenses ( $ 5 million ) . maintenance expense increased $ 20 million from 2009 due primarily to increased production maintenance expenses ( $ 13 million ) , including generating unit overhauls ( $ 9 million ) , full year operation of ct-1 ( $ 2 million ) , increased maintenance on boiler plant equipment ( $ 2 million ) and 57 higher transmission and distribution expenses ( $ 7 million ) due to increased levels of work to address aging infrastructure . · net income for common stock for heco and its subsidiaries was $ 79 million in 2009 compared to $ 92 million in 2008. the decrease in 2009 compared to 2008 was primarily due to lower kwh sales and certain higher expenses ( other o & m , depreciation and interest ) , partly offset by higher afudc . in 2009 , the electric utilities '
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immediately prior to the merger , iti sold to accredited investors approximately $ 60.0 million of its shares of common stock , or 18,889,307 shares , at a price of $ 3.1764 per share , which included approximately $ 15.3 million in principal and $ 0.8 million in accrued interest from the conversion of iti 's then outstanding convertible promissory notes , or notes , and which resulted in net proceeds , after expenses , of approximately $ 40.0 million . we refer to this transaction as the private placement . public offering in february 2014 on february 5 , 2014 , we completed our initial public offering of 7,063,300 shares of our common stock at a price of $ 17.50 per share for aggregate gross proceeds of approximately $ 123.6 million , and net proceeds of approximately $ 115.4 million . story_separator_special_tag 2012. research and development expenses total research and development expenses were approximately $ 23.0 million for the fiscal year ended december 31 , 2013 , as compared to $ 15.5 million for the fiscal year ended december 31 , 2012. this increase of $ 7.5 million in total research and development expenses is due primarily to an increase of $ 6.3 million in direct costs for clinical trials , which is primarily the result of an increase in the number of clinical trial subjects for our phase 2 trial of iti-007 in patients with acutely exacerbated schizophrenia and $ 1.25 million for a milestone payment we made related to our license agreement with bms . clinical trial costs for the fiscal year ended december 31 , 2013 were $ 16.9 million as compared to $ 10.6 million for the fiscal year ended december 31 , 2012 due to more patients screened and tested in 2013 versus 2012 and the costs associated with the non-patent related data , statistical and other testing needed to complete the study . the research and development process necessary to develop a pharmaceutical product for commercialization is subject to extensive regulation by numerous governmental authorities in the united states and other countries . this process typically takes years to complete and requires the expenditure of substantial resources . the steps required before a drug may be marketed in the united states generally include the following : completion of extensive pre-clinical laboratory tests , animal studies , and formulation studies in accordance with the fda 's good laboratory practice , or glp , regulations ; 58 submission to the fda of an investigational new drug application , or ind , for human clinical testing , which must become effective before human clinical trials may begin ; performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each proposed indication ; submission to the fda of a new drug application , or nda , after completion of all clinical trials ; satisfactory completion of an fda pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceutical ingredient , or api , and finished drug product are produced and tested to assess compliance with current good manufacturing practices , or cgmps ; satisfactory completion of fda inspections of clinical trial sites to assure that data supporting the safety and effectiveness of product candidates has been generated in compliance with good clinical practices ; and fda review and approval of the nda prior to any commercial marketing or sale of the drug in the united states . the successful development of our product candidates and the approval process requires substantial time , effort and financial resources , and is uncertain and subject to a number of risks . we can not be certain that any of our product candidates will prove to be safe and effective , will meet all of the applicable regulatory requirements needed to receive and maintain marketing approval , or will be granted marketing approval on a timely basis , if at all . data from preclinical studies and clinical trials are susceptible to varying interpretations that could delay , limit or prevent regulatory approval or could result in label warnings related to or recalls of approved products . we , the fda , or other regulatory authorities may suspend clinical trials at any time if we or they believe that the subjects participating in such trials are being exposed to unacceptable risks or if such regulatory agencies find deficiencies in the conduct of the trials or other problems with our product candidates . other risks associated with our product candidates are described in the section entitled risk factors in item ia of this annual report on form 10-k. the research and development expenses incurred for amounts payable to external parties comprise a significant portion of our research and development spending during the fiscal years ended december 31 , 2012 and 2013 , due primarily to the preparation for and commencement of our phase 2 clinical trial for iti-007 in patients with acutely exacerbated schizophrenia . we incurred expenses of approximately $ 18.8 million and $ 12.6 million during the years ended december 31 , 2013 and 2012 , respectively , for amounts payable to external parties who manufactured , tested and performed clinical trial activities for all of our projects . during the same periods , our internal research and development expenses were approximately $ 3.0 million and $ 2.9 million during the years ended december 31 , 2013 and 2012 , respectively . as of december 31 , 2013 , we employed 13 full time personnel in our research and development group . the clinical development work related to iti-007 requires the largest portion of our resources and , consequently , comprises the majority of our spending . we spent approximately $ 21.0 million and $ 11.3 million on direct costs for the development of iti-007 during the periods ended december 31 , 2013 and 2012 , respectively . as development of iti-007 progresses , we anticipate costs for iti-007 to increase considerably in the next several years as we conduct phase 3 and other clinical trials . story_separator_special_tag we are also required to complete non-clinical testing to obtain fda approval and manufacture material needed for clinical trial use , which includes non-clinical testing of the drug product and the creation of an inventory of drug product in anticipation of possible fda approval . we currently have several projects in addition to iti-007 that are in the research and development stages . these are in the areas of cognitive dysfunction and the treatment of neurodegenerative diseases , including alzheimer 's disease , among others . we have used internal resources and incurred expenses not only in relation to the development of iti-007 but on these additional projects as well . we have not , however , reported these costs on a project by project basis , as they are broadly spread among these projects . the external costs for these 59 projects have been minimal and are reflected in the amounts discussed in this section research and development expenses. during the years ended december 31 , 2013 and 2012 , we also incurred costs that were both reimbursable and non-reimbursable under the license and collaboration agreement with takeda . we incurred approximately $ 97,000 and $ 700,000 on direct costs that were billable to takeda for the years ended december 31 , 2013 and 2012 , respectively . we anticipate that these costs will be reduced significantly as the research portion of the license and collaboration agreement concluded in february 2014. general and administrative expenses salaries , bonuses and related benefit costs for our executive , finance and administrative functions for both 2013 and 2012 constituted slightly less than half of our total general and administrative costs . the next major categories of expenses are patent costs , some of which are reimbursed by takeda , legal , accounting and other professional fees and , to a lesser extent , facilities and general office-related overhead . we expect all of these costs to increase significantly as we expand our operations and have become subject to the reporting requirements of a public company . general and administrative expenses were $ 6.0 million for the fiscal year ended december 31 , 2013 compared to $ 4.0 million for the fiscal year ended december 31 , 2012. the increase is the result of higher personnel costs , legal , accounting , patent and public company reporting-related costs , including costs related to the reverse merger and private placement in august 2013. liquidity and capital resources through december 31 , 2013 , we have funded our operations with approximately $ 149.8 million of cash that has been obtained from the following main sources $ 40.0 million of net proceeds from the private placement which closed on august 29 , 2013 ( net of $ 0.2 million of unpaid costs ) ; $ 25.4 million from other sales of equity ; $ 0.4 million from the exercise of stock options ; $ 15.3 million in sales of convertible promissory notes ; $ 40.6 million from grants from government agencies and foundations ; and $ 28.1 million in total payments received under the license and collaboration agreement with takeda , including approximately $ 1.8 million for reimbursement of development costs incurred from 2011 through december 31 , 2013 , and $ 1.8 million for patent costs incurred during the same time period . during the fiscal year ended december 31 , 2013 , we did not receive any funding through grants . we do not believe that grant revenue will be a significant source of funding in the near future . we expect that reimbursements of our development costs by takeda will decline going forward , and we do not expect such reimbursements to be a significant source of funding in the future . we also expect the reimbursements for patent filing costs will remain at the same level , but because reimbursements will be offset by the actual expenditures incurred , reimbursements do not represent a net source of funding for us . in october and november 2012 , we issued convertible promissory notes , or notes , having an aggregate principal amount of approximately $ 15.2 million . we issued additional notes having an aggregate principal amount of $ 0.1 million in march 2013. the notes were unsecured and accrued interest at a rate of 6 % per year , and were originally scheduled to mature on april 25 , 2013 , but maturity was extended until october 25 , 2013. the principal amount of the notes , together with the accrued interest thereon , converted into shares of iti common stock at the closing of the private placement . as of december 31 , 2013 , we had a total of $ 37.2 million in cash , cash equivalents and certificates of deposit , and approximately $ 6.8 million of short-term liabilities consisting of short-term liabilities from operations . excluding the increase in net cash of approximately $ 40.0 million from the private placement which closed in august 2013 ( net of $ 0.2 million of unpaid costs ) and the conversion of $ 15.2 million of convertible notes outstanding at december 31 , 2012 , we used $ 25.3 million in working capital for the year ended december 31 , 2013. this reduction in working capital is due primarily to the funding of the phase 2 clinical trial for iti-007 007 in patients with acutely exacerbated schizophrenia , and to a lesser extent to fund recurring operating expenses , the preparation for additional clinical trials and non-clinical testing . on february 5 , 2014 we raised approximately $ 115.4 million in net proceeds from a public offering of our common stock .
| revenue from milestone payments is recognized when all of the following conditions are met : ( 1 ) the milestone payments are non-refundable , ( 2 ) the achievement of the milestone involves a degree of risk and was not reasonably assured at the inception of the arrangement , ( 3 ) substantive effort on our part is involved in achieving the milestone , ( 4 ) the amount of the milestone payment is reasonable in relation to the effort expended or the risk associated with achievement of the milestone , and ( 5 ) a reasonable amount of time passes between the up-front license payment and the first milestone payment . reimbursement revenue is recognized when the costs are incurred and the services have been performed . we expect our revenues for the next several years to consist of limited reimbursable costs incurred for patent prosecutions and reimbursements related to our collaboration with takeda under the license and collaboration agreement . in addition , we expect to receive possible milestone payments under the license and collaboration agreement , but these are not assured at this time and would not be significant enough to fund operations for a meaningful period of time . expenses the process of researching and developing drugs for human use is lengthy , unpredictable and subject to many risks . we are unable with any certainty to estimate either the costs or the timelines in which those costs will be incurred . we have one project , iti-007 for the treatment of schizophrenia , which consumes a large proportion of our current , as well as projected , resources . in addition , in march 2014 , we announced the initiation of iti-007-200 , a phase 1/2 clinical trial designed to evaluate the safety , tolerability and pharmacokinetics of low doses of iti-007 in healthy geriatric subjects and in patients with dementia , including alzheimer 's disease . we intend to pursue other disease indications that iti-007 may address , but there are large costs associated with pursuing fda approval for those indications , which would include the cost of additional clinical trials . our other projects ,
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the increase in net interest expense is primarily attributable to the convertible senior notes issued in january 2017 that were outstanding for the full period in 2018 , compared to a partial period in 2017. included in interest expense for the year ended december 31 , 2018 and 2017 were non-cash charges of $ 11.8 million and $ 10.4 million , respectively , related to the amortization of debt discount and transaction costs of the convertible senior notes . income taxes on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ 2017 tax act ” ) , which made broad and complex changes to the u.s. tax code . in response to the 2017 tax act , the sec staff issued staff accounting bulletin no . 118 ( “ sab 118 ” ) which provided guidance on accounting for the tax effects of the 2017 tax act , including addressing any uncertainty or diversity of view in applying asc 740 , income taxes ( “ asc 740 ” ) , in the reporting period in which the 2017 tax act was enacted . in addition , sab 118 provided a measurement period that should not extend beyond one year from the 2017 tax act enactment date for companies to complete the accounting under asc 740. during the year ended december 31 , 2017 , we recorded an $ 11.3 million income tax benefit related to the re-measurement of our deferred tax assets and liabilities at the reduced rate of 21 percent and a reduction in our u.s. valuation allowance attributable to indefinite lived intangible assets becoming a source of future taxable income for certain deferred tax assets that are expected to have an indefinite life due to the 2017 tax act . during the year ended december 31 , 2018 , we finalized the accounting for the tax effects of the 2017 tax act based on legislative updates currently available and recorded an additional income tax benefit of $ 1.7 million for alternative minimum tax credits that became refundable in accordance with the 2017 tax act . we also reported an increase in deferred tax assets of $ 6.8 million as a result of adjustments to tax attributes utilized for one-time transition tax , which was offset by a full valuation allowance . the 2018 income tax benefit of $ 26.7 million is comprised of : ( i ) a $ 25.2 million income tax benefit related to the impairment of certain intangible assets during the year , ( ii ) a $ 1.7 million income tax benefit recorded in connection with the 2017 tax act , ( iii ) a $ 0.4 million income tax expense related primarily to u.s. tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets , as well as state and local income taxes , and ( iv ) a $ 0.2 million income tax benefit from non-u.s. operations and non-u.s. withholding taxes recorded as we now expect to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 tax act . the 2017 income tax benefit of $ 37.6 million is comprised of : ( i ) a $ 25.3 million income tax benefit related to domestic losses incurred during the year ended december 31 , 2017 , as the deferred tax liability created by the issuance of the convertible senior notes and recorded as a component of apic is treated as a source of income in fiscal 2017 , ( ii ) a $ 11.3 million income tax benefit recorded in connection with the 2017 tax act , and ( iii ) a $ 1.0 million income tax benefit from non-u.s. operations primarily attributable to a reduction in uncertain tax positions and the recognition of a deferred tax asset for certain non-u.s. net operating losses generated in prior years that have become realizable on a more-likely-than-not basis , offset by tax expense attributed to the profitable non-u.s. operations , as well as withholding 33 taxes recorded as we now expect to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 tax act . years ended december 31 , 2017 and 2016 the following table presents revenue and expense line items reported in our consolidated statements of operations for 2017 and 2016 and the period-over-period dollar and percentage changes for those line items . our results of operations are reported as one business segment , represented by our single operating segment . replace_table_token_6_th * not meaningful net sales the following is an analysis of sales by market and by region : replace_table_token_7_th 34 total sales increased in 2017 from 2016 due to increased sales in the led lighting , display & compound semiconductor , front-end semiconductor , and scientific & industrial markets , driven by led industry conditions , as well as additional sales of approximately $ 65.3 million from the ultratech business acquired in may 2017 , primarily in the front-end semiconductor and advanced packaging , mems & rf filters markets . pricing was not a significant driver of the change in total sales . by geography , sales increased in the united states , china , and rest of world regions , offset by a slight decrease in the emea region . the most significant increase occurred in the rest of world region , which was attributable to the increased sales in the led lighting , display & compound semiconductor market in malaysia , as well as additional sales from the ultratech business acquired in may 2017. sales into malaysia for the year ended december 31 , 2017 was approximately $ 77.2 million , compared to $ 6.2 million for the year ended december 31 , 2016. sales in china increased principally due to increased sales in the led lighting , display & compound semiconductor market . we expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies . story_separator_special_tag gross profit in 2017 , gross profit increased compared to 2016 due to an increase in sales volume , including the acquisition of ultratech , partially offset by decreased gross margins . gross margins decreased principally due to the sale of inventory that included a fair value step-up that was recorded in 2017 in connection with the purchase accounting relating to the ultratech acquisition . research and development the markets we serve are characterized by continuous technological development and product innovation , and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives . research and development expenses remained relatively flat in 2017 compared to 2016 , as the addition of the acquired ultratech related research and development projects was offset by our decision to reduce investments in certain technology , as well as decreases in other personnel-related expenses and professional fees , as a result of our initiative to streamline operations , enhance efficiency , and reduce costs . selling , general , and administrative selling , general , and administrative expenses increased primarily due to the addition of the acquired ultratech related selling , general , and administrative costs , as well as increased professional and legal fees . amortization expense the increase in amortization expense is a result of the additional intangibles acquired as part of the acquisition of ultratech , offset by the lower amortization resulting from the impairment of the certain technology assets in the prior year as well as certain other intangible assets becoming fully amortized during 2016. restructuring expense during 2016 , we undertook restructuring activities as part of our initiative to streamline operations , enhance efficiencies , and reduce costs , as well as reducing future investments in certain technology development , which together impacted approximately 75 employees . these activities were substantially completed in 2017. in addition , during 2017 , we began the acquisition integration process to enhance efficiencies , resulting in additional employee terminations and other facility closing costs . restructuring expense for the year ended december 31 , 2017 included non-cash charges of $ 1.9 million related to accelerated share-based compensation for employee terminations . acquisition costs acquisition costs are non-recurring charges incurred in connection with the acquisition of the ultratech business , which included $ 4.2 million of non-cash charges related to accelerated share-based compensation for employee terminations for the year ended december 31 , 2017 . 35 asset impairment during 2016 , we recorded non-cash impairment charges of $ 57.6 million relating to our decision to reduce investments in certain technologies , $ 5.7 million relating to our assessments of the fair market value of assets held for sale , and $ 6.2 million relating to the disposal of certain lab equipment . interest income ( expense ) for the year ended december 31 , 2017 , we recorded net interest expense of $ 17.1 million , including non-cash interest expense of $ 10.4 million , compared with net interest income of $ 1.0 million in the prior year period . the change primarily relates to the convertible senior notes issued in january 2017. income taxes the 2017 income tax benefit of $ 37.6 million is comprised of : ( i ) a $ 25.3 million income tax benefit related to domestic losses incurred during the year ended december 31 , 2017 , as the deferred tax liability created by the issuance of the convertible senior notes and recorded as a component of apic is treated as a source of income in fiscal 2017 , ( ii ) a $ 11.3 million income tax benefit recorded in connection with the 2017 tax act , and ( iii ) a $ 1.0 million income tax benefit from non-u.s. operations primarily attributable to a reduction in uncertain tax positions and the recognition of a deferred tax asset for certain non-u.s. net operating losses generated in prior years that have become realizable on a more-likely-than-not basis , offset by tax expense attributed to the profitable non-u.s. operations , as well as withholding taxes recorded as we now expect to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 tax act . the 2016 income tax expense of $ 2.8 million is comprised of : ( i ) a $ 1.9 million tax expense related primarily to u.s. tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets and related valuation allowance , as well as state and local income taxes , ( ii ) a $ 0.4 million tax benefit associated with the termination of a pension plan , and ( iii ) a $ 1.3 million net tax expense related primarily to our profitable foreign operations . the current period non-u.s. tax expense is attributable to the profitable non-u.s. operations . liquidity and capital resources our cash and cash equivalents , restricted cash , and short-term investments are as follows : replace_table_token_8_th a portion of our cash and cash equivalents is held by our subsidiaries throughout the world , frequently in each subsidiary 's respective functional currency , which is typically the u.s. dollar . at december 31 , 2018 and 2017 , cash and cash equivalents of $ 66.9 million and $ 214.3 million , respectively , were held outside the united states . as of december 31 , 2018 , we had $ 43.3 million of accumulated undistributed earnings generated by our non-u.s. subsidiaries for which the u.s. repatriation tax has been provided and did not require the use of cash due to the use of net operating loss carryforwards . approximately $ 8.1 million of undistributed earnings would be subject to foreign withholding taxes if distributed back to the united states . as of december 31 , 2018 , we have accrued $ 0.6 million of withholding tax related to the undistributed earnings as we are no longer asserting permanent reinvestment .
| sales decreased in rest of world due to a reduction of sales in the led lighting , display & compound semiconductor market in malaysia . we expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies . gross profit in 2018 , gross margins decreased compared to 2017 due to a shift in our product mix in the led market that we saw in the first half of 2018 , while gross profit increased due to an increase in sales volume , including the acquisition of ultratech . research and development the markets we serve are characterized by continuous technological development and product innovation , and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives . research and development expenses increased in 2018 compared to 2017 primarily as a result of the addition of a full year of the acquired ultratech research and development related projects . selling , general , and administrative selling , general , and administrative expenses decreased in 2018 compared to 2017 , as increases due to the addition of the acquired ultratech related selling , general , and administrative costs for a full year were offset by reductions to personnel-related expenses , including a reduction in incentive compensation , and professional fees as a result of our initiative to enhance efficiency and reduce costs . on november 1 , 2018 , we announced an attack on our computer systems . upon learning of the attack , forensic experts were promptly engaged to assist with the investigation . we also notified law enforcement of the incident . the investigation , which has largely been completed , determined that our computer systems were accessed by what appears to be a highly-sophisticated actor at various times over a period of years . it appears that proprietary and confidential information of the company and certain personal information of our employees was accessed and may have been compromised as a result of the incident . based on the evidence available at this time , the extent and impact of the compromise
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the largest portion of our circulation revenue is currently from our print newspaper , where we have experienced declining print circulation volume in recent years . this is due to , among other factors , increased competition from digital media formats ( which are often free to users ) , higher print subscription and single-copy rates and a growing preference among some consumers to receive their news from sources other than a print newspaper . advances in technology have led to an increased number of methods for the delivery and consumption of news and other content . these developments are also driving changes in the preferences and expectations of consumers as they seek more control over how they consume content . our ability to retain and continue to build on our digital subscription base depends on , among other things , our ability to evolve our subscription model , address changing consumer demands and developments in technology and improve our digital product offering while continuing to deliver high-quality journalism and content that is interesting and relevant to readers . advertising market dynamics we derive substantial revenue from the sale of advertising in our print and digital products . in determining whether to buy advertising , our advertisers consider the demand for our products , demographics of our reader base , advertising rates , results observed by advertisers , and alternative advertising options . during 2016 , the company , along with others in the industry , continued to experience significant pressure on print advertising revenue . although print advertising revenue continues to represent a majority of our total advertising revenue , the increased popularity of digital media among consumers , particularly as a source for news and other content , has driven a corresponding shift in demand from print advertising to digital advertising . however , our digital advertising revenue may not replace in full print advertising revenue lost as a result of the shift . the digital advertising market continues to undergo significant changes . the increasing number of digital media options available , including through social networking platforms and news aggregation websites , has resulted in audience fragmentation and increased competition for advertising . competition from new content providers and platforms , some of which charge lower rates than we do or have greater audience reach and targeting capabilities , and the significant increase in inventory of digital advertising space , have affected and will likely continue to affect our ability to attract and retain advertisers and to maintain or increase our advertising rates . in addition , digital the new york times company – p. 23 advertising networks and exchanges , real-time bidding and other programmatic buying channels that allow advertisers to buy audiences at scale are playing a more significant role in the advertising marketplace and may cause further downward pricing pressure . the character of our digital advertising business also continues to change , as demand for newer forms of advertising , such as branded content and video advertising , increases . the margin on revenues from some of these newer advertising forms tends to be lower than the margin on revenues we generate from our print advertising and traditional digital display advertising . consequently , we may experience further downward pressure on our advertising revenue margins as a greater percentage of advertising revenues comes from these newer forms . in addition , technologies have been and will continue to be developed that enable consumers to block digital advertising on websites and mobile devices . advertisements blocked by these technologies are treated as not delivered and any revenue we would otherwise receive from the advertiser for that advertisement is lost . as the digital advertising market continues to evolve , our ability to compete successfully for advertising budgets will depend on , among other things , our ability to engage and grow our audience and prove the value of our advertising and the effectiveness of our platforms to advertisers . economic conditions global , national and local economic conditions affect various aspects of our business . the level of advertising sales in any period may be affected by advertisers ' decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand and general economic conditions . changes in spending patterns and priorities , including shifts in marketing strategies and budget cuts of key advertisers , in response to economic conditions , have depressed and may continue to depress our advertising revenues . in addition , subscription revenue is sensitive to discretionary spending available to subscribers in the markets we serve , and to the extent poor economic conditions lead consumers to reduce spending on discretionary activities , our ability to retain current and obtain new subscribers could be hindered . fixed costs a significant portion of our costs are fixed , and therefore we are limited in our ability to reduce these costs in the short term . employee-related costs and raw materials together accounted for approximately 50 % of our total operating costs in 2016 . changes in employee-related costs and the price and availability of newsprint can materially affect our operating results . for a discussion of these and other factors that could affect our business , results of operations and financial condition , see “ item 1a — risk factors. ” our strategy we are operating during a period of transformation for our industry and amidst uncertain economic conditions . we anticipate that the challenges we currently face will continue , and we believe that the following elements are key to our efforts to address them . strengthening the new york times brand through innovation our priority is to maintain the times 's commitment to premium content and journalistic excellence , while at the same time positioning our organization for growth . in 2016 , we continued to invest in our digital platforms and products . story_separator_special_tag among other things , we focused on innovating the way we tell stories , through new forms of visual and multimedia journalism , including podcasts , interactive journalism ( through facebook live and other initiatives ) and virtual reality journalism . we also invested in our international opportunities and in april 2016 announced our commitment to invest more than $ 50 million in the digital potential of the times internationally . while we continue to focus on digital innovation , we remain committed to the continued success of our print products , which we expect will continue to be a significant source of revenue for us . during 2016 , for example , we created compelling special inserts in our print newspaper on the presidential election and other events . as we look ahead for opportunities to further innovate our products , we remain committed to creating quality content and a quality user experience , regardless of the distribution model or platform . p. 24 – the new york times company expanding and deepening our relationship with readers we are a “ subscription-first ” organization and continue to focus on deepening the engagement of our current readers and expanding our reach to new readers around the world . in 2016 , we saw significant growth in digital-only subscriptions to our news products , and earlier this year the number of total paid subscriptions to our print and digital products surpassed three million . we believe this growth underscores the willingness of our readers to pay for high-quality journalism , and we will continue to look for ways to strengthen the relationship we have with our subscribers . we will also continue to focus on developing new audiences , including by expanding our global reach and working to engage younger readers . during the year , we continued efforts to make the times an indispensable part of our readers ' lives . among others , the times introduced or enhanced products and features that span a broad range of topics and interests , including nyt cooking , a dynamic recipe box designed to make cooking easier ; watching , our guide to what to watch on television ; and well , our healthy living guide . in october 2016 , the company also purchased the wirecutter and the sweethome , product review and recommendation websites that align with the times 's commitment to service journalism . we also continued our efforts to engage readers around the world . among other things , we launched the new york times en español , a mobile-optimized website covering news and issues of interest to a spanish-speaking audience , and extended our popular daily briefings to europe and asia . in addition , we will continue to experiment with reaching new readers on third-party platforms , while remaining committed to building engagement with readers on our own platforms . creating compelling digital advertising solutions we are focused on continuing to grow our digital advertising revenue by developing innovative and compelling advertising offerings that integrate with and add value to the user experience . we believe we have a powerful and trusted brand that , because of the quality of our journalism , attracts educated , affluent and influential audiences , and we continue to focus on leveraging our brand in developing and refining these offerings . during 2016 , the digital advertising market continued to shift away from traditional desktop display advertising and towards newer advertising forms , such as branded content and other creative services , as well as programmatic , video and mobile advertising . we have quickly adapted to this market shift , introducing innovative digital advertising solutions for our mobile and other platforms , and providing advertisers new ways of reaching our audience , such as our virtual reality application . we have also continued to expand our branded content studio , which has become a fast-growing part of our advertising business since we launched it in early 2014. transforming our business to deliver on our goals we are focused on becoming a more effective and efficient organization and have taken and continue to take a number of steps to achieve this . among other things , we streamlined our international print operations in 2016 and are reviewing initiatives aimed at improving newsroom efficiency . in december 2016 , we also announced plans to redesign our headquarters building , consolidating our operations within a smaller number of floors and leasing the remaining floors to third parties . we expect the changes will generate significant rental income and result in a more collaborative workspace . looking ahead , we will continue to focus on managing our cost structure to ensure that we are operating our businesses efficiently , while maintaining our commitment to investing in high-quality content and the achievement of strategic goals . strengthening our liquidity we have continued to strengthen our liquidity position and remain focused on further de-leveraging and de-risking our balance sheet . in december 2016 , we repaid , at maturity , the remaining principal amount of our senior notes . as of december 25 , 2016 , the company had cash and cash equivalents and marketable securities of approximately $ 738 million ( excluding restricted cash of approximately $ 25 million , the majority of which is set aside to collateralize certain workers ' compensation obligations ) . this exceeded our total debt and capital lease obligations by approximately $ 491 million . we believe our cash balance and cash provided by operations , in combination with other sources of cash , will be sufficient to meet our financing needs over the next 12 months . the new york times company – p. 25 in march 2009 , we entered into an agreement to sell and simultaneously lease back a portion of our leasehold condominium interest in our company 's headquarters building located at 620 eighth avenue in new york city ( the “ condo interest ” ) .
| digital-only subscription revenues were $ 198.9 million in 2015 compared with $ 172.7 million in 2014 , an increase of 15.2 % . advertising revenues advertising revenues are derived from the sale of our advertising products and services on our print , web and mobile platforms . these revenues are primarily determined by the volume , rate and mix of advertisements . display advertising revenue is principally from advertisers promoting products , services or brands in print in the form of column-inch ads , and on our web and mobile platforms in the form of banners , video , rich media and other interactive ads . display advertising also includes branded content on the times 's platforms . classified advertising revenue includes line-ads sold in the major categories of real estate , help wanted , automotive and other . other advertising revenue primarily includes creative services fees associated with , among other things , our branded content studio ; revenue from preprinted advertising , also known as free-standing inserts ; and revenue generated from branded bags in which our newspapers are delivered . advertising revenues ( print and digital ) by category were as follows : replace_table_token_8_th below is a percentage breakdown of 2016 , 2015 and 2014 advertising revenues ( print and digital ) : replace_table_token_9_th 2016 compared with 2015 in 2016 , total advertising revenues decreased primarily due to lower print advertising revenues . print advertising revenues , which represented 64 % of total advertising revenues in 2016 , declined 15.8 % to $ 372.0 million in 2016 compared with $ 441.6 million in 2015 , mainly due to a decline in display advertising , primarily in the luxury goods , entertainment retail and technology categories . digital advertising revenues , which represented 36 % of total advertising revenues in 2016 , increased 5.9 % to $ 208.8 million in 2016 compared with $ 197.1 million in 2015 due to an increase in revenue from our mobile platform , our programmatic buying channels and branded content distribution . revenues from hellosociety and fake
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cash flows the following table sets forth the significant sources and uses of cash for the periods set forth below : replace_table_token_9_th operating activities . net cash used in operating activities of $ 265.4 million for the year ended december 31 , 2017 was primarily a result of our $ 360.4 million net loss partially offset by net changes in operating assets and liabilities of $ 14.6 million , $ 57.0 million for stock-based compensation , $ 4.6 million for depreciation , $ 12.9 million for accretion of the discount on the convertible notes and the amortization of investment premium of $ 3.4 million . net cash used in operating activities of $ 342.4 million for the year ended december 31 , 2016 was primarily a result of our $ 412.8 million net loss partially offset by net changes in operating assets and 89 liabilities of $ 8.4 million , $ 46.2 million for stock-based compensation , $ 3.8 million for depreciation , $ 6.2 million for accretion of the discount on the convertible notes and the amortization of investment premium of $ 4.9 million . net cash used in operating activities of $ 162.9 million for the year ended december 31 , 2015 was primarily a result of our $ 226.4 million net loss partially offset by net changes in operating assets and liabilities of $ 21.3 million , $ 34.2 million for stock-based compensation , $ 1.7 million for depreciation and the amortization of investment premium of $ 6.3 million . investing activities . for the year ended december 31 , 2017 , net cash provided by investing activities primarily reflects the sale of investment securities of $ 529.3 million , partially offset by the purchase of investment securities of $ 231.1 million and capital expenditures of $ 10.4 million primarily related to our offices . for the year ended december 31 , 2016 , net cash used in investing activities primarily reflects the purchase of investment securities of $ 511.5 million , partially offset by the sale of investment securities of $ 456.5 million and capital expenditures of $ 5.1 million primarily related to our offices . for the year ended december 31 , 2015 , net cash used in investing activities primarily reflects the purchase of investment securities of $ 640.7 million , partially offset by the sale of investment securities of $ 257.2 million to fund operations and expenditures for leasehold improvements of $ 5.9 million primarily for our king 's cross , london facility and the expansion of our new york headquarters . financing activities . net cash provided by financing activities in the year ended december 31 , 2017 consisted primarily of $ 2.8 million from the exercise of options to purchase common stock . net cash provided by financing activities in the year ended december 31 , 2016 consisted primarily of the issuance of our convertible notes that occurred in july 2016 of $ 447.6 million , net of issuance cost , and $ 5.2 million from the exercise of options to purchase common stock , partially offset by payments of $ 38.4 million for the capped call transactions related to our convertible notes . net cash provided by financing activities in the year ended december 31 , 2015 consisted primarily of net proceeds of the february 2015 public offering of $ 191.6 million , the april 2015 public offering of $ 367.2 million , and $ 6.7 million from the exercise of options to purchase common stock . future funding requirements while we commenced our commercial launch of ocaliva for use in pbc in the united states , europe and other jurisdictions where it has received marketing approval , we can not predict the period , if any , in which material net cash inflows from sales of oca or our other product candidates can sustain our operations . we expect to continue to incur significant expenses in connection with our ongoing development activities , particularly as we continue the research , development and clinical trials of , and seek regulatory approval for , our product candidates . we have incurred and expect to incur additional costs associated with our plans to further expand our operations in the united states , europe and in certain other countries . in addition , subject to obtaining regulatory approval of any of our product candidates , we expect to incur significant commercialization expenses for product sales , marketing , manufacturing and distribution . as part of our longer-term strategy , we also anticipate incurring expenses in connection with increases in our product development , scientific , commercial and administrative personnel and expansion of our infrastructure in the united states and abroad . we may also engage in activities that involve potential in- or out-licensing of products or technologies or acquisitions of other products , technologies or businesses . we anticipate that we will need substantial additional funding in connection with our continuing operations . adjusted operating expense is a financial measure not calculated in accordance with gaap . we anticipate that stock-based compensation expense will represent the most significant non-cash item that is excluded from adjusted operating expenses as compared to operating expenses under gaap . for the year ended december 31 , 2016 , adjusted operating expense also excludes a one-time $ 45 million net expense for the settlement of a purported class action lawsuit . see item 7 . management 's discussion and analysis of financial condition and results of operation non-gaap financial measures for more information . 90 due to the many variables inherent to the development and commercialization of novel therapies and our rapid growth and expansion , we currently can not accurately and precisely predict the duration beyond mid-2019 over which we expect our cash and cash equivalents to be sufficient to fund our operating expenses and capital expenditure requirements . however , we currently believe that our cash and cash equivalents will be sufficient for us to story_separator_special_tag cash flows the following table sets forth the significant sources and uses of cash for the periods set forth below : replace_table_token_9_th operating activities . net cash used in operating activities of $ 265.4 million for the year ended december 31 , 2017 was primarily a result of our $ 360.4 million net loss partially offset by net changes in operating assets and liabilities of $ 14.6 million , $ 57.0 million for stock-based compensation , $ 4.6 million for depreciation , $ 12.9 million for accretion of the discount on the convertible notes and the amortization of investment premium of $ 3.4 million . net cash used in operating activities of $ 342.4 million for the year ended december 31 , 2016 was primarily a result of our $ 412.8 million net loss partially offset by net changes in operating assets and 89 liabilities of $ 8.4 million , $ 46.2 million for stock-based compensation , $ 3.8 million for depreciation , $ 6.2 million for accretion of the discount on the convertible notes and the amortization of investment premium of $ 4.9 million . net cash used in operating activities of $ 162.9 million for the year ended december 31 , 2015 was primarily a result of our $ 226.4 million net loss partially offset by net changes in operating assets and liabilities of $ 21.3 million , $ 34.2 million for stock-based compensation , $ 1.7 million for depreciation and the amortization of investment premium of $ 6.3 million . investing activities . for the year ended december 31 , 2017 , net cash provided by investing activities primarily reflects the sale of investment securities of $ 529.3 million , partially offset by the purchase of investment securities of $ 231.1 million and capital expenditures of $ 10.4 million primarily related to our offices . for the year ended december 31 , 2016 , net cash used in investing activities primarily reflects the purchase of investment securities of $ 511.5 million , partially offset by the sale of investment securities of $ 456.5 million and capital expenditures of $ 5.1 million primarily related to our offices . for the year ended december 31 , 2015 , net cash used in investing activities primarily reflects the purchase of investment securities of $ 640.7 million , partially offset by the sale of investment securities of $ 257.2 million to fund operations and expenditures for leasehold improvements of $ 5.9 million primarily for our king 's cross , london facility and the expansion of our new york headquarters . financing activities . net cash provided by financing activities in the year ended december 31 , 2017 consisted primarily of $ 2.8 million from the exercise of options to purchase common stock . net cash provided by financing activities in the year ended december 31 , 2016 consisted primarily of the issuance of our convertible notes that occurred in july 2016 of $ 447.6 million , net of issuance cost , and $ 5.2 million from the exercise of options to purchase common stock , partially offset by payments of $ 38.4 million for the capped call transactions related to our convertible notes . net cash provided by financing activities in the year ended december 31 , 2015 consisted primarily of net proceeds of the february 2015 public offering of $ 191.6 million , the april 2015 public offering of $ 367.2 million , and $ 6.7 million from the exercise of options to purchase common stock . future funding requirements while we commenced our commercial launch of ocaliva for use in pbc in the united states , europe and other jurisdictions where it has received marketing approval , we can not predict the period , if any , in which material net cash inflows from sales of oca or our other product candidates can sustain our operations . we expect to continue to incur significant expenses in connection with our ongoing development activities , particularly as we continue the research , development and clinical trials of , and seek regulatory approval for , our product candidates . we have incurred and expect to incur additional costs associated with our plans to further expand our operations in the united states , europe and in certain other countries . in addition , subject to obtaining regulatory approval of any of our product candidates , we expect to incur significant commercialization expenses for product sales , marketing , manufacturing and distribution . as part of our longer-term strategy , we also anticipate incurring expenses in connection with increases in our product development , scientific , commercial and administrative personnel and expansion of our infrastructure in the united states and abroad . we may also engage in activities that involve potential in- or out-licensing of products or technologies or acquisitions of other products , technologies or businesses . we anticipate that we will need substantial additional funding in connection with our continuing operations . adjusted operating expense is a financial measure not calculated in accordance with gaap . we anticipate that stock-based compensation expense will represent the most significant non-cash item that is excluded from adjusted operating expenses as compared to operating expenses under gaap . for the year ended december 31 , 2016 , adjusted operating expense also excludes a one-time $ 45 million net expense for the settlement of a purported class action lawsuit . see item 7 . management 's discussion and analysis of financial condition and results of operation non-gaap financial measures for more information . 90 due to the many variables inherent to the development and commercialization of novel therapies and our rapid growth and expansion , we currently can not accurately and precisely predict the duration beyond mid-2019 over which we expect our cash and cash equivalents to be sufficient to fund our operating expenses and capital expenditure requirements . however , we currently believe that our cash and cash equivalents will be sufficient for us to
| these increases were partially offset by the one-time net expense of $ 45.0 million attributable to the settlement of a purported securities class action lawsuit in 2016 plus related legal expenses of $ 3.4 million in 2016 , along with a decrease in consultant spend of $ 5.8 million . research and development expenses research and development expenses were $ 191.5 million and $ 153.9 million for the years ended december 31 , 2017 and 2016 , respectively , representing a net increase of $ 37.6 million . this net increase in research and development expense primarily reflects an increase in oca research and development activities of approximately $ 34.9 million to support our development activities , an increase of $ 2.2 million of compensation-related costs , and an increase of indirect costs of approximately $ 0.5 million . interest expense interest expense was $ 29.3 million and $ 14.2 million for the years ended december 31 , 2017 and 2016 , respectively , due to the issuance of our 3.25 % convertible senior notes due 2023 , or convertible notes , in july 2016. other income , net other income , net was $ 4.5 million and $ 3.9 million for the years ended december 31 , 2017 and 2016 , respectively . the $ 0.6 million increase is primarily attributable to interest income earned on cash , cash equivalents and investment securities , which increased compared to the prior year as a result of increases in cash and investment balances primarily due to the net proceeds from the issuance of our convertible notes . income taxes for the years ended december 31 , 2017 and 2016 , no income tax expense or benefit was recognized . our deferred tax assets are comprised primarily of net operating loss carryforwards . we maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations . as a result , we have not recorded any income tax benefit since our inception . on december 22 , 2017 , the united states enacted tax reform legislation through the tax cuts
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contracts in which we are the apparent low bidder for projects ( “ unsigned low-bid awards ” ) are excluded from backlog until the contract is executed by our customer . unsigned low-bid awards were $ 356.9 million at december 31 , 2020 and $ 273.5 million at the end of 2019. the combination of our backlog and unsigned low-bid awards , which we refer to as “ combined backlog ” totaled $ 1.5 billion and $ 1.3 billion as of december 31 , 2020 and 2019 , respectively . backlog includes $ 234.2 million and $ 161.4 million attributable to our share of estimated revenues related to joint ventures where we are a noncontrolling joint venture partner at december 31 , 2020 and 2019 , respectively . we anticipate that approximately 64 % of our backlog will be recognized as revenues during 2021 , with substantially all remaining recognized in the twelve months following . contracts-in-progress which were not substantially complete totaled approximately 200 at december 31 , 2020 and 2019. these contracts are of various sizes , of different expected profitability and in various stages of completion . the nearer a contract progresses toward completion , the more visibility we have in refining our estimate of total revenues ( including incentives , delay penalties and change orders ) , costs and gross profit . thus , gross profit as a percent of revenues can increase or decrease from comparable and sequential quarters due to variations among contracts and depending upon the stage of completion of contracts . we anticipate that our markets will continue to improve , driven by the conditions discussed in item 1 “ business. ” furthermore , we believe that the company is well established in our particular markets and has the management depth and experience which gives us the ability to perform a broad range of work that will allow us to succeed in current market conditions and to continue to compete successfully for projects as they become available at acceptable profit margin levels . backlog and gross margin : replace_table_token_1_th our margin in backlog has increased from 11.5 % at december 31 , 2019 to 12.0 % at december 31 , 2020 , and our combined backlog margin increased from 11.0 % at december 31 , 2019 to 11.8 % at december 31 , 2020 , driven by project mix of heavy civil and specialty services awards . 24 results of operations story_separator_special_tag $ 16.5 million decrease in commercial revenues . operating income— operating income was $ 70.6 million for 2020 , an increase of $ 52.4 million , compared to the prior year . the increase was primarily attributable to the inclusion of a full year of operating income generated from plateau operations in 2020. residential revenues— revenues were $ 164.7 million for 2020 , an increase of $ 11.6 million or 8 % , compared to the prior year . the increase in revenue was primarily the result of the continued ramp-up of work in houston . operating income— operating income was $ 20.8 million for 2020 , an increase of $ 0.3 million , compared to the prior year . the increase was driven by the ramp-up of operations and scale in houston . houston as a percentage of completed slabs was 13 % for 2020 compared to 10 % for the prior year . operating income as a percent of revenue decreased 76 basis points compared to the prior year , driven by the ramp-up of operations and scale in houston , temporary price concessions to our customers to mitigate a potential decrease in demand due to covid-19 , and an increase in lumber and concrete costs in 2020 . 26 liquidity and sources of capital cash— cash at december 31 , 2020 was $ 66.2 million , and includes the following components : replace_table_token_4_th the following tables set forth information about our cash flows and liquidity : replace_table_token_5_th operating activities— during 2020 , net cash provided by operating activities was $ 119.3 million compared to $ 41.1 million in the prior year . cash flows provided by operating activities were driven by higher net income , adjusted for various non-cash items and changes in accounts receivable , net contracts in progress and accounts payable balances ( collectively , “ contract capital ” ) , as discussed below , and other accrued liabilities . changes in contract capital— the change in operating assets and liabilities varies due to fluctuations in operating activities and investments in contract capital . the changes in components of contract capital during the years ended december 31 , 2020 and 2019 were as follows : replace_table_token_6_th during 2020 , the change in contract capital increased liquidity by $ 7.6 million . the company 's contract capital fluctuations are impacted by the mix of projects in backlog , seasonality , the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed . contract capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects . investing activities— during 2020 , net cash used in investing activities was $ 30.5 million , compared to net cash used of $ 410.4 million in the prior year . in 2020 , the cash used in investing activities was driven by purchases of capital equipment and buildings and improvements . capital equipment is acquired as needed to support changing levels of production activities and to replace retiring equipment . financing activities— during 2020 , net cash used in financing activities was $ 68.3 million compared to net cash provided of $ 320.9 million in the prior year . story_separator_special_tag in 2020 , the cash used in financing activities was driven by $ 77.7 million of repayments on debt , primarily consisting of $ 45.0 million in repayments on the term loan facility ( “ term loan facility , ” as defined below ) , $ 20.0 million in repayments on the revolving credit facility ( “ revolving credit facility , ” as defined below ) and $ 12.5 million in payments on the combined promissory notes and deferred cash payments issued as part of the acquisition of tealstone . 27 credit facilities , debt , and other capital general —in addition to our available cash , cash equivalents and cash provided by operations , from time to time we use borrowings to finance acquisitions , our capital expenditures and working capital needs . credit facility —on october 2 , 2019 , the company , as borrower , and certain of its subsidiaries , as guarantors , entered into a credit agreement ( as amended , the “ credit agreement ” ) with bmo harris bank n.a. , as administrative agent ( the “ agent ” ) , bank of america , n.a. , as syndication agent , and bmo capital markets corp. and bofa securities , inc. , as joint lead arrangers and joint book runners . the credit agreement provides the company with senior secured debt financing in an amount up to $ 475 million in the aggregate , consisting of ( i ) a senior secured first lien revolving credit facility ( the “ revolving credit facility ” ) in an aggregate principal amount of $ 75 million ( with a $ 75 million limit for the issuance of letters of credit and a $ 15 million sublimit for swing line loans ) and ( ii ) a senior secured first lien term loan facility ( the “ term loan facility ” ) in the amount of $ 400 million ( collectively , the “ credit facility ” ) . the obligations under the credit facility are secured by substantially all assets of the company and the subsidiary guarantors , subject to certain permitted liens and interests of other parties . the credit facility will mature on october 2 , 2024. the company obtained the credit facility in order to facilitate the transactions contemplated by the plateau acquisition , including to refinance the existing indebtedness of the company , finance capital expenditures , finance working capital , finance acquisitions permitted under the credit agreement , finance other general corporate purposes and fund certain fees and expenses associated with the closing of the credit facility and the plateau acquisition . on december 2 , 2019 , the credit agreement was amended to modify ( i ) the applicable margins with respect to base rate and london inter-bank offered rate ( “ libor ” ) borrowings under the credit facility , ( ii ) the required amounts of mandatory prepayments of the credit facility with excess cash flow , ( iii ) the amounts of scheduled principal payments quarterly and at maturity on the term loan facility , and ( iv ) the applications of partial prepayments of the term loan facility on a ratable , weighted basis among all remaining scheduled principal payments on the term loan facility . the modifications in ( i ) - ( iii ) mentioned above were pursuant to the customary “ market flex ” rights contained in the fee letter related to the credit agreement . the company is required to make mandatory prepayments on the credit facility with proceeds received from issuances of debt , events of loss and certain dispositions . the company also is required to prepay the credit facility with its excess cash flow in an amount equal to ( a ) if the total leverage ratio ( as defined in the credit agreement ) is greater than or equal to 2.50 to 1.00 , 75 % of excess cash flow , ( b ) if the total leverage ratio is greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00 , 50 % of excess cash flow , ( c ) if the total leverage ratio is greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00 , 25 % of excess cash flow and ( d ) if the total leverage ratio is less than 1.50 to 1.00 , 0 % of excess cash flow , within 5 days after receipt of its annual audited financial statements . the credit agreement contains various affirmative and negative covenants that may , subject to certain exceptions , restrict the ability of us and our subsidiaries to , among other things , grant liens , incur additional indebtedness , make loans , advances or other investments , make non-ordinary course asset sales , declare or pay dividends or make other distributions with respect to equity interests , purchase , redeem or otherwise acquire or retire capital stock or other equity interests , or merge or consolidate with any other person , among various other things . in addition , the company is required to maintain the following financial covenants : a total leverage ratio ( as defined in the credit agreement ) at the last day of each fiscal quarter not to be greater than 4.00 to 1.00 ending on december 31 , 2019 through and including june 30 , 2020 , 3.75 to 1.00 ending on september 30 , 2020 , 3.50 to 1.00 ending on december 31 , 2020 through and including march 31 , 2021 , 3.25 to 1.00 ending on june 30 , 2021 through and including september 30 , 2021 , and 3.00 to 1.00 ending on december 31 , 2021 and thereafter ; and a fixed charge coverage ratio ( as defined in the credit agreement ) of not less than 1.20 to 1.00 as of the last day of each fiscal quarter of the company , commencing with the fiscal quarter ending december 31 , 2019. the revolving credit facility bears interest at either the base rate ( “ base rate ” )
| acquisition related costs— the company had acquisition related costs of $ 1.0 million and $ 4.3 million in the years ended 2020 and 2019 , respectively , all of which related to the acquisition of plateau . other operating expense , net— other operating expense , net , includes 50 % of earnings and losses related to members ' interest of consolidated 50 % owned subsidiaries , earn-out expense , and other miscellaneous operating income or expense . members ' interest earnings are treated as an expense and increase the liability account . the change in other operating expense , net , was an increase of $ 0.8 million during 2020 compared to the prior year . members ' interest earnings increased by $ 1.3 million during 2020 to $ 11.1 million from $ 9.8 million in the prior year , as a result of improved margin mix from our 50 % owned subsidiaries . earn-out expense decreased by $ 0.5 million during 2020 to $ 1.5 million from $ 2.0 million in the prior year . interest expense— interest expense was $ 29.4 million in 2020 compared to $ 16.7 million in the prior year . the increase is due to borrowings related to the acquisition of plateau . 25 income taxes— the effective income tax rate was 34.4 % in 2020 and there was a tax rate benefit in the prior year . the increase is primarily due to a reduction in the tax valuation allowance that reduced the effective income tax rate in 2019 , additional state taxes in 2020 primarily related to plateau , and an increase of non-deductible stock based compensation expense . due to its net operating loss carryforwards , the company had no cash payments for federal income taxes for 2020 or 2019. see note 13 - income taxes for more information . segment results replace_table_token_3_th heavy civil revenues— revenues were $ 753.8 million for 2020 , a decrease of $ 6.5 million or 1 % , compared to the prior year . the decrease was driven by lower aviation and other revenue ,
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dollar-based retention rate our ability to generate revenue is dependent upon our ability to maintain our relationships with our customers and to increase their utilization of our platform . we believe we can achieve these goals by focusing on delivering value and functionality that enables us to both retain our existing customers and expand the number of users and products used within an existing customer . we assess our performance in this area by measuring our dollar-based retention rate . our dollar-based retention rate measures our ability to increase revenue across our existing customer base through expansion of users and products associated with a customer as offset by churn and contraction in the number of users and or products associated with a customer . our dollar-based retention rate is based upon our annual contract value , or acv , which is calculated based on the terms of that customer 's contract and represents the total contracted annual subscription amount as of that period end . we calculate our dollar-based retention rate as of a period end by starting with the acv from all customers as of twelve months prior to such period end , or prior period acv . we then calculate the acv from these same customers as of the current period end , or current period acv . current period acv includes any upsells and is net of contraction or churn over the trailing twelve months but excludes revenue from new customers in the current period . we then divide the total current period acv by the total prior period acv to arrive at our dollar-based retention rate . our strong dollar-based retention rate is primarily attributable to an expansion of users and up-selling additional products within our existing customers . larger enterprises often implement a limited initial deployment of our platform before increasing their deployment on a broader scale . calculated billings calculated billings represent our total revenue plus the change in deferred revenue in the period . calculated billings in any particular period reflects sales to new customers plus subscription renewals and upsells to existing 49 customers , and represent amounts invoiced for subscription , support and professional services . we typically invoice customers in advance in annual installments for subscriptions to our platform . calculated billings increased 55 % in the year ended january 31 , 2019 over the year ended january 31 , 2018 . as our calculated billings continue to grow in absolute terms , we expect our calculated billings growth rate to trend down over time . see the section titled “ selected consolidated financial data and other data—non-gaap financial measures ” for additional information and a reconciliation of calculated billings to total revenue . components of results of operations revenue subscription revenue . subscription revenue primarily consists of fees for access to and usage of our cloud-based platform and related support . we generate subscription fees pursuant to noncancelable contracts with a weighted average duration of 2.4 years as of january 31 , 2019 . subscription revenue is driven primarily by the number of customers , the number of users per customer and the products used . we typically invoice customers in advance in annual installments for subscriptions to our platform . professional services and other . professional services revenue includes fees from assisting customers in implementing and optimizing the use of our products . these services include application configuration , system integration and training services . we generally invoice customers as the work is performed for time-and-materials arrangements , and up front for fixed fee arrangements . all professional services revenue is recognized as the services are performed . overhead allocation and employee compensation costs we allocate shared costs , such as facilities ( including rent , utilities and depreciation on equipment shared by all departments ) , information technology costs , and recruiting costs to all departments based on headcount . as such , allocated shared costs are reflected in each cost of revenue and operating expense category . employee compensation costs include salaries , bonuses , benefits and stock-based compensation for each operating expense category and sales commissions for sales and marketing . cost of revenue and gross margin cost of subscription . cost of subscription primarily consists of expenses related to hosting our services and providing support . these expenses include employee-related costs associated with our cloud-based infrastructure and our customer support organization , third-party hosting fees , software and maintenance costs , outside services associated with the delivery of our subscription services , travel-related costs , amortization expense associated with capitalized internal-use software and acquired technology , and allocated overhead . we intend to continue to invest additional resources in our platform infrastructure and our platform support organizations . we expect our investment in technology to expand the capability of our platform , enabling us to improve our gross margin over time . the level and timing of investment in these areas could affect our cost of subscription revenue in the future . cost of professional services and other . cost of professional services consists primarily of employee-related costs for our professional services delivery team , travel-related costs , and costs of outside services associated with supplementing our professional services delivery team . the cost of providing professional services has historically been higher than the associated revenue we generate . gross margin . gross margin is gross profit expressed as a percentage of total revenue . our gross margin may fluctuate from period to period as our revenue fluctuates , and as a result of the timing and amount of investments to expand our hosting capacity , our continued efforts to build platform support and professional services teams , increased stock-based compensation expenses , as well as the amortization of costs associated with capitalized internal-use software and acquired intangible assets . operating expenses research and development . research and development expenses consist primarily of employee compensation costs and overhead allocation . we believe that continued investment in our platform is important for our growth . story_separator_special_tag we expect our research and development expenses will increase in absolute dollars as our business 50 grows . our research and development expenses for the years ended january 31 , 2019 , 2018 and 2017 , were $ 102.4 million , $ 70.8 million and $ 38.7 million , respectively . sales and marketing . sales and marketing expenses consist primarily of employee compensation costs , costs of general marketing activities and promotional activities , travel-related expenses and allocated overhead . commissions earned by our sales force that are considered incremental and recoverable costs of obtaining a contract with a customer are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be generally five years . we expect our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future as we expand our sales and marketing efforts . however , we expect our sales and marketing expenses to decrease as a percentage of our revenue as our revenue grows . general and administrative . general and administrative expenses consist primarily of employee compensation costs for finance , accounting , legal and human resources personnel . in addition , general and administrative expenses include non-personnel costs , such as legal , accounting and other professional fees , charitable contributions and all other supporting corporate expenses not allocated to other departments . we expect to incur additional expenses as a result of operating as a public company , including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange , costs related to compliance and reporting obligations pursuant to the rules and regulations of the sec , and increased expenses for insurance , investor relations and professional services . we expect our general and administrative expenses will increase in absolute dollars as our business grows . interest expense and other income ( expense ) , net interest expense and other income ( expense ) , net consist principally of interest expense , which primarily includes amortization of debt discount and issuance costs and contractual interest expense for our $ 345.0 million aggregate principal amount of 0.25 % convertible senior notes due february 15 , 2023 ( 2023 notes ) and interest income from our investment holdings . provision for ( benefit from ) income taxes provision for ( benefit from ) income taxes consists of federal and state income taxes in the united states and income taxes in certain foreign jurisdictions . 51 story_separator_special_tag 2023 notes . other income ( expense ) , net increased $ 7.5 million for the year ended january 31 , 2019 compared to the year ended january 31 , 2018 . the increase was primarily due to interest and other income earned on higher cash and short-term investment balances . 55 comparison of the years ended january 31 , 2018 and 2017 revenue replace_table_token_17_th subscription revenue increased by $ 91.5 million , or 63 % , for the year ended january 31 , 2018 compared to the year ended january 31 , 2017 . the increase was primarily due to the addition of new customers as well as an increase in users and sales of additional products to existing customers . professional services and other revenue increased by $ 4.2 million , or 27 % , for the year ended january 31 , 2018 compared to the year ended january 31 , 2017 . the increase in professional services revenue primarily related to an increase in implementation services priced on a time and materials basis , associated with an increase in the number of new customers purchasing our subscription services . cost of revenue , gross profit and gross margin replace_table_token_18_th cost of subscription revenue increased by $ 18.3 million , or 53 % , for the year ended january 31 , 2018 compared to the year ended january 31 , 2017 , primarily due to an increase of $ 9.2 million in employee compensation costs related to higher headcount to support the growth in our subscription services , an increase of $ 4.2 million in data center costs as we increased capacity to support our growth , an increase of $ 1.6 million in allocated overhead costs to support our personnel growth , an increase of $ 1.0 million related to the amortization of capitalized internal-use software costs due to the continued development of our software platform and an increase of $ 0.9 million in consulting fees . our gross margin for subscription revenue increased from 76 % during the year ended january 31 , 2017 to 78 % during the year ended january 31 , 2018 , due to economies of scale as our subscription revenue increased . while our subscription revenue gross margin may fluctuate in the near-term as we invest in our growth , we expect our subscription revenue gross margin to increase over time as we achieve additional economies of scale . 56 cost of professional services and other revenue increased by $ 6.5 million , or 30 % , for the year ended january 31 , 2018 , compared to the year ended january 31 , 2017 , primarily due to an increase of $ 6.0 million in employee compensation costs related to higher headcount , and an increase of $ 0.8 million in allocated overhead costs . our gross margin for professional services and other revenue decreased to ( 40 ) % from ( 37 ) % during the year ended january 31 , 2018 as compared to the year ended january 31 , 2017 , due to the continued shift that began during fiscal 2016 to price our professional services on a time and materials basis . operating expenses research and development expenses replace_table_token_19_th research and development expenses increased $ 32.2 million , or 83 % , for the year ended january 31 , 2018 compared to the year ended january 31 , 2017 .
| cost of revenue , gross profit and gross margin replace_table_token_12_th cost of subscription revenue increased by $ 24.9 million , or 47 % , for the year ended january 31 , 2019 compared to the year ended january 31 , 2018 , primarily due to an increase of $ 11.1 million in employee compensation costs related to higher headcount to support the growth in our subscription services , an increase of $ 3.7 million in data center costs as we increased capacity to support our growth , an increase of $ 3.0 million in allocated overhead costs to support personnel growth , an increase of $ 2.2 million related to the amortization of capitalized internal-use software costs , an increase of $ 1.3 million in consulting fees , an increase of $ 0.8 million related to the amortization of acquired technology and an increase of $ 0.7 million in employee related expenses . our gross margin for subscription revenue increased to 79 % during the year ended january 31 , 2019 , up from 78 % during the year ended january 31 , 2018 , due to economies of scale as our subscription revenue increased . while our subscription revenue gross margin may fluctuate in the near-term as we invest in our growth , we expect our subscription revenue gross margin to increase over time as we achieve additional economies of scale . cost of professional services and other revenue increased by $ 7.8 million , or 28 % , for the year ended january 31 , 2019 , compared to the year ended january 31 , 2018 , primarily due to an increase of $ 4.0 million in employee compensation costs related to higher headcount , an increase of $ 1.9 million in consulting fees and an increase of $ 1.2 million in allocated overhead costs . our gross margin for professional services and other revenue improved to ( 27 ) % during the year ended january 31 , 2019 from ( 40 ) % during the year ended january 31 , 2018 primarily due to higher professional services and other revenues as well as more efficient utilization from our professional services team . operating expenses research and development expenses replace_table_token_13_th research and development expenses increased $ 31.6 million , or 45 % , for the year ended january 31 , 2019 compared to the year ended january 31 , 2018 . the increase was primarily due to an increase of $ 21.3 million in employee compensation costs due to higher headcount , an increase of $ 5.9 million in allocated overhead costs , an increase of $ 1.7 million
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we believe that the appropriate foundation and products are now in place and believe that investors will recognize the value in these products , thereby generating new revenue streams for westwood . 2012 highlights the following items are highlights for the year ended december 31 , 2012 : assets under management as of december 31 , 2012 were a record $ 14.2 billion , an 8 % increase compared to december 31 , 2011 ; average assets under management for 2012 were $ 13.7 billion , a 6 % increase compared to 2011. as of december 31 , 2012 , on an asset-weighted basis , over 90 % of our investment strategies have outperformed their respective benchmarks since inception . with the addition of three funds in late 2012 , our westwood funds tm family of mutual funds now includes ten funds and ended the year with $ 1.6 billion in assets under management . our income opportunity strategy , with its focus on current income and lower volatility , had net asset inflows of over $ 600 million and finished the year with $ 1.7 billion in assets under management . we established westwood international advisors inc. , based in toronto , to manage global equity and emerging markets equity strategies , and assets under management have grown to $ 888 million as of december 31 , 2012. total revenue was a record $ 77.5 million , a 12 % increase over the prior year in october 2012 , the board approved an increase in our quarterly dividend to $ 0.40 per share , or an annual rate of $ 1.60 , resulting in a dividend yield of 3.9 % at the year-end stock price of $ 40.90. we repurchased 97,724 shares of our common stock during the year for $ 3.8 million and have $ 10.0 million remaining under a stock repurchase program authorized by our board of directors in july 2012. our financial position remains strong with liquid cash and investments of $ 63.7 million as of december 31 , 2012 . revenues we derive revenues from investment advisory fees , trust fees , and other revenues . our advisory fees are generated by westwood management and westwood international , which manage client accounts under investment advisory and subadvisory agreements . advisory fees are calculated based on a percentage of assets under management and are paid in accordance with the terms of the agreements . westwood management 's and westwood international 's advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter , quarterly in arrears based on assets under management on the last day of the previous quarter , or are based on a daily or monthly analysis of assets under management for the stated period . westwood management and westwood international recognize revenues as services are rendered . a limited number of our clients have agreed to contractual performance-based fees , which generate additional revenues if we outperform a specified index over a specific period of time . we record revenue for performance-based fees at the end of the measurement periods . since most of our advance paying clients ' billing periods coincide with the calendar quarter to which payment relates , revenue related to those clients is fully recognized within the quarter . consequently , there is not a significant amount of deferred revenue contained in our financial statements . 24 our trust fees are generated by westwood trust pursuant to trust or custodial agreements . trust fees are separately negotiated with each client and are generally based on a percentage of assets under management . westwood trust also provides trust services to a small number of clients on a fixed fee basis . most trust fees are paid quarterly in advance and are recognized as services are rendered . since billing periods for the majority of westwood trust 's advance paying clients coincide with the calendar quarter to which payment relates , revenue is fully recognized within the quarter and consequently there is not a significant amount of deferred revenue contained in our financial statements . our other revenues generally consist of interest and investment income . although we invest most of our cash in u.s. treasury securities , we also invest in equity and fixed income instruments and money market funds , including the westwood funds tm and common trust funds sponsored by westwood trust . assets under management assets under management increased $ 1.1 billion , or 8 % , to $ 14.2 billion at december 31 , 2012 compared to $ 13.1 billion at december 31 , 2011. quarterly average assets under management increased $ 786 million , or 6 % , to $ 13.7 billion for 2012 compared with $ 12.9 billion for 2011. assets under management increased $ 602 million , or 5 % , to $ 13.1 billion at december 31 , 2011 compared to $ 12.5 billion at december 31 , 2010. quarterly average assets under management increased $ 2.2 billion , or 20 % , to $ 12.9 billion for 2011 compared with $ 10.7 billion for 2010. the following table sets forth our assets under management as of december 31 , 2012 , 2011 and 2010 : replace_table_token_6_th our assets under management disclosure reflects management 's view of our three types of accounts : institutional , private wealth and mutual funds . institutional includes separate accounts of corporate pension and profit sharing plans , public employee retirement funds , taft hartley plans , endowments , foundations and individuals ; subadvisory relationships where westwood provides investment management services for funds offered by other financial institutions ; and managed account relationships with brokerage firms and other registered investment advisors that offer westwood products to their customers . private wealth includes assets for which westwood trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements . story_separator_special_tag investment subadvisory services are provided for the common trust funds by westwood management , westwood international and external , unaffiliated subadvisors . for certain assets in this category , westwood trust currently provides limited custody services for a minimal or no fee , but views these assets as potentially converting to fee-generating managed assets in the future . as an example , some assets in this category consist of low-basis stock currently being held in custody for clients , but we believe there is potential for these assets to convert to fee-generating managed assets during an inter-generational transfer of wealth at some future date . also included are assets acquired in the mccarthy transaction , described in note 6 of the financial statements included in this form 10-k. acquisitions representing institutional and high net worth clients for which westwood provides investment management and advisory services . 25 mutual funds include the westwood funds tm , a family of mutual funds for which westwood management serves as advisor . roll-forward of assets under management replace_table_token_7_th the increase in assets under management for the year ended december 31 , 2012 was primarily due to new inflows of $ 2.1 billion and market appreciation of $ 1.7 billion , partially offset by outflows of $ 2.7 billion . inflows were driven primarily by inflows into institutional separate accounts , subadvisory mandates , the westwood funds tm and private wealth accounts . outflows were primarily related to outflows and some account closings by institutional separate account clients and subadvisory mandates and outflows from private wealth accounts . replace_table_token_8_th the increase in assets under management for the year ended december 31 , 2011 was primarily due to new inflows of $ 2.4 billion , partially offset by outflows of $ 1.8 billion and market depreciation of $ 63 million . inflows were driven primarily by inflows into institutional separate accounts , subadvisory mandates and the westwood funds tm . outflows were primarily related to outflows and some account closings by institutional separate account clients and subadvisory mandates and outflows from the westwood funds tm . replace_table_token_9_th 26 the increase in assets under management for the year ended december 31 , 2010 was primarily due to market appreciation of $ 1.6 billion , the acquisition of $ 1.1 billion of assets in the mccarthy transaction and new inflows of $ 1.4 billion , partially offset by outflows of $ 1.9 billion . inflows were driven primarily by additional inflows into the westwood funds tm , institutional separate accounts and subadvisory mandates . outflows were primarily related to rebalancing and some account closings by institutional separate account clients and outflows from subadvisory mandates and the westwood funds tm . story_separator_special_tag employee compensation and benefits . employee compensation and benefits increased by 21 % to $ 35.1 million compared with $ 29.0 million in 2010. this increase was primarily due to increases of $ 3.1 million in incentive compensation due to increased pre-tax income , $ 1.6 million in salary expense primarily due to a full year of salary expense for our omaha office in 2011 as well as additional hires in the dallas office and $ 700,000 in restricted stock expense due to a higher number of shares granted in february 2011 and at a higher market price than previous grants . we had 80 full-time employees as of december 31 , 2011 compared to 77 at december 31 , 2010. sales and marketing . sales and marketing costs increased by 21 % to $ 994,000 in 2011 compared with $ 823,000 in 2010 primarily due to referral fees on acquired assets and increased direct marketing expenses . westwood mutual funds . westwood mutual funds expenses increased 19 % to $ 790,000 in 2011 compared with $ 662,000 in 2010 primarily due to an increase of $ 358,000 in shareholder servicing fees due to higher fund assets partially offset by decreases in adjusting deferred acquisition liabilities to fair value from a 2009 fund acquisition and in professional fees related to the reorganization of the mccarthy multi-cap stock fund into the westwood dividend growth fund . information technology . information technology expenses increased by 52 % to $ 2.1 million in 2011 compared with $ 1.4 million in 2010 primarily due to an increase of $ 478,000 in software maintenance and licenses mainly for upgraded client portfolio accounting and performance reporting systems and an increase of $ 146,000 in research tools . professional services . professional services expenses increased by 1 % to $ 3.0 million in 2011 compared with $ 2.9 million in 2010. the increase is primarily due to a $ 176,000 increase in audit fees related to additional audits required for investment vehicles that hold client assets and a $ 176,000 increase in advisory fees paid to external subadvisors due to growth in subadvised common trust funds sponsored by westwood trust partially offset by a decrease of $ 187,000 in legal fees primarily related to the 2010 mccarthy acquisition and a decrease of $ 159,000 in other professional fees related to the mccarthy acquisition and other growth initiatives undertaken in 2010. general and administrative . general and administrative expenses increased by 39 % to $ 3.9 million in 2011 compared with $ 2.8 million in 2010 primarily due to increases of $ 343,000 in amortization of intangible assets acquired in 2010 and $ 276,000 in rent expense related to a full year of lease expense for our omaha office and a new lease for our dallas corporate office and $ 136,000 in directors fees related to a new director fee structure . partially offsetting these increases were decreases in custody and depreciation expenses . provision for income taxes . provision for income taxes increased by 31 % to $ 8.4 million in 2011 compared with $ 6.4 million in 2010 primarily due to higher income before taxes . supplemental financial information as supplemental information , we are providing non-generally accepted accounting principles ( non-gaap ) performance measures that we refer to as economic earnings and economic expenses .
| other revenues , which generally consist of interest and investment income , increased by $ 3.1 million to $ 3.3 million in 2012 compared with $ 219,000 in 2011 primarily due to a $ 2.2 million increase in net realized gains , a $ 635,000 increase in unrealized gains and a $ 293,000 increase in dividend income , partially offset by a $ 34,000 decrease in interest income . the increase in realized gains was primarily due to the $ 1.9 million gain on sale of 200,000 shares of teton advisors , inc. 27 employee compensation and benefits . employee compensation and benefits , which generally consist of salaries , incentive compensation , equity-based compensation expense and benefits , increased by 25 % to $ 43.7 million compared with $ 35.1 million in 2011. this increase was primarily due to increases of $ 6.2 million in incentive compensation due to the amortization of long-term incentive awards for westwood international employees , $ 2.3 million in salary expense primarily due to additional hires at westwood management and westwood trust , salaries related to westwood international and $ 632,000 in performance-based restricted stock expense due to shares granted in february 2012. we had 96 full-time employees as of december 31 , 2012 compared to 80 at december 31 , 2011. sales and marketing . sales and marketing costs consist of expenses associated with our marketing efforts , including travel and entertainment , direct marketing , and advertising costs . sales and marketing costs increased by 14 % to $ 1.1 million in 2012 compared with $ 1.0 million in 2011 primarily due to increased direct marketing and travel expenses . westwood mutual funds . westwood mutual funds expenses generally consist of costs associated with our marketing , distribution , administration and acquisition efforts related to the westwood funds tm . westwood mutual funds expenses increased 46 % to $ 1.2 million in 2012 compared with $ 790,000 in 2011 primarily due to an increase of $ 219,000 in shareholder servicing fees due to higher fund assets and an increase of $ 104,000 in subadvisor fees . information
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we retained a 65 % ownership interest in each of the subsidiaries and issued the remaining 35 % ownership interest to funds affiliated with thomas h. lee partners , and certain related entities on january 3 , 2014. black knight , through servicelink and bkfs , now owns and operates the former lps businesses and our servicelink business . fidelity national title group , bkfs and servicelink will be our core operating subsidiaries in the future . on february 25 , 2013 , we formed j. alexander 's , a restaurant company which is focused on the upscale-casual dining segment . j. alexander 's consists of thirty j. alexander 's locations and ten stoney river locations . abrh contributed the ten stoney river locations to j. alexander 's for an approximate 28 % ownership interest in the new company , giving us an overall 87 % ownership interest in j. alexander 's . the operations of j. alexander 's are consolidated in our existing restaurant group segment . previously , in september 2012 we purchased all of the outstanding common stock of j. alexander 's corporation for total consideration of $ 72 million in cash , net of cash acquired of $ 7 million . related party transactions our financial statements reflect transactions with fidelity national information services ( `` fis '' ) , which is a related party . see note a of the notes to consolidated financial statements . business trends and conditions fnf core operations title insurance revenue is closely related to the level of real estate activity which includes sales , mortgage financing and mortgage refinancing . the levels of real estate activity are primarily affected by the average price of real estate sales , the availability of funds to finance purchases and mortgage interest rates . declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues . we have found that residential real estate activity is generally dependent on the following : mortgage interest rates ; the mortgage funding supply ; and the strength of the united states economy , including employment levels . in 2007 , as interest rates on adjustable rate mortgages reset to higher rates , foreclosures on subprime mortgage loans increased to record levels . this resulted in a significant decrease in levels of available mortgage funding as investors became wary of the risks associated with investing in subprime mortgage loans . in addition , tighter lending standards and a bearish outlook on the real estate environment caused potential home buyers to become reluctant to purchase homes . in 2008 , the increase in foreclosure activity , which had previously been limited to the subprime mortgage market , became more widespread as borrowers encountered difficulties in attempting to refinance their adjustable rate mortgages . in the last three years , the elevated mortgage delinquency and default rates caused negative operating results at a number of banks and financial institutions and , as a result , significantly reduced the level of lending activity . multiple banks have failed from 2009-2012 , further reducing the capacity of the mortgage industry to make loans . since december 2008 , the federal reserve has held the federal funds rate at 0.0 % -0.25 % , and has indicated that rates will stay at this level at least until unemployment rates improve . mortgage interest rates remained at historically low levels throughout 2013 , however , in september 2013 interest rates rose to their highest level since 2011. as of january 14 , 2014 , the mortgage banker 's association ( `` mba '' ) estimated the size of the u.s. mortgage originations market as shown in the following table for 2013 - 2015 in their `` mortgage finance forecast '' ( in trillions ) : replace_table_token_13_th as shown above , the originations in 2013 and 2012 were driven primarily by refinance transactions , which coincides with the historically low interest rates experienced during those years . in 2014 , the mba predicts a 38.9 % decrease in the total market , primarily due to a 63.6 % decrease in refinance transactions in 2014 , with the originations in 2015 remaining relatively consistent with those in 2014 . 28 several pieces of legislation were enacted to address the struggling mortgage market and the current economic and financial environment . on october 24 , 2011 , the federal housing finance agency ( `` fhfa '' ) announced a series of changes to the home affordable refinance program ( `` harp '' ) that would make it easier for certain borrowers who owe more than their home is worth and who are current on their mortgage payments to refinance their mortgages at lower interest rates . the program reduces or eliminates the risk-based fees fannie mae and freddie mac charge on many loans , raises the loan-to-home value ratio requirement for refinancing , and streamlines the underwriting process . according to the federal housing authority ( `` fha '' ) , lenders began taking refinancing applications on december 1 , 2011 under the modified harp . on april 11 , 2013 , the fhfa announced that the modified harp program had been extended through december 2015. we believe the modified harp program had a positive effect on our results during 2013 and 2012 , but are uncertain to what degree the program may impact our results in the future . during 2010 , a number of lenders imposed freezes on foreclosures in some or all states as they reviewed their foreclosure practices . in response to these freezes , the office of the comptroller of the currency ( `` occ '' ) reviewed the foreclosure practices in the residential mortgage loan servicing industry . on april 13 , 2011 , the occ and other federal regulators ( collectively the `` banking agencies '' ) announced formal consent orders against several national bank mortgage servicers and third-party servicer providers for inappropriate practices related to residential mortgage loan servicing and foreclosure processing . story_separator_special_tag the consent orders require the servicers to promptly correct deficiencies and make improvements in practices for residential mortgage loan servicing and foreclosure processing , including improvements to future communications with borrowers and a comprehensive `` look back '' to assess whether foreclosures complied with federal and state laws and whether any deficiencies in the process or related documentation resulted in financial injury to borrowers . our title insurance underwriters were not involved in these enforcement actions and we do not believe that our title insurance underwriters are exposed to significant losses resulting from faulty foreclosure practices . our title insurance underwriters issue title policies on real estate owned properties to new purchasers and lenders to those purchasers . we believe that these policies will not result in significant additional claims exposure to us because even if a court sets aside a foreclosure due to a defect in documentation , the foreclosing lender would be required to return to our insureds all funds obtained from them , resulting in reduced exposure under the title insurance policy . further , we believe that under current law and the rights we have under our title insurance policies , we would have the right to seek recovery from the foreclosing lender in the event of a failure to comply with state laws or local practices in connection with a foreclosure . the former lps and certain of its subsidiaries entered into a consent order with the banking agencies in relation to its default operations , now part of servicelink . as part of the consent order , lps agreed to further study the issues identified in the review and enhance its compliance , internal audit , risk management and board oversight plans with respect to the related businesses , among additional agreed undertakings . in january 2013 , ten large mortgage servicers concluded the reviews required by the 2011 consent orders and agreed to monetary settlements , and lps also entered into settlement agreements , in january 2013 with 49 states and the district of columbia relating to certain practices within its default operations and in february 2014 , black knight ( formerly lps ) also settled with the state of nevada and the federal deposit insurance corporation . in april 2013 , these mortgage servicers began making restitution under these settlements . we can not predict whether these settlements may result in more normalized foreclosure timelines in the future . moreover , we can not predict whether any additional legislative or regulatory changes will be implemented as a result of the findings of the banking agencies or whether the u.s. federal government may take additional action to address the current housing market and economic uncertainty . some states have enacted or are considering adopting legislation , such as the california homeowner bill of rights , that places additional responsibilities and restrictions on servicers with respect to the foreclosure process . any such actions could further extend foreclosure timelines . moreover , as the processing of foreclosures in accordance with applicable law becomes more onerous , many lenders are addressing loans in default through other means , such as short sales , in order to avoid the risks and liability now associated with the foreclosure process . if foreclosure timelines continue to be extended and servicers address delinquent loans through other processes , the results of our default operations within servicelink may be adversely affected . on february 9 , 2012 , federal officials , state attorneys general and representatives of bank of america , jp morgan chase , wells fargo , citigroup and ally financial agreed to a $ 25 billion settlement of federal and state investigations into the foreclosure practices of banks and other mortgage servicers from september 2008 to december 2011. under the settlement , approximately 1,000,000 underwater borrowers will have their mortgages reduced by lenders and 300,000 homeowners will be able to refinance their homes at lower interest rates . we are uncertain to what degree these initiatives have affected our results or may affect our results in the future . in addition to state-level regulation , segments of our core businesses are subject to regulation by federal agencies , including the consumer financial protection bureau ( “ cfpb ” ) . the dodd-frank wall street reform and consumer protection act of 2010 established the cfpb , and in january 2012 , president obama appointed its first director . the cfpb has been given broad authority to regulate , among other areas , the mortgage and real estate markets in matters pertaining to consumers . this authority includes the enforcement of the real estate settlement procedures act formerly placed with the department of housing and urban development . on july 9 , 2012 , the cfpb introduced a number of proposed rules related to the enforcement of the real estate settlement procedures act and the truth in lending act , including , among others , measures designed to ( i ) simplify financing documentation and ( ii ) require lenders to deliver to consumers a statement of final financing charges ( and the related annual 29 percentage rate ) at least three business days prior to the closing . these rules became effective on january 10 , 2014 . we can not be certain what impact , if any , these new rules , or the cfpb generally , will have on our core businesses . historically , real estate transactions have produced seasonal revenue levels for the real estate industry including title insurers . the first calendar quarter is typically the weakest quarter in terms of revenue due to the generally low volume of home sales during january and february . the third calendar quarter has been typically the strongest in terms of revenue primarily due to a higher volume of home sales in the summer months and the fourth quarter is usually also strong due to commercial entities desiring to complete transactions by year-end .
| interest and investment income was $ 129 million , $ 144 million , and $ 143 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the decrease in 2013 as compared to 2012 is due to decreased bond yield and 38 holdings . effective return on average invested assets , excluding realized gains and losses , was 4.1 % , 4.4 % , and 4.3 % for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . net realized gains and losses totaled $ 12 million , $ 187 million , and $ 7 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the net realized gain for the year ended december 31 , 2013 includes an $ 11 million gain on the sale of fis stock , a $ 10 million gain on individually insignificant portfolio sales , a $ 5 million net gain on sales of preferred stock , and a $ 3 million gain on the settlement of a mortgage loan at j. alexander 's . these gains were offset by a $ 3 million loss on the structured notes , $ 4 million in title plant impairments , a $ 3 million loss on debt extinguishment at remy , and $ 7 million in other individually immaterial impairments and net losses . the net realized gain for the year ended december 31 , 2012 includes a $ 73 million gain on the consolidation of abrh and o'charley 's , a $ 48 million bargain purchase gain on the acquisition of o'charley 's , a $ 78 million gain on the consolidation of remy , and $ 16 million in net gains from the sale of other various investments and assets , offset by a $ 6 million impairment on land held at our majority-owned affiliate cascade timberlands , a $ 6 million loss on the early extinguishment of our 5.25 % bonds , $ 3 million impairment charges
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interest income ( expense ) for the year ended december 31 , 2019 , we recorded net interest expense of $ 17.4 million , compared to $ 18.3 million for the comparable prior period . included in interest expense for the year ended december 31 , 2019 and 2018 were non-cash charges of $ 12.7 million and $ 11.8 million , respectively , related to the amortization of debt discount and transaction costs of the convertible senior notes . interest income increased to $ 4.7 million for 2019 , compared to $ 3.2 million for the comparable prior period , primarily related to higher average interest yields . other income ( expense ) during the fourth quarter of 2019 , we determined that our equity investment in kateeva had indicators of impairment , and as such , we reviewed this investment for impairment . based on this review , we recorded a non-cash impairment charge of $ 21.0 million . income taxes the 2019 income tax expense of $ 0.8 million is comprised of : ( i ) a $ 1.0 million income tax expense attributed to the profitable non-u.s. operations , as well as withholding tax as we now expect to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 tax act , ( ii ) a $ 0.3 million income tax expense related primarily to u.s. tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets , as well as state and local income taxes , which were partially offset by ( iii ) a $ 0.5 million income tax benefit related to the amortization and subsequent impairment of certain non-u.s. intangible assets during the year . the 2018 income tax benefit of $ 26.7 million is comprised of : ( i ) a $ 25.2 million income tax benefit related to the impairment of certain intangible assets during the year , ( ii ) a $ 1.7 million income tax benefit recorded in connection with the 2017 tax act , ( iii ) a $ 0.4 million income tax expense related primarily to u.s. tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets , as well as state and local income taxes , and ( iv ) a $ 0.2 million income tax benefit from non-u.s. operations and non-u.s. withholding taxes recorded as we expected to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 tax act . 32 liquidity and capital resources our cash and cash equivalents , restricted cash , and short-term investments are as follows : replace_table_token_6_th a portion of our cash and cash equivalents is held by our subsidiaries throughout the world , frequently in each subsidiary 's respective functional currency , which is typically the u.s. dollar . at december 31 , 2019 and 2018 , cash and cash equivalents of $ 73.0 million and $ 66.9 million , respectively , were held outside the united states . as of december 31 , 2019 , we had $ 9.4 million of accumulated undistributed earnings generated by our non-u.s. subsidiaries for which the u.s. repatriation tax has been provided and did not require the use of cash due to the use of net operating loss carryforwards . approximately $ 5.0 million of undistributed earnings would be subject to foreign withholding taxes if distributed back to the united states . we believe that our projected cash flow from operations , combined with our cash and short term investments , will be sufficient to meet our projected working capital requirements , contractual obligations , and other cash flow needs for the next twelve months , including scheduled interest payments on our convertible senior notes due 2023 . a summary of the cash flow activity for the year ended december 31 , 2019 and 2018 is as follows : cash flows from operating activities replace_table_token_7_th net cash used in operating activities was $ 7.4 million for the year ended december 31 , 2019 and was due to the net loss of $ 78.7 million plus a decline in cash flow from operating activities due to changes in operating assets and liabilities of $ 16.8 million , partially offset by adjustments for non-cash items of $ 88.1 million . the changes in operating assets and liabilities was largely attributable to decreases in accounts payable and accrued expenses and customer deposits and deferred revenue , partially offset by decreases in inventories and deferred cost of sales , accounts receivable and contract assets , and prepaid expenses and other current assets . net cash used in operating activities was $ 37.7 million for the year ended december 31 , 2018 and was due to the net loss of $ 407.1 million plus a decline in cash flow from operating activities due to changes in operating assets and liabilities of $ 56.0 million , partially offset by adjustments for non-cash items of $ 425.4 million . the changes in operating assets and liabilities was largely attributable to decreases in accounts payable and accrued expenses , customer deposits and deferred 33 revenue , and an increase in inventories and deferred cost of sales , partially offset by decreases in accounts receivable and contract assets , and prepaid expenses and other current assets . cash flows from investing activities replace_table_token_8_th the net cash used in investing activities during the year ended december 31 , 2019 was attributable to net change in investments as well as capital expenditures . the net cash used in investing activities during the year ended december 31 , 2018 was attributable to capital expenditures , net change in investments , and net cash used in the final payout related to the acquisition of ultratech . cash flows from financing activities replace_table_token_9_th the net cash provided by financing activities for the year ended december 31 , 2019 was immaterial . story_separator_special_tag the net cash used in financing activities for the year ended december 31 , 2018 was primarily related to the share repurchase program that expired in december 2019 . convertible senior notes on january 10 , 2017 , we issued $ 345.0 million of 2.70 % convertible senior notes . we received net proceeds , after deducting underwriting discounts and fees and expenses payable by the company , of approximately $ 335.8 million . the convertible senior notes bear interest at a rate of 2.70 % per year , payable semiannually in arrears on january 15 and july 15 of each year , commencing on july 15 , 2017. the convertible senior notes mature on january 15 , 2023 , unless earlier purchased by the company , redeemed , or converted . we believe that we have sufficient capital resources and cash flows from operations to support scheduled interest payments on this debt . contractual obligations and commitments we have commitments under certain contractual arrangements to make future payments for goods and services . these contractual arrangements secure the rights to various assets and services to be used in the future in the normal course of business . we expect to fund these contractual arrangements with cash generated from operations in the normal course of business , as well as existing cash and cash equivalents and short-term investments . in addition , we have bank guarantees and letters of credit issued by a financial institution on our behalf as needed . at december 31 , 2019 , outstanding bank guarantees and letters of credit totaled $ 10.2 million and unused bank guarantees and letters of credit of $ 21.6 million were available to be drawn upon . 34 the following table summarizes our contractual arrangements at december 31 , 2019 and the timing and effect that those commitments are expected to have on our liquidity and cash flow in future periods . replace_table_token_10_th ( 1 ) purchase commitments are generally for inventory used in the manufacturing of our products . we generally do not enter into purchase commitments extending beyond one year . at december 31 , 2019 , we have $ 5.9 million of offsetting supplier deposits that will be applied against these purchase commitments . off-balance sheet arrangements we do not have any off-balance sheet arrangements that have , or are reasonably likely to have , a current or future material effect on our financial condition , changes in financial condition , expenses , results of operations , liquidity , capital expenditures , or capital resources other than bank guarantees and purchase commitments reflected in the preceding “ contractual obligations and commitments ” table . application of critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires a high degree of judgment , either in the application and interpretation of existing accounting literature or in the development of estimates that affect the reported amounts of assets , liabilities , revenues , and expenses . on an ongoing basis , we evaluate our estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances . the results of our evaluation form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . these estimates may change in the future if underlying assumptions or factors change , and actual results may differ from these estimates . we consider the following significant accounting policies to be critical because of their complexity and the high degree of judgment involved in implementing them . revenue recognition we adopted asc 606 as of january 1 , 2018 , using the full retrospective method . refer to note 1 , “ significant accounting policies , ” for additional information . revenue is recognized upon the transfer of control of the promised product or service to the customer in an amount that reflects the consideration we expect to receive in exchange for such product or service . our contracts with customers generally do not contain variable consideration . in the rare instances where variable consideration is included , we estimate the amount of variable consideration and determine what portion of that , if any , has a high probability of significant subsequent revenue reversal , and if so , that amount is excluded from the transaction price . our contracts with customers frequently contain multiple deliverables , such as systems , upgrades , components , spare parts , installation , maintenance , and service plans . judgment is required to properly identify the performance obligations within a contract and to determine how the revenue should be allocated among the performance obligations . we also evaluate whether multiple transactions with the same customer or related parties should be considered part of a single contract based on an assessment of whether the contracts or agreements are negotiated or executed within a short time frame of each other or if there are indicators that the contracts are negotiated in contemplation of one another . 35 when there are separate units of accounting , we allocate revenue to each performance obligation on a relative stand-alone selling price basis . the stand-alone selling prices are determined based on the prices at which we separately sell the systems , upgrades , components , spare parts , installation , maintenance , and service plans . for items that are not sold separately , we estimate stand-alone selling prices generally using an expected cost plus margin approach . most of our revenue is recognized at a point in time when the performance obligation is satisfied .
| sales increased in rest of world due to an increase of sales in the front-end semiconductor market in japan for our euv mask blank systems . sales in japan and taiwan were $ 48.1 million and $ 48.8 million , respectively , for the year ended december 31 , 2019. we expect there will continue to be year-to-year variations in our future sales distribution across markets and geographies . gross profit in 2019 , gross profit decreased compared to 2018 primarily due to a decrease in sales volume , partially offset by increased gross margins . gross margins increased principally due to product and region mix of sales in the periods , which included an exit out of the low margin commoditized led market in china , partially offset by an increase in inventory reserves . research and development the markets we serve are characterized by continuous technological development and product innovation , and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives . research and development expenses decreased in 2019 compared to 2018 primarily related to personnel-related expenses and professional fees as a result of our initiative to streamline operations , enhance efficiency , and reduce costs . selling , general , and administrative selling , general , and administrative expenses decreased in 2019 compared to 2018 primarily related to personnel-related expenses and professional fees as a result of our initiative to streamline operations , enhance efficiency , and reduce costs . amortization expense amortization expense decreased in 2019 compared to 2018 primarily as a result of the impairment of intangible assets during the second quarter of 2018 . restructuring expense during the second quarter of 2018 , we initiated plans to reduce excess capacity associated with the manufacture and support of our advanced packaging lithography and 3d wafer inspection systems by consolidating these operations into our san jose , california facility . as a result of this and other cost saving initiatives , we announced headcount reductions of approximately
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the amount of the provisioning fee included in each contract is generally determined by marking up or passing through the corresponding charge from the company 's supplier , imposed pursuant to the company 's purchase agreement . non-recurring revenue earned for providing provisioning services in connection with the delivery of recurring communications services is recognized ratably over the contractual term of the recurring service starting upon commencement of the service contract term . fees recorded or billed from these provisioning services are initially recorded as deferred revenue then recognized ratably over the contractual term of the recurring service . installation costs related to provisioning incurred by the company from independent third-party suppliers , directly attributable and necessary to fulfill a particular service contract , and which costs would not have been incurred but for the occurrence of that service contract , are recorded as deferred contract costs and expensed proportionally over the contractual term of service in the same manner as the deferred revenue arising from that contract . deferred costs do not exceed deferred upfront fees . the company believes the initial contractual term is the best estimate of the period of earnings . other revenue . from time to time , the company recognizes revenue in the form of fixed or determinable cancellation ( pre-installation ) or termination ( post-installation ) charges imposed pursuant to the service contract . this revenue is earned when a customer cancels or terminates a service agreement prior to the end of its committed term . this revenue is recognized when billed if collectability is reasonably assured . in addition , the company from time to time sells equipment in connection with data networking applications . the company recognizes revenue from the sale of equipment at the contracted selling price when title to the equipment passes to the customer ( generally f.o.b . origin ) and when collectability is reasonably assured . estimating allowances and accrued liabilities the company employs the “ allowance for bad debts ” method to account for bad debts . the company states its accounts receivable balances at amounts due from the customer net of an allowance for doubtful accounts . the company determines this allowance by considering a number of factors , including the length of time receivables are past due , previous loss history , and the customer 's current ability to pay . in the normal course of business from time to time , the company identifies errors by suppliers with respect to the billing of services . the company performs bill verification procedures to attempt to ensure that errors in its suppliers ' billed invoices are identified and resolved . the bill verification procedures include the examination of bills , comparison of billed rates to rates shown on the actual contract documentation and logged in the company 's operating systems , comparison of circuits billed to the company 's database of active circuits , and evaluation of the trend of invoiced amounts by suppliers , including the types of charges being assessed . if the company concludes by reference to such objective factors that it has been billed inaccurately , the company will record a liability for the amount that it believes is owed with reference to the applicable contractual rate and , in the instances where the billed amount exceeds the applicable contractual rate , the likelihood of prevailing with respect to any dispute . these disputes with suppliers generally fall into four categories : pricing errors , network design , start of service date or disconnection errors , and taxation and regulatory surcharge errors . in the instances where the billed amount exceeds the applicable contractual rate the company does not accrue the full face amount of obvious billing errors in accounts payable because to do so would present a misleading and confusing picture of the company 's current liabilities by accounting for liabilities that are erroneous based upon a detailed review of objective evidence . if the company ultimately pays less than the 18 corresponding accrual in resolution of an erroneously over-billed amount , the company recognizes the resultant decrease in cost of revenue in the period in which the resolution is reached . if the company ultimately pays more than the corresponding accrual in resolution of an erroneously billed amount , the company recognizes the resultant cost of revenue increase in the period in which the resolution is reached and during which period the company makes payment to resolve such account . although the company disputes erroneously billed amounts in good faith and historically has prevailed in most cases , it recognizes that it may not prevail in all cases ( or in full ) with a particular supplier with respect to such billing errors or it may choose to settle the matter because of the quality of the supplier relationship or the cost and time associated with continuing the dispute . careful judgment is required in estimating the ultimate outcome of disputing each error , and each reserve is based upon a specific evaluation by management of the merits of each billing error ( based upon the bill verification process ) and the potential for loss with respect to that billing error . in making such a case-by-case evaluation , the company considers , among other things , the documentation available to support its assertions with respect to the billing errors , its past experience with the supplier in question , and its past experience with similar errors and disputes . as of december 31 , 2014 , the company had $ 6.9 million in disputed billings from suppliers . in instances where the company has been billed less than the applicable contractual rate , the accruals remain on the company 's consolidated financial statements until the vendor invoices for the under-billed amount or until such time as the obligations related to the under-billed amounts , based upon applicable contract terms and relevant statutory periods in accordance with the company 's internal policy , have passed . story_separator_special_tag if the company ultimately determines it has no further obligation related to the under-billed amounts , the company recognizes a decrease in expense in the period in which the determination is made . business combinations the company allocates the fair value of purchase consideration to the tangible assets acquired , liabilities assumed and intangible assets acquired based on their estimated fair values . the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill . when determining the fair values of assets acquired and liabilities assumed , management makes significant estimates and assumptions , especially with respect to intangible assets . critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and developed technology ; and discount rates . management 's estimates of fair value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable and , as a result , actual results may differ from estimates . other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed , as more fully discussed in note 3 of notes to consolidated financial statements included in item 8 of this annual report on form 10-k. goodwill and intangible assets the company assesses goodwill for impairment on at least an annual basis on october 1 unless interim indicators of impairment exist . goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value . the company operates as a single operating segment and as a single reporting unit for the purpose of evaluating goodwill . as of october 1 , 2014 , the company performed its annual impairment test of goodwill by comparing the fair value of the company ( primarily based on market capitalization ) to the carrying value of equity , and concluded that the fair value of the reporting unit was greater than the carrying amount . during the fiscal years ended december 31 , 2014 , and 2013 the company did not record any goodwill impairment . intangible assets consist of customer relationships , restrictive covenants related to employment agreements , license fees and a trade name . customer relationships and restrictive covenants related to employment agreements are amortized , on a straight-line basis , over periods of up to seven years . point-to-point fcc licenses are accounted for as definite lived intangibles and amortized over the average remaining useful life of such licenses which approximates three years . the trade name is not amortized , but is tested on at least an annual basis as of october 1 unless interim indicators of impairment exist . the trade name is considered to be impaired when the net book value exceeds its estimated fair value . as of october 1 , 2014 and 2013 the company performed its annual impairment test of the trade name , and concluded that the fair value of the trade name was greater than the carrying amount , respectively . the company used the relief from royalty method for valuation . the fair value of the asset is the present value of the license fees avoided by owning the asset , or the royalty savings . 19 income taxes provisions for federal and state income taxes are calculated from the income reported on our financial statements based on current tax law and also include the cumulative effect of any changes in tax rates from those previously used in determining deferred tax assets and liabilities . such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for purposes of preparing financial statements than for income tax purposes . significant judgment is required in determining income tax provisions and evaluating tax positions . we establish reserves for uncertain tax positions when , despite the belief that our tax positions are supportable , there remains uncertainty in a tax position taken in our previously filed income tax returns . for tax positions where it is more likely than not that a tax benefit will be sustained , we record the largest amount of tax benefit with a greater than 50 % likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information . to the extent we prevail in matters for which accruals have been established or are required to pay amounts in excess of reserves , our effective tax rate in a given financial statement period may be materially impacted . the carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the value of these assets . if we are unable to generate sufficient future taxable income in these jurisdictions , a valuation allowance is recorded when it is more likely than not that the value of the deferred tax assets is not realizable . share-based compensation we use the black-scholes option-pricing model to determine the estimated fair value for stock options . critical inputs into the black-scholes option-pricing model include the following : option exercise price ; fair value of the stock price ; expected life of the option ; annualized volatility of the stock ; annual rate of quarterly dividends on the stock ; and risk-free interest rate . implied volatility is calculated as of each grant date based on our historical volatility along with an assessment of a peer group for future option grants . other than the expected life of the option , volatility is the most sensitive input to our option grants . to be consistent with all other implied calculations , the same peer group used to calculate other implied metrics is also used to calculate implied volatility .
| sg & a increased $ 13.9 million , or 44.0 % , for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , due primarily to the increase in employment costs resulting from the net increase of approximately 180 employees following the tinet and unsi acquisitions , as well as additional employees to support other added clients , and an increase in rent expense , travel costs , and professional fees to support the broader global organization resulting from the tinet and unsi acquisitions . restructuring costs , employee termination and other items . restructuring costs increased by $ 1.7 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . the increase primarily reflects the settlement of the artel llc litigation in the third quarter of fiscal 2014 for approximately $ 3.3 million . the company incurred approximately $ 6.1 million of costs associated with the acquisition of unsi for severance and other employee termination related costs , professional fees , network integration , and travel expenses , compared to similar costs of $ 7.7 million incurred in fiscal 2013 associated with the acquisitions of idc global , inc. and tinet . depreciation and amortization . depreciation and amortization expense increased $ 7.8 million to $ 24.9 million for the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 . the increase was due primarily to the depreciation and amortization of the global ip and ethernet network assets and intangible assets , primarily customer relationships , obtained in the tinet and unsi acquisitions . other expense . other expense decreased $ 3.1 million to $ 8.6 million for the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 . the decrease is primarily due to the extinguishment of the warrant liability on august 6 , 2014 , which occurred in conjunction with the credit agreement described further on page 24. see note 5 for additional information . liquidity and capital resources december 31 , 2014 december 31 , 2013 cash and cash equivalents $ 49,256 $ 5,785 debt $ 123,626 $ 92,460 management monitors cash flow and liquidity requirements . based on the company 's cash , debt , and analysis of the anticipated working capital requirements , management believes the company has sufficient liquidity to fund the business and meet its contractual obligations for 2015 . the company 's current planned cash requirements for
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to date , we have financed operations primarily through private placements of common stock , convertible preferred stock , debt , funds received from license and collaboration agreements , and the funds received in connection with the merger . we do not have any products approved for sale and have not generated any product sales . since inception and through december 31 , 2019 , we have raised or generated an aggregate of $ 124.6 million to fund our operations , of which $ 39.1 million was through license and collaboration agreements , $ 37.0 million was from cash and investments acquired in the merger , $ 33.6 million was from the sale of convertible preferred stock , $ 7.5 million was from the sale of debt , and $ 7.4 million was from the sale of convertible notes . as of december 31 , 2019 , 37 we had cash and cash equivalents and marketable securities of $ 11.7 million . in addition , we had approximately $ 4.0 million in refundable prepaid expenses related to the phase 3 program of sofpironium bromide . since inception , we have incurred operating losses . we recorded a net loss of $ 23.9 million and $ 9.2 million for the year ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 85.0 million . we expect to continue incurring significant expenses and operating losses for at least the next several years as we : initiate and complete our two pivotal phase 3 clinical trials for sofpironium bromide in the united states ; contract to manufacture product candidates ; advance research and development-related activities to develop and expand our product pipeline ; maintain , expand , and protect our intellectual property portfolio ; hire additional staff , including clinical , scientific , and management personnel ; and add operational and finance personnel to support product development efforts and to support operating as a public company . we do not expect to generate significant revenue unless and until we successfully complete development of , obtain marketing approval for , and commercialize product candidates , either alone or in collaboration with third parties . we expect these activities may take several years and our success in these efforts is subject to significant uncertainty , especially in light of our need to raise substantial funding in order to commence our phase 3 program . accordingly , we expect we will need to raise substantial additional capital prior to the regulatory approval and commercialization of any of our product candidates . until such time , if ever , that we generate substantial product revenues , we expect to finance our operations through public or private equity or debt financings , collaborations or licenses , or other available financing transactions . however , we may be unable to raise additional funds through these or other means when needed . key components of operations collaboration revenue collaboration revenues generally consist of revenues recognized under our strategic collaboration agreements for the development and commercialization of our product candidates . our strategic collaboration agreements generally outline overall development plans and include payments we receive at signing , payments for the achievement of certain milestones , and royalties . for these activities and payments , we utilize judgment to assess the nature of the performance obligations to determine whether the performance obligations are satisfied over time or at a point in time and , if over time , the appropriate method of measuring progress for purposes of recognizing revenue . we have not recognized any royalty revenue to date . other than the revenue we may generate in connection with these agreements , we do not expect to generate any revenue from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into other collaborative agreements with third parties . research and development expenses research and development expenses principally consist of payments to third parties known as clinical research organizations , or cros . these cros help plan , organize , and conduct clinical and nonclinical studies under our direction . personnel costs , including wages , benefits , and share-based compensation , related to our research and development staff in support of product development activities are also included , as well as costs incurred for supplies , preclinical studies and toxicology tests , consultants , and facility and related overhead costs . 38 below is a summary of our research and development expenses related to sofpironium bromide by categories of costs for the periods presented . the other expenses category includes travel , lab and office supplies , clinical trial management software , license fees , and other miscellaneous expenses . replace_table_token_3_th general and administrative expenses general and administrative expenses consist primarily of personnel costs , including wages , benefits , and share-based compensation , related to our executive , sales , marketing , finance , and human resources personnel , as well as impairment expense and professional fees , including legal , accounting , and sublicensing fees . we expect our general and administrative expenses to increase in the near term , both in absolute dollars and as a percentage of revenue largely . we also expect significant additional expenses associated with operating as a public company . such increases may include increased insurance premiums , investor relations expenses , legal and accounting fees associated with the expansion of our business and corporate governance , financial reporting expenses , and expenses related to sarbanes-oxley and other regulatory compliance obligations . total other income ( expense ) investment and other income , net investment and other income , net consists primarily of interest earned on cash and cash equivalent and marketable securities balances . our interest income will vary each reporting period depending on our average cash balances during the period and market interest rates . we expect interest income to fluctuate in the future with changes in average cash balances and market interest rates . story_separator_special_tag gain on extinguishment gain on extinguishment consists of the gain realized on the conversion of the convertible promissory notes to common stock in august 2019. interest expense interest expense consists primarily of interest and amortization related to the issuance of $ 7.4 million of convertible promissory note principal in 2019 and principal borrowings of $ 7.5 million provided by the loan and security agreement entered into with hercules capital , inc. on february 18 , 2016 ( the “ loan agreement ” ) . subsequent to the merger , there was no interest expense related to these agreements . change in fair value of warrant liability in connection with the loan agreement , we issued warrants to hercules capital , inc. , which are exercisable for 9,005 shares of common stock at a per share exercise price of $ 33.31 . in connection with the convertible promissory notes , we issued warrants which are exercisable for 490,683 shares of common stock at a per share exercise price of $ 10.36 . 39 we accounted for the warrants as liabilities at their estimated fair value . the warrants were subject to remeasurement to fair value at each balance sheet date , and any fair value adjustments were recognized as changes in fair value of warrant liability in the consolidated statements of operations . the liability was adjusted for changes in fair value through august 31 , 2019 , and at that time the final warrant liability fair value was reclassified to equity in the consolidated balance sheets and no longer remeasured to fair value each period . critical accounting policies and estimates we have prepared the consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “ us gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates , assumptions , and judgments that affect the reported amounts of assets , liabilities , expenses , and related disclosures at the date of the consolidated financial statements . on an ongoing basis , management evaluates its critical estimates , including those related to revenue recognition , accrued research and development expenses , convertible promissory notes , redeemable convertible preferred stock , warrants , and stock-based compensation . we base our estimates on our historical experience and on assumptions that we believe are reasonable ; however , actual results differ materially from these estimates under different assumptions or conditions . for information on our significant accounting policies , please refer to note 2 of the notes to our consolidated financial statements included elsewhere in this annual report . revenue recognition we currently recognize revenue generated primarily from licensing fees received under a license , development , and commercialization agreement entered into in march 2015 with kaken , which is referred to as the “ kaken agreement. ” the terms of the agreements include non-refundable upfront fees , funding of research and development activities , payments based upon achievement of milestones , and royalties on net product sales . under accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( “ topic 606 ” ) an entity recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of topic 606 , the entity performs the following five steps : ( i ) identify the promised goods or services in the contract with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price , including the constraint on variable consideration ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when or as the entity satisfies a performance obligation . at contract inception , we assess the goods or services promised within each contract , determine those that are performance obligations , and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied . we utilize judgment to assess the nature of the performance obligation to determine whether the performance obligation is satisfied over time or at a point in time and , if over time , the appropriate method of measuring progress . we evaluate the measure of progress each reporting period and , if necessary , adjust the measure of performance and related revenue recognition . licenses of intellectual property if a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , we recognize revenue from non-refundable , up-front fees allocated to the license when the license is transferred to the customer , and the customer can use and benefit from the license . milestone payments at the inception of each arrangement that includes milestone payments , we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method . if it is probable that a significant revenue reversal would not occur , the value of the associated milestone ( such as a regulatory submission ) is included in the transaction price , which is then allocated to each performance obligation . milestone payments that are not within our control or the control of our partner , such as approvals from regulators , are not considered probable of being achieved until those approvals are received . at the end of each subsequent reporting period , we re-evaluate the probability of achievement of such development milestones and , if necessary , adjust our estimate of the overall transaction price .
| total other income ( expense ) , net total other income , net increased by $ 1.4 million , or 175 % , for the year ended december 31 , 2019 from the year ended december 31 , 2018 , due primarily to a gain of $ 2.3 million related to the conversion of the convertible promissory notes in august 2019 , which was partially offset by an increase of $ 1.0 million in interest expense related to issuance of convertible promissory notes in 2019 and principal borrowings provided by the loan agreement . liquidity and capital resources we have incurred significant operating losses and have an accumulated deficit as a result of ongoing efforts to develop our product candidates , including conducting preclinical and clinical trials and providing general and administrative support for these operations . for the year ended december 31 , 2019 and 2018 , we had a net loss of $ 23.9 million and $ 9.2 million , respectively . 43 as of december 31 , 2019 and december 31 , 2018 , we had an accumulated deficit of $ 85.0 million and $ 71.6 million , respectively . as of december 31 , 2019 , we had cash , cash equivalents , and marketable securities of $ 11.7 million . since inception , we have financed operations primarily through sales of equity securities , convertible promissory notes , and warrants , as well as payments received under strategic collaboration and licensing agreements . we believe that our cash , cash equivalents , and marketable securities as of december 31 , 2019 , combined with the refundable prepaid research and development expenses and periodic sales of our stock under the purchase agreement , are sufficient to fund our operations for at least the next 12 months from the issuance of this annual report . in order to sell additional shares of common stock under the purchase agreement , lincoln park will need to purchase shares of common stock from us , subject to the conditions under the purchase agreement , and we will be required to have an additional effective registration statement . we have
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the tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies . additionally , our wholly-owned subsidiary , new mountain finance servicing , l.l.c . ( `` nmf servicing '' ) serves as the administrative agent on certain investment transactions . new mountain finance sbic , l.p. ( `` sbic i '' ) and its general partner , new mountain finance sbic g.p. , l.l.c . ( `` sbic i gp '' ) , were organized in delaware as a limited partnership and limited liability company , respectively . new mountain finance sbic ii , l.p. ( “ sbic ii '' ) and its general partner , new mountain finance sbic ii g.p. , l.l.c . ( “ sbic ii gp ” ) , were also organized in delaware as a limited partnership and limited liability company , respectively . sbic i , sbic i gp , sbic ii and sbic ii gp are our consolidated wholly-owned direct and indirect subsidiaries . sbic i and sbic ii received licenses from the united states ( `` u.s. '' ) small business administration ( the `` sba '' ) to operate as small business investment companies ( `` sbics '' ) under section 301 ( c ) of the small business investment act of 1958 , as amended ( the `` 1958 act '' ) . our wholly-owned subsidiary , new mountain net lease corporation ( `` nmnlc '' ) , a maryland corporation , was formed to acquire commercial real properties that are subject to `` triple net '' leases and intends to qualify as a real estate investment trust , or reit , within the meaning of section 856 ( a ) of the code . during the year ended december 31 , 2018 , new mountain finance db , l.l.c . ( `` nmfdb '' ) was organized in delaware as a limited liability company whose assets are used to secure nmfdb 's credit facility . our investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure , including first and second lien debt , notes , bonds and mezzanine securities . the first lien debt may include traditional first lien senior secured loans or unitranche loans . unitranche loans combine characteristics of traditional first lien senior secured loans as well as second lien and subordinated loans . unitranche loans will expose us to the risks associated with second lien and subordinated loans to the extent we invest in the “ last out ” tranche . in some cases , our investments may also include equity interests . our primary focus is in the debt of defensive growth companies , which are defined as generally exhibiting the following characteristics : ( i ) sustainable secular growth drivers , ( ii ) high barriers to competitive entry , ( iii ) high free cash flow after capital expenditure and working capital needs , ( iv ) high returns on assets and ( v ) niche market dominance . similar to us , sbic i 's and sbic ii 's investment objectives are to generate current income and capital appreciation under our investment criteria . however , sbic i 's and sbic ii 's investments must be in sba eligible small businesses . our portfolio may be concentrated in a limited number of industries . as of december 31 , 2018 , our top five industry concentrations were business services , software , healthcare services , education and investment funds . as of december 31 , 2018 , our net asset value was $ 1,006.3 million and our portfolio had a fair value of approximately $ 2,342.0 million in 92 portfolio companies , with a weighted average yield to maturity at cost for income producing investments ( `` ytm at cost '' ) and a weighted average yield to maturity at cost for all investments ( `` ytm at cost for investments '' ) of approximately 10.4 % and 10.4 % , respectively . this ytm at cost calculation assumes that all investments , including secured collateralized agreements , not on non-accrual are purchased at cost on the quarter end date and held until their respective 56 maturities with no prepayments or losses and exited at par at maturity . the ytm at cost for investments calculation assumes that all investments , including secured collateralized agreements , are purchased at cost on the quarter end date and held until their respective maturities with no prepayments or losses and exited at par at maturity . ytm at cost and ytm at cost for investments calculations exclude the impact of existing leverage . ytm at cost and ytm at cost for investments use the london interbank offered rate ( `` libor '' ) curves at each quarter 's end date . the actual yield to maturity may be higher or lower due to the future selection of the libor contracts by the individual companies in our portfolio or other factors . recent developments on january 8 , 2019 and january 25 , 2019 , we entered into certain joinder supplements ( the `` joinders '' ) to add old second national bank and sumitomo mitsui trust bank , limited , new york , respectively , as new lenders under the holdings credit facility . after giving effect to the joinders , the aggregate commitments of the lenders under the holdings credit facility equals $ 675.0 million . the holdings credit facility continues to have a revolving period ending on october 24 , 2020 , and will still mature on october 24 , 2022. on february 14 , 2019 , we completed a public offering of 4,312,500 shares of our common stock ( including 562,500 shares of common stock that were issued pursuant to the full exercise of the overallotment option granted to the underwriters to purchase additional shares ) at a public offering price of $ 13.57 per share . story_separator_special_tag the investment adviser paid all of the underwriters ' sales load of $ 0.42 per share and an additional supplemental payment of $ 0.18 per share to the underwriters , which reflects the difference between the public offering price of $ 13.57 per share and the net proceeds of $ 13.75 per share received by us in this offering . all payments made by the investment adviser are not subject to reimbursement by us . we received total net pr oceeds of approximately $ 59.3 million in c onnection with this offering . on february 22 , 2019 , our board of directors declared a first quarter 2019 distribution of $ 0.34 per share payable on march 29 , 2019 to holders of record as of march 15 , 2019 . critical accounting policies the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the united states of america ( `` gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and revenues and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following items as critical accounting policies . basis of accounting we consolidate our wholly-owned direct and indirect subsidiaries : nmf holdings , nmf servicing , nmnlc , nmfdb , sbic i , sbic i gp , sbic ii , sbic ii gp , nmf ancora , nmf qid and nmf yp . we are an investment company following accounting and reporting guidance as described in accounting standards codification topic 946 , financial services—investment companies , ( `` asc 946 '' ) . valuation and leveling of portfolio investments at all times consistent with gaap and the 1940 act , we conduct a valuation of assets , which impacts our net asset value . we value our assets on a quarterly basis , or more frequently if required under the 1940 act . in all cases , our board of directors is ultimately and solely responsible for determining the fair value of our portfolio investments on a quarterly basis in good faith , including investments that are not publicly traded , those whose market prices are not readily available and any other situation where our portfolio investments require a fair value determination . security transactions are accounted for on a trade date basis . our quarterly valuation procedures are set forth in more detail below : ( 1 ) investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services . ( 2 ) investments for which indicative prices are obtained from various pricing services and or brokers or dealers are valued through a multi-step valuation process , as described below , to determine whether the quote ( s ) obtained is representative of fair value in accordance with gaap . a. bond quotes are obtained through independent pricing services . internal reviews are performed by the investment professionals of the investment adviser to ensure that the quote obtained is representative of fair value in accordance with gaap and if so , the quote is used . if the investment adviser is unable to sufficiently validate the quote ( s ) internally and if the investment 's par value or its fair value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) ; and 57 b. for investments other than bonds , we look at the number of quotes readily available and perform the following procedures : i. investments for which two or more quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained ; ii . investments for which one quote is received from a pricing service are validated internally . the investment professionals of the investment adviser analyze the market quotes obtained using an array of valuation methods ( further described below ) to validate the fair value . if the investment adviser is unable to sufficiently validate the quote internally and if the investment 's par value or its fair value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) . ( 3 ) investments for which quotations are not readily available through exchanges , pricing services , brokers or dealers are valued through a multi-step valuation process : a. each portfolio company or investment is initially valued by the investment professionals of the investment adviser responsible for the credit monitoring ; b. preliminary valuation conclusions will then be documented and discussed with our senior management ; c. if an investment falls into ( 3 ) above for four consecutive quarters and if the investment 's par value or its fair value exceeds the materiality threshold , then at least once each fiscal year , the valuation for each portfolio investment for which we do not have a readily available market quotation will be reviewed by an independent valuation firm engaged by our board of directors ; and d. when deemed appropriate by our management , an independent valuation firm may be engaged to review and value investment ( s ) of a portfolio company , without any preliminary valuation being performed by the investment adviser . the investment professionals of the investment adviser will review and validate the value provided . for investments in revolving credit facilities and delayed draw commitments , the cost basis of the funded investments purchased is offset by any costs/netbacks received for any unfunded portion on the total balance committed . the fair value is also adjusted for the price appreciation or depreciation on the unfunded portion . as a result , the purchase of a commitment not completely funded may result in a negative fair value until it is called and funded .
| the increase in other income , which represents fees that are generally non-recurring in nature , of approximately $ 5.0 million during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 was primarily attributable to upfront , amendment and consent fees received from forty-nine different portfolio companies . our total investment income increased by approximately $ 29.7 million , 18 % , for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 . for the year ended december 31 , 2017 , total investment income of $ 197.8 million consisted of approximately $ 129.3 million in cash interest from investments , approximately $ 6.4 million in pik and non-cash interest from investments , approximately $ 4.9 million in prepayment fees , net amortization of purchase premiums and discounts of approximately $ 9.2 million , approximately $ 19.4 million in cash dividends from investments , approximately $ 17.8 million in pik and non-cash dividends from investments and approximately $ 10.8 million in other income . for the year ended december 31 , 2016 , total adjusted investment income of $ 168.0 million consisted of approximately $ 135.2 million in cash interest from investments , approximately $ 4.3 million in pik and non-cash interest from investments , approximately $ 4.9 million in prepayment fees , net amortization of purchase premiums and discounts of approximately $ 3.0 million , approximately $ 8.0 million in cash dividends from investments , approximately $ 3.2 million in pik and non-cash dividends from investments and approximately $ 9.4 million in other income . the increase in interest income of approximately $ 2.4 million from the year ended december 31 , 2016 to the year ended december 31 , 2017 is attributable to larger invested balances and prepayment fees received associated with the early repayments of eleven different portfolio companies held as of december 31 , 2016 . our larger invested balances were driven by the proceeds from the april 2017 primary offering of our common stock , our june 2017 unsecured notes issuance , as well as , our use of
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these upfront or milestone payments received , pending recognition as revenue , are recorded as deferred revenue and are classified as a short-term or long-term liability on the balance sheet to be amortized over the period of deferral . we periodically review the estimated performance periods of our contracts based on the progress of its programs . in accordance with asc subtopic 808-10 , `` collaborative arrangement , '' and pursuant to our agreement with astellas , we recognized as revenue the net impact of transactions with astellas related to vibativ® inventory including revenue specifically attributable to any sales , and cost of inventory either transferred or expensed as unrealizable . we have recognized royalty revenue on net sales in the period in which the royalties are earned based on net sales reporting provided by astellas , our former collaborative partner for vibativ® . we have been reimbursed by gsk and astellas for certain external development costs under their respective collaboration agreements . such reimbursements have been reflected as a reduction of research and development expense and not as revenue . for multiple-element arrangements entered into , or materially modified , subsequent to january 1 , 2011 , each deliverable within a multiple deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met : ( 1 ) the delivered item or items have value to the customer on a standalone basis and ( 2 ) for an arrangement that includes a general right of return relative to the delivered item ( s ) , delivery or performance of the undelivered item ( s ) is considered probable and substantially in our control . in addition , multiple deliverable revenue arrangement consideration is allocated at the inception of an arrangement to all deliverables using the relative selling price method . we also apply a selling price hierarchy for determining the selling price of a deliverable , which includes ( 1 ) vendor-specific objective evidence , if available , ( 2 ) third-party evidence , if vendor-specific objective evidence is not available , and ( 3 ) estimated selling price if neither vendor-specific nor third-party evidence is available . where a portion of non-refundable upfront license or other payments , or milestone payments received are allocated to continuing performance obligations under the terms of a collaboration agreement , it will be recorded as deferred revenue and recognized as revenue ratably over the term of its estimated performance period under the agreement . we determine the estimated performance periods and they are periodically reviewed based on the progress of the related program . the effect of a change made to an estimated performance period and therefore revenue recognized ratably would occur on a prospective basis in the period that the change was made . deferred revenue associated with a non-refundable payment received under a collaborative agreement that the performance obligations are terminated will result in an immediate recognition of any remaining deferred revenue in the period that termination occurred provided that all performance obligations have been satisfied . for milestones earned after january 1 , 2011 , we recognize revenue from milestone payments when : ( i ) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement , and ( ii ) we do not have ongoing performance obligations related to the achievement of the milestone earned . milestone payments are considered substantive if all of the following conditions are met : the milestone payment ( a ) is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from our performance to achieve the milestone , ( b ) relates solely to past performance , and ( c ) is reasonable relative to all of the deliverables and payment terms ( including 43 other potential milestone consideration ) within the arrangement . see note 3 , `` collaboration arrangements , '' in the notes to the consolidated financial statements below in part ii , item 8 , `` financial statements and supplementary data '' on this annual report on form 10-k , for analysis of each milestone event deemed to be substantive or non-substantive . preclinical study and clinical study expenses a substantial portion of our preclinical studies and all of our clinical studies have been performed by third-party contract research organizations ( cros ) . some cros bill monthly for services performed , while others bill based upon milestones achieved . we review the activities performed under the significant contracts each quarter . for preclinical studies , the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved . for clinical study expenses , the significant factors used in estimating accruals include the number of patients enrolled and percentage of work completed to date . vendor confirmations are obtained for contracts with longer duration when necessary to validate our estimate of expenses . our estimates are highly dependent upon the timeliness and accuracy of the data provided by our cros regarding the status of each program and total program spending and adjustments are made when deemed necessary . to date , we have not recorded any material adjustments as a result of changes to our estimates . stock-based compensation stock-based compensation arrangements currently include stock options granted , restricted stock unit awards ( rsus ) granted and restricted shares issued rsas ) under the 2004 equity incentive plan ( 2004 plan ) and the 2008 new employee equity incentive plan ( 2008 plan ) and purchases of common stock by our employees at a discount to the market price during offering periods under our employee stock purchase plan ( espp ) . non-statutory options , rsus , and rsas were granted under the 2008 plan to our newly hired employees until april 27 , 2010 , the date on which stockholders approved our amended and restated 2004 plan . story_separator_special_tag no further awards will be granted under the 2008 plan . we use the black-scholes option pricing model to estimate the fair value of options granted under our equity incentive plans and rights to acquire stock granted under our employee stock purchase plan . the black-scholes option valuation model requires the use of assumptions , including the expected term of the award and the expected stock price volatility . we use the `` simplified '' method as described in staff accounting bulletin no . 107 for the expected option term because the usage of our historical exercise data is limited due to post-ipo exercise restrictions . since april 1 , 2011 , we have used our historical volatility to estimate expected stock price volatility . prior to april 1 , 2011 , we used peer company price volatility to estimate expected stock price volatility due to our limited historical common stock price volatility since its initial public offering in 2004. restricted stock units ( rsus ) and stock awards are measured based on the fair market values of the underlying stock on the dates of grant . the estimated fair value of stock options , rsus and rsas are expensed on a straight-line basis over the expected term of the grant and the fair value of performance-contingent rsus and performance-contingent rsas are expensed during the term of the award when we determine that it is probable that certain performance milestones will be achieved . compensation expense for purchases under the espp is recognized based on the estimated fair value of the common stock during each offering period and the percentage of the purchase discount . stock-based compensation expense for stock options , rsus and rsas has been reduced for estimated forfeitures so that compensation expense is based on options , rsus and rsas ultimately expected to vest . we estimate annual forfeiture rates for stock options , rsus and rsas based on our historical forfeiture experience . 44 see note 10 , `` stock-based compensation , '' in the notes to consolidated financial statements in part ii , item 8 , `` financial statements and supplementary data '' of this annual report on form 10-k , for more information . inventory inventory is stated at the lower of cost or market value and is included in prepaid and other current assets . inventory was comprised of vibativ® active pharmaceutical ingredient . vibativ® has a limited shelf life . during the quarter ended december 31 , 2011 , we expensed all remaining inventory at an average cost basis of $ 0.5 million as it was no longer realizable . collaboration arrangements gsk laba collaboration with gsk in november 2002 , we entered into our laba collaboration with gsk to develop and commercialize once-daily laba products for the treatment of copd and asthma . for the treatment of copd , the collaboration is developing combination products , relovair and the lama/laba '719/vi . for the treatment of asthma , the collaboration is developing relovair . relovair is an investigational once-daily combination medicine consisting of a laba , vi , previously referred to as gw642444 or '444 , and an ics , fluticasone furoate ( ff ) . the lama/laba , '719/vi , is an investigational once-daily combination medicine consisting of the lama , '719 , and the laba , vi . the relovair program is aimed at developing a once-daily combination laba/ics to succeed gsk 's advair®/seretide ( salmeterol and fluticasone as a combination ) franchise , which reported 2011 sales of approximately $ 8.1 billion , and to compete with symbicort® ( formoterol and budesonide as a combination ) , which reported 2011 sales of approximately $ 3.1 billion . '719/vi , which is also a combination product , is targeted as an alternative treatment option to spiriva® ( tiotropium ) , a once-daily , single-mechanism bronchodilator , which reported 2010 sales of approximately $ 3.8 billion . the current lead product candidates in the laba collaboration , vi and ff , were discovered by gsk . in the event that vi is successfully developed and commercialized , we will be obligated to make milestone payments to gsk which could total as much as $ 220.0 million if both a single-agent and a combination product or two different combination products are launched in multiple regions of the world . if global regulatory authorities accept the applications for relovair , which we anticipate will be filed by gsk beginning in mid-2012 , a portion of these potential milestone payments could be payable to gsk within the next two years . we are entitled to annual royalties from gsk of 15 % on the first $ 3.0 billion of annual global net sales and 5 % for all annual global net sales above $ 3.0 billion . sales of single-agent laba medicines and combination medicines would be combined for the purposes of this royalty calculation . for other products combined with a laba from the laba collaboration , such as '719/vi , royalties are upward tiering and range from the mid-single digits to 10 % . however , if gsk is not selling a laba/ics combination product at the time that the first other laba combination is launched , then the royalties described above for the laba/ics combination medicine would be applicable . in connection with the laba collaboration , in 2002 , glaxo group limited , an affiliate of gsk , purchased shares of our series e preferred stock for an aggregate purchase price of $ 40.0 million . 45 2004 strategic alliance with gsk in march 2004 , we entered into our strategic alliance with gsk . under this alliance , gsk received an option to license exclusive development and commercialization rights to product candidates from certain of our discovery programs on pre-determined terms and on an exclusive , worldwide basis . upon gsk 's decision to license a program , gsk is responsible for funding all future development , manufacturing and commercialization activities for product candidates in that program .
| program highlights respiratory programs with gsk relovair relovair is an investigational once-daily inhaled corticosteroid ( ics ) /long-acting beta 2 agonist ( laba ) combination treatment , comprising fluticasone furoate and vilanterol ( ff/vi ) , currently in development for the treatment of patients with chronic obstructive pulmonary disease ( copd ) or asthma . in january 2012 , we and gsk announced that gsk intends to commence global regulatory filings in copd and asthma beginning in mid-2012 based upon the initial outcomes from pivotal phase 3 studies for once-daily relovair in copd and asthma . for asthma , gsk will continue discussions with the u.s. food and drug administration ( fda ) on the regulatory requirements for a u.s. asthma indication . lama/laba combination ( gsk573719/vilanterol or '719/vi ) enrollment is complete for the seven ongoing studies in the phase 3 program for the once-daily long-acting muscarinic antagonist ( lama ) /laba dual bronchodilator '719/vi . '719/vi combines two bronchodilators currently under development'719 , a lama and vi , a laba . these two molecules provide two mechanisms of bronchodilation for patients with copd : antagonism of acetylcholine muscarinic receptors and agonism of beta 2 adrenoreceptors . the lama/laba phase 3 program , which will evaluate over 5,000 patients with copd globally , consists of a 52-week study to evaluate the long term safety and tolerability of '719 ( 125mcg ) alone , as well as the combination '719/vi ( 125/25mcg ) , two large 6-month pivotal studies that will compare improvements in lung function between '719/vi , its components and placebo , two 6-month studies to compare the combination with its components and tiotropium and two studies to assess the effect of '719/vi on exercise endurance . the phase 3 program will investigate two doses of '719 ( 125mcg and 62.5mcg ) and two doses of the combination '719/vi ( 125/25mcg and 62.5/25mcg ) . inhaled bifunctional muscarinic antagonist-beta 2 agonist ( maba ) gsk961081 ( '081 ) , the lead compound in the maba program with gsk , is a single molecule bifunctional bronchodilator with both muscarinic antagonist and beta 2 receptor agonist activity . in february 2012 ,
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since 2001 , the company has utilized acquisitions and greenfield efforts to expand its product lines and add to its operations in france , italy , brazil , south africa , the netherlands , australia , new zealand , china , and turkey . the addition of those operations has allowed the company to strengthen its market position in those regions . new accounting standards issued but not yet adopted see note 2 , new accounting pronouncements , to the company 's consolidated financial statements for information regarding recently issued accounting pronouncements . critical accounting policies and estimates in preparing the consolidated financial statements in conformity with u.s. generally accepted accounting principles ( “ gaap ” ) , management must make a variety of decisions which impact the reported amounts and the related disclosures . such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates . in reaching such decisions , management applies judgment based on its understanding and analysis of the relevant facts and circumstances . certain of the company 's accounting policies are critical , as these policies are most important to the presentation of the company 's consolidated results of operations and financial condition . they require the greatest use of judgments and estimates by management based on the company 's historical experience and management 's knowledge and understanding of current facts and circumstances . management periodically re-evaluates and adjusts the estimates that are used as circumstances change . following are the accounting policies management considers critical to the company 's consolidated results of operations and financial condition : revenue recognition the company 's revenue recognition accounting policy is critical because it can significantly impact the company 's consolidated results of operations and financial condition . the company 's basic criteria necessary for revenue recognition are : 1 ) evidence of a sales arrangement exists ; 2 ) delivery of goods has occurred ; 3 ) the sales price to the buyer is fixed or determinable ; and 4 ) collectability is reasonably assured . the company recognizes revenue when these criteria have been met , and when title and risk of loss transfers to the customer . the company generally has no post-delivery obligations to its independent dealers other than standard warranties . revenues and gross profits on intercompany sales are eliminated in consolidation . revenues from the sale of the company 's products are recognized based on the delivery terms in the sales contract . if an arrangement involves multiple deliverables , revenues from the arrangement are allocated to the separate units of accounting based on their relative selling price . the company offers a subscription-based service for wireless management and recognizes subscription revenue on a straight-line basis over the contract term . the company leases certain infrastructure property held for lease to customers , such as moveable concrete barriers and road zipper systems ® . revenues for the lease of infrastructure property held for lease are recognized on a straight-line basis over the lease term . the costs related to revenues are recognized in the same period in which the specific revenues are recorded . shipping and handling fees billed to customers are reported in revenue . shipping and handling costs incurred by the company are included in cost of sales . customer rebates , cash discounts , and other sales incentives are recorded as a reduction of revenues at the time of the original sale . estimates used in the recognition of operating revenues and cost of operating revenues include , but are not limited to , estimates for product warranties , product rebates , cash discounts , and fair value of separate units of accounting on multiple deliverables . inventories the company 's accounting policy on inventories is critical because the valuation and costing of inventory is essential to the presentation of the company 's consolidated results of operations and financial condition . inventories are stated at the lower of cost or market . cost is determined by the last ‑in , first ‑out ( “ lifo ” ) method , the first-in , first-out ( “ fifo ” ) method , or the weighted average cost method for inventory depending on the operations at each specific location . at all locations , the company reserves for obsolete , slow moving , and excess inventory by estimating the net realizable value based on the potential future use of such inventory . 19 environmental remediation liabilities the company 's accounting policy on environmental remediation is critical because it requires significant judgments and estimates by management , involves changing regulations and approaches to remediation plans , and any revisions could be material to the operating results of any fiscal quarter or fiscal year . the company is subject to an array of environmental laws and regulations relating to the protection of the environment . in particular , the company committed to remediate environmental contamination of the groundwater at , and land adjacent , to its lindsay , nebraska facility ( the “ site ” ) with the epa . the company and its environmental consultants have developed a remedial alternative work plan , under which the company continues to work with the epa to define and implement steps to better contain and remediate the remaining contamination . environmental remediation liabilities include costs directly associated with site investigation and clean up , such as materials , external contractor costs , and incremental internal costs directly related to the remedy . estimates used to record environmental remediation liabilities are based on the company 's best estimate of probable future costs based on site-specific facts and circumstances . estimates of the cost for the likely remedy are developed using internal resources or by third-party environmental engineers or other service providers . the company records the undiscounted environmental remediation liabilities that represent the points in the range of estimates that are most probable , or the minimum amount when no amount within the range is a better estimate than any other amount . story_separator_special_tag during the second quarter of fiscal 2016 , the company completed its testing for a feasibility study which clarified the extent of contamination , including the identification of a source of contamination near the manufacturing building that was not part of the area for which reserves were previously established . the company , together with its third-party environmental experts , participated in a preliminary meeting with the epa and the nebraska department of environmental quality ( the “ ndeq ” ) during the third quarter of fiscal 2016 to review remediation alternatives and proposed plans for the site and submitted its remedial alternatives evaluation report to the epa in august 2016. the proposed remediation plan is preliminary and has not been approved by the epa or the ndeq . based on guidance from third-party environmental experts and the preliminary discussions held with the epa , the company anticipates that a definitive plan will not be agreed upon until fiscal 2018 or later . the company accrues the anticipated cost of environmental remediation when the obligation is probable and can be reasonably estimated . alth ough the company has accrued reasonably estimable costs associated with remediation of the site , additional testing , environmental monitoring , and remediation could be required in the future as part of the company 's ongoing discussions with the epa regarding the development and implementation of the remedial action plans . while any revisions could be material to the operating results of any fiscal quarter or fiscal year , the company does not expect such additional expenses would have a material adverse effect on its liquidity or financial condition . trade receivables and allowances trade receivables are reported on the balance sheet , net of any doubtful accounts . losses are recognized when it is probable that an asset has been impaired and the amount of the loss can be reasonably estimated . in estimating probable losses , the company reviews specific accounts that are significant and past due , in bankruptcy , or otherwise identified at risk for potential credit loss . collectability of these specific accounts are assessed based on facts and circumstances of that customer , and an allowance for credit losses is established based on the probability of default . in assessing the likelihood of collection of receivable , the company considers , for example , the company 's history of collections , the current status of discussions and repayment plans , collateral received , and other evidence and information regarding collection or default risk that is available in the market place . the allowance for credit losses attributable to the remaining accounts is established using probabilities of default and an estimate of associated losses based upon the aging of receivable balances , collection experience , economic condition , and credit risk quality . in evaluating the allowance expense as a percentage of sales , if the prior three-year average rate were to double , the result on the fiscal 2017 consolidated statement of operations would be additional expense of approximately $ 2.1 million . as the company 's international business has grown , the exposure to potential losses in international markets has also increased . these exposures can be difficult to estimate , particularly in areas of political instability , or with governments with which the company has limited experience , or where there is a lack of transparency as to the current credit conditio n of governmental units . the company 's allowance for all doubtful accounts related to outstanding receivables decreased to $ 7.4 million at august 31 , 2017 from $ 8.3 million at august 31 , 2016 . the company 's evaluation of the adequacy of the allowance for credit losses is based on facts and circumstances available to the company at the date the consolidated financial statements are issued , and considers any significant changes in circumstances occurring through the date that the financial statements are issued . 20 valuation of goodwill and identifiable intangible assets the company 's accounting policy on valuation of goodwill and identifiable intangible assets is critical because it requires significant judgments and estimates by management , and can significantly affect the company 's consolidated results of operations and financial condition . goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination . acquired intangible assets are recognized separately from goodwill . goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually at august 31 , and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable . assessment of the potential impairment of goodwill and identifiable intangible assets is an integral part of the company 's normal ongoing review of operations . testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management 's best estimates at a particular point in time . the dynamic economic environments in which the company 's businesses operate and key economic and business assumptions related to projected selling prices , market growth , inflation rates , and operating expense ratios , can significantly affect t he outcome of impairment tests . estimates based on these assumptions may differ significantly from actual results . changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments , as well as the time in which such impairments are recognized . in fiscal 2017 , in conjunction with the company 's annual review for impairment , the company performed a qualitative analysis of goodwill for each of the company 's reporting units , which are the same as its operating segments , and did not identify any potential impairment . also i n fiscal 2017 , the company performed a qualitative analysis of other intangible assets not subject to amortization and concluded there were no indicators of impairment .
| t he company 's operating income in creased to $ 40.2 million in fiscal 2017 compared to $ 34.4 mill ion during fiscal 2016 . operating margin was 7.8 percent for fiscal 2017 as compared to 6.7 percent for fiscal 2016 . income taxes the company recorded income tax expense of $ 12.5 million and $ 9.0 million for fiscal 2017 and fiscal 2016 , respectively . the effective income tax rate in creased to 35.1 percent in fiscal 2017 compared to 30.8 percent in fiscal 2016 . the in crease in the annual effective income tax rate is primarily due to the impact of differences between book and tax treatment of certain items and proportionately higher earnings from u.s. operations in the current year with tax rates higher than in foreign jurisdictions . net earnings net earnings for fiscal 2017 were $ 23.2 million , or $ 2.17 per diluted share , compared to $ 20.3 million , or $ 1.85 per diluted share , for fiscal 2016 . fiscal 2016 compared to fiscal 2015 the following table provides highlights for fiscal 2016 compared with fiscal 2015 : for the years ended percent august 31 , increase ( $ in thousands ) 2016 2015 ( decrease ) consolidated operating revenues $ 516,411 $ 560,181 ( 8 % ) cost of operating revenues $ 367,798 $ 403,860 ( 9 % ) gross profit $ 148,613 $ 156,321 < td style= '' width:01.92 % ; border-top:1pt none # d9d9d9 ; border-left:1pt none # d9d9d9 ; border-bottom:1pt none
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service revenue is earned from transactions in which we earn commissions by selling goods or services on behalf of third-party merchants , primarily through sales of vouchers and similar transactions in which we collect the transaction price from the customer and remit a portion of that transaction price to the third-party merchant who will provide the related goods or services . service revenue from those transactions is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant . service revenue also includes commissions we earn when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications and from voucherless merchant offerings in which customers earn cash back on their credit card statements when they transact with third-party merchants . gross profit . gross profit reflects the net margin earned after deducting our cost of revenue from our revenue . due to the lack of comparability between product revenue , which is reported on a gross basis , and service revenue , which primarily consists of transactions reported on a net basis , we believe that gross profit is an important measure for evaluating our performance . adjusted ebitda . adjusted ebitda is a non-gaap financial measure that we define as net income ( loss ) from continuing operations excluding income taxes , interest and other non-operating items , depreciation and amortization , stock-based compensation , acquisition-related expense ( benefit ) , net and other special charges and credits , including items that are unusual in nature or infrequently occurring . for further information and a reconciliation to income ( loss ) from continuing operations , refer to our discussion under non-gaap financial measures in the results of operations section . free cash flow . free cash flow is a non-gaap financial measure that comprises net cash provided by ( used in ) operating activities from continuing operations less purchases of property and equipment and capitalized software from continuing operations . for further information and a reconciliation to net cash provided by ( used in ) operating activities from continuing operations , refer to our discussion in the liquidity and capital resources section . the following table presents the above financial metrics for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_5_th ( 1 ) prior period free cash flow information has been updated from $ 78.3 million and $ 60.6 million previously reported for the years ended december 31 , 2017 and 2016 to reflect the adoption of asu 2016-18 , statement of cash flows ( topic 230 ) - restricted cash , on january 1 , 2018. see item 8 , note 2 , summary of significant accounting policies , for additional information on the adoption of asu 2016-18. operating metrics gross billings . this metric represents the total dollar value of customer purchases of goods and services . the substantial majority of our service revenue transactions is comprised of sales of vouchers and similar 40 transactions in which we collect the transaction price from the customer and remit a portion of the transaction price to the third-party merchant who will provide the related goods or services . for these transactions , gross billings differs from revenue reported in our consolidated statements of operations , which is presented net of the merchant 's share of the transaction price . for product revenue transactions , gross billings are equivalent to product revenue reported in our consolidated statements of operations . this metric is an indicator of our growth and business performance as it measures the dollar volume of transactions generated through our marketplaces . tracking gross billings on service revenue transactions also allows us to monitor the percentage of gross billings that we are able to retain after payments to merchants . however , management is primarily focused on optimizing the business for long-term gross profit and adjusted ebitda growth , rather than gross billings or revenue growth . active customers . we define active customers as unique user accounts that have made a purchase during the trailing twelve months ( `` ttm '' ) either through one of our online marketplaces or directly with a merchant for which we earned a commission . we consider this metric to be an important indicator of our business performance as it helps us to understand how the number of customers actively purchasing our offerings is trending . some customers could establish and make purchases from more than one account , so it is possible that our active customer metric may count certain customers more than once in a given period . for entities that we have acquired in a business combination , this metric includes active customers of the acquired entity , including customers who made purchases prior to the acquisition . we do not include consumers who solely make purchases with retailers using digital coupons accessed through our websites and mobile applications in our active customer metric , and accordingly , the acquisition of cloud savings in april 2018 did not impact that metric . our active customer metric for the year ended december 31 , 2018 declined from the year ended december 31 , 2017. for the year ended december 31 , 2017 , our active customers increased compared with the year ended december 31 , 2016. the decline in the current year is primarily attributable to a decline in traffic to our websites and mobile applications , as well as our efforts to improve the efficiency of our marketing spend by focusing that spend on customers who we believe will have higher long-term value . that strategy has resulted in lower marketing spend on less valuable customers , particularly in north america , which has adversely impacted our active customer metric . we expect the trend of declining active customers in north america to continue in 2019 due to ongoing traffic declines and our continued focus on attracting and retaining high-quality customers . story_separator_special_tag gross billings and gross profit per active customer . these metrics represent the ttm gross billings and gross profit generated per active customer . we use these metrics to evaluate trends in customer spend and in the average contribution to gross billings and gross profit on a per-customer basis . we updated the calculation of these metrics in the current year to reflect active customers as of the end of the period , rather than the average of active customers as of the beginning and end of the period , in the denominator of the calculations . because our active customer metrics are based on purchases over a ttm period , we believe that this change improves the usefulness of these metrics . the prior period metrics presented below have been updated to reflect this change . units . this metric represents the number of purchases during the reporting period , before refunds and cancellations , made either through one of our online marketplaces or directly with a merchant for which we earned a commission . we consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces . for the year ended december 31 , 2018 , our total units sold declined by 8.8 % , as compared with the prior year , reflecting unit declines in our north america segment , partially offset by unit growth in our international segment . for the year ended december 31 , 2017 , our total units sold declined by 3.4 % , as compared with the year ended december 31 , 2016. the decline in total units sold in the current year was attributable to fewer active customers and lower frequency of purchases by these customers . we expect that trend to continue into 2019 . 41 our gross billings for the years ended december 31 , 2018 , 2017 and 2016 were as follows ( in thousands ) : replace_table_token_6_th our active customers , gross billings per active customer and gross profit per active customer for the ttm ended december 31 , 2018 , 2017 and 2016 were as follows : replace_table_token_7_th ( 1 ) ttm gross billings per active customer have been updated from $ 115.91 and $ 124.26 previously reported for the ttm ended december 31 , 2017 and 2016 , and ttm gross profit per active customer has been updated from $ 27.38 and $ 27.98 previously reported for the year ended december 31 , 2017 and 2016 due to the change in the calculation discussed above . our units for the years ended december 31 , 2018 , 2017 and 2016 were as follows ( in thousands ) : replace_table_token_8_th factors affecting our performance attracting and retaining local merchants . as we seek to build a more complete online local commerce marketplace platform , we depend on our ability to attract and retain merchants who are willing to offer discounted products and services through our marketplaces . additionally , merchants can generally withdraw their offerings from our marketplaces at any time and their willingness to continue offering products and services through our platform depends on the effectiveness of our marketing and promotional services . we primarily source the deal offerings available on our marketplaces through our sales teams , which comprise a significant portion of our global employee base . we have also entered into commercial agreements with third parties that enable us to feature additional merchant offerings through our marketplaces . we continue to focus much of our sales efforts on sourcing local deal offerings in subcategories that we believe provide us with the best opportunities for high frequency customer purchase behavior . in connection with our efforts to grow our offerings in those high frequency subcategories , which include health , beauty and wellness , events and activities , and food and drink , we may be willing to offer more attractive terms to local merchants that could reduce our deal margins in future periods . growing our active customer base and customer value . we must acquire and retain customers that we expect to have long-term value , and increase gross profit per customer in order to grow our business . our marketing spending is intended to attract and retain active customers and to promote increased purchase frequency . we have made enhancements to our customer segmentation in recent periods that are intended to better focus our marketing efforts on customers that we believe have a greater potential for long-term gross profit generation . in addition to online marketing , such as search engine marketing ( `` sem '' ) , our marketing spending includes investments in offline campaigns intended to increase customer awareness and understanding of the groupon brand and our product and service offerings . additionally , we consider order discounts and certain other initiatives to drive customer acquisition and activation to be marketing-related activities , even though such activities may not be presented as marketing expenses in our consolidated statements of operations . the organic traffic to our websites and mobile applications from consumers responding to our emails has declined in recent years , such that an increasing proportion of our traffic is generated from sem and other paid marketing channels . more recently , we have also experienced declines from other sources of organic traffic , such as search engine optimization ( `` seo '' ) . as such , we are focused on developing sources of organic traffic other than email and optimizing the efficiency of our marketing spending , which is primarily guided by return on investment thresholds that are currently based on expected months-to-payback targets ranging from 12 to 18 months . additionally , our product and supply initiatives are intended to increase the rates at which visitors to our websites and mobile applications complete a purchase . investing in growth . we have invested significantly in product and technology enhancements intended to support the growth of our online marketplaces and we intend to continue to do so in the future .
| income ( loss ) from operations includes $ 76.1 million and $ 104.7 million of stock-based compensation for the years ended december 31 , 2017 and 2016 . international the improvement in our income ( loss ) from operations was primarily attributable to a $ 35.8 million decrease in sg & a , a $ 21.6 million decrease in restructuring charges and an $ 11.1 million increase in gross profit . those items were partially offset by a $ 12.5 million increase in marketing expense and an $ 11.4 million decrease in gains on business dispositions . income ( loss ) from operations includes $ 5.7 million and $ 9.5 million of stock-based compensation for the years ended december 31 , 2017 and 2016 . other income ( expense ) , net other income ( expense ) , net includes interest income , interest expense , gains and losses on fair value option investments , impairments of investments and foreign currency gains and losses , primarily resulting from intercompany balances with our subsidiaries that are denominated in foreign currencies . comparison of the years ended december 31 , 2018 and 2017 : other income ( expense ) , net for the years ended december 31 , 2018 and 2017 was as follows ( dollars in thousands ) : year ended december 31 , 2018 2017 $ change % change other income ( expense ) , net $ ( 53,008 ) $ 6,710 $ ( 59,718 ) ( 890.0 ) % other income ( expense ) , net for the year ended december 31 , 2018 primarily consisted of the following : $ 21.9 million of interest expense primarily related to interest on our convertible notes ; $ 20.3 million in foreign currency losses , which primarily resulted from intercompany balances with our subsidiaries that are denominated in foreign currencies . those losses were driven by the depreciation of the euro against the u.s. dollar from december 31 , 2017 to december 31 , 2018 ; $ 10.2 million of impairments of minority investments . see item 8 , note 7 , investments , for additional information ; and $ 9.1 million of losses on fair value
| 12,061 |
39 finally , as more fully described in “ financing ” below , we record the difference between the vacation ownership note receivable and the consideration to which we expect to be entitled ( also known as a vacation ownership notes receivable reserve or a sales reserve ) as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale . we report , on a supplemental basis , contract sales for our vacation ownership segment . contract sales consist of the total amount of vacation ownership product sales under contract signed during the period where we have received a down payment of typically at least ten percent of the contract price , reduced by actual rescissions during the period , inclusive of contracts associated with sales of vacation ownership products on behalf of third-parties , which we refer to as “ resales contract sales. ” in circumstances where a customer applies any or all of their existing ownership interests as part of the purchase price for additional interests , we include only the incremental value purchased as contract sales . contract sales differ from revenues from the sale of vacation ownership products that we report on our income statements due to the requirements for revenue recognition described above . we consider contract sales to be an important operating measure because it reflects the pace of sales in our business . cost of vacation ownership products includes costs to develop and construct our projects ( also known as real estate inventory costs ) , other non-capitalizable costs associated with the overall project development process and settlement expenses associated with the closing process . for each project , we expense real estate inventory costs in the same proportion as the revenue recognized . consistent with the applicable accounting guidance , to the extent there is a change in the estimated sales revenues or inventory costs for the project in a period , a non-cash adjustment is recorded on our income statements to true-up costs in that period to those that would have been recorded historically if the revised estimates had been used . these true-ups , which we refer to as product cost true-up activity , can have a positive or negative impact on our income statements . we refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as development margin . development margin percentage is calculated by dividing development margin by revenues from the sale of vacation ownership products . management and exchange our management and exchange revenues include revenues generated from fees we earn for managing each of our vacation ownership resorts , providing property management , property owners ' association management and related services to third-party vacation ownership resorts and fees we earn for providing rental services and related hotel , condominium resort , and property owners ' association management services to vacation property owners . in addition , we earn revenue from ancillary offerings , including food and beverage outlets , golf courses and other retail and service outlets located at our vacation ownership resorts . we also receive annual membership fees , club dues and certain transaction-based fees from members , owners and other third parties . management and exchange expenses include costs to operate the food and beverage outlets and other ancillary operations and to provide overall customer support services , including reservations , and certain transaction-based expenses relating to external exchange service providers . in our vacation ownership segment and consolidated property owners ' associations , we refer to these activities as “ resort management and other services. ” financing we offer financing to qualified customers for the purchase of most types of our vacation ownership products . the average fico score of customers who were u.s. citizens or residents who financed a vacation ownership purchase was as follows : replace_table_token_7_th the typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable , which is approximately ten years . included within our vacation ownership notes receivable are originated vacation ownership notes receivable and vacation ownership notes receivable acquired in connection with the ilg acquisition . 40 acquired vacation ownership notes receivable are accounted for using the purchased credit deteriorated assets provision of the current expected credit loss model . at acquisition , we recorded these vacation ownership notes receivable at fair value . upon adoption of accounting standards update 2016-13 – “ financial instruments – credit losses ( topic 326 ) , measurement of credit losses on financial instruments ” on january 1 , 2020 , we established a reserve for credit losses and a corresponding increase in the book value of the acquired vacation ownership notes receivable , resulting in no impact to the recorded balance . the estimates of the reserve for credit losses on the acquired vacation ownership notes receivable are based on default rates that are an output of our static pool analyses . any changes in the reserve for credit losses are recorded as financing expenses on our income statements . in addition , we established a noncredit discount , which represents the difference between the amortized cost basis and the par value of our acquired vacation ownership notes receivable . the noncredit discount will be amortized to interest expense over the contractual life of the acquired vacation ownership notes receivable and is recorded as financing expenses on our income statements . see footnote 7 “ vacation ownership notes receivable ” to our financial statements for further information regarding the accounting for acquired vacation ownership notes receivable . the interest income earned from the originated vacation ownership financing arrangements is earned on an accrual basis on the principal balance outstanding over the contractual life of the arrangement and is recorded as financing revenues on our income statements . financing revenues also include fees earned from servicing the existing vacation ownership notes receivable portfolio . story_separator_special_tag financing expenses include costs in support of the financing , servicing and securitization processes . the amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable , which , for originated vacation ownership notes receivable , is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections . we calculate financing propensity as contract sales volume of financed contracts closed in the period divided by contract sales volume of all contracts closed in the period . we do not include resales contract sales in the financing propensity calculation . financing propensity was 51 percent in 2020 and 63 percent in 2019 , with the year-over-year decline being driven by programs we offered to incent cash purchases . we expect to continue offering financing incentive programs in 2021 and that interest income will begin to increase when new originations of vacation ownership notes receivable outpace the decline in principal of existing vacation ownership notes receivable , most likely in 2022. in the event of a default , we generally have the right to foreclose on or revoke the underlying voi . we return vois that we reacquire through foreclosure or revocation back to inventory . as discussed above , for originated vacation ownership notes receivable , we record a reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our income statements . historical default rates , which represent defaults as a percentage of each year 's beginning gross vacation ownership notes receivable balance , were as follows : replace_table_token_8_th the increase in default rates in 2020 was predominantly due to the impact of the covid-19 pandemic on the performance of our notes receivable portfolio . see footnote 7 , “ vacation ownership notes receivable ” to our financial statements for additional information regarding the covid-19 impact on our vacation ownership notes receivable reserves . financing expenses include consumer financing interest expense , which represents interest expense associated with the securitization of our vacation ownership notes receivable . we distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us . rental in our vacation ownership segment , we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory . we generate revenue from rentals of inventory that we hold for sale as interests in our vacation ownership programs , inventory that we control because our owners have elected alternative usage options permitted under our vacation ownership programs and rentals of owned-hotel properties . we also recognize rental revenue from the utilization of plus points under the mvcd program when the points are redeemed for rental stays at one of our resorts or in the explorer collection . we obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs . for rental revenues associated with vacation ownership products which we own and which are registered and held for sale , to the extent that the revenues from rental are less than costs , revenues are reported net in accordance with asc topic 978 , “ real estate - time-sharing activities ” ( “ asc 978 ” ) . the rental activity associated with discounted vacation packages requiring a tour ( “ preview stays ” ) is not included in rental metrics , and because the majority of these preview stays are sourced directly or indirectly from unsold inventory , the associated revenues and expenses are reported net in marketing and sales expense . 41 in our exchange & third-party management segment , we offer vacation rental opportunities to members of the interval international network and certain other membership programs . the offering of getaways allows us to monetize excess availability of resort accommodations within the applicable exchange network . resort accommodations available as getaways typically result from seasonal oversupply or underutilized space , as well as resort accommodations we source specifically for getaways . rental expenses include : maintenance fees on unsold inventory ; costs to provide alternative usage options , including marriott bonvoy points , offerings available as part of the explorer collection and through the interval options program , for owners who elect to exchange their inventory ; marketing costs and direct operating and related expenses in connection with the rental business ( such as housekeeping , credit card expenses and reservation services ) ; and costs to secure resort accommodations for use in getaways . rental metrics , including the average daily transient rate or the number of transient keys rented , may not be comparable between periods given fluctuation in available occupancy by location , unit size ( such as two bedroom , one bedroom or studio unit ) , owner use and exchange behavior . in addition , rental metrics may not correlate with rental revenues due to the requirement to report certain rental revenues net of rental expenses in accordance with asc 978 ( as discussed above ) . further , as our ability to rent certain luxury and other inventory is often limited on a site-by-site basis , rental operations may not generate adequate rental revenues to cover associated costs . our vacation ownership segment units are either “ full villas ” or “ lock-off ” villas . lock-off villas are units that can be separated into a master unit and a guest room . full villas are “ non-lock-off ” villas because they can not be separated . a “ key ” is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas . lock-off villas represent two keys and non-lock-off villas represent one key .
| the tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate . as a result , effective tax rates and provision for income taxes can vary considerably among companies . ebitda and adjusted ebitda also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets . these differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies . we believe adjusted ebitda is useful as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items . adjusted ebitda also facilitates comparison by us , analysts , investors , and others , of results from our on-going core operations before the impact of these items with results from other vacation companies . 44 ebitda and adjusted ebitda have limitations and should not be considered in isolation or as a substitute for performance measures calculated in accordance with gaap . in addition , other companies in our industry may calculate ebitda and adjusted ebitda differently than we do or may not calculate them at all , limiting their usefulness as comparative measures . the table below shows our ebitda and adjusted ebitda calculation and reconciles these measures with net ( loss ) income attributable to common shareholders , which is the most directly comparable gaap financial measure . replace_table_token_12_th certain items for 2020 consisted of $ 100 million of impairment charges , $ 62 million of ilg acquisition-related costs , $ 57 million of other charges ( including $ 50 million related to the net sales reserve adjustment , $ 2 million related to an accrual for the health and welfare costs for furloughed associates , $ 4 million related to the charge for vat penalties and interest ( see offset included in indemnification below ) and $ 1 million of other miscellaneous charges ) , $
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39 we acquired interests in the following consolidated hotels during the year ended december 31 , 2013 : replace_table_token_15_th in addition , our same store consolidated portfolio experienced improvements in adr and occupancy during the year ended december 31 , 2014 when compared to the same period in 2013. occupancy in our same store consolidated hotels increased 320 basis points from 79.7 % during the year ended december 31 , 2013 to 82.9 % for the same period in 2014. adr improved 1.6 % , increasing from $ 176.85 for the year ended december 31 , 2013 to $ 179.76 during the same period in 2014. these improvements were due to improvements in lodging trends in the markets in which our hotels are located . expenses total hotel operating expenses increased 20.6 % to approximately $ 227,324 for the year ended december 31 , 2014 from $ 188,431 for the year ended december 31 , 2013. consistent with the increase in hotel operating revenues , hotel operating expenses increased primarily due to the acquisitions consummated since the comparable period in 2013 , as mentioned above . the acquisitions also resulted in an increase in depreciation and amortization of 24.0 % , or $ 13,383 , to $ 69,167 for the year ended december 31 , 2014 from $ 55,784 for the year ended december 31 , 2013. real estate and personal property tax and property insurance increased $ 6,259 , or 26.0 % , for the year ended december 31 , 2014 when compared to the same period in 2013 due to our acquisitions along with a general overall increase in tax assessments and tax rates as the economy improves , but was partially offset by reductions resulting from our rigorous management of this expense . general and administrative expense decreased by approximately $ 3,506 from $ 23,869 in 2013 to $ 20,363 in 2014. general and administrative expense includes expense related to non-cash share based payments issued as incentive compensation to the company 's trustees , executives , and employees . expense related to share based compensation decreased $ 3,718 when comparing the year ended december 31 , 2014 to the same period in 2013. this decrease in share based compensation expense is due primarily to the vesting of the 2010 multi-year ltip plan as of december 31 , 2013 as well as a lesser amount of restricted shares issued since december 31 , 201 3 . please refer to “ note 8 – share based payments ” of the notes to the consolidated financial statements for more information about our stock based compensation . amounts recorded on our consolidated statement of operations for acquisition and terminated transactions costs will fluctuate from period to period based on our acquisition activities . acquisition costs typically consist of transfer taxes , legal fees and other costs associat ed with acquiring a hotel property and transactions that were terminated during the year . acquisition and terminated transaction costs increased $ 1,498 from $ 974 for the year ended december 31 , 2013 to $ 2,472 for the year e nded december 31 , 2014. while we acquired more properties in 2013 , the manner in which acquisition targets are found can and do dictate the costs necessary to complete the acquisition . the costs incurred in 2014 were related to the following hotels : $ 1,836 related to our hilton garden inn 52 nd street acquisition , $ 173 related to our hotel milo acquisition , and $ 169 related to our parrot key resort acquisition . the costs incurred in 2013 were related to the following hotels : $ 500 related to our hyatt union square acquisition ; $ 152 related to our residence inn coconut grove acquisition ; $ 65 related to our courtyard san diego acquisition ; and $ 138 for our winter haven and blue moon hotel acquisitions . also included in these costs are charges related to transactions that were terminated during the year . 40 operating income operating income for the year ended dec ember 31 , 2014 was $ 67,909 compared to operating income of $ 44,690 during the same period in 2013. operating income was positively impacted by the improved operating results of our hotels discussed above as well as insurance recoveries of $ 4,604 , much of which represents settlement of business interruption insurance claims that arose from the hurricane sandy natural disaster in 2012 . interest expense interest expense increased $ 2,422 from $ 40,935 for the year ended december 31 , 2013 to $ 43,357 for the year ended december 31 , 2014. the increase in interest expense is primarily due to increased borrowings drawn on our unsecured credit facilities . during 2014 , we entered into a new credit facility which allowed for an additional $ 100,000 in unsecured term loan , which we drew during the second quarter of 2014. gain on disposition of hotel properties during the year ended december 31 , 2014 , the c ompany recorded a gain of $ 7,195 related to its sale of hotel 373 in manhattan . gain on hotel acquisitions , net during the year ended december 31 , 2014 , the company recorded a net gain of $ 12,667 related primarily to its purchase of the hilton garden inn on 52nd street in manhattan as the purchase price of the asset was less than the appraised fair value as of t he closing date . during the year ended december 31 , 2013 , the company had recorded a similar net gain of $ 12 , 096 related to its purchase of hyatt union square . development loan recovery consideration given in exchange for the hilton garden inn 52 nd street included cash to the seller and our reinstatement and cancellation of a development loan receivable in the original principal amount of $ 10,000 and $ 12,494 of accrued interest and late fees . this development loan receivable had previously been fully impaired in 2009 , but was recovered as part of this acquisition . story_separator_special_tag as a result , we recognized a gain of $ 22,494 on the recovery of the previously impaired development loan . unconsolidated joint venture investments the loss from unconsolidated joint ventures consists of our interest in the operating results of the properties we own in joint ventures . the operating results of the unconsolidated joint ventures improved by $ 715 for the year ended december 31 , 2014. this is primarily because of the improved performance in our boston market , where two of our five properties owned in joint ventures are located . we recorded an impairment loss of $ 1,813 related to the courtyard , norwich , ct , one of the properties owned by mystic partners , llc during the year ended december 31 , 2013. at that time , we did not anticipate recovering our investment balance in this asset , and as such we reduced our investment attributed to this property to $ 0 as of december 31 , 2013. during the third quarter of 2014 , the title on this property was transferred to the lender . income tax benefit during the year ended december 31 , 2014 , the company recorded an income tax benefit of $ 2,685 compared to an income tax benefit of $ 5,600 in 2013. prior year income tax benefit included the reversal of allowances against state deferred tax assets resulting from cumulative net operating losses that were deemed to be realizable based on projections of future performance of the hotels generating these net operating losses . discontinued operations on september 20 , 2013 , the company entered into a purchase and sale agreement to sell a portfolio of 16 non-core hotels for an aggregate purchase price of approximately $ 217,000 . during the third quarter of 2013 , the company had recorded an impairment of $ 6,591 in connection with the anticipated disposition . as of december 31 , 2013 , the company had closed on the sale of 12 of the hotels , with the remaining four hotels closing during the first quarter of 2014 . accordingly , a gain of $ 31,559 was recognized during the fourth quarter of 2013 as the proceeds from the sale exceeded the carrying value . 41 for the year ended december 31 , 2014 , th e company recorded a loss of $ 128 in connection with the closing o f the remaining 4 properties . in addition , we recorded an impairment loss of $ 1,800 in the first quarter of 2014 , as the proceeds did not exceed the carrying value for certain of these properties . on june 12 , 2013 , we closed on the sale of our comfort inn , harrisburg , pa. the company sold the hotel for $ 3,700 and recorded a gain on sale of $ 442. additionally , on september 17 , 2013 , we closed on the sale of holiday inn express camp springs , md property . the company sold the hotel for $ 8,500 and recorded a gain on the sale of $ 1 20 and an impairment charge of $ 3,723 during the second quarter of 2013 as the anticipated net proceeds did not exceed the carrying value . the operating results for all 18 of t he above described hotel properties and one land parcel have been reclassified to discontinued operations in the statement of operations for the years end december 31 , 2014 and 2013 , respectively . we recorded income from discontinued operations of approximately $ 263 during the twelve months ended december 31 , 2014 , compared to income of approximately $ 7,388 during the twelve months ended december 31 , 2013. see “ note 12 – discontinued operations ” for more information . effective january 1 , 2014 , we early adopted asu update no . 2014-08 concerning the classification and reporting of discontinued operations . this amendment defines discontinued operations as a component of an entity that represents a strategic shift that has ( or will have ) a major effect on an entity 's operations and financial results . as a result of the early adoption of asu update no . 2014-08 , we anticipate that most of our hotel dispositions will not be classified as discontinued operations as most will not fit this definition . net income applicable to common shareholders net income applicable to common shareholders for the year ended december 31 , 2014 was $ 52,899 compared to net income applicable to common shareholders of $ 32,752 for the same period in 2013. net income applicable to common shareholders for the year ended december 31 , 2014 was positively impacted by the improved operating results of our hotels and one-time gains discussed above . net income applicable to common shareholders for the year ended december 31 , 2013 was negatively impacted by the extinguishment of $ 2,250 of issuance costs associated with the redemption of all of our outstanding series a preferred shares . comprehensive income attributable to common shareholders comprehensive income applicable to common shareholders for the year ended december 31 , 201 4 was $ 52,917 compared to $ 34,162 for the same period in 201 3 . this amount was primarily attributable to net income as more full y described above . further change in other comprehensive income was primarily the result of the positive shift in the position of the fair value of our derivative instruments . for the year ended december 31 , 201 4 , we recorded other comprehensive income of $ 68,289 when compared to $ 51,358 of other comprehensive income for the year ended december 31 , 2013. the expected rise in the interest rate yield curve in the next few years has continued to increase the fair value of our interest rate swaps , increasing the asset value of certain derivative instruments and decreasing the liability of shifting the liability to an asset position for other derivative instruments .
| the relatively stable results in revpar during the year of 2013 when compared to the year of 2012 is primarily the result of a joint venture asset which is now consolidated for financial reporting purposes and therefore no longer contributes to the operating results of our portfolio of unconsolidated hotels . the holiday inn express 29 th street , new york , ny , which as of june 18 , 2012 , no longer was included in our unconsolidated joint venture hotel portfolio , tended to have higher occupancy and adr than the remaining hotels in our unconsolidated joint venture portfolio , resulting in the lower room revenues and total revenues in the above table . when compared to the same period in 2012 , the remaining unconsolidated joint venture hotels follow the same growth trend for revpar as experienced in our same store consolidated hotels reported below during the year ended december 31 , 2013 . 38 we define a same store consolidated hotel as one that is currently consolidated , that we have owned in whole or in part for the entire period being reported and the comparable period in each of the periods being presented , and is deemed fully operational . based on this definition , for the years ended december 31 , 2014 and 2013 , there are 3 4 same s tore consolidated hotels and 31 same store consolidated hotels for the years ended december 31 , 2013 and 2012. the following table outlines operating results for the years ended december 31 , 2014 , 2013 , and 2012 , for our same store consolidated hotels : replace_table_token_13_th driven by stron g performance in our boston , west coast , and washington dc markets , revpar for our same store consolidated hotels increased 5.7 % , when compared to the same period in 2013. comparison of the year ended december 31 , 2014 to december 31 , 2013 ( dollars in thousands , except adr and per share data ) < p
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the market is seeing growing demand for increased fiber capacity with networks migrating from the current 10 gbps wavelength solutions to 40 gbps solutions in the short-term and 100 gbps solutions in the longer-term . infinera launched the dtn-x platform , a 100 gbps pic-based solution , in september 2011 , with expected volume production in 2012. the dtn-x platform will incorporate our 500 gbps pics and our 5 terabit otn switch and will combine competitive fiber capacity with the unique features of the digital optical network . we continue to extend our digital optical network into the metro market with new releases of our atn platform and into the submarine market with a product extension of our dtn platform . our atn platform is a metro access solution that extends infinera 's digital bandwidth management and intelligent software operating system benefits to the network edge . our goal is to be a leading provider of optical networking systems to communications service providers , internet content providers , cable operators , subsea network operators , and others . our revenue growth will depend on the continued acceptance of our products , growth of communications traffic and the proliferation of next-generation bandwidth-intensive services , which are expected to drive the need for increased levels of bandwidth . our ability to increase revenue and achieve profitability will be directly affected by the level of acceptance of our products in the long-haul and metro dwdm markets and by our ability to cost-effectively develop and sell innovative products that leverage our technology advantages on a time-to-market basis . as of december 31 , 2011 , we have sold our network platforms for deployment in the optical networks of 98 customers worldwide , including colt , cox communications , deutsche telekom , equinix , inc. , interoute , kvh , teliasonera , level 3 , ntt , ote , pacnet and xo communications . we currently have 33 atn customers enjoying the benefits of an atn platform and 28 of those have deployed an integrated atn-dtn solution . we do not have long-term sales commitments from our 42 customers . to date , a few of our customers have accounted for a significant portion of our revenue . in particular , level 3 accounted for less than 10 % , and approximately 15 % and 17 % of our revenue in 2011 , 2010 and 2009 , respectively . our business will be harmed if any of our key customers , including level 3 , do not generate as much revenue as we forecast , stop purchasing from us , or substantially reduce their orders to us . in october 2011 , level 3 announced that it had completed its acquisition of global crossing . this transaction may negatively impact the revenue we receive from the combined entity in the future , although we can not predict the timing of such impact . we are headquartered in sunnyvale , california , with employees located throughout the americas , europe , and the asia pacific region . we expect to continue to add some personnel in the united states and internationally to develop our products and provide additional geographic sales and technical support coverage . we primarily sell our products through our direct sales force , with a small portion sold indirectly through resellers . we derived 97 % , 98 % and 94 % of our revenue from direct sales to customers for 2011 , 2010 and 2009 , respectively . we expect to continue generating a substantial majority of our revenue from direct sales in the future . our near-term year-over-year and quarter-over-quarter revenue will likely be volatile and may be impacted by several factors including general economic and market conditions , time-to-market development of new products , acquisitions of new customers and the timing of large product deployments . we will continue to make significant investments in the business , and management currently believes that operating expenses for 2012 will range from $ 260 million to $ 270 million , including stock-based compensation expense of approximately $ 40 million to $ 45 million . story_separator_special_tag 2010 compared to 2009. gross margin increased to 45 % from 33 % in 2009. a higher proportion of our revenue came from our higher gross margin tributary adaptor and line modules in 2010 as compared to 2009. this reflected strong demand for bandwidth in the year as customers filled out higher capacity footprint . additionally , the unusually low level of gross margin in 2009 was primarily due to the following factors : we recognized revenue and costs related to a large number of negative or lower margin common equipment deployments ; gross margin was negatively impacted by the usage of significant common equipment discounts ; we incurred restructuring and other related costs of $ 3.0 million related to the closure of our maryland-based semiconductor fabrication plant ( the maryland fab ) plan announced in july 2009 ; and we incurred inventory write-downs for excess and obsolete inventory of $ 6.6 million which includes $ 1.5 million of inventory write-downs related to the closure of our maryland fab . see note 7 , restructuring and other related costs , to the notes to consolidated financial statements for more information on our maryland fab restructuring plan . we do not have the visibility necessary to accurately predict future gross margins beyond a one-quarter time horizon . however , based on our current outlook , we expect gross margins in 2012 to be consistent with current levels as we ramp production and gain customer adoption of our new products . story_separator_special_tag operating expenses the following table summarizes our operating expenses for the periods presented ( in thousands , except % ) : replace_table_token_5_th 46 the following table summarizes the stock-based compensation expense included in our operating expenses ( in thousands ) : replace_table_token_6_th research and development expenses 2011 compared to 2010. research and development expenses increased $ 8.6 million in 2011 from 2010 primarily due to increased headcount and personnel-related costs of $ 2.6 million primarily associated with next-generation product development . this comprised of $ 1.9 million of cash compensation and $ 0.7 million of stock-based compensation expense . in addition , during 2011 , we incurred $ 1.6 million of increased depreciation , $ 1.4 million increase in professional and outside services , $ 1.1 million in travel and entertainment expenses , $ 1.2 million increase in spending on equipment and software , and $ 0.7 million increase in facilities and other costs , as compared to 2010 . 2010 compared to 2009 . research and development expenses increased $ 21.2 million in 2010 from 2009 primarily due to increased headcount and personnel-related costs of $ 14.2 million , including $ 10.2 million of cash compensation and $ 4.0 million of stock-based compensation expenses . in addition , in 2010 , we incurred $ 7.5 million of increased spending related to materials , prototype and new product spending and $ 0.6 million in professional and outside services . this was partially offset by a decrease of $ 1.1 million related to depreciation expense and other costs . this increase in research and development expenses reflects ongoing investments in our higher fiber capacity platforms combined with investments in our atn platform . sales and marketing expenses 2011 compared to 2010. sales and marketing expenses increased $ 6.7 million in 2011 from 2010 primarily due to $ 2.7 million in compensation and personnel-related expenses due to increased headcount , $ 1.7 million of increased travel and related expenses , $ 1.2 million of increased marketing program expenses and trade show costs , $ 0.9 million of increased stock-based compensation expense , a $ 0.4 million increase related to outside professional services , $ 0.6 million of increased facilities and other costs , and $ 0.2 million related to increased expenses for customer lab trials . these increases were offset by $ 1.0 million in decreased sales commission expense . 2010 compared to 2009 . sales and marketing expenses increased $ 9.7 million in 2010 from 2009 primarily due to an increase of $ 5.8 million in cash compensation and personnel expenses . this increase included $ 4.4 million of sales commissions primarily related to an over-achievement of the sales plan for the year . additionally , stock-based compensation expense increased $ 1.4 million and travel and entertainment expenses and other costs increased $ 1.1 million . in 2010 , we also incurred $ 0.9 million related to incremental customer lab trials and marketing prototype materials , and $ 0.5 million of additional professional and outside services . general and administrative expenses 2011 compared to 2010 . general and administrative expenses decreased $ 3.7 million in 2011 from 2010 primarily due to a $ 2.1 million decrease in cash compensation which included the impact of reduced management bonuses , $ 1.4 million of decreased stock-based compensation expense , and a 47 $ 0.7 million decrease in facilities and other costs . these decreases were partially offset by increased depreciation costs of $ 0.4 million and increased professional services costs of $ 0.1 million . 2010 compared to 2009. general and administrative expenses increased $ 12.8 million in 2010 from 2009 primarily due to $ 5.0 million of cash compensation , which includes the impact of increased headcount and management bonuses , and $ 4.8 million of stock-based compensation expense . in addition , facilities and professional services costs increased by $ 0.8 million and depreciation and amortization expense increased by $ 0.5 million . additionally , 2009 was impacted by a recovery of doubtful accounts of $ 1.7 million . restructuring and other costs in 2011 , we recorded a credit of $ 0.1 million due to a change in estimates associated with facility-related costs . in 2010 , we incurred $ 0.2 million of restructuring and other costs associated with the closure of our maryland fab . we incurred $ 0.8 million of restructuring and other related costs in 2009 which was comprised of non-cash charges of $ 0.6 million associated with operating lease termination costs and equipment and facilities-related costs and $ 0.2 million related to severance and related expenses and other exit costs . we completed our restructuring actions in 2010. for more information , see note 7 , restructuring and other related costs , to the notes to consolidated financial statements . other income ( expense ) , net replace_table_token_7_th 2011 compared to 2010 . interest income decreased in 2011 from 2010 due to lower interest rates on investments and lower average investment balances . other gain ( loss ) , net for 2011 includes $ 1.0 million of unrealized and realized losses due to foreign currency exchange , a gain of $ 0.3 million from the sale of assets and a gain of $ 0.2 million related to an insurance claim settlement . 2010 compared to 2009 . interest income decreased in 2010 from 2009 due to lower interest rates on investments and lower average investment balances . in 2009 , we recognized net credit impairment losses of $ 1.1 million related to the determination that our available-for-sale auction rate securities ( ars ) were other-than-temporarily impaired , as discussed in note 3 , fair value measurements and other-than-temporary impairments , of the notes to consolidated financial statements . other gain ( loss ) , net for 2010 includes $ 0.7 million of unrealized and realized losses due to foreign currency exchange re-measurement and $ 0.3 million gain on asset sales .
| product and related support services revenue that is recognized ratably includes sales of products and services that were deferred under previous accounting standards , prior to our adoption of asu 2009-13 and asu 2009-14 as further discussed in note 2 , summary of significant accounting policies , to the notes to consolidated financial statements , because vendor specific objective evidence of fair value had not been established for the undelivered elements . total ratable revenue levels decreased to $ 3.2 million in 2011 from $ 6.2 million in 2010 due to an overall reduction in sales of products and services that were deferred following our adoption of asu 2009-13 and asu 2009-14. we have a limited number of software offerings and related support services that will continue to be 44 accounted for under the software revenue recognition rules . we expect to continue to record a small amount of ratable revenue when arrangements include bundled services related to our software offerings for which vsoe has not been established . total services revenue increased to $ 52.2 million in 2011 from $ 46.6 million in 2010 primarily reflecting the incremental recognition of $ 5.4 million related to extended hardware warranty service revenue , $ 2.5 million related to our software subscription service revenue , $ 1.8 million related to our spares management service revenue , $ 0.4 million of network management services revenue , and $ 0.4 million of first line management services revenue , partially offset by decrease of $ 4.9 million related to deployment services revenue . as our installed customer base grows , we expect to continue to grow our extended hardware warranty and spares management services revenues in future periods . we do not have the visibility necessary to accurately predict future revenues beyond a one-quarter time horizon , particularly as we ramp production and gain customer adoption of our new products in 2012. however , we continue to believe that our competitive positioning will improve throughout 2012 as we introduce these new products . 2010 compared to 2009. total revenue increased to $ 454.4 million in 2010 from $ 309.1 million
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( 4 ) ltv is calculated as the total outstanding principal balance of the loan or participation interest in a loan plus any financing that is pari passu with or senior to such loan or participation interest as of december 31 , 2018 , divided by the applicable as-is real estate value at the time of origination or acquisition of such loan or participation interest in a loan . the as-is real estate value reflects our manager 's estimates , at the time of origination or acquisition of a loan or participation interest in a loan , of the real estate value underlying such loan or participation interest , determined in accordance with our manager 's underwriting standards and consistent with third-party appraisals obtained by our manager . see note 17 to the consolidated financial statements included in this form 10-k for details about our mortgage loan originations subsequent to december 31 , 2018. cmbs portfolio we invest from time to time in cmbs and cmbs-related assets as part of our investment strategy , often as a short-term cash management tool . as of december 31 , 2018 , our cmbs portfolio consisted of four fixed rate securities , the underlying collateral of which consists of first mortgage loans secured by commercial real estate properties . the underlying real estate collateral is located across the united states , primarily in california and texas , with no state representing more than 24.3 % of an investment 's current face amount . additionally , the payment of principal and interest on the securities in our cmbs portfolio at december 31 , 2018 is guaranteed by a u.s. government agency or a u.s. government sponsored enterprise ( “ gse ” ) . at december 31 , 2018 , there were no floating rate securities in our cmbs portfolio . 63 the following table details overall statistics for our cmbs portfolio as of december 31 , 2018 ( dollars in thousands ) : replace_table_token_12_th ( 1 ) amounts disclosed are before giving effect to unamortized purchase price premium and discount and unrealized gains or losses . ( 2 ) weighted by market value as of december 31 , 2018 . ( 3 ) the largest structured finance investment is 100 % collateralized by multifamily mortgage loans underwritten by the federal home loan mortgage corporation ( “ fhlmc ” ) , which loans are slated for near term securitization by fhlmc . upon the contractual maturity of the structured finance investment , fhlmc is required to purchase all of the performing mortgage loans at par . currently , all of the underlying mortgage loans are performing . the other cmbs investments are structured finance investments issued by fannie mae and ginnie mae which are backed primarily by mortgage loans on multifamily properties that satisfy gse program requirements . these bonds are unrated but carry a government guaranty . asset management we proactively manage the assets in our portfolio from closing to final repayment . we are party to an agreement with situs asset management , llc ( “ situs ” ) , one of the largest commercial mortgage loan servicers , pursuant to which situs provides us with dedicated asset management employees for performing asset management services pursuant to our proprietary guidelines . following the closing of an investment , this dedicated asset management team rigorously monitors the investment under our manager 's oversight , with an emphasis on ongoing financial , legal and quantitative analyses . through the final repayment of an investment , the asset management team maintains regular contact with borrowers , servicers and local market experts monitoring performance of the collateral , anticipating borrower , property and market issues , and enforcing our rights and remedies when appropriate . our manager reviews our entire loan portfolio quarterly , undertakes an assessment of the performance of each loan , and assigns it a risk rating between “ 1 ” and “ 5 , ” from least risk to greatest risk , respectively . see notes 2 and 3 to our consolidated financial statements included in this form 10-k for a discussion regarding the risk rating system that we use in connection with our portfolio . the following table allocates the carrying value of our loan portfolio as of december 31 , 2018 and 2017 based on our internal risk ratings ( dollars in thousands ) : replace_table_token_13_th the weighted average risk rating of our total loan exposure based on unpaid principal balance was 2.8 and 2.6 as of december 31 , 2018 and december 31 2017 , respectively . 64 investment portfolio financing our portfolio financing arrangements during the year ended december 31 , 2018 and december 31 , 2017 included collateralized loan obligations , secured revolving repurchase agreements , senior secured and secured credit agreements , a term loan facility , and asset-specific financing arrangements . for the year ended december 31 , 2017 , we also had outstanding non-consolidated senior interests of $ 96.4 million . the following table details our portfolio financing outstanding principal balances ( dollars in thousands ) : replace_table_token_14_th ( 1 ) excludes deferred financing costs of $ 23.8 million and $ 10.3 million as of december 31 , 2018 and december 31 , 2017 , respectively . collateralized loan obligations during the year ended december 31 , 2018 , we closed two collateralized loan obligations totaling $ 1.9 billion , financing 51 existing first mortgage loan investments , comprising 48 pari passu participation interests and three whole loans , significantly reducing our cost of funds and increasing to 52.1 % the non-recourse , matched-term financing of our loan portfolio borrowings . the collateralized loan obligations bear a weighted average interest rate of libor plus 1.28 % , weighted average advance rate of 79.7 % , and in one instance includes a reinvestment feature that provides additional liquidity that allows us to originate new loan investments funded in part or in whole by the clo . story_separator_special_tag as of december 31 , 2018 , the loan investments contributed to the collateralized loan obligations represented 42.3 % of the aggregate unpaid principal balance of our loan investment portfolio , or $ 1.8 billion . secured revolving repurchase agreements as of december 31 , 2018 , aggregate borrowings outstanding under our secured revolving repurchase agreements related to loans totaled $ 1.0 billion , with a weighted average interest rate of libor plus 2.0 % per annum , a weighted average all-in cost of credit , including associated fees and expenses , of libor plus 2.6 % per annum , and a weighted average advance rate of 76.6 % . as of december 31 , 2018 , outstanding borrowings under these agreements had a weighted average term to extended maturity ( assuming we have exercised all extension options and term out provisions ) of 3.1 years . at december 31 , 2018 and december 31 , 2017 , the company had two secured revolving repurchase agreements to finance its cmbs investing activities . credit spreads vary depending upon the cmbs investment and advance rate . assets pledged at december 31 , 2018 and december 31 , 2017 consisted of two and three mortgage-backed securities , respectively . these agreements are 100 % recourse to holdco . the agreements include various covenants covering net worth , liquidity , recourse limitations , and debt coverage , as further discussed below . 65 the following tables detail our secured revolving repurchase agreements as of december 31 , 2018 ( dollars in thousands ) : replace_table_token_15_th ( 1 ) commitment amount represents the largest amount of borrowings available under a given agreement once sufficient collateral assets have been approved by the lender and pledged by us . ( 2 ) represents the commitment amount less the approved borrowings which amount is available to be borrowed provided we pledge and the lender approves additional collateral assets . ( 3 ) undrawn capacity represents the positive difference between the borrowing amount approved by the lender against collateral assets pledged by us and the amount actually drawn against those collateral assets . ( 4 ) our ability to extend our secured revolving repurchase agreements to the dates shown above is subject to satisfaction of certain conditions . even if extended , our lenders retain sole discretion to determine whether to accept pledged collateral , and the advance rate and credit spread applicable to each borrowing thereunder . ( 5 ) extended maturity represents the sooner of the next maturity date of the agreement , or roll over date for the applicable underlying trade confirmation , subsequent to december 31 , 2018. weighted average interest rate includes the impact of the overnight swap index ( “ ois ” ) rate used for cmbs secured revolving repurchase agreements . the following table details our secured revolving repurchase agreements as of december 31 , 2017 ( dollars in thousands ) : replace_table_token_16_th ( 1 ) commitment amount represents the largest amount of borrowings available under a given agreement once sufficient collateral assets have been approved by the lender and pledged by us . ( 2 ) represents the commitment amount less the approved borrowings which amount is available to be borrowed provided we pledge and the lender approves additional collateral assets . ( 3 ) undrawn capacity represents the positive difference between the borrowing amount approved by the lender against collateral assets pledged by us and the amount actually drawn against those collateral assets . ( 4 ) our ability to extend our secured revolving repurchase agreements to the dates shown above is subject to satisfaction of certain conditions . even if extended , our lenders retain sole discretion to determine whether to accept pledged collateral , and the advance rate and credit spread applicable to each borrowing thereunder . ( 5 ) extended maturity represents the sooner of the next maturity date of the agreement , or roll over date for the applicable underlying trade confirmation , subsequent to december 31 , 2017. borrowings under our secured revolving repurchase agreements are subject to the initial approval of eligible collateral loans ( or cmbs , depending on the agreement ) by the lender . the maximum advance rate and pricing rate of individual advances are determined with reference to the attributes of the respective collateral . 66 the maximum and average month end balances for our secured revolving repurchase agreements during the year ended december 31 , 2018 are as follows ( dollars in thousands ) : replace_table_token_17_th ( 1 ) the maximum month end balance subtotal and total represents the maximum outstanding borrowings on all secured revolving repurchase agreement at a month end during the year ended december 31 , 2018. we use secured revolving repurchase agreements to finance certain of our originations or acquisitions of our target assets , which may be accepted by a respective secured revolving repurchase agreement lender as collateral . once we identify an asset and the asset is approved by the secured revolving repurchase agreement lender to serve as collateral ( which lender 's approval is in its sole discretion ) , we and the lender may enter into a transaction whereby the lender advances to us a percentage of the value of the asset , which is referred to as the “ advance rate , ” as the purchase price for such transaction with an obligation of ours to repurchase the asset from the lender for an amount equal to the purchase price for the transaction plus a price differential , which is calculated based on an interest rate . for each transaction , we and the lender agree to a trade confirmation which sets forth , among other things , the purchase price , the maximum advance rate , the interest rate , the market value of the loan asset and any future funding obligations which are contemplated with respect to the specific transaction and or the underlying loan asset .
| at december 31 , 2018 , we had undrawn capacity ( liquidity available to us without the need to pledge more collateral to our lenders ) of $ 236.5 million under secured revolving repurchase agreements , senior secured and secured credit agreements , and a term loan facility , with eight lenders : $ 236.5 million of undrawn capacity in connection with our secured revolving repurchase agreements , senior secured and secured credit agreements , and a term loan facility , with an aggregate maximum commitment amount of $ 4.0 billion and a weighted average interest rate of libor plus 2.0 % as of december 31 , 2018 , providing stable financing , with mark-to-market provisions limited to asset and , in one instance , market specific events and a weighted average term to extended maturity ( assuming we have exercised all extension options and term out provisions ) of 3.4 years . as of december 31 , 2018 , we had $ 2.6 billion of financing capacity under secured revolving repurchase agreements , senior secured and secured credit agreements , and a term loan facility , provided by nine lenders . our ability to draw on this capacity is dependent upon our lenders ' willingness to accept as collateral loan or cmbs investments we pledge to them to secure additional borrowings : $ 2.4 billion of financing capacity is available for loan investments under our secured revolving repurchase agreements , senior secured and secured credit agreements , and a term loan facility for loan originations and acquisitions , with an aggregate maximum commitment amount of $ 4.0 billion and credit spreads based upon the ltv and other risk characteristics of collateral pledged , which together provide stable financing with mark-to-market provisions generally limited to asset and , in one instance , market specific events , and a weighted average term to extended maturity ( assuming we have exercised all extension options and term out provisions ) of 3.4 years . these financing arrangements are 25 % and 100 % recourse
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we warrant some of our products against defects in design , materials and workmanship for periods ranging from one to three years depending on the model . we record a provision for estimated future warranty costs based on the historical relationship of warranty claims to sales at the time of shipment of products to customers . we periodically review the adequacy of our product warranties and adjust , if necessary , the warranty percentage and accrued warranty reserve for actual experience . 22 changes in accounting principles no significant changes in accounting principles were adopted during 2011 and 2012 , except for the following : fair value measurements . we adopted certain amendments to accounting standards codification ( “ asc ” ) 820 , “ fair value measurements , ” effective january 1 , 2012. these amendments include a consistent definition of fair value , enhanced disclosure requirements for “ level 3 ” fair value adjustments and other changes to required disclosures . their adoption did not have a material impact on our consolidated financial statements . comprehensive income . we adopted the amendments to asc 220 , “ comprehensive income , ” effective january 1 , 2012. the amendments pertained to presentation and disclosure only . intangibles – goodwill & other . we adopted the amendments to asc 350 , “ intangibles-goodwill and others , ” effective january 1 , 2012. the amended guidance allows us to do an initial qualitative assessment of relevant events and circumstances to determine if fair value of a reporting unit is more likely than not to be less than its carrying value , prior to performing the two-step quantitative goodwill impairment test . the adoption of these amendments did not have a material impact on our consolidated financial statements . story_separator_special_tag our u.s. and canadian subsidiaries in connection with a financing transaction . without the effect of this non-cash charge , our effective tax rate would have been 26.9 % during the year ended december 31 , 2012. most of our taxable income is derived in canada where we are subject to lower corporate tax rates relative to our u.s. operations . 24 earnings from continuing operations . we generated net earnings from continuing operations of $ 3.2 million for the year ended december 31 , 2012 , as compared to $ 2.5 million during the year ended december 31 , 2011. in 2012 , our earnings from continuing operations per basic and diluted share was $ 0.54 , as compared to $ 0.42 during the year ended december 31 , 2011. there was no change in the number of common shares we had outstanding between 2012 and 2011. our earnings from continuing operations benefitted from a higher operating income margin on increased sales , together with lower non-operating costs for the reasons described above . these improvements , as compared to the prior year , were partially offset by increased interest expense , a one-time income tax charge and the effect of a higher effective income tax rate . backlog . our order backlog at december 31 , 2012 was $ 23.6 million , as compared to $ 24.8 million at december 31 , 2011. approximately 85 % of our backlog is derived from utility , commercial and industrial customer orders for our liquid-immersed transformers . these products generally entail longer lead times and higher average selling prices than our dry-type transformers . the $ 1.2 million decrease in our backlog between 2012 and 2011 resulted from our receipt and shipment of several large dry-type transformer orders to construction projects that were non-recurring in nature . our backlog is based on orders expected to be delivered in the future , most of which is expected to occur during 2013. new orders placed during the year ended december 31 , 2012 totaled $ 88.7 million , an increase of approximately 13 % compared to new orders of $ 78.4 million that were placed during the year ended december 31 , 2011. discontinued operations as a result of our activities to liquidate pioneer wind energy systems inc. , the assets and liabilities of the business are considered held for sale at december 31 , 2012 and therefore its financial results are reported as discontinued operations in the consolidated financial statements . see “ item 8. financial statements and supplementary data – note 5 discontinued operations ” for further information . the following table summarizes the results of discontinued operations ( in thousands ) : replace_table_token_4_th ( 1 ) includes non-cash asset impairment charges of $ 1.6 million during the year ended december 31 , 2011. liquidity and capital resources general . at december 31 , 2012 , we had cash and cash equivalents of approximately $ 0.5 million and total debt , including capital lease obligations , of $ 17.1 million . we have historically met our cash needs through a combination of cash flows from operating activities and bank borrowings . our cash requirements are generally for operating activities , debt repayment , capital improvements and acquisitions . we believe that working capital , borrowing capacity available under our credit facilities and funds generated from operations should be sufficient to finance our cash requirements for anticipated operating activities , capital improvements and principal repayments of debt through at least the next twelve months . cash provided by ( used in ) operating activities . our operating activities generated cash flow of $ 2.4 million during the year ended december 31 , 2012 , as compared to cash flow from operating activities of $ 1.6 million during the year ended december 31 , 2011. the $ 0.8 million increase in our operating cash flow during 2012 was primarily due to our improved earnings from continuing operations , for the reasons described above , together with a reduction in cash used by our former wind energy business , the discontinuation of which we announced on september 30 , 2011. the principal elements of cash flow from operating activities during 2012 were net earnings from continuing operations of $ 3.2 million , plus $ 1.8 story_separator_special_tag million of non-cash expenses consisting of depreciation , amortization and stock-based compensation , less $ 2.3 million of cash used for working capital to support our revenue growth , $ 0.2 million of cash used by discontinued operations and $ 0.1 million related to deferred taxes and pension expense . 25 cash provided by ( used in ) investing activities . cash used in our investing activities during the year ended december 31 , 2012 was approximately $ 2.4 million , as compared to $ 9.5 million during the year ended december 31 , 2011. during 2012 , our cash used in investing activities included the purchase and current expansion of the property comprising our canadian dry-type transformer manufacturing facility for approximately $ 1.4 million . also during 2012 , we made a loan of $ 0.3 million to the developer of a renewable energy project for the purpose of securing a purchase order for our transformers . additions to our property , plant and equipment in the ordinary course of business were $ 0.7 million during the year ended december 31 , 2012. during 2011 , we used approximately $ 7.8 million to acquire bemag transformer inc. , including the machinery and equipment assets of its former u.s. affiliate , vermont transformer , inc. we also made additions to our property , plant and equipment of $ 1.4 million , consisting primarily of expenditures to complete the expansion of our liquid-filled transformer facility in quebec , as well as logistics and installation costs related to the assets we acquired from vermont transformer , inc. in 2011 , we made the first $ 0.3 million loan installment to the renewable energy project owned referred to above . cash provided by ( used in ) financing activities . cash used by our financing activities was approximately $ 1.0 million during the year ended december 31 , 2012 , as compared to $ 8.8 million of cash provided from financing activities during the year ended december 31 , 2011. during the 2012 period , the net decrease in our outstanding borrowings reflects the combination of $ 2.4 million of scheduled term loan amortization and the payoff of all our u.s. bank term debt that was due , approximately $ 1.1 million of cash flow used to pay down our revolving credit facilities , offset by $ 2.5 million of new term loan borrowings used to purchase one of our canadian facilities and to finance existing equipment at our mexico location . during the 2011 period , we obtained $ 10.0 million of new long-term borrowings under our canadian credit facilities for acquisitions and major capital projects . offsetting this increase in our long-term debt , we used $ 3.7 million of cash to repay , rather than assume , the debt of bemag transformer inc. ( $ 2.8 million ) , as well as to make principal payments on the debt of our other subsidiaries . in addition , during the year ended december 31 , 2011 , our short term bank borrowings and overdrafts increased by $ 2.5 million . working capital . as of december 31 , 2012 , we had net working capital of $ 6.5 million , including $ 0.5 million of cash and equivalents , compared to net working capital of $ 3.8 million , including $ 1.4 million of cash and equivalents at december 31 , 2011. our current assets were 1.3 times our current liabilities at december 31 , 2012 , as compared to 1.2 times at the end of the prior year . at december 31 , 2012 and 2011 , we had $ 4.7 million and $ 4.8 million , respectively , of available and unused borrowing capacity from our revolving credit facilities . however , the availability of this capacity under our revolving credit facilities is subject to restrictions on the use of proceeds and is dependent upon our ability to satisfy certain financial and operating covenants , including financial ratios . canadian credit facilities . our subsidiaries have maintained credit facilities with our canadian bank since october 2009. in june 2011 , pioneer electrogroup canada inc. , our wholly owned subsidiary and the parent company of all our active subsidiaries in canada entered into a letter loan agreement with the bank ( the “ canadian facilities ” ) that replaced and superseded all of our prior financing arrangements with such bank . the canadian facilities provide for up to $ 23.0 million canadian dollars ( “ cad ” ) ( approximately $ 23.1 million expressed in u.s. dollars ) consisting of a $ 10.0 million cad demand revolving credit facility ( “ facility a ” ) to finance ongoing operations , a $ 2.0 million cad term credit facility ( “ facility b ” ) that financed a plant expansion , a $ 10.0 million cad term credit facility ( “ facility c ” ) to finance acquisitions , capital expenditures or to provide funding to our u.s. corporations , a $ 50,000 cad corporate mastercard credit facility and a $ 1.0 million cad foreign exchange settlement risk facility . the canadian facilities require pioneer electrogroup canada inc. to comply on a consolidated basis with various financial covenants , including maintaining a minimum fixed charge coverage ratio of 1.25 , a maximum funded debt to ebitda ratio of 2.75 and a limitation on funded debt to less than 60 % of capitalization . the canadian facilities also restrict our ability to , among other things , ( i ) provide any funding to any person , including affiliates , in an aggregate amount exceeding $ 5.0 million cad or ( ii ) make distributions in an aggregate amount exceeding 50 % of pioneer electrogroup canada inc. 's previous year 's net income .
| sales to utilities in 2012 represented approximately 32 % of our consolidated revenue and grew by 23 % as compared to 2011. our utility sales benefitted from strong , mostly cyclically-driven increases among many of our perennial customers . sales to our commercial and industrial customers represented the remaining 18 % of our consolidated revenue and decreased by approximately 2 % as compared to 2011. in any one period , our commercial and industrial revenue is usually derived from a concentrated group of customers and is tied to several large projects which by their nature are non-recurring . the small decrease in our commercial and industrial sales in 2012 was driven by fewer orders for industrial projects , as compared to 2011 which benefitted from one particularly large canadian energy project order . 23 gross margin . for the year ended december 31 , 2012 , our gross margin percentage decreased to 22.6 % of revenues , compared to 23.2 % during the year ended december 31 , 2011. this decrease was anticipated due to the acquisition-driven shift in our sales mix towards dry-type transformers which represented approximately 54 % of consolidated sales during 2012 , as compared to only 46 % in 2011. we generally expect this product line to achieve lower gross margins than our liquid-filled transformers because approximately 77 % of our dry-type sales volume consists of general purpose units sold wholesale to a large number of electrical distributors in the more price-competitive distribution sales channel . by contrast , the majority of our liquid-filled transformer sales are on a direct-to-customer basis and they are frequently engineered-to-order , which generally warrants a higher gross margin percentage . during the year ended december 31 , 2012 , we experienced a 2.8 % gross margin increase in our liquid-filled product line due mainly to variations in sales mix . in our dry-type transformer line , gross margin declined 3.2 % driven by significantly higher sales of standardized units into the commercial construction market , including to our brand label customers . selling , general and administrative expense . for the year ended december 31 , 2012 , selling , general and administrative expense increased by approximately $
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although these evaluations involve significant judgment , an unrealized loss in the fair value of a debt security is generally deemed to be temporary when the fair value of the security is less than the recorded value primarily as a result of changes in interest rates , when there has not been significant deterioration in the financial condition of the issuer , and the company has the intent and the ability to hold the security for a sufficient time to recover the recorded value . an unrealized loss in the value of an equity security is generally considered temporary when the fair value of the security is below the recorded value primarily as a result of current market conditions and not a result of deterioration in the financial condition of the underlying borrowers or the underlying collateral ( in the case of mutual funds ) and the company has the intent and the ability to hold the security for a sufficient time to recover the recorded value . other factors that may be considered in determining whether a decline in the value of either a debt or equity security is “ other than temporary ” include ratings by recognized rating agencies ; capital strength and near-term prospects of the issuer , and recommendation of investment advisors or market analysts . therefore , continued deterioration of current market conditions could result in additional impairment losses recognized within the company 's investment portfolio . goodwill . goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired and liabilities assumed . goodwill is presumed to have an indefinite useful life and is analyzed annually for impairment . an annual test is performed during the third quarter of each fiscal year , or more frequently if indicators of potential impairment exist , to determine if the recorded goodwill is impaired . if the estimated fair value of the company 's sole reporting unit exceeds the recorded value of the reporting unit , goodwill is not considered impaired and no additional analysis is necessary . one of the circumstances evaluated when determining if an impairment test of goodwill is needed more frequently than annually is the extent and duration that the company 's market capitalization ( total common shares outstanding multiplied by current stock price ) is less than the total equity applicable to common shareholders . during the quarter ended june 30 , 2012 , the company engaged a third party firm to perform the annual test for goodwill impairment . the test concluded that recorded goodwill was not impaired . as of september 30 , 2012 , there have been no events or changes in the circumstances that would indicate a potential impairment . no assurance can be given , however , that the company will not record an impairment loss on goodwill in the future . other real estate owned ( “ oreo ” ) and other repossessed assets . other real estate owned and other repossessed assets consist of properties or assets acquired through or in lieu of foreclosure , and are recorded initially at the estimated fair value of the properties less estimated costs of disposal . costs relating to development and 62 improvement of the properties or assets are capitalized while costs relating to holding the properties or assets are expensed . valuations are periodically performed by management , and a charge to earnings is recorded if the recorded value of a property exceeds its estimated net realizable value . new accounting pronouncements for a discussion of new accounting pronouncements and their impact on the company , see note 1 of the notes to the consolidated financial statements contained in “ item 8. financial statements and supplementary data. ” operating strategy the company is a bank holding company which operates primarily through its subsidiary , the bank . the bank is a community-oriented bank which has traditionally offered a wide variety of savings products to its retail customers while concentrating its lending activities on real estate loans . weak economic conditions and ongoing stress on the housing and financial markets have prevailed since 2008 in portions of the united states , including washington state where we hold substantially all of our loans and conduct all of our operations . the majority of our loans are secured by collateral and made to borrowers located in washington state . western washington , which includes our primary market areas , has experienced home price declines , increased foreclosures , and has experienced above average unemployment rates . as a result , our credit losses during these periods were at significantly higher levels than our historical experience and our net interest income and other operating revenues and expenses have also been adversely affected . in response to the financial challenges in our market areas we have taken actions to manage our capital , reduce our exposure to speculative construction and land development loans and maintain higher levels of on balance sheet liquidity . we continue to originate residential fixed rate mortgage loans primarily for sale in the secondary market . we also continue to manage the growth of our commercial and multi-family real estate loan portfolios in a disciplined fashion while continuing to dispose of other real estate owned properties and increase retail deposits . we believe the resolution of problem financial institutions and continued bank consolidation in western washington will provide opportunities for the company to increase market share within the communities it serves . we are currently pursuing the following strategies : improve asset quality . we are focused on monitoring existing performing loans , resolving non-performing assets and selling foreclosed assets . we have sought to reduce the level of non-performing assets through collections , write-downs , modifications and sales of other real estate owned properties . we have taken proactive steps to resolve our non-performing loans , including negotiating payment plans , forbearances , loan modifications and loan extensions and accepting short payoffs on delinquent loans when such actions have been deemed appropriate . story_separator_special_tag expand our presence within our existing market areas by capturing opportunities resulting from changes in the competitive environment . we currently conduct our business primarily in western washington . we have a community bank strategy that emphasizes responsive and personalized service to our customers . as a result of fdic bank resolutions and anticipated consolidation of banks in our market areas , we believe there is an opportunity for a community and customer focused bank to expand its customer base . by offering timely decision making , delivering appropriate banking products and services , and providing customer access to our senior managers we believe community banks , such as timberland bank , can distinguish themselves from larger banks operating in our market areas . we believe we have a significant opportunity to attract additional borrowers and depositors and expand our market presence and market share within our extensive branch footprint . continue generating revenues through mortgage banking operations . the substantial majority of the fixed rate residential mortgage loans we originate are sold into the secondary market with servicing retained . this strategy produces gains on the sale of such loans and reduces the interest rate and credit risk associated with fixed rate residential lending . we will continue to originate custom construction and owner builder loans for sale into the secondary market upon the completion of construction . 63 portfolio diversification . in recent years , we have strictly limited the origination of speculative construction , land development and land loans in favor of loans that possess credit profiles representing less risk to the bank . we will continue originating owner/builder and custom construction loans , multi-family loans , commercial business loans and certain commercial real estate loans which offer higher risk adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations . we anticipate capturing more of each customer 's banking relationship by cross selling our loan and deposit products and offering additional services to our customers . increase core deposits and other retail deposit products . we focus on establishing a total banking relationship with our customers with the intent of internally funding our loan portfolio . we anticipate that the continued focus on customer relationships will increase our level of core deposits and locally-based retail certificates of deposit . in addition to our retail branches we maintain technology based products such as business cash management and a business remote deposit product that enables us to compete effectively with banks of all sizes . limit exposure to increasing interest rates . for many years the majority of the loans the bank has retained in its portfolio have generally possessed periodic interest rate adjustment features or have been relatively short term in nature . loans originated for portfolio retention have included arm loans , short term construction loans , and to a lesser extent commercial business loans with interest rates tied to a market index such as the prime rate . longer term fixed-rate mortgage loans have generally been originated for sale into the secondary market . market risk and asset and liability management general . market risk is the risk of loss from adverse changes in market prices and rates . the bank 's market risk arises primarily from interest rate risk inherent in its lending , investment , deposit and borrowing activities . the bank , like other financial institutions , is subject to interest rate risk to the extent that its interest-earning assets reprice differently than its interest-bearing liabilities . management actively monitors and manages its interest rate risk exposure . although the bank manages other risks , such as credit quality and liquidity risk , in the normal course of business management considers interest rate risk to be its most significant market risk that could potentially have the largest material effect on the bank 's financial condition and results of operations . the bank does not maintain a trading account for any class of financial instruments nor does it engage in hedging activities . furthermore , the bank is not subject to foreign currency exchange rate risk or commodity price risk . qualitative aspects of market risk . the bank 's principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates . the bank has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the difference between asset and liability maturities and interest rates . the principal element in achieving this objective is to increase the interest-rate sensitivity of the bank 's interest-earning assets by retaining in its portfolio , short-term loans and loans with interest rates subject to periodic adjustments . the bank relies on retail deposits as its primary source of funds . as part of its interest rate risk management strategy , the bank promotes transaction accounts and certificates of deposit with terms of up to six years . the bank has adopted a strategy that is designed to substantially match the interest rate sensitivity of assets relative to its liabilities . the primary elements of this strategy involve originating arm loans for its portfolio , maintaining residential construction loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than other one- to four-family residential mortgage loans , matching asset and liability maturities , investing in short-term securities , originating fixed-rate loans for retention or sale in the secondary market , and retaining the related mortgage servicing rights . sharp increases or decreases in interest rates may adversely affect the bank 's earnings . management of the bank monitors the bank 's interest rate sensitivity through the use of a model provided by fimac solutions , llc ( “ fimac ” ) , a company that specializes in providing the financial services industry interest risk rate risk and balance sheet management services .
| these forward-looking statements are subject to known and unknown risks , uncertainties and other factors that could cause our actual results to differ materially from the results anticipated , including , but not limited to : the credit risks of lending activities , including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets in our loan portfolio , and may result in our allowance for loan losses not being adequate to cover actual losses , and require us to materially increase our loan loss reserves ; changes in general economic conditions , either nationally or in our market areas ; changes in the levels of general interest rates , and the relative differences between short and long term interest rates , deposit interest rates , our net interest margin and funding sources ; fluctuations in the demand for loans , the number of unsold homes , land and other properties and fluctuations in real estate values in our market areas ; secondary market conditions for loans and our ability to sell loans in the secondary market ; results of examinations of us by the board of governors of the federal reserve system and of our bank subsidiary by the federal deposit insurance corporation , the washington state department of financial institutions , division of banks or other regulatory authorities , including the possibility that any such regulatory authority may , among other things , institute a formal or informal enforcement action or require us to increase our allowance for loan losses , write-down assets , change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions , which could adversely affect our liquidity and earnings ; our compliance with regulatory enforcement actions , including a regulatory memorandum of understanding ( “ mou ” ) to which we are subject ; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles , or the interpretation of regulatory capital or other rules including as a result of basel iii ; the impact of the dodd frank wall street reform and consumer protection act and the implementation of related rules and regulations ; our ability to attract and retain deposits ; increases in premiums for deposit insurance ; our ability to control operating costs and expenses ; the use of estimates in determining fair value of certain of our assets , which estimates may prove to be incorrect and result in significant declines in valuation ; difficulties in reducing risks associated with the loans on our consolidated balance sheet ; staffing fluctuations in response to product demand or the implementation of
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wolverine retail operated 99 retail stores worldwide at the end of fiscal 2012 and operated 101 retail stores at the end of fiscal 2011. plg retail reported revenue of $ 69.2 million for the period since acquisition . plg retail operated 345 stores at the end of fiscal 2012. the company 's other business unit , the wolverine leathers division reported a revenue increase at a rate in the mid teens , as a result of high demand for its pigskin leathers . gross margin for fiscal 2012 , the company 's consolidated gross margin decreased 120 basis points compared to fiscal 2011. approximately 70 basis points of the decrease was caused by shifts in the mix of products sold . the company incurred $ 4.5 million of non-recurring transaction and integration costs relating to the fair value adjustment to acquisition-date inventory and severance costs , which contributed to approximately 30 basis points of the decrease . the remainder of the decrease was caused by increased product costs only partially offset by higher selling prices . operating expenses operating expenses increased $ 127.9 million , from $ 386.5 million in fiscal 2011 to $ 514.4 million in fiscal 2012. approximately $ 77.8 million of the increase relates to the inclusion of plg within the company 's consolidated results since the date of acquisition . approximately $ 32.5 million of the increase relates to non-recurring transaction and integration costs associated with the acquisition of plg . the non-recurring costs include professional and legal fees , taxes paid on behalf of the seller , retention bonus expense , onetime software license fees and other onetime costs of $ 14.9 million , $ 9.7 million , $ 2.7 million , $ 2.4 million and $ 2.8 million , respectively . pension expense for fiscal 2012 increased approximately $ 10.4 million compared to fiscal 2011 driven by a lower discount rate in the current year . changes in foreign exchange rates had a $ 3.6 million favorable impact on reported operating expenses . the remainder of the increase was due to incremental variable expenses . interest , other and taxes total net interest expense increased $ 18.2 million to $ 19.3 million in fiscal 2012 from $ 1.1 million in fiscal 2011. approximately $ 5.2 million of the increase is due to non-recurring financing commitment and refinancing fees associated with the company 's acquisition of plg . approximately $ 1.8 million of the increase is due to the amortization of deferred financing costs included within interest expense . the remainder of the increase is due to an increase in long-term debt in the period of time from the date of plg acquisition to the end of the fiscal year . the company 's full year effective tax rate in fiscal 2012 was 14.2 % , compared to 27.0 % in fiscal 2011. the lower effective tax rate reflects the non-recurring benefits of a favorable court decision in the first half of fiscal 2012 in a foreign tax jurisdiction supporting the company 's long-term global tax planning strategies . the lower tax rate in the current year was also the result of acquisition-related expense deductions in high statutory tax rate jurisdictions in the second half of the year . the company maintains certain strategic management and operational activities in overseas subsidiaries , and its foreign earnings are taxed at rates that are generally lower than the u.s. federal statutory income tax rate . a significant amount of the company 's earnings are generated by its canadian , european and asia pacific subsidiaries and , to a lesser extent , in jurisdictions that are not subject to income tax and free trade zones where the company owns manufacturing operations . the company has not provided for u.s. taxes for earnings generated in foreign jurisdictions because it plans to reinvest these earnings 33 indefinitely outside the u.s. however , if certain foreign earnings previously treated as permanently reinvested are repatriated , the additional u.s. tax liability could have a material adverse effect on the company 's after-tax results of operations and financial position . 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 $ 80.7 million in fiscal 2012 , compared to $ 123.3 million in fiscal 2011 , a decrease of $ 42.6 million . diluted net earnings per share decreased 34.3 % in fiscal 2012 , to $ 1.63 , from $ 2.48 in fiscal 2011. the company repurchased approximately 65,000 shares of common stock in fiscal 2012 for approximately $ 2.4 million and repurchased approximately 1,840,000 shares in fiscal 2011 for approximately $ 65.3 million , both of which lowered the average shares outstanding in fiscal 2012. results of operations fiscal 2011 compared to fiscal 2010 financial summary 2011 versus 2010 replace_table_token_7_th 34 the following is supplemental information on total revenue : total revenue 2011 2010 change $ % of total $ % of total $ % ( millions of dollars ) outdoor group $ 551.8 39.2 % $ 467.6 37.5 % $ 84.2 18.0 % heritage group 500.3 35.5 % 454.6 36.4 % 45.7 10.1 % lifestyle group 206.3 14.6 % 182.9 14.6 % 23.4 12.8 % other 15.7 1.1 % 12.5 1.0 % 3.2 25.6 % total branded wholesale footwear , apparel and licensing revenue $ 1,274.1 90.4 % $ 1,117.6 89.5 % $ 156.5 14.0 % consumer-direct 101.9 7.2 % 87.1 7.0 % 14.8 17.0 % other business units 33.1 2.4 % 43.8 3.5 % ( 10.7 ) ( 24.4 % ) total revenue $ 1,409.1 100.0 % $ 1,248.5 100.0 % $ 160.6 12.9 % revenue revenue for fiscal 2011 increased $ 160.6 million from fiscal 2010 , to $ 1.409 billion . the growth was driven by double digit percentage increases in revenue for all three branded wholesale footwear , apparel and licensing operating groups . changes in foreign exchange rates increased reported revenue by $ 17.3 million versus the prior year . international revenue represented 40.2 story_separator_special_tag % of total reported revenue in fiscal 2011 compared to 38.4 % in fiscal 2010. the outdoor group 's branded wholesale footwear , apparel and licensing revenue increased 18.0 % in fiscal 2011 compared to fiscal 2010. leading the group 's growth , the merrell ® brand enjoyed increased demand for performance products , including its new merrell ® barefoot collection . fueling the growth for merrell ® branded footwear was a mid teens growth rate in units sold . the increase in merrell ® brand apparel was driven by a strong double digit increase in revenue generated by the outerwear category and a low triple digit rate increase in revenue generated by the sportswear category . patagonia ® footwear 's revenue increased at a rate in the high teens in fiscal 2011 due to continued strong demand from key outdoor retailers . revenue from the chaco ® brand grew at a rate in the high teens compared to fiscal 2010 as the brand expanded its closed-toe product offerings for fall , extending the brand 's reach to become a year-round footwear option for consumers . the heritage group 's branded wholesale footwear , apparel and licensing revenue increased 10.1 % in fiscal 2011 compared to fiscal 2010. driving the revenue growth for the group was a mid twenties rate increase in revenue from the cat ® footwear brand and a high single digit rate increase in revenue from wolverine ® brand footwear and apparel . the cat ® footwear revenue increase was driven by revenue growth in the mid-teens or higher in each of its major geographic regions compared to fiscal 2010. the wolverine ® brand 's revenue grew as a result of low single digit unit volume growth in the u.s. rugged casual and core work boot business and a growth rate in the low thirties for the wolverine ® brand apparel business . harley-davidson ® footwear revenue decreased at a mid single digit rate compared to fiscal 2010 , as a high single digit decline in the u.s. market was partially offset by an increase at a rate in the high seventies in the european market . the lifestyle group 's branded wholesale footwear , apparel and licensing revenue increased 12.8 % in fiscal 2011 compared to fiscal 2010. revenue from the hush puppies ® brand increased at a high single digit rate as a result of mid twenties rate growth in its third-party licensing business ; growth in the european markets at a rate in the mid teens ; and high single digit rate growth in the canadian market . these increases were partially offset by a mid single digit rate decline in hush puppies ® revenue in the u.s. the sebago ® brand generated revenue growth in the mid teens in fiscal 2011 as a result of growth in europe . the cushe ® brand 's revenue almost doubled compared to fiscal 2010 , as the brand continues to benefit from excellent placement in specialty , outdoor and surf retail venues . 35 consumer-direct reported revenue growth in the mid teens in fiscal 2011 compared to fiscal 2010 as a result of a high twenties growth rate in the company 's e-commerce channel and a mid single digit growth rate in comparable store sales from company-owned stores . the company operated 101 retail stores worldwide at the end of fiscal 2011 and operated 88 retail stores in fiscal 2010 , with sixteen new store openings in fiscal 2011 partially offset by the closure of three existing locations during fiscal 2011. the company 's other business unit , the wolverine leathers division business reported a revenue decline at a rate in the mid twenties as a result of soft demand from certain key customers and the divestiture of its low-margin procurement division in the fourth quarter of 2010. gross margin for fiscal 2011 , the company 's consolidated gross margin was flat compared to fiscal 2010. higher product input costs and a negative shift in the mix of product sold decreased consolidated gross margin by approximately 150 basis points and 110 basis points , respectively . these decreases were offset by the positive impact from strategic selling price increases and benefits from foreign exchange fluctuations of approximately 230 basis points and 30 basis points , respectively . operating expenses operating expenses increased $ 36.2 million , from $ 350.3 million in fiscal 2010 to $ 386.5 million in fiscal 2011. the higher operating expense was due to an increase at a rate in the mid teens in distribution costs , which vary with revenue , and increases in advertising and marketing expenses at a rate in the low teens , designed to enhance brand awareness . in addition , selling commissions , which vary with revenue , increased at a rate in the low teens and changes in foreign exchange rates had a $ 5.0 million unfavorable impact on reported operating expenses . these increases were partially offset by a $ 2.8 million dollar reduction in restructuring and other transition costs in fiscal 2011 compared to fiscal 2010. interest , other and taxes the increase in net interest expense reflects the increase in revolver borrowings for fiscal 2011 compared to fiscal 2010. the increase in other income is due to the sale of wolverine procurement assets in the fourth quarter of fiscal 2010 , which resulted in a $ 1.1 million gain , with the remainder of the increase due to the change in realized gains or losses on foreign denominated assets and liabilities . the company 's full year effective tax rate in fiscal 2011 was 27.0 % , compared to 27.1 % in fiscal 2010. the modestly lower effective tax rate reflects the fact that a higher percentage of the company 's earnings in fiscal 2011 were attributable to foreign jurisdictions , where tax rates are lower than in the u.s. or nontaxable based on specific tax rulings and legislation .
| operating expenses as a percentage of revenue increased to 31.4 % in fiscal 2012 compared to 27.4 % in fiscal 2011 due to transaction and integration costs associated with the acquisition of plg , higher pension expense and higher selling costs , partially offset by lower full-year incentive compensation expense . diluted earnings per share in fiscal 2012 were $ 1.63 per share compared to $ 2.48 per share in fiscal 2011. the company generated strong cash flow from operating activities of $ 91.6 million in fiscal 2012 and ended the year with $ 171.4 million of cash and cash equivalents . 29 the company declared cash dividends of $ 0.48 per share in both fiscal 2012 and 2011. the company repurchased approximately 65,000 shares of common stock in fiscal 2012 for approximately $ 2.4 million and repurchased approximately 1,840,000 shares in fiscal 2011 for approximately $ 65.3 million , both of which lowered the average shares outstanding . 2012 developments on october 9 , 2012 , the company acquired the performance + lifestyle group ( plg ) business of collective brands , inc. the cash consideration paid by the company for plg , subject to the finalization of certain post-closing adjustments , was approximately $ 1,249.5 million . plg designs and markets casual and athletic footwear , apparel , and related accessories for adults and children under well-known brand names , including sperry top-sider ® , saucony ® , stride rite ® and keds ® . the company financed the acquisition in part by entering into a new $ 1.1 billion senior secured credit facility and by issuing $ 375.0 million aggregate principal amount of 6.125 % senior notes due in 2020. outlook for 2013 fiscal 2013 revenue is expected to increase to approximately $ 2.7 to $ 2.8 billion based on continued positive momentum across the brand portfolio including the expected growth of the recently acquired plg brands . the company expects modest gross margin growth on the strength of lower closeout sales compared to the prior year ; strategic selling price increases ; a favorable product mix
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the asu allows two methods of adoption : a full retrospective approach where three years of financial information are presented in accordance with the new standard , and a modified retrospective approach where the asu is applied to the most current period presented in the financial statements . we have adopted the new standard effective january 1 , 2018 using the full retrospective method which will require each prior reporting period presented to be recast in future issuance of our financial statements . in preparation for adoption of the standard , we have implemented internal controls and key system functionality to enable the preparation of financial information and have reached conclusions on key accounting assessments related to the standard . during the fourth quarter of fiscal 2017 , we have substantially completed data conversion activities required to recast our prior period results . we continue to perform an in-depth review of our preliminary results ; therefore , we are in the process of completing our analysis necessary to recast prior period results . we do not believe there are any remaining significant implementation topics associated with the adoption of this asu that have not yet been addressed . this standard will have a material impact on our consolidated balance sheets and statement of shareholders ' equity . the impact of the standard on consolidated revenue and costs of revenue will be dependent upon the mix of revenue streams due to our accounting for software license fees , allocation of discounts across all performance obligations and to the incremental costs of obtaining a contract . specifically , under the new standard software license fees under perpetual agreements will no longer be subject to 100 % discount allocations from other elements in the contract . discounts in arrangements will be allocated across all deliverables increasing license revenues and decreasing revenues allocated to other performance obligations . in addition , in most cases , net license fees ( total license fees less any allocated discounts ) will be recognized at the point in time that control of the software license transfers to the customer versus our current policy of recognizing revenue only to the extent billable per the contractual terms . time-based license fees currently recognized over the license term will no longer be recognized over the period of the license and will instead be recognized at the point in time that control of the software license transfers to the customer . revenue related to our software as a service ( “ saas ” ) offerings , post-contract customer support ( `` pcs '' ) renewals and professional services remain substantially unchanged . due to the complexity of certain contracts , the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms and may vary in some instances from recognition at the time of billing . application of the new standard requires that incremental costs directly related to obtaining a contract ( typically sales commissions plus any associated fringe benefits ) must be recognized as an asset and expensed on a systematic basis that is consistent with the transfer to the customer of the goods and services to which the asset relates , unless that life is less than one year . currently , we defer sales commissions and recognize expense over the relevant initial contractual term . with the adoption of the new standard , amortization periods will extend past the initial term . leases . on february 25 , 2016 , the fasb issued its new lease accounting guidance in asu no . 2016-02 , “ leases ( topic 842 ) . ” under the new guidance , lessees will be required to recognize the following for all leases ( with the exception of short-term leases ) at the commencement date : a lease liability , which is a lessee ‘ s obligation to make lease payments arising from a lease , measured on a discounted basis ; and a right-of-use asset , which is an asset that represents the lessee 's right to use , or control the use of , a specified asset for the lease term . lessees ( for capital and operating leases ) and lessors ( for sales-type , direct financing , and operating leases ) must apply a modified retrospective transition approach for leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements . the modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented . lessees and lessors may not apply a full retrospective transition approach . the asu is effective for fiscal years beginning after december 15 , 2018 , including interim periods therein . early application is permitted for all business entities upon issuance . we are assessing the financial impact of adopting the new standard ; however , we are currently unable to provide a reasonable estimate regarding the financial impact . we will adopt the new standard in fiscal year 2019 . 24 outlook the local government software market continues to be active , and our backlog at december 31 , 2017 reached $ 1.1 billion , a 18 % increase from last year . we expect to continue to achieve solid growth in revenue and earnings . with our strong financial position and cash flow , we plan to continue to make significant investments in product development to better position us to continue to expand our competitive position in the public sector software market over the long term . critical accounting policies and estimates our discussion and analysis of financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . story_separator_special_tag the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements , the reported amounts of revenues , cost of revenues and expenses during the reporting period , and related disclosure of contingencies . the notes to the financial statements included as part of this annual report describe our significant accounting policies used in the preparation of the financial statements . significant items subject to such estimates and assumptions include the application of the percentage-of-completion and proportional performance methods of revenue recognition , the carrying amount and estimated useful lives of intangible assets , determination of share-based compensation expense and valuation allowance for receivables . 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 that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require significant judgments and estimates used in the preparation of our financial statements . revenue recognition . we recognize revenues in accordance with the provisions of accounting standards codification ( “ asc ” ) 605 , revenue recognition and asc 985-605 , software revenue recognition . our revenues are derived from sales of software licenses and royalties , subscription-based services , appraisal services , maintenance and support , and services that typically range from installation , training and basic consulting to software modification and customization to meet specific customer needs . for multiple element software arrangements , which do not entail the performance of services that are considered essential to the functionality of the software , we generally record revenue when the delivered products or performed services result in a legally enforceable and non-refundable claim . we maintain allowances for doubtful accounts and sales adjustments , which are provided at the time the revenue is recognized . because most of our customers are governmental entities , we rarely incur a loss resulting from the inability of a customer to make required payments . in a limited number of cases , we encounter a customer who is dissatisfied with some aspect of the software product or our service , and we may offer a “ concession ” to such customer . in those limited situations where we grant a concession , we rarely reduce the contract arrangement fee , but alternatively may perform additional services , such as additional training or creating additional custom reports . these amounts have historically been nominal . in connection with our customer contracts and the adequacy of related allowances and measures of progress towards contract completion , our project managers are charged with the responsibility to continually review the status of each customer on a specific contract basis . also , we review , on at least a quarterly basis , significant past due accounts receivable and the adequacy of related reserves . events or changes in circumstances that indicate that the carrying amount for the allowances for doubtful accounts and sales adjustments may require revision , include , but are not limited to , deterioration of a customer 's financial condition , failure to manage our customer 's expectations regarding the scope of the services to be delivered , and defects or errors in new versions or enhancements of our software products . we use contract accounting , primarily the percentage-of-completion method , as discussed in asc 605-35 , construction – type and certain production – type contracts , for those software arrangements that involve significant production , modification or customization of the software , or where our software services are otherwise considered essential to the functionality of the software . we measure progress-to-completion primarily using labor hours incurred , or value added . in addition , we recognize revenue using the proportional performance method for our property appraisal projects , some of which can range up to five years . these methods rely on estimates of total expected contract revenue , billings and collections and expected contract costs , as well as measures of progress toward completion . we believe reasonably dependable estimates of revenue and costs and progress applicable to various stages of a contract can be made . at times , we perform additional and or non-contractual services for little to no incremental fee to satisfy customer expectations . if changes occur in delivery , productivity or other factors used in developing our estimates of expected costs or revenues , we revise our cost and revenue estimates , and any revisions are charged to income in the period in which the facts that give rise to that revision first become known . in connection with these and certain other contracts , we may perform the work prior to when the services are billable and or payable pursuant to the contract . the termination clauses in most of our contracts provide for the payment for the value of products delivered and services performed in the event of an early termination . 25 for saas arrangements , we evaluate whether the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and whether the customer can feasibly maintain the software on the customer 's hardware or enter into another arrangement with a third-party to host the software . if we determine that the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and can feasibly maintain the software on the customer 's hardware or enter into another arrangement with a third-party to host the software , we recognize the license , professional services and hosting services revenues pursuant to asc 985-605 , software revenue recognition .
| property appraisal outsourcing services include : the physical inspection of commercial and residential properties ; data collection and processing ; computer analysis for property valuation ; preparation of tax rolls ; community education ; and arbitration between taxpayers and the assessing jurisdiction . total revenues increased 11 % in 2017 compared to 2016 . 22 recent acquisitions on november 29 , 2017 , we acquired audio and digital two-way radio communications technology and related assets from radio 10-33 , llc an audio and digital two-way radio communications company . the total purchase price was $ 1.4 million . on august 2 , 2017 , we acquired substantially all of the assets and assumed certain liabilities of digital health department , inc. ( `` dhd '' ) , a company that provides environmental health software , offering a software-as-a-service ( saas ) solution for public health compliance and inspections processes . the total purchase price , net of debt assumed , was $ 3.9 million . on may 30 , 2017 , we acquired all of the capital stock of modria.com , inc. , a company that specializes in online dispute resolution for government and commercial entities . the total purchase price , net of debt assumed , was $ 7.0 million . the operating results of these acquisitions are included in our results of operations of the enterprise software segment from the date of the acquisition . the impact of these acquisitions , individually and in the aggregate , on our operating results is not material . on december 22 , 2017 , the tax act was enacted . the tax act amends the internal revenue code to reduce tax rates and modify policies , credits and deductions for individuals and businesses . for businesses , the tax act reduces the u.s. corporate federal tax rate from 35 % to 21 % and transitions from a worldwide tax system to a territorial tax system . the impact of the rate reduction on our 2017 income tax provision is a $ 21.6 million tax benefit due to the remeasurement of deferred tax assets and liabilities . refer to note 7 `` income tax '' for further discussion on the impact of the tax act . we monitor and analyze several
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in determining the adequacy of the allowance for loan losses , management considers numerous factors , including , but not limited to , management 's estimate of : ( a ) loan loss experience , ( b ) the financial condition and liquidity of certain loan customers , and ( c ) collateral values of property securing certain loans . because these factors and others involve the use of management 's estimation and judgment , the allowance for loan losses is inherently subject to adjustment at future dates . unfavorable changes in the factors used by management to determine the adequacy of the allowance , including increased loan delinquencies and subsequent charge-offs , or the availability of new information , could require additional provisions , in excess of normal provisions , to the allowance for loan losses in future periods . there can be no assurance that loan losses in future periods will not exceed the allowance for loan losses or that additions to the allowances will not be required . other real estate owned other real estate owned ( oreo ) consists of properties obtained through foreclosure or in satisfaction of loans , and is reported at the lower of cost or fair value , less estimated costs to sell at the date acquired , with any loss at the date of foreclosure recognized as a charge-off through the allowance for loan losses . additional oreo losses for subsequent valuation adjustments are determined on a specific property basis and are included as a component of other non-interest expense along with holding costs . any gains or losses on disposal realized at the time of disposal are reflected in non-interest expense . significant judgments are required in estimating the fair value of oreo , and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility . as a result , the net proceeds realized from sales transactions could differ significantly from appraisals , comparable sales and other estimates used to determine the fair value of oreo . deferred tax asset valuation a valuation allowance is recognized for a deferred tax asset if , based on the weight of available evidence , it is more likely than not that some portion or the entire deferred tax asset will not be realized . the ultimate realization of a deferred tax asset is dependent upon the generation of future taxable income during the periods in 25 which the temporary differences that resulted in the deferred tax asset become deductible . management 's determination of the realization of deferred tax assets is based upon judgments regarding various future events and uncertainties , including the timing and amount of future income earned by subsidiaries and the implementation of various tax planning strategies to maximize realization of the deferred tax asset . management believes that usbi 's subsidiaries will be able to generate sufficient operating earnings to realize the deferred tax assets recorded as of december 31 , 2013. however , the amount of deferred tax asset considered realizable could be reduced if estimates of future taxable income are reduced . fair value measurements a portion of the company 's assets and liabilities is carried at fair value , with changes in fair value recorded either in earnings or accumulated other comprehensive income ( loss ) . these include securities available for sale and impaired loans . additionally , other real estate and certain other assets acquired in foreclosure are reported at the lower of the recorded investment or fair value of the property , less estimated cost to sell . fair value is generally 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 . while management uses judgment when determining the price at which willing market participants would transact when there has been a significant decrease in the volume or level of activity for the asset or liability in relation to normal market activity , management 's objective is to determine the point within the range of fair value estimates that is most representative of a sale to a third-party investor under current market conditions . the value to the company if the asset or liability was held to maturity is not included in the fair value estimates . a fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability , including assumptions about the risk inherent in a particular valuation technique , the effect of a restriction on the sale or use of an asset and the risk of nonperformance . fair value is measured based on a variety of inputs that the company utilizes . 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 identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market are used ( level 2 valuations ) . where observable market data is not available , the valuation is generated from model-based techniques that use significant assumptions not observable in the market , but observable based on company-specific data ( level 3 valuations ) . these unobservable assumptions reflect the company 's own estimates for assumptions that market participants would use in pricing the asset or liability . other significant accounting policies other significant accounting policies , not involving the same level of measurable uncertainties as those discussed above , are nevertheless important to an understanding of the consolidated financial statements . policies related to revenue recognition , investment securities and long-lived assets require difficult judgments on complex matters that are often subject to multiple and recent changes in the authoritative guidance . certain of these matters are among topics currently under re-examination by accounting standard setters and regulators . story_separator_special_tag specific conclusions have not been reached by these standard setters , and outcomes can not be predicted with confidence . also , see note 2 to our consolidated financial statements , as it discusses accounting policies that we have selected from acceptable alternatives . overview of 2013 the following discussion should be read in conjunction with our consolidated financial statements , accompanying notes , and other schedules presented herein . for the year ended december 31 , 2013 , net income of the company was $ 3.9 million , compared with $ 2.2 million for the year ended december 31 , 2012. basic and diluted net income per common share was $ 0.65 for the year ended december 31 , 2013 , compared with $ 0.36 for 2012 . 26 other results for the company as of and for the year ended december 31 , 2013 were as follows : total assets increased 0.5 % to $ 569.8 million , compared with $ 567.1 million as of december 31 , 2012. deposits decreased 1.0 % to $ 484.3 million , compared with $ 489.0 million as of december 31 , 2012. loans net of unearned interest and fees decreased 13.0 % to $ 310.3 million , compared with $ 356.7 million as of december 31 , 2012. as of december 31 , 2013 , the company 's total risk-based capital was 19.20 % , significantly above a number of financial institutions in our peer group and well above the minimum requirement of 10 % , to achieve the highest regulatory rating of well-capitalized. net interest income decreased 10.1 % to $ 30.7 million in 2013 , compared with $ 34.2 million in 2012. provision for loan losses decreased to a credit of $ 0.6 million for the year ended december 31 , 2013 , compared with a charge of $ 4.3 million for the year ended december 31 , 2012. non-interest income decreased 12.6 % to $ 4.9 million in 2013 , compared with $ 5.6 million in 2012. non-interest expense decreased 5.2 % to $ 30.8 million in 2013 , compared with $ 32.5 million in 2012. impairment of oreo decreased $ 2.1 million in 2013 , compared to 2012. shareholders ' equity totaled $ 70.1 million , or book value of $ 11.63 per share , as of december 31 , 2013 , compared with $ 68.6 million , or book value of $ 11.40 per share , as of december 31 , 2012. return on average assets in 2013 was 0.70 % , compared with 0.37 % in 2012 , and return on average shareholders ' equity was 5.68 % in 2013 , compared with 3.27 % in 2012. these items are discussed in further detail throughout this management 's discussion and analysis of financial condition and results of operations section . story_separator_special_tag text-indent:4 % '' > the provision for loan losses is an expense used to establish the allowance for loan losses . actual loan losses , net of recoveries , are charged directly to the allowance for loan losses . the expense recorded each year is a reflection of actual net losses experienced during the year and management 's judgment as to the adequacy of the allowance to absorb losses inherent in the portfolio . the provision for loan losses for the company was a credit of $ 0.6 million and a charge of $ 4.3 million for the years ended december 31 , 2013 and 2012 , respectively . the reduction in provision expense resulted from significant recoveries experienced in 2013 related to certain loans that were previously charged off , coupled with an improvement in the credit quality and other inherent risks of the loan portfolio at december 31 , 2013. net charge-offs for the company totaled $ 9.2 million in 2013 , compared with $ 7.3 million in 2012. net charge-offs at the bank were $ 6.6 million in 2013 , compared to $ 4.2 million in 2012. the increase in net charge-offs from both a company and bank perspective resulted primarily from continued economic weakness in the markets in which the bank operates , particularly with respect to the real estate market . the real estate market continues to adversely impact real estate values and the ability of borrowers to perform , particularly when performance is based on real estate sales . at alc , net charge-offs totaled $ 2.6 million in 2013 , a reduction from $ 3.1 million in 2012. this decrease resulted from management 's ongoing efforts to shift alc 's loan portfolio to focus more heavily on consumer loans and less heavily on real estate related loans . the ratio of the allowance for loan losses to loans , net of unearned income for the company , decreased to 3.03 % as of december 31 , 2013 , compared with 5.40 % as of december 31 , 2012. for the bank , this ratio decreased to 2.62 % as of december 31 , 2013 from 5.60 % as of december 31 , 2012. these decreases resulted from continued problem asset resolution by bank management during 2013 , lower levels of non-accrual loans , and a continuing shift in the portfolio away from higher risk real estate loans . at alc , the ratio decreased to 30 4.43 % as of december 31 , 2013 from 4.68 % as of december 31 , 2012. we believe that growing the loan portfolio at the bank and alc with quality customers , along with continued efforts to reduce non-performing loans , should result in continued reduction of the allowance for loan losses as a percentage of loans .
| overall , volume and yield changes in interest-earning assets and interest-bearing liabilities contributed to the decrease in net interest income during 2013. as to volume , the company 's average earning assets decreased $ 33.5 million during 2013 , or 6.1 % , while average interest-bearing liabilities decreased $ 40.7 million , or 8.8 % . the company 's average loans declined by $ 48.6 million , or 12.9 % , during 2013 , and average investment securities increased by $ 12.2 million , or 7.1 % . average borrowings declined $ 2.7 million , average time deposits declined $ 44.4 million , average savings deposits increased $ 1.4 million , and average interest-bearing demand deposits increased $ 4.9 million . interest margins are affected by several factors , one of which is the relationship of rate-sensitive earning assets to rate-sensitive interest-bearing liabilities . this factor determines the effect that fluctuating interest rates will have on net interest income . rate-sensitive earning assets and interest-bearing liabilities are those that can be repriced to current market rates within a relatively short time . the company 's objective in managing interest rate sensitivity is to achieve reasonable stability in the interest margin throughout interest rate cycles by maintaining the proper balance of rate-sensitive assets and interest-bearing liabilities . for further analysis and discussion of interest rate sensitivity , refer to the section entitled liquidity and interest rate sensitivity management. the percentage of earning assets funded by interest-bearing liabilities also affects the company 's interest margin . the company 's earning assets are funded by interest-bearing liabilities , non-interest-bearing demand deposits and shareholders ' equity . the net return on earning assets funded by non-interest-bearing demand deposits and shareholders ' equity exceeds the net return on earning assets funded by interest-bearing liabilities . the company 's percentage of earning assets funded by interest-bearing liabilities decreased to 81.8 % in 2013 , compared with 84.2 % in 2012. the table , changes in interest earned and interest expense resulting from changes in volume and changes in rates , summarizes the impact of changes in both the volume of interest-earning assets and interest-bearing liabilities , and the average rate earned or incurred on interest-earning assets and interest-bearing liabilities . as indicated by this table , the decrease
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interest in the well ; 26 ● re-entry operations on a well , in logan county , oklahoma , to 5,362 feet were determined to be non-commercial and the well was set up for a water disposal well ; ● a 12,000 foot dry hole was drilled in calcasieu parish , louisiana ; ● a 4,900 foot dry hole was drilled in columbia county , arkansas ; ● a 4,000 foot dry hole was drilled in south texas ; and ● a 5,700 foot dry hole was drilled in south texas . in addition , during 2014 , we hooked up and commenced production on a well in iberville parish , louisiana that was originally drilled during 2013 , in which we hold a 3 % working interest . during 2014 , field operations on our domestic prospects , including drilling , completion , testing and well hookup , were affected by rainy weather in south louisiana , delays in procuring equipment and scheduling and land issues . as a result , the pace of drilling and bringing wells onto production during the year lagged behind our internal targets . also , during 2014 , ( i ) the crown mineral well , in which we hold a royalty interest , underwent a re-work , was shut-in for two months , and has produced at a reduced rate since the re-work , and ( ii ) we agreed to participate in a workover to test up to three zones of an existing well bore on our jefferson davis parish , louisiana prospect . workover operations on our jefferson davis parish prospect were successfully completed and the well was on production at december 31 , 2014 and our share of costs for the workover are estimated at $ 22,000. at december 31 , 2014 , we had no wells drilling . domestic leasing developments with the termination of our interest in the cpo 4 prospect and improving economics in the u.s. energy sector , during the first half of 2013 , we began actively evaluating opportunities to invest and participate in domestic oil and gas prospects . our management team , led by our ceo , has evaluated numerous opportunities and is sourcing and evaluating additional domestic opportunities . during 2014 , we acquired interests in 8 additional domestic drilling prospects , as follows : ● a 13.33 % working interest before the casing point in a test well and a 10 % working interest after the casing point , and in future wells , on a 320 acre prospect in jasper county , texas ; as noted above , an 11,950 foot test of the wilcox 3 and 4 sands was drilled during the first half of 2014 ; and , our share of acquisition and dry hole costs for the test well were approximately $ 450,000 ; ● a 4 % working interest before the casing point in a test well and a 3 % working interest after the casing point , and in future wells , on a 1,129 acre prospect in iberville parish , louisiana ; a 12,700 foot test of the bolmex sand is planned during the second quarter of 2015 ; and our share of acquisition and dry hole costs for the test well are estimated at $ 232,000 ; ● a 30 % working interest before payout and a 25.5 % working interest after payout in a 160 acre prospect in columbia county , arkansas , as well as an 840 acre area of mutual interest ; as noted above , a 4,900 foot test of the pettet formation was drilled as a dry hole during the third quarter of 2014 ; and , our share of acquisition and dry hole costs for the test well are estimated at $ 118,500 ; ● a 5 % working interest before payout and 4 % working interest after payout in a 238 acre prospect in assumption parish , louisiana ; as noted above , a 15,200 foot test of the rob l formation was drilled during the second quarter of 2014 and the well came on production in february 2015 ; and , our share of acquisition and dry hole costs for the test well were approximately $ 400,000 ; ● a 3.375 % working interest after the casing point in the initial and subsequent wells on a 289 acre prospect in lafourche and jefferson parishes , louisiana ; a 15,000 foot test of the cris i-2 formation was drilled during 2014 and temporarily abandoned due to a stuck pipe in january 2015 ; and , our share of acquisition and dry hole costs for the test well are estimated at $ 330,000 ; 27 ● an 8.755 % working interest before payout and 7 % working interest after payout in a 614 acre prospect in calcasieu parish , louisiana ; a 12,000 foot test of the marg tex-1 sand was drilled as a dry hole during 2014 ; and our share of acquisition and dry hole costs for the test well are estimated at $ 335,000 ; ● a 33.33 % working interest before the casing point and 25 % working interest after the casing point in a 146 acre prospect in live oak county , texas ; as noted above , a 3,500 foot test of the hockley and pettus formations was during 2014 and came on production in january 2015 ; and , our share of acquisition and dry hole costs for the test well are estimated at $ 186,500 ; and ● a 10.67 % working interest before the casing point and 8 % working interest after the casing point in a 102 acre prospect in iberville parish , louisiana ; a 12,000 foot test of the marv vag sand is planned during early 2015 ; and our share of acquisition and dry hole costs for the test well are estimated at $ 265,000. the timing , depth and costs of planned domestic drilling operations story_separator_special_tag are subject to many uncertainties and may vary from that indicated above . colombian developments – serrania , los picachos and macaya during 2014 , our capital investment expenditures in colombia related to the preparation and evaluation of our three concessions in colombia , which amount totaled $ 244,471. for 2015 , hupecol , the operator of our colombian concessions , has advised us that they plan to conduct pre-drilling operations on the serrania concession , including road work , environmental work and work in preparation for drilling , with a first exploratory well expected to be drilled before the end of 2015. subject to prevailing conditions , drilling of a second well on the serrania concession is planned during 2016. hupecol has also advised that it plans to begin seismic work on the los picachos and macaya concessions during 2016. hupecol had previously advised that those same planned operations would take place during prior years . hupecol 's plans for 2015 may change based on field conditions and other factors beyond our control or the control of hupecol . our 2015 estimated net cost associated with pre-drilling activities and first test well on the serrania concession is approximately $ 984,000. escrow settlements during 2014 , we received $ 1,586,039 in partial settlement of our escrow receivable relating to our prior sale of hdc llc and hl llc . legal proceedings ; contingent liability ; contingent asset silverman shareholder class action suit . on april 27 , 2012 , a purported class action lawsuit was filed in the u.s. district court for the southern district of texas against the company and certain of its executive officers : steve silverman v. houston american energy corp. et al . , case no . 4:12-cv-1332 . the complaint generally alleged that , between march 29 , 2010 and april 18 , 2012 , all of the defendants violated sections 10 ( b ) of the securities exchange act of 1934 and sec rule 10b-5 and the individual defendants violated section 20 ( a ) of the exchange act in making materially false and misleading statements including certain statements related to the status and viability of the tamandua # 1 well on the company 's cpo 4 prospect . two additional class action lawsuits were filed against us in may 2012. the complaints sought unspecified damages , interest , attorneys ' fees , and other costs . on september 20 , 2012 , the court consolidated the class action lawsuits and appointed a lead plaintiff and on november 15 , 2012 the lead plaintiffs filed an amended complaint . the amended complaint , among other things , expanded the putative class period to november 9 , 2009 to april 18 , 2012 and added allegations challenging a november 2009 estimate concerning the cpo 4 prospect . on january 14 , 2013 , we filed a motion to dismiss and , on august 22 , 2013 , the court granted the motion and dismissed the complaint . the plaintiffs subsequently filed a notice of appeal of the dismissal of the complaint . on july 15 , 2014 , the u.s. court of appeals for the fifth circuit reversed the dismissal of the case . the appellate court ruling focused on the sufficiency of the pleadings in the case , made no determination regarding the merits of the factual allegations , and remanded the case to the district court for further proceedings . in october 2014 , the parties reached an agreement in principle to settle the consolidated lawsuit . the settlement , which provides for a $ 7,000,000 payment , is expected to be fully funded by the company 's insurance and was subject to preliminary and final approval of the court . the parties submitted the settlement to the court for approval on december 31 , 2014. if , for any reason , the settlement is not approved and consummated , we may be exposed to damages and costs in excess of our insurance which would have a material adverse effect on our financial position , results of operations and cash flows . 28 sec administrative proceeding . on august 4 , 2014 , following a multi-year investigation , the sec instituted administrative cease-and-desist proceedings pursuant to section 8a of the securities act of 1933 and 21c of the securities exchange act of 1934 , styled in the matter of houston american energy corp. , john f. terwilliger , jr. , undiscovered equities , inc. and kevin t. mcknight . the administrative proceeding alleged that mr. terwilliger and , in turn , houston american energy , made false and misleading statements with respect to the cpo 4 prospect and promoted those statements through undiscovered equities and its principal , kevin mcknight . the sec was seeking a determination from an administrative law judge as to whether ( i ) the allegations of the sec were true ; ( ii ) houston american energy and mr. terwilliger should be ordered to ( a ) cease-and-desist from committing or causing violations of section 10 ( b ) of the exchange act and rule 10b-5 thereunder , ( b ) pay a civil penalty pursuant to section 8a ( g ) of the securities act and section 21b ( a ) of the exchange act , and ( c ) pay disgorgement pursuant to section 8a ( e ) of the securities act and sections 21b ( e ) and 21c ( e ) of the exchange act ; and ( iii ) mr. terwilliger should be prohibited from acting as an officer and director of a public company pursuant to section 8a ( f ) of the securities act and section 21c ( f ) of the exchange act .
| 30 colombia u.s. total 2014 $ — $ 113,233 $ 113,233 2013 $ — $ 81,774 $ 81,774 consistent with our business model and operating history , we experience steep declines in lease operating expenses following strategic divestitures and anticipate lease operating expenses to ramp up to levels consistent with regional costs as new wells are brought on line . with additional domestic prospects expected to come on production during 2015 , and the planned drilling of our serrania prospect , lease operating expenses in the u.s. and overall , are expected to increase in 2015. depreciation and depletion expense . depreciation and depletion expense increased by 1,342 % to $ 359,897 in 2014 from $ 24,954 in 2013. the increase in depreciation and depletion was due to an increase in the cost pool and increased production attributable to additional wells brought on line during 2014. general and administrative expenses . general and administrative expense decreased by 31 % to $ 2,356,519 in 2014 from $ 3,417,292 in 2013. the change in general and administrative expense reflects a combination of ( 1 ) reduced head count resulting in a reduction in cash compensation of $ 259,309 and a reduction in stock compensation of $ 1,191,400 , and ( 2 ) cost control measures implemented beginning in the second half of 2013. impairment of oil and gas properties . during 2014 , we recorded an impairment charge of $ 1,492,148 resulting from application of the ceiling test under the full cost method of accounting . bad debt expense . bad debt expense decreased to $ 0 in 2014 from $ 86,507 in 2013. bad debt expense in 2013 related to our inability to obtain reimbursement of expenses disbursed by hupecol , from an escrow held on our behalf , to pay certain operating expenses of the purchaser of hdc , llc . other income ( expense ) . other income ( expense ) consists of interest earned on cash balances net of the contingent loss associated with the proposed sec settlement and other bank fees . other expense totaled $ 392,654 in 2014 as compared to other income of $ 32,158 in 2013. the change was attributable to the accrual of the contingent loss and the elimination of fees associated with the 2013
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( 2 ) includes 3,136,250 shares held in his name , options to purchase 202,500 shares of common stock at a price of $ 1.00 per share , and options to purchase 200,000 shares of common stock at $ 1.81 per share . ( 3 ) includes 469,500 shares held in his name and options to purchase 277,500 shares of common stock at a price of $ 1.00 per share . ( 4 ) linwood c. meehan iii has voting and dispositive control over the shares held by cypress trust , which is located at 13750 w. colonial dr. , ste . 250-317 , winter garden , florida 34787 . ( 5 ) as reported on the schedule 13d filed by the reporting person . 22 item 13. certain relationships and related transactions , and director independence except as follows , none of our directors or executive officers , nor any proposed nominee for election as a director , nor any person who beneficially owns , directly or indirectly , shares carrying more than 5 % of the voting rights attached to all of our outstanding shares , nor any members of the immediate family ( including spouse , parents , children , siblings , and in-laws ) of any of the foregoing persons has any material interest , direct or indirect , in any transaction since the beginning of our last fiscal year on january 1 , 2012 or in any presently proposed transaction which , in either case , has or will materially affect us . please refer to the section titled executive compensation . our chief executive officer and director , shad stastney , is a partner of vicis capital , llc , which is the investment manager of vicis capital master fund , our financial partner for some years . mr. stastney also owns a minority position in vicis capital master fund . item 14. principal accounting fees and services below is the table of audit fees ( amounts in us $ ) billed by our auditor in connection with the audit of the company 's annual financial statements for the years ended : replace_table_token_21_th 23 part iv item 15. exhibits , financial statements schedules ( a ) financial statements and schedules the following financial statements and schedules listed below are included in this form 10-k. financial statements ( see item 8 ) ( b ) exhibits exhibit number description 3.1 articles of incorporation of optimizerx corporation ( the “ company ” ) 1 3.2 amended and restated bylaws of the company 1 3.3 certificate of designation , filed on september 5 , 2008 , with the secretary of state of the state of nevada by the company 1 10.1 termination agreement and release , dated september 16 , 2011 2 10.2 securities purchase agreement , dated september 16 , 2011 2 10.3 amended and restated guarantee agreement , dated september 16 , 2011 2 10.4 second amended and restated registration rights agreement , dated september 16 , 2011 2 10.5 third amended and restated security agreement , dated september 16 , 2011 2 10.6 third amended and restated guarantor security agreement , dated september 16 , 2011 2 10.7 employment agreement , dated january 14 , 2013 3 10.8 securities redemption option agreement , dated january 10 , 2013 4 10.9 employment agreement , dated january 14 , 2013 5 10.10 patent assignment , dated february 6 , 2013 10.11 assignment , dated february 6 , 2013 21.1 list of subsidiaries 1 31.1 certification of chief executive officer pursuant to securities exchange act rule 13a-14 ( a ) /15d-14 ( a ) , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 32.2 certification of chief financial officer pursuant to securities exchange act rule 13a-14 ( a ) /15d-14 ( a ) , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 32.1 certification of chief executive officer and chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 1 incorporated by reference to the form s-1 , filed by the company with the securities and exchange commission on november 12 , 2008 . 2 incorporated by reference to the form 8-k , filed by the company with the securities and exchange commission on september 21 , 2011 . 3 incorporated by reference to the form 8-k , filed by the company with the securities and exchange commission on january 18 , 2013 . 4 incorporated by reference to the form 8-k , filed by the company with the securities and exchange commission on january 11 , 2013 . 5 incorporated by reference to the form 8-k , filed by the company with the securities and exchange commission on january 18 , 2013 . 24 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . optimizerx corporation by : shad stastney shad stastney chief story_separator_special_tag forward-looking statements certain statements , other than purely historical information , including estimates , projections , statements relating to our business plans , objectives , and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements. ” these forward-looking statements generally are identified by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to story_separator_special_tag ( 2 ) includes 3,136,250 shares held in his name , options to purchase 202,500 shares of common stock at a price of $ 1.00 per share , and options to purchase 200,000 shares of common stock at $ 1.81 per share . ( 3 ) includes 469,500 shares held in his name and options to purchase 277,500 shares of common stock at a price of $ 1.00 per share . ( 4 ) linwood c. meehan iii has voting and dispositive control over the shares held by cypress trust , which is located at 13750 w. colonial dr. , ste . 250-317 , winter garden , florida 34787 . ( 5 ) as reported on the schedule 13d filed by the reporting person . 22 item 13. certain relationships and related transactions , and director independence except as follows , none of our directors or executive officers , nor any proposed nominee for election as a director , nor any person who beneficially owns , directly or indirectly , shares carrying more than 5 % of the voting rights attached to all of our outstanding shares , nor any members of the immediate family ( including spouse , parents , children , siblings , and in-laws ) of any of the foregoing persons has any material interest , direct or indirect , in any transaction since the beginning of our last fiscal year on january 1 , 2012 or in any presently proposed transaction which , in either case , has or will materially affect us . please refer to the section titled executive compensation . our chief executive officer and director , shad stastney , is a partner of vicis capital , llc , which is the investment manager of vicis capital master fund , our financial partner for some years . mr. stastney also owns a minority position in vicis capital master fund . item 14. principal accounting fees and services below is the table of audit fees ( amounts in us $ ) billed by our auditor in connection with the audit of the company 's annual financial statements for the years ended : replace_table_token_21_th 23 part iv item 15. exhibits , financial statements schedules ( a ) financial statements and schedules the following financial statements and schedules listed below are included in this form 10-k. financial statements ( see item 8 ) ( b ) exhibits exhibit number description 3.1 articles of incorporation of optimizerx corporation ( the “ company ” ) 1 3.2 amended and restated bylaws of the company 1 3.3 certificate of designation , filed on september 5 , 2008 , with the secretary of state of the state of nevada by the company 1 10.1 termination agreement and release , dated september 16 , 2011 2 10.2 securities purchase agreement , dated september 16 , 2011 2 10.3 amended and restated guarantee agreement , dated september 16 , 2011 2 10.4 second amended and restated registration rights agreement , dated september 16 , 2011 2 10.5 third amended and restated security agreement , dated september 16 , 2011 2 10.6 third amended and restated guarantor security agreement , dated september 16 , 2011 2 10.7 employment agreement , dated january 14 , 2013 3 10.8 securities redemption option agreement , dated january 10 , 2013 4 10.9 employment agreement , dated january 14 , 2013 5 10.10 patent assignment , dated february 6 , 2013 10.11 assignment , dated february 6 , 2013 21.1 list of subsidiaries 1 31.1 certification of chief executive officer pursuant to securities exchange act rule 13a-14 ( a ) /15d-14 ( a ) , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 32.2 certification of chief financial officer pursuant to securities exchange act rule 13a-14 ( a ) /15d-14 ( a ) , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 32.1 certification of chief executive officer and chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 1 incorporated by reference to the form s-1 , filed by the company with the securities and exchange commission on november 12 , 2008 . 2 incorporated by reference to the form 8-k , filed by the company with the securities and exchange commission on september 21 , 2011 . 3 incorporated by reference to the form 8-k , filed by the company with the securities and exchange commission on january 18 , 2013 . 4 incorporated by reference to the form 8-k , filed by the company with the securities and exchange commission on january 11 , 2013 . 5 incorporated by reference to the form 8-k , filed by the company with the securities and exchange commission on january 18 , 2013 . 24 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . optimizerx corporation by : shad stastney shad stastney chief story_separator_special_tag forward-looking statements certain statements , other than purely historical information , including estimates , projections , statements relating to our business plans , objectives , and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements. ” these forward-looking statements generally are identified by the words “ believes , ” “ project , ” “ expects , ” “ anticipates , ” “ estimates , ” “ intends , ” “ strategy , ” “ plan , ” “ may , ” “ will , ” “ would , ” “ will be , ” “ will continue , ” “ will likely result , ” and similar expressions . forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to
| net loss net loss for the year ended december 31 , 2012 was $ 363,976 , compared to net loss of $ $ 2,120,762 for the year ended december 31 , 2011. notwithstanding the net loss for the year , we believe that our company is starting to show real signs of improvement . in our fourth quarter 2012 , we had revenues of $ 750,719 , as compared to revenues of $ 325,910 for our fourth quarter 2011. liquidity and capital resources as of december 31 , 2012 , we had total current assets of $ 969,219 and total assets in the amount of $ 2,175,404. our total current liabilities as of december 31 , 2012 were $ 679,945. we had working capital of $ 289,274 as of december 31 , 2012. operating activities used $ 624,033 in cash for the year ended december 31 , 2012. our net loss of $ 363,976 along with $ 282,019 in accounts payable , $ 60,000 in accrued expenses , $ 151,851 in accounts receivable , and $ 281,353 in deferred revenue were the primary components of our negative operating cash flow , offset mainly by $ 180,640 in stock-based compensation , $ 187,104 in depreciation and amortization and $ 50,874 in prepaid expenses . investing activities used $ 50,870 during the year ended december 31 , 2012 largely as a result of website development costs . on september 16 , 2011 , we entered into a securities purchase agreement with vicis capital master fund for sale of up to 50 shares of our series b preferred stock and warrants to purchase up to 3,333,334 shares of our common stock with an exercise price of $ 3.00 per share . we have sold 15 shares of series b preferred stock and a warrant to purchase 1,000,000 shares of our common stock at the above exercise price for $ 1,500,000. this money was used to pay off a promissory note we had with physicians interactive and the balance is for working capital . our financing deal with vicis has lapsed according to
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we review our capitalized fees for impairment on a product-by-product basis for each major geographic area when events or changes in circumstances indicate that the carrying amount of such 42 assets may not be recoverable . the recoverability of capitalized fees is measured by comparing the asset 's carrying amount to the expected undiscounted future cash flows that the asset is expected to generate . the determination of recoverability typically requires various estimates and assumptions , including estimating the useful life over which cash flows will occur , their amount , and the asset 's residual value , if any . we derive the required cash flow estimates from near-term forecasted product sales and long-term projected sales in the corresponding market . based upon our analyses , no impairment charges have been recorded on the capitalized fees as of december 31 , 2017. fair value of stock-based compensation awards we use the black-scholes-merton option pricing model to estimate the fair value of options as of the date of grant . the black-scholes-merton option valuation model requires the use of assumptions , including the expected term of the award and the expected stock price volatility . we use the `` simplified '' method as described in staff accounting bulletin no . 107 , `` share based payment , '' for the expected option term . we use our historical volatility to estimate expected stock price volatility . the estimated fair value of the option is expensed on a ratable basis over the expected term of the grant . we determine the fair value of rsus and rsas based on the fair market values of the underlying stock on the dates of grant . the fair value of service based rsus and rsas is expensed on a ratable or straight-line basis over the expected term of the vesting . the fair value of performance-contingent rsus and rsas is expensed using an accelerated method over the requisite service period based on management 's best estimate as to whether it is probable that the shares awarded are expected to vest . we assess the probability of the performance indicators being met on a continuous basis . the grant date fair value of the rsus and rsas with a market condition is determined using a monte carlo valuation model and the compensation expense is recognized over the implied service period . stock-based compensation expense was calculated based on awards ultimately expected to vest and was reduced for estimated forfeitures as of the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differed from those estimates . the estimated annual forfeiture rates for stock options , rsus and rsas are based on our historical forfeiture experience . for more information , refer to note 6 , `` stock-based compensation , '' to the consolidated financial statements appearing in this annual report on form 10-k. accounting for convertible senior notes due 2025 on august 7 , 2017 , we completed a private placement of $ 192.5 million aggregate principal amount of our 2025 notes . due to our ability to settle the conversion obligation of the 2025 notes in cash , common stock or a combination of cash and common stock , at our option , we separately account for the liability and equity components of the 2025 notes by allocating the proceeds between the liability component and the embedded conversion option ( `` equity component '' ) . the carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature using the income approach . the allocation was performed in a manner that reflected our non-convertible debt borrowing rate for similar debt . the equity component of the 2025 notes of $ 67.3 million was recognized as a debt discount and represents the difference between the proceeds from the issuance of the 2025 notes and the fair value of the liability of the 2025 notes on the date of issuance . the excess of the principal amount of the liability component over its carrying amount ( `` debt discount '' ) is amortized to interest expense using the effective interest method . the equity component is not re-measured as long as it continues to meet the conditions for equity classification . in connection with the issuance of the 2025 notes , we incurred approximately $ 5.4 million of debt issuance costs , which primarily consisted of placement , legal and other professional fees , and allocated these costs to the liability and equity components based on the allocation of the proceeds . of the total 43 $ 5.4 million of debt issuance costs , $ 1.9 million were allocated to the equity component and recorded as a reduction to additional paid-in capital and $ 3.5 million were allocated to the liability component and recorded as a reduction to the carrying amount of the liability component on the consolidated balance sheet . the portion allocated to the liability component is amortized to interest expense over the expected life of the 2025 notes using the effective interest method . results of operations net revenue total net revenue , as compared to the prior years , was as follows : replace_table_token_6_th total net revenue increased for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , primarily due to growth in prescriptions and market share for both relvar®/breo® ellipta® and anoro® ellipta® , and initiation of sales by gsk of trelegy® ellipta® in the fourth quarter of 2017. in the fourth quarter of 2017 , due to the completion of innoviva 's performance obligations under the maba program , we revised the performance period , which was previously estimated to end in june 2020. the change in this estimate resulted in full recognition of the remaining deferred revenue balance . story_separator_special_tag total net revenue increased for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015. the increases were primarily due to higher sales of relvar®/breo® ellipta® and anoro® ellipta® . the revenue growth during the years ended december 31 , 2017 and 2016 may not be indicative of our future revenue growth , if any . research & development research & development ( `` r & d '' ) expenses , as compared to the prior years , were as follows : replace_table_token_7_th 44 r & d expenses decreased for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , and for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , primarily due to reduced activities related to the late-stage partnered respiratory assets with gsk . general & administrative general and administrative expenses , as compared to the prior years , were as follows : replace_table_token_8_th general and administrative expenses increased in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to net proxy contest and associated litigation costs of $ 8.1 million . general and administrative expenses increased in the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to the recognition of stock-based compensation expenses related to pre-spin-off legacy performance-contingent rsas and higher employee costs . other income ( expense ) , net and interest income other income ( expense ) , net and interest income , as compared to the prior years , were as follows : replace_table_token_9_th * not meaningful other expense , net for the year ended december 31 , 2017 primarily pertains to the write-off of unamortized debt issuance costs of $ 7.3 million in relation to our redemptions of the 2029 notes . other income , net for the year ended december 31 , 2016 primarily pertains to a realized gain of $ 2.3 million from the repurchases of our 2023 notes during the year ended december 31 , 2016. other income , net for the year ended december 31 , 2015 primarily relates to a realized gain of $ 1.2 million on the sale of the remaining ordinary shares of theravance biopharma that we held . interest income increased in the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 , and in the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 primarily due to higher interest generated from our investments in marketable securities . interest expense interest expense , as compared to the prior years , was as follows : replace_table_token_10_th 45 interest expense decreased in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to redemption of our 2029 notes with the net proceeds from the term b loan and 2025 notes , the lower interest rates starting august 2017 under the term b loan and 2025 notes compared to the interest rates of the 2029 notes , and lower principal balance resulting from repurchase of our 2023 notes . interest expense increased in the year ended december 31 , 2016 compared to the year ended december 31 , 2015 primarily due to higher outstanding average principal balance on our 2029 notes , of which $ 0.9 million was added in the first two quarters of 2016 and $ 43.1 million was added during the years ended december 31 , 2015 and 2014 in the form of payment in kind ( `` pik '' ) . see `` liquidity '' section below for further information . income taxes as of december 31 , 2017 and 2016 , we had net operating loss carryforwards for federal income taxes of $ 1.0 billion and $ 1.1 billion , respectively . as of december 31 , 2017 and 2016 , we had federal research and development tax credit carryforwards of $ 45.2 million . we recorded a valuation allowance to offset in full the benefit related to our deferred tax assets because realization of these benefits is uncertain . we had unrecognized tax benefits of $ 15.5 million as of december 31 , 2017 and 2016. none of our currently unrecognized tax benefits would affect our effective income tax rate if recognized , due to the valuation allowance that currently offsets our deferred tax assets . utilization of net operating loss and tax credit carryforwards are subject to rules , provided by the internal revenue code and similar state provisions , governing annual limitations tied to ownership changes . in addition , as a result of the passage of the tax cuts and jobs act , corporate tax rates in the united states will decrease in 2018 , which resulted in the remeasurement of our deferred tax assets at the new statutory rate and a reduction in the value of our deferred tax assets in 2017. we conducted an analysis through 2016 to determine whether an ownership change had occurred since inception . the analysis indicated that two ownership changes occurred in prior years . however , notwithstanding the applicable annual limitations , we estimate that no portion of the net operating loss or credit carryforwards will expire before becoming available to reduce federal and state income tax liabilities . annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized . net income attributable to noncontrolling interest this represents the share of net income in theravance respiratory company , llc for theravance biopharma for the year ended december 31 , 2017. liquidity and capital resources liquidity since our inception , we have financed our operations primarily through private placements and public offerings of equity and debt securities and payments received under collaborative arrangements .
| 40 in october 2017 , we entered into an asr agreement with a financial institution to repurchase $ 80.0 million of our common stock as a part of the 2017 capital return plan . in december 2017 , we repurchased 6,112,335 shares of our common stock under the asr agreement . repayments of notes payable and loan in 2017 , we paid down the principal balance of the 2029 notes with $ 29.6 million , redeemed $ 50.0 million of the 2029 notes under the 2017 capital return plan , and used the net proceeds of the term b loan and the 2025 notes to redeem the remaining outstanding balance of the 2029 notes of $ 407.6 million . in december 2017 , we paid down $ 6.3 million on the principal balance of the term b loan . collaborative arrangements with gsk laba collaboration in november 2002 , we entered into our laba collaboration agreement with gsk to develop and commercialize once-daily laba products for the treatment of copd and asthma . the collaboration has developed three combination products : ( 1 ) relvar®/breo® ellipta® ( ff/vi ) ( breo® ellipta® is the proprietary name in the u.s. and canada and relvar® ellipta® is the proprietary name outside the u.s. and canada ) , a once-daily combination medicine consisting of a laba , vilanterol ( vi ) , and an inhaled corticosteroid ( ics ) , fluticasone furoate ( ff ) , ( 2 ) anoro® ellipta® ( umec/vi ) , a once-daily medicine combining a long-acting muscarinic antagonist ( `` lama '' ) , umeclidinium bromide ( umec ) , with a laba , vi and ( 3 ) trelegy® ellipta® , fluticasone furoate/umeclidinium/vilanterol ( ff/umec/vi ) . as a result of the launch and approval of relvar®/breo® ellipta® and anoro® ellipta® in the u.s. , japan and europe , in accordance with the laba collaboration agreement , we paid milestone fees to gsk totaling $ 220.0 million during the year ended december 31 , 2014. although we have no further milestone payment obligations to gsk pursuant to the laba
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the increase was due primarily to positive technical adjustments for the costayaco field due to reservoir performance , successful appraisal drilling on the moqueta field and exploration success with the ramiriqui-1 well in colombia . reserves were also added through development drilling on the tiê field in the recôncavo basin , brazil and the proa-2 development well on the surubi block in argentina . estimated probable and possible oil and ngl reserves , nar , as of december 31 , 2012 , were 14.8 mmbbl and 21.5 mmbbl , respectively . estimated proved gas reserves , nar , as of december 31 , 2012 , were 12.8 bcf compared with 18.3 bcf as at december 31 , 2011 . at december 31 , 2012 , 61 % of proved gas reserves were in the sierra nevada block in colombia and 26 % were in the puesto morales block in argentina . estimated proved gas reserves , nar , in the sierra nevada block decreased by 6.0 bcf during the year ended december 31 , 2012 , due to technical revisions . proved gas reserves in the puesto morales block were consistent with the prior year end as new gas reserves were created to replace 2012 production . estimated probable and possible gas reserves , nar , as of december 31 , 2012 , were 5.1 bcf and 51.7 bcf , respectively , due to technical revisions in the sierra nevada block . for the year ended december 31 , 2012 , revenue and other income decrease d by 2 % to $ 585.2 million compared with $ 597.4 million in 2011 . the average price realized per boe of $ 94.29 was consistent with 2011 and was impacted by the settlement of a third party royalty dispute in colombia which reduced the average realized price by $ 1.76 per boe . net income decrease d by 21 % to $ 99.7 million , or $ 0.35 per share basic and diluted , for the year ended december 31 , 2012 , compared with $ 126.9 million , or $ 0.46 per share basic and $ 0.45 per share diluted , in 2011 . in 2012 , decrease d dd & a , g & a and income tax expenses , the realization of a value added tax recovery upon a corporate reorganization in colombia and the absence of the colombian equity tax expense were more than offset by decrease d oil and natural gas sales , increased operating expenses and foreign exchange losses , and the absence of the 2011 gain on acquisition of petrolifera petroleum limited ( `` petrolifera '' ) . 60 for the year ended december 31 , 2012 , funds flow from operations increased by 1 % from $ 319.0 million to $ 323.8 million primarily due to lower income tax expenses being partially offset by increased operating expenses and realized foreign exchange losses . cash and cash equivalents were $ 212.6 million at december 31 , 2012 , compared with $ 351.7 million at december 31 , 2011 . the change in cash and cash equivalents during 2012 was primarily the result of funds flow from operations of $ 323.8 million , a $ 11.9 million decrease in restricted cash and proceeds from issuance of common stock of $ 4.3 million being more than offset by capital expenditures of $ 276.1 million , an increase in net assets and liabilities from operating activities of $ 167.4 million and cash paid for an acquisition in brazil of $ 35.5 million . working capital ( including cash and cash equivalents ) was $ 222.5 million at december 31 , 2012 , a $ 9.4 million increase from december 31 , 2011 . the increase was primarily a result of the following : a $ 50.5 million increase in accounts receivable due to a change in the timing of collection of ecopetrol receivables , new customers in colombia and increased oil and gas sales in argentina ; a $ 26.4 million increase in inventory ; an $ 18.4 million increase in taxes receivable due to value added tax and income tax recoveries in colombia generated upon completion of a corporate reorganization ; a $ 73.1 million decrease in taxes payable due to utilization of tax losses and tax deductions resulting from the same corporate reorganization , and lower taxable income in colombia ; partially offset by a $ 139.1 million decrease in cash and cash equivalents and a $ 19.7 million increase in accounts payable and accrued liabilities due to increased capital activity in peru and brazil immediately prior to year end . property , plant and equipment at december 31 , 2012 , was $ 1.2 billion , an increase of $ 160.6 million from december 31 , 2011 , as a result of $ 313.2 million of capital expenditures ( including changes in non-cash working capital ) , the acquisition of the remaining 30 % working interest in certain blocks in brazil , partially offset by $ 189.1 million of depletion , depreciation and impairment expenses . our capital expenditures for the year ended december 31 , 2012 , were $ 313.2 million compared with $ 327.6 million for the year ended december 31 , 2011 . in 2012 , capital expenditures included drilling of $ 218.1 million , acquisitions of $ 12.5 million , geological and geophysical ( “ g & g ” ) expenditures of $ 48.0 million , facilities of $ 17.9 million and other expenditures of $ 16.7 million . additionally , we spent $ 36.6 million on the acquisition of the remaining 30 % working interest in our properties in brazil . estimated oil and gas reserves as at december 31 , 2012 , the estimated proved oil and gas reserves , nar , were 40.6 mmboe compared with 34.0 mmboe as at december 31 , 2011 and 23.8 mmboe as at december 31 , 2010 . story_separator_special_tag estimated proved oil and ngl reserves , nar , as of december 31 , 2012 , were 38.5 mmbbl , a 25 % increase from the estimated proved oil and ngl reserves as at december 31 , 2011 . the increase was due primarily to positive technical adjustments for the costayaco field due to reservoir performance , successful appraisal drilling on the moqueta field and exploration success with the ramiriqui-1 well in colombia . reserves were also added through development drilling on the tiê field in the recôncavo basin , brazil and the proa-2 development well on the surubi block in argentina . estimated probable and possible oil and ngl reserves , nar , as of december 31 , 2012 were 14.8 mmbbl and 21.5 mmbbl , respectively . estimated proved gas reserves , nar , as of december 31 , 2012 , were 12.8 bcf compared with 18.3 bcf at december 31 , 2011 . at december 31 , 2012 , 61 % of proved gas reserves were in the sierra nevada block and 26 % were in the puesto morales block . estimated proved gas reserves , nar , in the sierra nevada block decreased by 6.0 bcf during the year ended december 31 , 2012 due to technical revisions . proved gas reserves in the puesto morales block were consistent with the prior year end as new gas reserves were created to replace 2012 production . estimated probable and possible gas reserves , nar , as of december 31 , 2012 were 5.1 bcf and 51.7 bcf , respectively , due to technical revisions in the sierra nevada block . estimated proved oil and ngl reserves , nar , as of december 31 , 2011 , were 30.9 mmbbl , a 31 % increase from the estimated proved reserves as at december 31 , 2010 . the increase was due to the acquisition of petrolifera which had reserves in argentina and colombia , positive technical revisions to costayaco reserves ( based on reservoir performance ) , the drilling of additional appraisal wells in the moqueta field and the acquisition of the 70 % working interest ( `` wi '' ) in block 155 in brazil , which more than offset 2011 production of oil and ngls . estimated probable and possible oil and ngl reserves , nar , as of december 31 , 2011 were 10.5 mmbbl and 17.6 mmbbl , respectively . estimated proved gas reserves , nar , as of december 31 , 2011 , were 18.3 bcf compared with 1.2 bcf at december 31 , 2010 . estimated probable and possible gas reserves , nar , as of december 31 , 2011 were 25.7 bcf and 116.5 bcf , respectively . 61 business environment outlook our revenues have been significantly affected by pipeline disruptions in colombia and the continuing fluctuations in oil prices . oil prices are volatile and unpredictable and are influenced by concerns about financial markets and the impact of the worldwide economy on oil demand growth . we believe that our current operations and 2013 capital expenditure program can be funded from cash flow from existing operations , cash on hand and potential periodic draws from our revolving credit facility . should our operating cash flow decline further due to unforeseen events , including additional pipeline delivery restrictions in colombia or a downturn in oil and gas prices , we would examine measures such as further capital expenditure program reductions , issuance of debt , disposition of assets , or issuance of equity . continuing social uncertainty in the middle east and north africa and economic uncertainty in the united states , europe and china are having an impact on world markets , and we are unable to determine the impact , if any , these events may have on oil prices and demand . our future growth and acquisitions may depend on our ability to raise additional funds through equity and debt markets . should we be required to raise debt or equity financing to fund capital expenditures or other acquisition and development opportunities , such funding may be affected by the market value of shares of our common stock . our ability to utilize our common stock to raise capital may be negatively affected by declines in the price of shares of our common stock . also , raising funds by issuing shares or other equity securities would further dilute our existing shareholders , and this dilution would be exacerbated by a decline in our share price . any securities we issue may have rights , preferences and privileges that are senior to our existing equity securities . borrowing money may also involve further pledging of some or all of our assets , may require compliance with debt covenants and will expose us to interest rate risk . depending on the currency used to borrow money , we may also be exposed to further foreign exchange risk . our ability to borrow money and the interest rate we pay for any money we borrow will be affected by market conditions , and we can not predict what price we may pay for any borrowed money . business combinations on october 8 , 2012 , the company received regulatory approval and acquired the remaining 30 % working interest in four blocks in brazil pursuant to the terms of a purchase and sale agreement dated january 20 , 2012. with the exception of one block which has three producing wells , the remaining blocks are unproved properties . the company paid initial cash purchase consideration of $ 35.5 million . contingent consideration up to an additional $ 3.0 million may be payable dependent on production volumes from the acquired blocks . on march 18 , 2011 , we completed the acquisition of all the issued and outstanding common shares and warrants of petrolifera pursuant to the terms and conditions of an arrangement agreement dated january 17 , 2011. petrolifera is a calgary-based oil , natural gas and ngl exploration , development and production company active in argentina , colombia and peru .
| production during the year ended december 31 , 2012 , reflects approximately 162 days of oil delivery restrictions in colombia . average realized oil prices increased by 1 % to $ 97.31 per bbl from $ 96.60 per bbl for the year ended december 31 , 2012 . we received a premium to west texas intermediate ( “ wti ” ) in colombia during the year ended december 31 , 2012 . wti oil prices for the year ended december 31 , 2012 , were $ 94.20 per bbl compared with $ 95.06 per bbl in 2011 . average brent oil prices for the year ended december 31 , 2012 , were $ 111.67 per bbl compared with $ 111.26 per bbl in 2011 . revenue and other income for the year ended december 31 , 2012 , decrease d to $ 585.2 million from $ 597.4 million in 2011 as a result of decreased production , partially offset by increase d realized prices . operating expenses for the year ended december 31 , 2012 , were $ 124.9 million , or $ 20.20 per boe , compared with $ 86.5 million , or $ 13.61 per boe , in 2011 . the increase in operating expenses was primarily due to an increase of $ 29.3 million in colombia mainly due to ota pipeline oil transportation costs of $ 3.77 per boe , previously deducted from realized sales prices and now included as operating costs due to the change in sales point in february 2012 , and increased trucking to other sales points due to ota pipeline disruptions . dd & a expenses for the year ended december 31 , 2012 , decrease d to $ 182.0 million from $ 231.2 million in 2011 . dd & a expenses for the year ended december 31 , 2012 , included a $ 20.2 million ceiling test impairment in our brazil cost center related to seismic and drilling costs on block bm-cal-10 . dd & a expenses in 2011 included a $ 42.0 million ceiling test impairment
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on december 31 , 2012 , we acquired substantially all of the assets of queensgate foodservice ( “ queensgate ” ) , a foodservice distributor based in cincinnati , ohio . queensgate strengthens our foothold in the ohio valley and provides a platform on which to leverage the michael 's acquisition completed in august 2012. the purchase price paid for queensgate at the closing was $ 21,934 and was funded with borrowings under the revolving credit facility portion of the credit agreement that we entered into in april 2012. we also agreed to pay certain additional consideration to the owners of queensgate if certain performance metrics were achieved in fiscal 2013 and fiscal 2014. none of these performance metrics were achieved . on august 10 , 2012 , we acquired 100 % of the equity securities of michael 's finer meats ( “ michael 's ” ) , a specialty protein distributor based in columbus , ohio . michael 's distributes an extensive portfolio of custom cut beef , seafood and other center-of-the-plate products to many of the leading restaurants , country clubs , hotels and casinos in ohio , indiana , illinois , tennessee , michigan , kentucky , west virginia and western pennsylvania . the total purchase price for the business was approximately $ 53,509 and was funded with borrowings under the revolving credit facility portion of the credit agreement that we entered into in april 2012. in august 2013 , we paid the sellers $ 336 to settle a dispute over the final working capital settlement . in the third quarter of fiscal 2014 , we received a payment of approximately $ 1,500 from the former owners of michael 's related to the settlement of a dispute associated with certain inventory issues we experienced at michael 's . this settlement was recorded as a reduction of operating expenses . on april 27 , 2012 , we acquired 100 % of the outstanding common stock of praml international , ltd. ( “ praml ” ) , a nevada corporation . the purchase price paid to acquire praml was approximately $ 19,500. we financed the purchase price paid for the outstanding common stock of praml with borrowings under the revolving credit facility portion of the credit agreement we entered into in april 2012. praml was a leading specialty foods importer and wholesale distributor located in las vegas , nevada , which serviced the las vegas and reno markets . our growth strategies and outlook we continue to invest in our people , facilities and technology to achieve the following objectives and maintain our premier position within the specialty foodservice distribution market : ● sales and service territory expansion ; ● operational excellence and high customer service levels ; ● expanded purchasing programs and improved buying power ; ● product innovation and new product category introduction ; ● operational efficiencies through system enhancements ; and ● operating expense reduction through the centralization of general and administrative functions . our continued profitable growth has allowed us to improve upon our organization 's infrastructure , open new distribution facilities and pursue selective acquisitions . this improved infrastructure has allowed us to maintain our operating margins in an increasingly competitive environment . over the last several years , we have increased our distribution capacity to approximately 1 million square feet in 21 distribution facilities . key factors affecting our performance due to our focus on menu-driven independent restaurants , fine dining establishments , country clubs , hotels , caterers , culinary schools , bakeries , patisseries , chocolatiers , cruise lines , casinos and specialty food stores , our results of operations are materially impacted by the success of the “ food-away-from-home ” industry in the united states and canada , which is materially impacted by general economic conditions , discretionary spending levels and consumer confidence . when economic conditions deteriorate , our customers ' businesses are negatively impacted as fewer people eat away-from-home and those that do spend less money . as economic conditions begin to improve , our customers ' businesses historically have likewise improved , which contributes to improvements in our business . likewise , the direct to consumer business of our allen brothers subsidiary is significantly dependent on consumers ' discretionary spending habits and weakness or uncertainty in the economy could lead to consumers buying less from allen brothers . food price costs also significantly impact our results of operations . food price inflation , like that which we have experienced throughout 2011 , portions of 2012 , 2013 and 2014 , may increase the dollar value of our sales because many of our products are sold at our cost plus a percentage markup . when we experience deflation , as we experienced during portions of 2012 , the dollar value of our sales may fall despite our unit sales remaining constant or growing . for those of our products that we price on a fixed fee-per-case basis , our gross profit margins may be negatively affected in an inflationary environment , even though our gross revenues may be positively impacted . while we can not predict whether inflation will continue at current levels , prolonged periods of inflation leading to cost increases above levels that we are able to pass along to our customers , either overall or in certain product categories , may have a negative impact on us and our customers , as elevated food costs can reduce consumer spending in the food-away-from-home market and may negatively impact our sales , gross margins and earnings . 34 given our wide selection of product categories , as well as the continuous introduction of new products , we can experience shifts in product sales mix that have an impact on net sales and gross profit margins . this mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered , the shift in product mix resulting from acquisitions , as well as the continued growth in item penetration on higher velocity items such as dairy products . story_separator_special_tag the foodservice distribution industry is fragmented and consolidating . over the past six years , we have supplemented our internal growth through selective strategic acquisitions . we believe that the consolidation trends in the foodservice distribution industry will continue to present acquisition opportunities for us , which may allow us to grow our business at a faster pace than we would otherwise be able to grow the business organically . performance indicators in addition to evaluating our income from operations , our management team analyzes our performance based on net sales growth , gross profit and gross profit margin . ● net sales growth . our net sales growth is driven principally by changes in volume and , to a lesser degree , changes in price related to the impact of inflation in commodity prices and product mix . in particular , product cost inflation and deflation impacts our results of operations and , depending on the amount of inflation or deflation , such impact may be material . for example , inflation may increase the dollar value of our sales , and deflation may cause the dollar value of our sales to fall despite our unit sales remaining constant or growing . ● gross profit and gross profit margin . our gross profit and gross profit as a percentage of net sales , or gross profit margin , are driven principally by changes in volume and fluctuations in food and commodity prices and our ability to pass on any price increases to our customers in an inflationary environment and maintain or increase gross profit margin when our costs decline . our gross profit margin is also a function of the product mix of our net sales in any period . given our wide selection of product categories , as well as the continuous introduction of new products , we can experience shifts in product sales mix that have an impact on net sales and gross profit margins . this mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered , impact of product mix from acquisitions , as well as the continued growth in item penetration on higher velocity items such as dairy products . key financial definitions ● net sales . net sales consist primarily of sales of specialty products , center-of-the-plate proteins and other food products to independently-owned restaurants and other high-end foodservice customers , which we report net of certain group discounts and customer sales incentives . net sales also include sales by our allen brothers subsidiary that are direct to consumers . ● cost of sales . cost of sales include the net purchase price paid for products sold , plus the cost of transportation necessary to bring the product to our distribution facilities . our cost of sales may not be comparable to other similar companies within our industry that include all costs related to their distribution network in their costs of sales rather than as operating expenses . ● operating expenses . our operating expenses include warehousing , processing and distribution expenses ( which include salaries and wages , employee benefits , facility and distribution fleet rental costs and other expenses related to warehousing , processing and delivery ) and selling , general and administrative expenses ( which include selling , insurance , administrative , wage and benefit expenses and share-based compensation expense ) . ● interest expense . interest expense consists primarily of interest on our outstanding indebtedness and , as applicable , the write off of deferred financing fees . critical accounting policies the preparation of our consolidated 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 . the sec has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and require our most difficult , complex or subjective judgments or estimates . based on this definition , we believe our critical accounting policies include the following : ( i ) determining our allowance for doubtful accounts , ( ii ) inventory valuation , with regard to determining our reserve for excess and obsolete inventory , ( iii ) valuing goodwill and intangible assets , ( iv ) vendor rebates and other promotional incentives , ( v ) self-insurance reserves , and ( vi ) accounting for income taxes . for all financial statement periods presented , there have been no material modifications to the application of these critical accounting policies . 35 allowance for doubtful accounts we analyze customer creditworthiness , accounts receivable balances , payment history , payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts . in instances where a reserve has been recorded for a particular customer , future sales to the customer are either conducted using cash-on-delivery terms or the account is closely monitored so that agreed-upon payments are received prior to orders being released . a failure to pay results in held or cancelled orders . we also estimate receivables that will ultimately be uncollectible based upon historical write-off experience . our estimate could require change based on changing circumstances , including changes in the economy or in the particular circumstances of individual customers . accordingly , we may be required to increase or decrease our allowance . our accounts receivable balance was $ 96,896 and $ 76,413 , net of the allowance for doubtful accounts of $ 4,675 and $ 3,642 , as of december 26 , 2014 and december 27 , 2013 , respectively . inventory valuation we maintain reserves for slow-moving and obsolete inventories . these reserves are primarily based upon inventory age plus specifically identified inventory items and overall economic conditions . a sudden and unexpected change in consumer preferences or change in overall economic conditions could result in a significant change in the reserve balance and could require a corresponding charge to earnings .
| operating expenses total operating expenses increased by approximately 27.4 % to $ 173,042 for the 52 weeks ended december 26 , 2014 from $ 135,783 for the 52 weeks ended december 27 , 2013. as a percentage of net sales , operating expenses increased 52 basis points to 20.7 % for fiscal 2014 from 20.2 % for fiscal 2013. the increase in our operating expense ratio is primarily attributable to higher net shipping costs and catalog promotion costs related to the company 's allen brothers subsidiary and increased investments in information technology initiatives offset in part by the recovery of approximately $ 1,500 related to a settlement with the former owners of michael 's associated with certain inventory issues we experienced at michael 's and the reversal of earnout liabilities for our queensgate and allen brothers acquisitions as the performance metrics applicable to these earnouts were not achieved for fiscal 2014. operating income operating income decreased approximately 9.8 % to $ 33,010 for the 52 weeks ended december 26 , 2014 compared to $ 36,581 for the 52 weeks ended december 27 , 2013. as a percentage of net sales , operating income was 3.9 % in fiscal 2014 compared to 5.4 % in fiscal 2013. the decrease in operating income was primarily due to the increase in operating expenses offset in part by the increased sales volume as discussed above . other expense total other expense increased $ 379 to $ 8,162 for the year ended december 26 , 2014 , from $ 7,783 for the year ended december 27 , 2013. this increase in total other expense is primarily attributable to the $ 392 increase in interest expense , which was higher in fiscal 2014 due to the increased debt levels to fund the company 's acquisitions , as well as the higher interest rate on the company 's $ 100,000 of senior secured notes . 38 provision for income taxes our effective income tax rate was
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grossblatt , the company 's chief executive officer and certain of his immediate family members . the company subsequently reimbursed these charges in full . mr. grossblatt receives travel mileage and other credit card benefits from these charges . the maximum amount outstanding and due to mr. grossblatt at any point during the fiscal year ended march 31 , 2019 and 2018 amounted to $ 168,826 and $ 160,438 , respectively , and the amount outstanding at march 31 , 2019 and 2018 is $ 55,321 and $ 8,225 , respectively . critical accounting policies management 's discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements included as part of this document . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to bad debts , inventories , income taxes , impairment of long-lived assets , and contingencies and litigation . we base these estimates on historical experiences 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 available from other sources . actual results may differ from these estimates under different assumptions or conditions . - 10 - we believe that the following critical accounting policies affect management 's more significant judgments and estimates used in the preparation of its consolidated financial statements . for a detailed discussion on the application of these and other accounting policies , see note a to the consolidated financial statements , included in this annual report . certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates . these judgments are based on our historical experience , terms of existing contracts , current economic trends in the industry , information provided by our customers , and information available from outside sources , as appropriate . our critical accounting policies include : income taxes : the company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the consolidated financial statements . these temporary differences may result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled . the deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided whenever it is more likely than not that a deferred tax asset will not be realized . after a review of projected taxable income and the components of the deferred tax asset in accordance with applicable accounting guidance it was determined that it is more likely than not that the tax benefits associated with the remaining components of the deferred tax assets will not be realized . this determination was made based on the company 's history of losses from operations and the uncertainty as to whether the company will generate sufficient taxable income to use the deferred tax assets prior to their expiration . accordingly , a valuation allowance was established to fully offset the value of the deferred tax assets . our ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable income and the expiration dates of the components of the deferred tax assets . if sufficient future taxable income is generated , we may be able to offset a portion of future tax expenses . the company follows asc 740-10 which provides guidance for tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties , if any , related to income tax matters are recorded as income tax expenses . revenue recognition : the company 's primary source of revenue is the sale of safety and security products based upon purchase orders or contracts with customers . revenue is recognized at a point in time once the company has determined that the customer has obtained control over the product . control is typically deemed to have been transferred to the customer when the product is shipped or delivered to the customer . customers may not return , exchange or refuse acceptance of goods without our approval . generally , the company does not grant extended payment terms . shipping and handling costs associated with outbound freight , after control over a product has transferred to a customer , are accounted for as a fulfillment cost and are recorded in selling , general and administrative expense . the amount of revenue recognized reflects the consideration to which the company expects to be entitled to receive in exchange for products sold . revenue is recorded at the transaction price net of estimates of variable consideration . the company uses the expected value method based on historical data in considering the impact of estimates of variable consideration , which may include trade discounts , allowances , product returns ( including rights of return ) or warranty replacements . estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur . we have established allowances to cover anticipated story_separator_special_tag grossblatt , the company 's chief executive officer and certain of his immediate family members . the company subsequently reimbursed these charges in full . mr. grossblatt receives travel mileage and other credit card benefits from these charges . the maximum amount outstanding and due to mr. grossblatt at any point during the fiscal year ended march 31 , 2019 and 2018 amounted to $ 168,826 and $ 160,438 , respectively , and the amount outstanding at march 31 , 2019 and 2018 is $ 55,321 and $ 8,225 , respectively . critical accounting policies management 's discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements included as part of this document . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to bad debts , inventories , income taxes , impairment of long-lived assets , and contingencies and litigation . we base these estimates on historical experiences 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 available from other sources . actual results may differ from these estimates under different assumptions or conditions . - 10 - we believe that the following critical accounting policies affect management 's more significant judgments and estimates used in the preparation of its consolidated financial statements . for a detailed discussion on the application of these and other accounting policies , see note a to the consolidated financial statements , included in this annual report . certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates . these judgments are based on our historical experience , terms of existing contracts , current economic trends in the industry , information provided by our customers , and information available from outside sources , as appropriate . our critical accounting policies include : income taxes : the company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the consolidated financial statements . these temporary differences may result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled . the deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided whenever it is more likely than not that a deferred tax asset will not be realized . after a review of projected taxable income and the components of the deferred tax asset in accordance with applicable accounting guidance it was determined that it is more likely than not that the tax benefits associated with the remaining components of the deferred tax assets will not be realized . this determination was made based on the company 's history of losses from operations and the uncertainty as to whether the company will generate sufficient taxable income to use the deferred tax assets prior to their expiration . accordingly , a valuation allowance was established to fully offset the value of the deferred tax assets . our ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable income and the expiration dates of the components of the deferred tax assets . if sufficient future taxable income is generated , we may be able to offset a portion of future tax expenses . the company follows asc 740-10 which provides guidance for tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties , if any , related to income tax matters are recorded as income tax expenses . revenue recognition : the company 's primary source of revenue is the sale of safety and security products based upon purchase orders or contracts with customers . revenue is recognized at a point in time once the company has determined that the customer has obtained control over the product . control is typically deemed to have been transferred to the customer when the product is shipped or delivered to the customer . customers may not return , exchange or refuse acceptance of goods without our approval . generally , the company does not grant extended payment terms . shipping and handling costs associated with outbound freight , after control over a product has transferred to a customer , are accounted for as a fulfillment cost and are recorded in selling , general and administrative expense . the amount of revenue recognized reflects the consideration to which the company expects to be entitled to receive in exchange for products sold . revenue is recorded at the transaction price net of estimates of variable consideration . the company uses the expected value method based on historical data in considering the impact of estimates of variable consideration , which may include trade discounts , allowances , product returns ( including rights of return ) or warranty replacements . estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur . we have established allowances to cover anticipated
| comparison of results of operations for the years ended march 31 , 2019 and 2018 sales . in fiscal year 2019 , our net sales are $ 17,588,040 compared to sales in the prior year of $ 14,873,189 , an increase of $ 2,714,851 ( 18.3 % ) . the increase in sales is primarily attributable to sales of the company 's sealed battery safety alarms , gfci 's , and other electrical products . gross profit . gross profit percentage is calculated as net sales less cost of goods sold expressed as a percentage of net sales . our gross profit percentage for the fiscal year ended march 31 , 2019 was 31.6 % compared to 30.5 % in fiscal 2018. the increase in 2019 gross margin is attributed to the mix of products sold and sales of the company 's sealed battery safety alarms , and gfci 's that typically have higher margins . selling , general and administrative expense . selling , general and administrative expenses increased to $ 4,864,521 in fiscal 2019 from $ 4,616,391 in fiscal 2018. as a percentage of net sales , these expenses were 27.6 % for the fiscal year ended march 31 , 2019 and 31.0 % for the fiscal year ended march 31 , 2018. these expenses decreased as a percentage as they do not increase in direct proportion to increases in sales . these expenses increased as a dollar amount due primarily to increases in insurance expense . research and development . research and development expense for the fiscal year ended march 31 , 2019 was $ 502,845 , of which approximately $ 100,000 was for new product development . research and development expense for the fiscal year ended march 31 , 2018 was $ 653,899 , of which approximately $ 500,000 was for new product development . the decrease in overall research and development expense for the 2019 period compared to the 2018 period was due to decreased independent testing of new products as our new products reached
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therefore , in order to gain more experience with fovista when administered in combination with eylea or avastin prior to starting a pivotal phase 3 clinical trial , the fovista phase 3 eylea/avastin trial started later ( may 2014 ) than the fovista phase 3 lucentis trials ( august 2013 ) . this time period of approximately nine months allowed us to perform initial preclinical and clinical assessments and ensure compatibility of eylea or avastin when administered in combination with fovista . our key objective and plan is to make fovista commercially available to physicians to treat their patients with wet amd as quickly as possible , subject to a favorable data outcome from the phase 3 clinical program . we are continuing to explore various regulatory filing options . we plan to initially submit a new drug application , or nda , to the u.s. food and drug administration , or fda , for fovista in combination with lucentis based upon data from the two fovista phase 3 lucentis trials and subsequently submit an amendment to the nda with data from the fovista phase 3 eylea/avastin trial , subject to a favorable data outcome from these trials . alternatively , we may choose to file a supplemental nda for fovista in combination with eylea or avastin following fda review of the nda for fovista in combination with lucentis . fovista expansion studies in addition to our ongoing phase 3 clinical program for fovista , we have initiated additional clinical trials to evaluate the potential additional benefits of fovista administered in combination with anti-vegf drugs in wet amd patients . we refer to these trials collectively as the fovista expansion studies . they include : oph1005 fovista anti-fibrosis study . during the third quarter of 2014 , we initiated an open-label phase 2a clinical trial of 1.5 mg of fovista administered in combination with anti-vegf drugs ( lucentis , eylea or avastin ) , to study subretinal fibrosis in wet amd patients . we completed enrollment in this trial in may 2015 with a total of 101 patients enrolled . patients in this trial are followed over a 24-month period . oph1006 fovista treatment burden reduction study . during the fourth quarter of 2014 , we initiated an open-label phase 2a clinical trial of 1.5 mg of fovista administered in combination with anti-vegf drugs ( lucentis , eylea or avastin ) to investigate the potential of fovista to reduce the treatment burden for wet amd patients . we completed enrollment in this trial in 134 october 2015 with a total of 64 patients enrolled . patients in this trial followed over an 18-month period . oph1007 fovista in combination with avastin discontinuous regimen study . during the fourth quarter of 2015 , we initiated a randomized , double-masked , controlled phase 2b clinical trial to evaluate the safety and efficacy of a discontinuous , bi-monthly regimen of 1.5 mg of fovista administered in combination with avastin during the maintenance phase of wet amd treatment compared to a discontinuous , bi-monthly regimen of avastin monotherapy . oph1008 fovista imaging study . during the fourth quarter of 2015 , we initiated an open-label phase 2a clinical trial to investigate the role of multi-modal imaging in assessing anatomic responses to various wet amd treatment regimens of fovista administered in combination with anti-vegf drugs ( lucentis , eylea or avastin ) . we may in the future seek to pursue additional clinical trials to assess the potential therapeutic benefit of fovista in wet amd as well as other ophthalmic conditions . novartis agreement in may 2014 , we entered into a licensing and commercialization agreement with novartis pharma ag , which we refer to as the novartis agreement . under the novartis agreement , we granted novartis exclusive rights under specified patent rights , know-how and trademarks controlled by us to manufacture , from bulk active pharmaceutical ingredient , or api , supplied by us , standalone fovista products and products combining fovista with an anti-vegf drug to which novartis has rights in a co-formulated product , for the treatment , prevention , cure or control of any human disease , disorder or condition of the eye , and to develop and commercialize those licensed products in all countries outside of the united states , which we refer to as the novartis territory . we have agreed to use commercially reasonable efforts to complete our ongoing pivotal phase 3 clinical program for fovista and novartis has agreed to use commercially reasonable efforts to develop a standalone fovista product and a co-formulated product containing fovista and an anti-vegf drug to which novartis has rights , as well as a pre-filled syringe presentation of such products and to use commercially reasonable efforts , subject to obtaining marketing approval , to commercialize licensed products in the novartis territory in accordance with agreed development and marketing plans . novartis paid us a $ 200.0 million upfront fee upon execution of the novartis agreement . under the terms of the novartis agreement , novartis is also obligated to pay us up to an aggregate of $ 130.0 million if we achieve specified patient enrollment-based milestones for our phase 3 clinical program for fovista , $ 50.0 million of which we achieved in september 2014 and received in october 2014 and $ 50.0 million of which we achieved in march 2015 and received in april 2015 , and up to an aggregate of an additional $ 300.0 million upon achievement of specified regulatory milestones , including marketing approval and reimbursement approval in certain countries in the novartis territory . in addition , novartis has agreed to pay us up to an aggregate of an additional $ 400.0 million if novartis achieves specified sales milestones in the novartis territory . novartis also is obligated to pay us royalties with respect to standalone fovista products and combination fovista products that novartis successfully commercializes . story_separator_special_tag we will receive royalties at a mid-thirties percentage of net sales of standalone fovista products and a royalty of approximately equal value for sales of combination fovista products . such royalties are subject to customary deductions , credits , and reductions for lack of patent coverage or market exclusivity . novartis 's obligation to pay such royalties will continue on a licensed product-by-licensed product and country-by-country basis until novartis 's last actual commercial sale of such licensed product in such country . we will continue to be responsible for royalties we owe to third parties on sales of fovista products . we have retained control over the design and execution of our pivotal phase 3 clinical program for fovista and remain responsible for funding the costs of that program , subject to novartis 's 135 responsibility to provide lucentis , an anti-vegf drug to which novartis has rights in the novartis territory , for use in the phase 3 trials already initiated and in other phase 2 and phase 3 clinical trials in the novartis territory initiated following the effective date of the novartis agreement . novartis will have control over , and will be responsible for the costs of , all other clinical trials that may be required to obtain marketing approvals in the novartis territory for licensed products under the agreement . novartis is also responsible for costs associated with co-formulation development , pre-filled syringe development and other development costs in the novartis territory , but excluding regulatory filing fees in the european union for the standalone fovista product , for which we will be responsible . in november 2015 , we were informed by novartis that genentech , inc. , a roche wholly-owned subsidiary , elected to exercise its option to participate in the financial arrangements relating to novartis ' rights under the novartis agreement . roche 's option originated from a pre-existing agreement between roche and novartis . the ex-u.s. commercialization agreement between ophthotech and novartis and its financial terms remained unchanged as a result of the exercise of the opt-in right . we continue to retain sole rights to fovista in the united states . zimura clinical development currently , we have the following ongoing clinical trials for zimura : zimura phase 2/3 ga study . during the fourth quarter of 2015 , we initiated , a randomized , double-masked , controlled phase 2/3 clinical trial to evaluate the safety and efficacy of zimura monotherapy in patients with ga. we plan to enroll approximately 300 patients in the initial stage of the trial . during this stage , patients will be randomized into three groups , and will receive monthly injections of 1.0 mg of zimura per eye , monthly injections of 2.0 mg of zimura per eye or monthly sham injections as the control arm . at month 18 , we plan to conduct an interim analysis to assess the safety and efficacy of zimura compared to sham . upon review of this interim analysis , a determination will be made whether to continue the trial and whether to expand the trial by enrolling additional patients . patients in the trial will receive monthly injections for 24 months . zimura phase 2a wet amd study . during the fourth quarter of 2015 , we initiated an open-label phase 2a clinical trial to evaluate zimura 's potential role when administered in combination with anti-vegf drugs ( lucentis , eylea or avastin ) for the treatment of wet amd . zimura pcv study . in late 2014 , we commenced a very small , open-label phase 2 clinical trial investigating zimura 's potential role when administered in combination with anti-vegf drugs for the treatment of polypoidal choroidal vasculopathy , or pcv , a specific type of wet amd , in patients who do not respond adequately to treatment with anti-vegf monotherapy or for whom anti-vegf monotherapy fails . our initial , preliminary analysis of the data from this trial has not revealed any safety concerns related to zimura . overview of funding history and requirements we were incorporated and commenced active operations in 2007. our operations to date have been primarily limited to organizing and staffing our company , acquiring rights to product candidates , business planning , raising capital and developing fovista and zimura . we acquired our rights to fovista from ( osi ) eyetech , inc. , or eyetech , in july 2007. the acquisition included an assignment of license rights and obligations under an agreement with archemix corp. we have licensed rights to our product candidate zimura from archemix corp. since inception , we have incurred significant operating losses . as of december 31 , 2015 , we had an accumulated deficit of $ 405.5 million . our net loss was $ 105.7 million for the year ended december 31 , 2015 , and $ 116.8 million for the year ended december 31 , 2014 , and we expect to continue to incur significant operating losses in 2016 and potentially 2017. we have not generated any revenues from product sales and have financed our 136 operations primarily through private placements of our preferred stock , venture debt borrowings , funding under our royalty purchase and sale agreement with novo a/s , which we refer to as the novo agreement , our initial public offering of common stock , which we closed in september 2013 , our follow-on public offering of common stock , which we closed in february 2014 , and funds we received under the novartis agreement . we received net proceeds from our initial public offering of $ 175.6 million , after deducting underwriting discounts and commissions and other offering expenses payable by us . we received net proceeds from the follow-on public offering of $ 55.4 million , after deducting underwriting discounts and commissions and other offering expenses payable by us . we have received $ 125.0 million of funding under the novo agreement , which constitutes the full amount of funding under that agreement .
| . the increased costs for our fovista program included higher clinical trial costs relating to increased patient enrollment in the fovista phase 3 clinical trials and the fovista expansion studies , the initiation of additional fovista expansion studies , as well as higher manufacturing costs to support our clinical trials and for api validation activities . in addition , costs for our zimura program increased by approximately $ 3.3 million , with such increase primarily related to increased manufacturing and clinical trial costs . also contributing to the overall increase was a $ 9.0 million increase to share-based compensation costs 146 and a $ 6.3 million increase to personnel expenses associated with additional research and development staffing . general and administrative expenses our general and administrative expenses were $ 44.0 million for the year ended december 31 , 2015 , an increase of $ 10.6 million , compared to $ 33.4 million for the year ended december 31 , 2014. the increase was primarily due to an increase in personnel costs of $ 3.0 million , share-based compensation costs of $ 2.7 million , an increase of $ 1.4 million in facility costs , as well as other costs to support the expansion of our operations , including our public company infrastructure , and the early stages of a commercial organization . also contributing to the increase were increased costs for pre-launch commercialization activities , professional services and consulting fees of $ 2.0 million . interest income interest income for the year ended december 31 , 2015 was $ 1.0 million compared to interest income of $ 0.2 million for the year ended december 31 , 2014. the increase in interest income earned during the year ended december 31 , 2015 was the result of an increase in our average investment portfolio balances , and a change in the mix of our investment portfolio , which previously included only investments in u.s. treasury securities
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this increase in channel count demand is driven by client needs and is necessary in order to produce higher resolution images , increase crew efficiencies and undertake larger scale projects . in response to project-based channel requirements , we routinely deploy a variable number of channels on a variable number of crews in an effort to maximize asset utilization and meet client needs . reimbursable third-party charges related to our use of helicopter support services , permit support services , specialized survey technologies and dynamite energy sources in areas with limited access are another important factor affecting our results . revenues associated with third-party charges continued to decline as a percentage of revenue during 2015 and 2016. we expect that as we continue our operations in the more open terrain of the mid-continent , western and southwestern regions of the u.s. , the level of these third-party charges will continue to be generally below our historical range of 25 % to 35 % of revenue . although the oil and natural gas industry currently appears to be emerging from a severe downturn , and we can make no assurances as to future levels of domestic exploration or commodity prices , we believe opportunities exist for us to enhance our market position by responding to our clients ' continuing desire for higher resolution subsurface images . if economic conditions continue to weaken such that our clients continue to reduce their capital expenditures or if the sustained drop in oil and natural gas prices worsens , it could continue to result in diminished demand for our seismic services , could cause downward pressure on the prices we charge and would affect our results of operations . items affecting comparability of our financial results as discussed above , the merger has been accounted for as a reverse acquisition under which legacy dawson was considered the accounting acquirer of legacy tgc . as such , the historical financial statements of legacy dawson are treated as the historical financial statements of the combined company . the combined company adopted a calendar fiscal year ending december 31. accordingly , the financial results of the company for the years ended december 31 , 2016 and 2015 presented in this form 10‑k are compared to the results for legacy dawson for the three months ended december 31 , 2014 and the year ended september 30 , 2014. in order to aid in the review and comparison of our financial results , we have prepared and presented unaudited financial results as of the year ended december 31 , 2014 even though legacy dawson 's 2014 fiscal year ended on september 30 , 2014. we would not have otherwise prepared or presented our financial results from this period in this fashion . the financial results for the year ended december 31 , 2015 presented in this form 10‑k reflect the operations of legacy dawson for the period january 1 through february 10 , 2015 and the operations of the combined company for the period february 11 through december 31 , 2015. due to the foregoing , our financial results for the three months ended december 31 , 2014 and the year ended september 30 , 2014 are not directly comparable to our financial results for the years ended december 31 , 2016 and 2015 as a result of the combination of the assets and liabilities and results of operations of two previously separate companies and the change in fiscal year end . 21 story_separator_special_tag style= '' display : inline ; '' > depreciation for the year ended december 31 , 2015 totaled $ 47,072,000 compared to $ 40,028,000 for the same period of 2014. the increase in depreciation expense is related to the additional assets acquired in the merger . our total operating costs for the year ended december 31 , 2015 were $ 275,367,000 , representing a 4.2 % increase from the corresponding period of 2014. this change was primarily due to the following : increased salary costs of the combined company resulting from the merger ; an increase in depreciation related to the additional assets acquired in the merger ; and comparability of the periods reported which were the combined company for most of 2015 and legacy dawson for 2014. income taxes . income tax benefit was $ 13,755,000 for the year ended december 31 , 2015 as compared to $ 4,955,000 for the same period of 2014. the effective tax benefit rates for the years ended december 31 , 2015 and 2014 were approximately 34.4 % and 25.2 % , respectively . our effective tax benefit rates increased as compared to the corresponding prior year primarily due to the increase in pre‑tax losses that were partially offset by the effect of permanent tax differences . our effective tax rates differ from the statutory federal rate of 35 % for certain items such as state and local taxes , valuation allowances , non‑deductible expenses and discrete items . use of ebitda ( non‑gaap measure ) we define ebitda as net income ( loss ) plus interest expense , interest income , income taxes , and depreciation and amortization expense . our management uses ebitda as a supplemental financial measure to assess : · the financial performance of our assets without regard to financing methods , capital structures , taxes or historical cost basis ; · our liquidity and operating performance over time in relation to other companies that own similar assets and that we believe calculate ebitda in a similar manner ; and · the ability of our assets to generate cash sufficient for us to pay potential interest costs . we also understand that such data are used by investors to assess our performance . however , the term ebitda is not defined under generally accepted accounting principles ( “ gaap ” ) , and ebitda is not a measure of operating income , operating performance or liquidity presented in accordance with gaap . story_separator_special_tag when assessing our operating performance or liquidity , investors and others should not consider this data in isolation or as a substitute for net income ( loss ) , cash flow from operating activities or other cash flow data calculated in accordance with gaap . in addition , our 23 ebitda may not be comparable to ebitda or similarly titled measures utilized by other companies since such other companies may not calculate ebitda in the same manner as us . further , the results presented by ebitda can not be achieved without incurring the costs that the measure excludes : interest , taxes , and depreciation and amortization . the reconciliation of our ebitda to our net loss and net cash provided by operating activities , which are the most directly comparable gaap financial measures , are provided in the tables below : replace_table_token_4_th replace_table_token_5_th liquidity and capital resources introduction . our principal sources of cash are amounts earned from the seismic data acquisition services we provide to our clients . our principal uses of cash are the amounts used to provide these services , including expenses related to our operations and acquiring new equipment . accordingly , our cash position depends ( as do our revenues ) on the level of demand for our services . historically , cash generated from our operations along with cash reserves and borrowings from commercial banks have been sufficient to fund our working capital requirements and , to some extent , our capital expenditures . cash flows . the following table shows our sources and uses of cash for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_6_th year ended december 31 , 2016 versus year ended december 31 , 2015 net cash provided by operating activities was $ 8,742,000 and $ 20,612,000 for the years ended december 31 , 2016 and 2015 , respectively . this decrease primarily reflects our decline in revenues during the year ended december 31 , 2016. cash received from reductions in our overall operating level of accounts receivable to $ 16,031,000 as of december 31 , 2016 from $ 35,700,000 as of december 31 , 2015 provided $ 19,669,000 of operating cash flows for the year ended december 31 , 2016. such significant reductions in accounts receivable are not likely to occur for the year ended december 31 , 2017. net cash used in investing activities was $ 22,729,000 for the year ended december 31 , 2016 and includes $ 19,250,000 of cash reserves that were invested and cash capital expenditures of $ 8,251,000. these increases in cash used 24 in investing activities were offset by $ 1,922,000 of proceeds from disposal of assets and $ 2,850,000 of proceeds on flood insurance claims . net cash provided by investing activities was $ 15,787,000 for the year ended december 31 , 2015 and includes cash of $ 12,382,000 acquired in the merger , $ 7,750,000 of short term investment maturities that were not reinvested , $ 1,501,000 of proceeds from disposal of assets and $ 1,000,000 of proceeds on flood insurance claims . these increases in cash provided by investing activities were offset by cash capital expenditures of $ 6,846,000. net cash used in financing activities was $ 8,483,000 for the year ended december 31 , 2016 and includes principal payments of $ 7,554,000 on our notes , payments of $ 780,000 under our capital leases , and outflows of $ 149,000 associated with taxes related to stock vesting . net cash used in financing activities was $ 13,606,000 for the year ended december 31 , 2015 and included principal payments of $ 16,348,000 on our notes , payments of $ 1,535,000 under our capital leases , and outflows of $ 867,000 associated with taxes related to stock vesting offset by proceeds of $ 5,144,000 from our credit agreement ( as defined below ) . year ended december 31 , 2015 versus year ended december 31 , 2014 net cash provided by operating activities was $ 20,612,000 and $ 30,472,000 for the years ended december 31 , 2015 and 2014 , respectively . this decrease primarily reflects our decline in revenues during the year ended december 31 , 2015. net cash provided by investing activities was $ 15,787,000 for the year ended december 31 , 2015 and represented cash of $ 12,382,000 acquired in the merger , $ 7,750,000 of short-term investment maturities that were not reinvested , $ 1,501,000 of proceeds from disposal of assets and $ 1,000,000 of proceeds on flood insurance claims . these increases in cash provided by investing activities were offset by cash capital expenditures of $ 6,846,000. net cash used in investing activities was $ 13,438,000 for the year ended december 31 , 2014 and included cash capital expenditures of $ 14,001,000 and $ 2,750,000 of cash reserves invested . these decreases in cash used in investing activities were offset by $ 3,313,000 of proceeds from disposal of assets . net cash used in financing activities was $ 13,606,000 for the year ended december 31 , 2015 and included principal payments of $ 16,348,000 on our notes , payments of $ 1,535,000 under our capital leases , and outflows of $ 867,000 associated with taxes related to stock vesting offset by proceeds of $ 5,144,000 from our credit agreement ( as defined below ) . net cash used in financing activities for the year ended december 31 , 2014 was $ 13,870,000 , primarily comprised of principal payments of $ 10,293,000 on term notes , payments of $ 1,014,000 under our capital leases , and cash dividends paid of $ 2,581,000. capital expenditures . during 2016 , we made capital expenditures of $ 9,793,000. we limited our capital expenditures to necessary maintenance capital requirements . the board of directors approved an initial 2017 budget of $ 10,000,000 for capital expenditures , which is again limited primarily to necessary maintenance capital requirements and incremental recording channel replacement or increase .
| depreciation for the year ended december 31 , 2016 totaled $ 44,283,000 compared to $ 47,072,000 for the same period of 2015. the decrease in depreciation expense is a result of limiting capital expenditures to necessary maintenance capital requirements in recent years . our depreciation expense is expected to remain flat during 2017 primarily due to limited capital expenditures to maintain our existing asset base . our total operating costs for the year ended december 31 , 2016 were $ 182,766,000 , representing a 33.6 % decrease from the corresponding period of 2015. this change was primarily due to the factors described above . income taxes . income tax benefit was $ 6,449,000 for the year ended december 31 , 2016 as compared to $ 13,755,000 for the same period of 2015. the effective tax benefit rates for the years ended december 31 , 2016 and 2015 were approximately 13.9 % and 34.4 % , respectively . our effective tax rates decreased as compared to the corresponding period from the prior year primarily due to the recording of a valuation allowance during the year against our federal net operating loss deferred tax asset and an increase in our valuation allowance against our state net operating loss deferred tax assets . our effective tax rates differ from the statutory federal rate of 35 % for certain items such as state and local taxes , valuation allowances , non‑deductible expenses and discrete items . 22 year ended december 31 , 2015 versus year ended december 31 , 2014 operating revenues . our operating revenues for the year ended december 31 , 2015 were $ 234,685,000 as compared to $ 244,304,000 for the same period of 2014. the decrease was primarily due to the reduction in utilization rates in 2015 as demand for our services has decreased as a result of decreasing and uncertain commodity prices and reduced client expenditures . severe weather conditions in several areas of operation throughout 2015 also led to short‑term project delays . reimbursed third‑party charges as a
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43 critical accounting policies and estimates the accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures , which have been prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosure of contingent assets and liabilities . we evaluate our estimates , judgments and the policies underlying these estimates on a periodic basis , as situations change , and regularly discuss financial events , policies , and issues with members of our audit committee and our independent registered public accounting firm . we routinely evaluate our estimates and policies regarding revenue recognition , administration , inventory and manufacturing , taxes , stock-based compensation , research and development , consulting and other expenses and any associated liabilities . story_separator_special_tag ( total , or when split into abdominal and peripheral ) compared with placebo . the range of doses studied and associated results complete the dose response evaluation required to inform phase 3 dose selection . an analysis of the proportion of subjects achieving levels of percent reduction in attacks was also performed ; this analysis compared on-study attack rate to qualifying attack rate for each subject . response levels were defined as reductions of ≥50 % , ≥70 % , or ≥90 % . results for all dose groups indicated that the dose group with the highest proportion of responders using each definition was the 125 mg group , and was 4 to 5 times greater than the proportion of responders in the placebo group . the proportion of responders in the 62.5 mg group was similar to placebo . in addition , we performed an exploratory ad hoc analysis of the placebo , 62.5 mg qd and 125 mg qd dose groups to examine the relationship of change in attack rate to dose and the effect of achieving target drug levels . the 125 mg group had a mean change in attack rate of -0.73 per week ( improvement from qualifying ) compared to -0.07 attacks per week for placebo and -0.24 attacks per week for the 62.5 mg qd dose group . the effect of achieving the target drug level ( equivalent to 4 times ec50 against plasma kallikrein ) at trough measured at steady state on study day 15 was also explored for subjects randomized to the placebo , 62.5 mg and 125 mg levels . placebo subjects were assigned a zero drug level value . subjects were categorized as achieving or not achieving the target level and the proportion of subjects in each of these two categories who had responses of reductions in ≥50 % , ≥70 % , or ≥90 % in attack rate was compared and the odds ratios calculated . the odds for subjects achieving ≥50 % , ≥70 % , or ≥90 % responses if the target drug level was met or exceeded were 5.6 , 12.9 and 26.4 times higher respectively than for subjects who did not meet or exceed target drug level . a significant increase in the proportion of attack-free subjects was observed in the 125 mg qd dose group compared to placebo ( 46 % versus 10 % , p= 0.033 ) . furthermore , a clinically important and statistically significant improvement in patient quality of life total score , measured using the ae-qol ( quality of life ) instrument , was seen in the 125 mg qd group compared to placebo ( p < 0.001 ) . the mean improvement in the 125 mg qd group was more than four times the minimum clinically important difference . oral bcx7353 once-daily for 28 days was generally safe and well tolerated in subjects with hae . no new clinically significant safety findings were seen in part 3 of the trial from the two earlier component parts of the trial . overall in the entire trial , there was one serious adverse event of moderate gastrointestinal infection that was determined by the investigator not to be drug-related . study drug was discontinued before day 28 in three subjects in the bcx7353 350 mg treatment arm ( unrelated pre-existing liver disorder ; related gastroenteritis with liver disorder ; and related vomiting/abdominal cramps ) . the most common treatment-emergent aes in descending order of frequency were the common cold , headache , diarrhea , nausea and abdominal pain . gastrointestinal aes were infrequent at the 125 mg and 62.5 mg dose levels , and there were no clinically significant laboratory abnormalities at these dose levels , though increases in liver enzymes were observed in several subjects at higher dose levels . adverse events in the gastrointestinal system organ class were more frequent in the 350 mg qd and 250 mg qd dose groups compared to placebo . elevated liver enzymes were reported in several subjects , and an analysis of liver enzyme safety tests including alanine aminotransferase ( “ alt ” ) levels showed that of 4 subjects who had elevations of alt to more than or equal to 3 times the upper limit of normal ( “ uln ” ) , all 4 had prior exposure to androgens , 3 were in the 350 mg qd group , 1 was in the 250 mg qd group , and 3 had baseline ( prior to study drug administration ) elevations in alt of close to or greater than 3 times the uln . 45 steady state bcx7353 plasma levels and kallikrein inhibition levels were consistent with previous analyses . steady state trough drug levels ( 24 hours after dosing ) exceeded the proposed target threshold for efficacy of 4 times the 50 % effective concentration ( ec 50 ) of 9ng/ml in 0 % , 64 % , 100 % and 100 % of subjects at the 62.5 mg , 125 mg , 250 mg and 350 mg dose levels , respectively . story_separator_special_tag in the fourth quarter of 2017 , we completed regulatory interactions with the fda and ema and reached agreement on the phase 3 program requirements to support nda and maa submissions for prophylactic treatment of hae with bcx7353 . based upon this agreement , we began screening patients in the apex-s and apex-2 clinical trials , which are the significant aspects of the remaining development program . accordingly , we have initiated a 24-week randomized , double-blind , placebo-controlled phase 3 clinical trial studying two doses of bcx7353 ( “ apex-2 ” ) . patients will roll-over into a 24-week safety extension . separately , we initiated a long-term safety trial ( “ apex-s ” ) , which will enroll at least 160 patients who will be randomized to the two doses of bcx7353 included in apex-2 . subjects will remain on study-drug for 48 weeks . on february 28 , 2018 , we announced that we had dosed the first patient in the apex- s trial . we have received orphan drug status for bcx7353 . zenith-1 trial : on august 2 , 2017 , we announced the dosing of the first subject into zenith-1 , a clinical trial studying up to three dosage strengths of a liquid formulation of bcx7353 given as a single oral dose for the acute treatment of angioedema attacks in patients with hae . zenith-1 is a randomized , double-blind , placebo-controlled , adaptive dose-ranging trial of the efficacy , safety and tolerability of bcx7353 for treatment of acute angioedema attacks , and will enroll up to 60 subjects with hae . blinded study drug is being dosed as an oral liquid after onset of symptoms , for up to 3 attacks in each subject , with each subject receiving both bcx7353 ( for 2 attacks ) and placebo ( for one attack ) in a randomized sequence . the trial is structured with up to 3 consecutive cohorts testing single doses of 750 mg 36 subjects ) , 500 mg ( up to 12 subjects ) and 250 mg ( up to 12 subjects ) , starting with 750 mg. efficacy assessments include patient-reported composite visual analogue scale ( “ vas ” ) scores , patient global assessment , change in symptoms , and use of rescue medication . treatment effect will be assessed on accumulating results , beginning after 12 subjects have completed study in the first cohort ( 750 mg ) , by comparing the proportion of bcx7353-treated and placebo-treated attacks which have a stable or improved composite vas at 4 hours post dose . enrollment has gone well with the trial thus far , and we have completed enrollment in the 750 mg cohort and have begun enrolling patients in the 500 mg cohort . galidesivir ( formerly bcx4430 ) after multiple discussions with the fda , niaid/hhs , and barda/hhs regarding the most appropriate future development path for galidesivir , we will focus our efforts on marburg virus . while both ebola and marburg infections represent significant medical countermeasure ( “ mcm ” ) emergencies or threats to the united states , we have concluded the greatest unmet medical need is now to develop a mcm to address the threat of marburg infection . accordingly , we plan to open an ind for galidesivir i.v . for post-exposure prophylaxis and treatment of marburg infection . results of operations year ended december 31 , 2017 compared to 2016 total 2017 revenues decreased to $ 25.2 million as compared to 2016 revenues of $ 26.4 million . the decrease in 2017 revenue was primarily due to lower collaborative revenue under u.s. government development contracts as well as lower revenue from product sales to corporate partners . these decreases were largely offset by $ 7.0 million of milestone payments associated with u.s. pediatric and canadian regulatory approvals of rapivab . revenues in 2017 included $ 1.5 million of peramivir product revenue from inventory sales to our commercial partners , $ 10.5 million of royalty revenue from sul , shionogi and green cross associated with sales of peramivir in the united states , japan , korea and taiwan , $ 4.7 million of reimbursement of collaborative expenses from niaid/hhs and barda/hhs development contracts and $ 8.5 million associated with milestone revenue and collaborative revenue amortization from other corporate partnerships . revenues in 2016 included $ 2.3 million of peramivir product revenue from inventory sales to our commercial partners , $ 9.7 million of royalty revenue from sul , shionogi and green cross associated with sales of peramivir in the united states , japan , korea and taiwan , $ 9.5 million of reimbursement of collaborative expenses from niaid/hhs and barda/hhs related to the development of galidesivir , $ 2.9 million of reimbursement of collaborative expenses from barda/hhs related to the development of rapivab and $ 1.8 million associated with collaborative revenue amortization from other corporate partnerships . with the expiration of barda/hhs peramivir contract , unless we enter into new government contracts , all significant and future reimbursement of collaborative expenses will be under the niaid/hhs and barda/hhs galidesivir development contracts . our future rapivab revenue will be difficult to predict because of volatility in prevalence , timing and severity of influenza season to season as well as variable commercialization efforts and resources dedicated to our products by our collaborative partners . research and development ( “ r & d ” ) expenses increased to $ 67.0 million in 2017 from $ 61.0 million in 2016. the increase in 2017 r & d expenses , as compared to 2016 , reflects increased spending on our hae program partially associated with the achievement of a vesting condition pursuant to outstanding performance-based stock options related to the successful completion of the apex-1 clinical trial , as well as an increase in r & d personnel . in addition , there was a higher level of preclinical development effort and expense dedicated to our two preclinical programs , including our fop program , than in previous years . these increases were somewhat offset by a decrease in galidesivir expenses under u.s.
| on january 8 , 2017 , we announced that health canada approved rapivab ® for treatment of acute , uncomplicated influenza in canada . the product is not currently available in canada . we and seqirus have entered into the formal dispute resolution process under the license agreement to resolve decisions related to the collaboration . on january 30 , 2017 , we announced that the european medicines agency ( “ ema ” ) accepted our marketing authorization application ( “ maa ” ) for treatment of symptoms typical of influenza in adults 18 years and older . the acceptance of the maa begins the review process by the ema under the centralized licensing procedure for all 28 member states of the european union , norway and iceland . on february 22 , 2018 , the chmp adopted a positive opinion for the treatment of uncomplicated influenza in adults and children from the age of 2 years and thereby recommended the granting of a marketing authorization for alpivab ( peramivir ) . the final ema decision is expected in the second quarter of 2018. on september 21 , 2017 , we announced that the u.s. food and drug administration ( “ fda ” ) had approved a supplemental new drug application for rapivab ( peramivir injection ) , extending its availability for the treatment of acute uncomplicated influenza to pediatric patients 2 years and older who have been symptomatic for no more than two days . bcx7353 on september 5 , 2017 , we announced final results from the phase 2 apex-1 clinical trial in hae patients . this final analysis evaluated data from all patients in parts 1 , 2 and 3 of the trial and evaluated four doses of bcx7353 ranging from 62.5 mg up to 350 mg for 28 days . the primary efficacy endpoint of apex-1 was the number of angioedema attacks . efficacy analyses were conducted for hae attacks reported over the entire dosing interval ( days 1 through 28 ) and during the dosing period in which plasma concentrations of bcx7353 should be at steady-state conditions ( days 8 through 28 ) . secondary efficacy endpoints
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