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we strongly encourage investors to visit our website : www.boviemedical.com to view the most current news and to review our filings with the securities and exchange commission . story_separator_special_tag utilities , rents , maintenance , office and computer supplies of approximately $ 208,000 , offset by decreases in regulatory of $ 122,000 , administrative costs of $ 94,000 , professional services of $ 159,000 and other costs of $ 84,000. selling , general and administrative costs increased by 15.7 % or approximately $ 909,000 for the period ended december 31 , 2014 compared with the same period in 2013. we experienced increases in advertising , marketing , shows and travel costs of approximately $ 385,000 related largely to the branding and marketing of j-plasma , sales commissions of approximately $ 165,000 resulting from the increase in sales , an increase in general insurance of $ 126,000 , regulatory costs of approximately $ 175,000 , non-sales related travel and administrative costs of approximately $ 292,000 , and utilities , rents , maintenance , office and computer supplies of approximately $ 142,000. professional service expenses declined approximately $ 602,000 primarily due to a reduction in litigation related legal costs . 27 other income and ( expenses ) replace_table_token_9_th interest expense total other expense increased by approximately $ 7,000 or 0.5 % for the year ended december 31 , 2015 as compared with the same period in 2014. total other income expense decreased by approximately $ 1.3 million or 89.5 % for the year ended december 31 , 2014 as compared with the same period in 2013. the decrease was mainly caused by the non-recurring issuance costs and fees related the warrants issued as part of the equity financing transaction mentioned below . change in fair value of derivative liabilities on december 13 , 2013 , we entered into a securities purchase agreement pursuant to which we issued 3,500,000 shares of our newly designated series a 6 % convertible preferred stock with a stated value of $ 2.00 per share and 5,250,000 warrants to purchase our common stock , at an exercise price of $ 2.387 per share . we also issued 525,000 warrants to the placement agent . the warrants were accounted for as derivative financial instruments at fair value and are re-valued each period . on march 17 , 2015 , we completed transactions contemplated under an exchange agreement ( the `` exchange agreement '' ) entered into on march 11 , 2015 with certain investors ( the `` investors '' ) with respect to which great point partners , llc acts as investment manager . pursuant to the terms of the exchange agreement , we issued 3,588,139 shares of our series b convertible preferred stock ( the `` series b preferred stock '' ) in exchange for 3,500,000 shares of our series a 6 % convertible preferred stock and warrants to purchase up to 5,250,000 shares of our common stock in the aggregate which were previously issued in conjunction with the sale of our series a 6 % convertible preferred stock to the investors in a december 13 , 2013 offering , as well as accrued and unpaid preferred dividends . the series b preferred stock is convertible into an aggregate of 7,176,278 shares of our common stock , upon the terms set forth in the certificate of designation . during the period ended september 30 , 2015 , the holders of series b preferred stock exercised their conversion rights on 1,612,500 shares of series b preferred stock . the remaining series b stock at december 31 , 2015 is convertible into an aggregate of 3,951,278 shares of our common stock . 28 at december 31 , 2015 , the placement agent warrants were valued at $ 267,331 , and we recognized an aggregate gain related to their change in value of $ 730,891. at december 31 , 2014 , the investor and placement agent warrants were valued at $ 10,547,250 and $ 998,222 , respectively , and we recognized an aggregate loss related to their change in value of $ 6,486,572. in 2010 , we issued warrants to investors and to our placement agent in connection with an equity offering . the warrants issued to the investors contained anti-dilution protection in the event we issued securities at a price lower than the exercise price of the warrants . as a result of the issuance of our series a 6 % convertible preferred stock on december 13 , 2013 , the exercise price of the investor warrants issued in 2010 was reduced from $ 6.00 per share to $ 2.00 per share and the number of warrants was increased proportionately . the 2010 investor and placement agent warrants , which are accounted for as derivative financial instruments at fair value , were valued at $ 1,067,954 and $ 689,535 at december 31 , 2014 and december 31 , 2013 , respectively , and we recognized a net loss for the year ended december 31 , 2014 of $ 378,419. during 2015 , 628,572 warrants were exercised , resulting in proceeds of $ 1.2 million . the unexercised warrants expired on april 18 , 2015. income taxes the income tax provision is related to foreign and certain state income taxes . we have recorded a full valuation allowance against the net deferred tax assets with a finite life . a valuation allowance is required to be provided to reduce the deferred tax assets to a level which , more likely than not , will be realized . management evaluated the positive and negative evidence in determining the realizability of the net deferred tax asset . in determining the need for valuation allowance , we reviewed historic operating results , updated 2015 actual results , as well as future income forecasts based on the projections , management concluded that it was not more likely that the company should realize its net deferred tax assets through future operating results and the reversal of taxable temporary differences . story_separator_special_tag if in the future we determine that we will be able to realize any of the net deferred tax assets , we will make adjustment to the valuation allowance , which would increase our income in the period that the determination is made . liquidity and capital resources our working capital at december 31 , 2015 was approximately $ 17.9 million compared with $ 11.6 million at december 31 , 2014. accounts receivable days sales outstanding were 34 days and 36 days at december 31 , 2015 and 2014 , respectively . the number of days sales in inventory , which is the total inventory available for production divided by the 12-month average cost of materials , decreased 36 days to 177 days equating to an inventory turn ratio of 1.85 at december 31 , 2015 from 213 days and an inventory turn ratio of 1.53 at december 31 , 2014. the lower number of days sales in inventory which translated into a higher inventory turnover rate is mainly due to the write off of excess and obsolete inventory , along with an increase in sales related to lighting product lines which are non-stocked items . for the year ended december 31 , 2015 , net cash used in operating activities was approximately $ 5.8 million compared with net cash used by operating activities of approximately $ 417,000 in 2014. the change was mainly attributable to the reduction in the fair value of derivative liabilities as a result of the extinguishment of warrants of $ 5.5 million and the change in current assets and liabilities of $ 182,000. net cash used in investing activities was approximately $ 921,000 for the year ended december 31 , 2015 compared to net cash used in investing activities was approximately $ 630,000 during 2014. the change was due mainly to an increase in overall purchases of equipment , molds and test fixtures , and goodwill associated with the acquisition of bovie bulgaria . 29 cash provided by financing activities of approximately $ 12.8 million during the year ended december 31 , 2015 , attributable to the proceeds from the public offering and the exercise of warrants , compared to cash used by financing activities of approximately $ 1.14 million during year ended december 31 , 2014. on march 20 , 2014 , the company entered into a transaction with the bank of tampa , a florida banking corporation ( `` lender '' ) wherein lender extended to the company a mortgage loan in the principal amount of $ 3,592,000 ( the `` loan '' ) . the obligations under the loan are secured by a first priority mortgage and security interest in the company 's clearwater , florida facility as well as an assignment of the company 's accounts receivable . in addition , the company pledged an interest in a certificate of deposit in the amount of $ 898,000 as additional collateral which declines on a pro rata basis as principal is paid . the initial maturity date of the loan is march 20 , 2017 ; however the company has an option to extend the maturity date until march 20 , 2022. borrowings under the loan bear interest at libor plus 3.5 % , with a fixed monthly principal payment of $ 19,956. the interest rate at december 31 , 2015 was 3.744 % . the loan documents contain customary financial covenants , including a covenant that the company maintain a minimum liquidity of $ 750,000. although there is no debt service coverage ratio ( as defined in the loan agreement ) for the initial term of the loan , should the company desire to extend the loan beyond three years , the company must maintain a debt service coverage ratio for each of the preceding four quarters of not less than 1.0 to 1.0. in the event the loan is extended , the debt service coverage ratio must not be less than 1.2 to 1.0. simultaneously with the closing of the loan , the company redeemed those certain industrial revenue bonds issued by the pinellas county industrial development authority and satisfied its obligations to its prior lender , pnc bank , n.a ( `` pnc bank '' ) . in connection with the redemption of the bonds , the company paid pnc bank $ 3,188,332.51 to satisfy its existing credit facility . in connection with the termination of the interest rates swap agreement with pnc bank , the company paid pnc bank an additional $ 410,275. our future contractual obligations for agreements with initial terms greater than one year and agreements to purchase materials in the normal course of business are summarized as follows ( in thousands ) : replace_table_token_10_th we may choose to access the capital markets to raise additional capital . to facilitate this and to allow us to quickly react should we so decide , we filed a shelf registration statement with the securities and exchange commission in december 2014. critical accounting estimates in preparing the consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( u.s. gaap ) , we have adopted various accounting policies . our most significant accounting policies are disclosed in note 2 to the consolidated financial statements . 30 the preparation of the consolidated financial statements in conformity with u.s. gaap requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . our estimates and assumptions , including those related to inventories , intangible assets , property , plant and equipment , legal proceedings , research and development , warranty obligations , product liability , fair valued liabilities , sales returns and discounts , stock based compensation and income taxes are updated as appropriate , which in most cases is at least quarterly .
| in 2015 , mckesson accounted for 18.6 % and national distribution & contracting inc. accounted for 13.3 % of our sales . in 2014 , national distribution & contracting inc. accounted for 13.9 % of our sales . in 2013 , national distribution & contracting inc. accounted for 13.1 % , pss world medical accounted for 10.9 % and mckesson medical surgical accounted for 10.3 % of our sales . gross profit replace_table_token_4_th our gross profit margin as a percentage of sales increased by 10 % or approximately $ 3.6 million during the year ended december 31 , 2015 compared with the same period in 2014. this comparable increase was attributable to excess and obsolete inventory write downs of approximately $ 2.0 million in 2014 , which reduced margins in that year . our gross profit margin as a percentage of sales decreased by 6.4 % or approximately $ 206,000 during the year ended december 31 , 2014 compared with the same period in 2013. this decrease was mainly attributed to a write down of excess and obsolete inventory . 25 we do not anticipate any material impact to our gross profit , material costs , or other costs as a result of the effect of inflation or any material impact of changing prices on net revenue . other costs and expenses research and development replace_table_token_5_th our expenditures for r & d related activities increased by 52.5 % or approximately $ 744,000 for the year ended december 31 , 2015 compared with the same period in 2014. this was mainly caused by increased labor and material costs of approximately $ 643,000 and an increase in consulting costs of approximately $ 101,000 as we continue to accelerate our r & d product pipeline . our expenditures for r & d related activities increased by 12.4 % or approximately $ 156,673 for the year ended december 31 , 2014 compared with the same period in 2013. this was mainly caused by an increase in r & d consulting costs of approximately $ 117,400 and increased labor and material costs of approximately
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the situation surrounding covid-19 remains fluid , and we are actively managing our response and assessing potential impacts to our financial condition and other operations , employees , results of operations and our ability to access capital . the magnitude of any such adverse impact can not currently be determined due to numerous uncertainties surrounding covid-19 ( refer to item 1a . risk factors for related risks ) . components of operating results revenue revenue recognized during the periods presented relate to the collaboration and license agreement ( the “ hanmi agreement ” ) that we entered into with hanmi pharmaceutical ltd. ( “ hanmi ” ) in december 2019. research and development expenses we expense both internal and external research and development costs as such expenses are incurred . we track the external research and development costs incurred for each of our drug candidates . however , we do not track our internal research and development costs by drug candidate , as the related efforts and their costs are typically spread across multiple drug candidates . we account for non-refundable advance payments for goods or services that will be used in future research and development activities as expenses when the goods have been received or when the service have been performed rather than when the payment is made . clinical trial costs are a component of research and development expenses . we expense costs for our clinical trial activities performed by third parties , including clinical research organizations ( “ cros ” ) and other service providers , as they are incurred , based upon estimates of the work completed over the life of the individual study in accordance with the associated agreements . we use information received from internal personnel and outside service providers to estimate the clinical trial costs incurred . external research and development expenses consist primarily of costs incurred for the development of our drug candidates and include : costs incurred under agreements with cros , investigative sites and consultants to conduct our clinical trials and preclinical and non-clinical studies ; costs to acquire , develop and manufacture supplies for clinical trials and other studies , including fees paid to contract manufacturing organizations ( “ cmos ” ) ; and costs related to compliance with drug development regulatory requirements . internal research and development costs include : salaries and related costs , including stock-based compensation and travel expenses , for personnel in our research and development functions ; and depreciation and other allocated facility-related and overhead expenses . 107 we expect our research and development expenses to increase substantially during the next few years as we seek to complete existing and initiate additional clinical trials , pursue regulatory approval of flx475 and rpt193 and advance other programs into clinical development . over the next few years , we expect our preclinical , clinical and contract manufacturing expenses to increase significantly relative to what we have incurred to date . predicting the timing or the final cost to complete our clinical program or validation of our manufacturing and supply processes is difficult and delays may occur because of many factors . general and administrative expenses general and administrative expenses consist principally of personnel-related costs including payroll and stock‑based compensation for personnel in executive , finance , human resources , business and corporate development and other administrative functions ; professional fees for legal , consulting and accounting services ; rent and other facilities costs , depreciation and other general operating expenses not otherwise classified as research and development expenses . we anticipate that our general and administrative expenses will increase substantially during the next few years as a result of staff expansion and additional occupancy costs , as well as costs associated with being a public company , including higher professional fees for legal , consulting and accounting services , investor relations costs , higher insurance premiums and other compliance costs . other income , net our cash and cash equivalents and marketable securities are invested in money market funds , corporate debt securities , commercial paper and u.s. government agency securities . other income , net , consists primarily of interest earned on our cash and cash equivalents and marketable securities and remeasurement gains and losses on foreign currency transactions . critical accounting policies , significant judgments and use of estimates our consolidated financial statements have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of these consolidated 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 consolidated financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our 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 accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . while our significant accounting policies are described in the notes to our consolidated financial statements , we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results . revenue our license and collaborative agreements consist of license , milestone and royalty payments generated through agreements with strategic partners for the development and commercialization of certain product candidates . the terms of an agreement may include a non-refundable upfront fee , payments based upon achievement of milestones and royalties on net product sales . story_separator_special_tag if a portion of the nonrefundable upfront fee or other payments received is allocated to continuing performance obligations under the terms of an agreement , such portion is recorded as deferred revenue and recognized as revenue when ( or as ) the underlying performance obligation is satisfied . 108 we recognize revenue when we transfer promised goods or services to customers or counterparties in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . in determining the appropriate amount of revenue to be recognized , we perform the following steps : ( i ) identification of the promised goods or services in the agreement ; ( ii ) determination of whether the promised goods or services are performance obligations , including whether they are distinct in the context of the agreement ; ( iii ) measurement of the transaction price , including any constraint on variable consideration ; ( iv ) allocation of the transaction price to performance obligations based on estimated selling prices ; and ( v ) recognition of revenue when ( or as ) we satisfy each performance obligation . licenses : if a license to our intellectual property is determined to be distinct from the other performance obligations identified in an agreement , we will recognize revenue from the nonrefundable , upfront fee allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license . if a license is bundled with other performance obligations , we utilize judgment to assess the nature of the combined performance obligations to determine whether the combined 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 evaluate the measure of progress each reporting period and , if necessary , adjust the measure of performance and related revenue recognition . milestone payments : if an agreement includes event-based or milestone payments , we evaluate whether the events or milestones are considered likely to be achieved and estimate the amount to be included in the transaction price using the most likely amount method . if it is unlikely that a significant revenue reversal would occur , the value of the associated event-based or milestone payments is included in the transaction price . event-based or milestone payments that are not within our control are not included in the transaction price until they become likely to be achieved . royalties : if an agreement includes sales-based royalties and the license is deemed to be the predominant item to which the royalties relate , we will recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . as of december 31 , 2020 and 2019 , we recorded deferred revenue of $ 5.0 million and $ 4.0 million , respectively , on the consolidated balance sheet related to our license and collaboration agreement with hanmi . as of december 31 , 2020 we recognized revenue of $ 5.0 million . research and development expenses research and development costs are expensed as incurred . research and development costs consist primarily of salaries and benefits of research and development personnel , costs related to research activities , preclinical studies , clinical trials , drug manufacturing and allocated overhead and facility-related costs . we account for non-refundable advance payments for goods or services that will be used in future research and development activities as expenses when the related goods have been received or when the service has been performed rather than when the payment is made . clinical trial costs are a component of research and development expenses . we expense costs for our clinical trial activities performed by third parties , including cros and other service providers , as they are incurred , based upon estimates of the work completed over the life of the individual study in accordance with associated agreements . we use information we receive from internal personnel and outside service providers to estimate the progress of services performed and the associated clinical trial costs incurred . 109 stock-based compensation expense we account for stock-based compensation arrangements with employees and non-employees in accordance with asc 718 , stock compensation . stock-based awards issued by us have been primarily stock options with time-based vesting or performance-based vesting . asc 718 requires the recognition of compensation expense , using a fair value-based method , for costs related to all stock-based awards . to determine the grant-date fair value of stock-based awards with time-based vesting , we utilize the black-scholes option pricing model , which is impacted by the fair value of our common stock as well as other variables including , but not limited to , expected term that stock-based awards will remain outstanding , expected common stock price volatility over the term of the stock-based awards , risk-free interest rates and expected dividends . prior to our initial public offering ( “ ipo ” ) , there had been no public market for our common stock . as such , the estimated fair values of our common stock underlying our stock-based awards were determined at each grant date by our board of directors , with input from management , based on the information known to us on the grant date , including a review of any recent events and their potential impact on the estimated per share fair value of our common stock . valuations of our common stock were prepared by a third-party valuation firm in accordance with the guidance outlined in the american institute of certified public accountants technical practice aid , valuation of privately held company equity securities issued as compensation ( the “ practice aid ” ) .
| general and administrative expenses general and administrative expenses increased $ 4.1 million , or 47 % , to $ 12.8 million for the year ended december 31 , 2020 from $ 8.7 million for the year ended december 31 , 2019. the increase was primarily due to an increase of $ 1.2 million in insurance and corporate fees as a result of being a public company , an increase of $ 3.0 million in stock-based compensation expense , an increase of $ 0.4 million in higher personnel and other costs and an increase of $ 0.3 million in facilities cost , offset by a decrease of 0.4 million in professional services and $ 0.4 million in travel costs due to travel restrictions resulting from the covid-19 pandemic . we expect our general and administrative expenses to increase substantially during the next few years as a result of staff expansion , costs associated with being a public company , including higher insurance premiums , legal and accounting fees and other compliance costs associated with operating a public company . other income , net other income , net was $ 1.3 million for both years ended december 31 , 2020 and 2019. although our cash balance increased during 2020 , interest rates declined during 2020 , resulting in comparable other income , net for both years . liquidity and capital resources we had cash and cash equivalents and marketable securities of $ 111.5 million and working capital of $ 103.9 million as of december 31 , 2020. our cash and cash equivalents and marketable securities are invested in money market funds , corporate debt securities , commercial paper and u.s. government agency securities . since inception , we have incurred net losses and negative cash flows from operations . at december 31 , 2020 , we had an accumulated deficit of $ 214.8 million . in addition , we expect to incur substantial costs in order to conduct research and development activities necessary to develop and commercialize a product . additional capital will be needed to undertake these activities and we intend to raise such capital through the issuance of additional equity , borrowings
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such expenses include costs for moving facilities to low-cost locations , starting up plants after relocation , or downsizing operations because of changing economic conditions , and other costs resulting from asset redeployment decisions . shutdown costs include severance , benefits , stay bonuses , lease and contract terminations , asset write-downs , costs of moving fixed assets , moving , and relocation costs . vacant facility costs include maintenance , utilities , property taxes , and other costs . we continue to focus on our efforts to reduce cost and improve productivity across our businesses . our refrigeration division and businesses that serve the oil and gas industry have both been negatively impacted by reduced customer spending and customer consolidation . due to these changing market conditions and consolidations we have and will continue to implement appropriate cost reductions to align our costs to appropriate sales levels . we continue to evaluate our products and production processes and expect to execute similar cost reductions and restructuring programs on an ongoing basis . because of the diversity of the company 's businesses , end user markets and geographic locations , management does not use specific external indices to predict the future performance of the company , other than general information about broad macroeconomic trends . each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to their businesses and which could impact their performance . those units report pertinent information to senior management , which uses it to the extent relevant to assess the future performance of the company . a description of any such material trends is described below in the applicable segment analysis . we monitor a number of key performance indicators ( kpis ) including net sales , income from operations , backlog , effective income tax rate , gross profit margin , and operating cash flow . a discussion of these kpis is included in the discussion below . we may also supplement the discussion of these kpis by identifying the impact of foreign exchange rates , acquisitions , and other significant items when they have a material impact on the discussed kpi . we believe that the discussion of these items provides enhanced information to investors by disclosing their consequence on the overall trend in order to provide a clearer comparative view of the kpi where applicable . for discussion of the impact of foreign exchange rates on kpis , the company calculates the impact as the difference between the current period kpi calculated at the current period exchange rate as compared to the kpi calculated at the historical exchange rate for the prior period . for discussion of the impact of acquisitions , we isolate the effect to the kpi amount that would have existed regardless of our acquisition . sales resulting from synergies between the acquisition and existing operations of the company are considered organic growth for the purposes of our discussion . unless otherwise noted , references to years are to fiscal years . consolidated results from continuing operations ( in thousands ) : replace_table_token_6_th net sales for the fiscal year 2016 decreased by $ 20.6 million , or 2.7 % , when compared to the prior year . the decrease is driven by $ 17.2 million , or 2.3 % of organic sales declines and $ 15.0 million , or 1.9 % , of unfavorable foreign exchange partially offset by $ 11.7 million , or 1.5 % from the northlake and enginetics acquisitions . the organic sales decrease was primarily driven by lower sales to the refrigeration and oil and gas markets , partially offset by higher sales to the automotive and other markets . we anticipate continued soft demand in the refrigeration and oil and gas markets during the first half of fiscal year 2017. we expect unfavorable foreign exchange sales impacts in 2017 primarily associated with declines in the british pound due to the brexit vote . during fiscal year 2016 , 3.0 % of our consolidated revenue was recorded in the u.k. net sales for the fiscal year 2015 increased by $ 56.0 million , or 7.8 % , when compared to the prior year . the increase was driven by $ 34.2 million or 4.8 % of organic sales growth from three of our segments , $ 38.2 million or 5.3 % of acquisitions from enginetics , ultrafryer , and planar partially offset by unfavorable foreign exchange of $ 16.4 million or 2.3 % primarily from the strength of the u.s. dollar as compared to the euro and pound . sales growth was a result of success of our top-line growth initiatives and improvements in end-user markets . gross profit margin during 2016 , gross margin increased to 33.6 % as compared to 32.1 % in 2015. the increase is a result of higher sales in the engraving segment which typically carry higher margins than sales in our other segments and operational improvements in our food service equipment segment as our operational excellence initiatives continue to generate positive gross margin results . we also experienced gross margin improvements due to reduced purchase accounting charges of $ 1.3 million . during fiscal year 2016 we incurred $ 0.4 million of purchase accounting charges related to the northlake acquisition as compared to charges of $ 1.7 million in the prior year for the enginetics and ultrafryer acquisitions . during 2015 , gross margin decreased to 32.1 % as compared to 33.3 % in 2014. this decrease is primarily a result of exchange rate declines , an unfavorable sales mix as compared to the prior year , coupled with $ 1.7 million of purchase accounting charges associated with the enginetics and ultrafryer acquisitions . selling , general , and administrative expenses selling , general , and administrative expenses , ( sg & a ) for the fiscal year 2016 were $ 170.2 million or 22.6 % of sales compared to $ 165.8 million or 21.5 % of sales during the prior year . story_separator_special_tag the increase in sg & a is due to higher health care expenses , compensation , along with sg & a embedded in the northlake business partially offset by declines in distribution expense . selling , general , and administrative expenses , ( sg & a ) for the fiscal year 2015 were $ 165.8 million or 21.5 % of sales compared to $ 165.8 million or 23.1 % of sales during the prior year . the decline in sg & a as a percentage of sales relates to three primary items : the absence of $ 3.9 million of management transition costs in 2014 ; increased selling and distribution expense in the then current year associated with a 4.8 % increase in organic sales during the year ; and $ 6.6 million of incremental expenses as a result of the ultrafryer and enginetics acquisitions . story_separator_special_tag fiscal year 2016 increased $ 2.7 million , or 7.2 % , when compared to the prior year , and operating income margin grew from 9.2 % to 10.5 % , up 130 basis points . operating efficiencies , portfolio focus , paring of low-margin products and expense controls have increased our leverage and have positively impacted income from operations for the segment . our focus in fiscal year 2017 is to generate positive operating income growth through product rationalization , sales volume increases and margin improvement through future deployment of standex operational excellence . income from operations for fiscal year 2015 decreased $ 0.7 million , or 2.0 % , when compared to the prior year , and operating income margin declined from 10.1 % to 9.2 % . the positive impact of the year-over-year volume increase was offset by a combination of adverse market channel , product and customer mix changes ; negative foreign exchange impacts and disruptions resulting from a factory closure . engraving replace_table_token_9_th net sales for fiscal year 2016 increased by $ 13.3 million or 12.0 % , compared to the prior year . sales growth excluding foreign exchange losses of $ 8.7 million is driven by sales gains at mold-tech for new automotive model introductions along with market share gains throughout the world . the engraving segment also experienced sales gains in its roll plate and machinery business and core forming tooling business . we expect moderate mold-tech sales growth in 2017 as new automotive model launches occur in the coming year . subsequent to our fiscal 2016 year-end , the company sold its u.s. roll plate and machinery business as it was not strategic and did not meet our growth and return expectations . this divestiture also allows the company 's management to focus on higher growth and better return businesses within the engraving segment . in preparation of this sale , during the fourth quarter of 2016 , we recorded a $ 7.3 million non-cash loss to adjust the net assets of this business to their net realizable value . this expense is recorded as a component of other operating income ( expense ) , net . the roll plate and machinery business sales increased in fiscal 2016 by $ 2.8 million up to $ 17.4 million . the sales ( in millions ) for the roll plate and machinery business from the first to the fourth quarter of fiscal year 2016 were $ 4.2 , $ 4.9 , $ 4.0 , and $ 4.3 , respectively . net sales for fiscal year 2015 increased by $ 1.5 million or 1.4 % , compared to the prior year . unfavorable foreign exchange impacted sales $ 7.2 million . sales growth excluding foreign exchange losses were primarily driven by continued expansion of our asia pacific mold-tech business as a result of increased market share . north american sales volumes were down for the year due to lower new automotive model activity and some automotive projects that were pushed out from the fourth quarter to the first half of 2016. sales of core forming tooling grew 25 % or $ 2.4 million as compared to prior year . income from operations in fiscal year 2016 increased by $ 5.3 million , or 22 % , when compared to the prior year . the operating income improvement is driven by increased volume in all regions , partially offset by unfavorable foreign exchange and market declines in south america . the roll plate and machinery business operating income increased in fiscal 2016 by $ 1.1 million up to $ 1.2 million . the operating income ( in thousands ) for the roll plate and machinery business from the first to the fourth quarter of fiscal year 2016 were $ 89 , $ 242 , $ 378 , and $ 493 , respectively . income from operations in fiscal year 2015 increased by $ 2.1 million , or 9.5 % , when compared to the prior year . the increase is driven by increased volume in asia pacific partially offset by unfavorable foreign exchange and fewer new model launches which impeded margin growth in the mold texturing business . engineering technologies replace_table_token_10_th net sales in the fiscal year 2016 decreased $ 14.8 million or 15.2 % when compared to the prior year . sales distribution by market in 2016 was as follows : 46 % aviation , 27 % space , 10 % oil and gas , 8 % medical , 9 % other markets . sales in the land based gas turbine and oil and gas markets were down over 60 % from the prior year level . the decline was a result of reduced demand in the oil and gas industry due to lower oil prices . we expect this market to remain soft for an extended period of time and have and will continue to reduce costs to align with demand . total space sales decreased by 20.5 % due to the completion of project based contracts in the manned space market . sales in the unmanned space market were up 18.0 % compared to the prior year .
| income taxes the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2016 was $ 16.3 million , or an effective rate of 23.8 % , compared to $ 20.9 million , or an effective rate of 27.4 % for the year ended june 30 , 2015. changes in the effective tax rates from period to period may be significant as they depend on many factors including , but not limited to , the amount of the company 's income or loss , the mix of income earned in the us versus outside the us , the effective tax rate in each of the countries in which we earn income , and any one time tax issues which occur during the period . we anticipate our tax rate will be approximately 28 % in the coming fiscal year due to mix of income earned in jurisdictions with higher tax rates . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2016 was impacted by the following items : ( i ) a benefit of $ 4.9 million due to the mix of income earned in jurisdictions with beneficial tax rates , ( ii ) a net benefit of $ 0.9 million related to a bargain-sale of idle property to a charitable organization , and ( iii ) a benefit of $ 0.7 million related to the r & d tax credit . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2015 was $ 20.9 million , an effective rate of 27.4 % , compared to $ 18.1 million , an effective rate of 26.6 % for the year ended june 30 , 2014. the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2015 was impacted by the following items : ( i ) a benefit of $ 0.5 million related to the r & d tax credit that expired during the fiscal year on december 31 , 2014 ( ii ) a benefit of $ 4.0 million due to the mix of income earned in jurisdictions with beneficial tax rates . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2014 was impacted by the following items : ( i ) a benefit of $ 0.5 million related to the r & d tax
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we have funded our operations primarily from the issuance and sale of our common shares , from the issuance of notes to novaquest capital management , or novaquest , and from the term loans we have with hercules capital , inc. , or hercules . our sources of funding have primarily consisted of : in november 2016 , we completed our initial public offering , or ipo , in which we sold 14,500,000 common shares at a price of $ 15.00 per common share . the net proceeds to us were approximately $ 200.0 million , after deducting $ 15.2 million in underwriting discounts and commissions and $ 2.3 million in offering costs paid by us . in october 2017 , we and our subsidiaries , entered into financing arrangements with novaquest and hercules under which we obtained financing commitments of up to $ 140.0 million . in october 2017 , march 2018 , and december 2018 , we received gross proceeds of $ 33.0 million , $ 15.0 million , and $ 92.0 million , respectively , from these financing arrangements . as of march 31 , 2019 , these financing arrangements have been fully drawn . additional information is included in note 5 , “ financing arrangements , ” to our consolidated financial statements included elsewhere in this annual report on form 10-k. in april 2018 , we sold to roivant sciences ltd. , or rsl , our controlling shareholder , 1,110,015 of our common shares at a purchase price of $ 20.27 per common share , for gross proceeds of $ 22.5 million , in a private placement , or the private placement . in april 2018 , we entered into a sales agreement , or the sales agreement , with cowen and company , llc , or cowen , to sell our common shares having an aggregate offering price of up to $ 100.0 million from time to time through an “ at-the-market ” equity offering program under which cowen acts as our agent . during the fiscal year ended march 31 , 2019 , we issued and sold 3,970,129 of our common shares under the sales agreement . the common shares were sold at a weighted-average-price of $ 21.91 per common share for aggregate net proceeds to us of approximately $ 84.1 million , after deducting underwriting commissions and offering costs paid by us . as of march 31 , 2019 , we had approximately $ 13.0 million of capacity available to us under our “ at-the-market ” equity offering program . in april 2019 , we issued and sold an additional 106,494 common shares for aggregate net proceeds of $ 2.5 million pursuant to this program . in july and august 2018 , we completed an underwritten public equity offering of 3,533,399 of our common shares , which includes 200,065 common shares issued and sold upon the partial exercise of the underwriters ' option to purchase additional shares , at a public offering price of $ 22.50 per common share . after deducting underwriting discounts and commissions and offering costs paid by us , the net proceeds to us in connection with the underwritten public equity offering , including from the partial option exercise , were approximately $ 74.4 million . as of march 31 , 2019 and 2018 , we had an accumulated deficit of $ 502.0 million and $ 228.5 million , respectively . we had net losses of $ 273.6 million , $ 143.3 million , and $ 83.4 million for the years ended march 31 , 2019 , 2018 and 2017 , respectively . as of march 31 , 2019 , we had $ 156.1 million of cash and cash equivalents available to us , as compared to $ 108.6 million of cash and $ 92.0 million of financing commitments available to us from novaquest as of march 31 , 2018 . financial operations overview revenue to date , we have not generated any revenue , and we do not expect to generate any revenue , from the sale of any products unless and until we obtain regulatory approval of and commercialize relugolix , mvt-602 , or a potential future product candidate . research and development expenses since our inception , our operations have primarily been limited to the in-licensing of the rights to relugolix and mvt-602 , the expansion of our team , and the initiation and ongoing activities of our clinical programs . our research and development , or r & d , expenses include program-specific costs , as well as unallocated costs . 68 program-specific costs primarily include : third-party costs , which include expenses incurred under agreements with contract research organizations , or cros , and contract manufacturing organizations , or cmos , the cost of consultants who assist with the development of our product candidates on a program-specific basis , investigator grants , sponsored research , manufacturing costs in connection with producing materials for use in conducting nonclinical studies and clinical trials , and other third-party expenses directly attributable to the development of our product candidates . unallocated costs primarily include : employee-related expenses , such as salaries , share-based compensation , benefits and travel for employees engaged in r & d activities ; costs allocated to us for activities performed by roivant sciences , inc. , or rsi , and roivant sciences gmbh , or rsg , under the services agreements and share-based compensation expense allocated to us from rsl ; depreciation expenses for assets used in r & d activities ; and other expenses , which include the costs of consultants who assist with r & d activities not specific to a program . r & d expenses also include payments made under third-party license agreements . in the year ended march 31 , 2017 , r & d expenses also included in-process r & d expense related to our acquisition of rights to our product candidates from takeda . r & d activities have been , and will continue to be , central to our business model . story_separator_special_tag we expect our r & d expenses to increase in the near term as we continue to support the clinical development of our relugolix and mvt-602 clinical studies , prepare to seek regulatory approval for our product candidates , establish a medical affairs function , and expand our employee base . product candidates in later stages of clinical development , such as relugolix , 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 share-based compensation expense to increase as we continue to increase our number of r & d employees . we can not determine with certainty the duration and costs of the current or future clinical trials of our product candidates . the duration , costs and timing of clinical trials and development of relugolix , mvt-602 and any other product candidates will depend on a variety of factors that include , but are not limited to : the number of trials required for approval ; the per patient trial costs ; the number of patients who participate in the trials ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to recruit and enroll eligible patients ; the number of patients who fail to meet the study 's inclusion and exclusion criteria ; the number of study drugs that patients receive ; the drop-out or discontinuation rates of patients ; the potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; the timing and receipt of regulatory approvals ; the costs of clinical trial materials ; and the efficacy and safety profile of the product candidate . in addition , the probability of success for relugolix , mvt-602 and any other product candidates will depend on numerous factors , including competition , manufacturing capability and commercial viability . as a result , we are unable to determine with certainty the duration and completion costs of our clinical programs or when and to what extent we will generate revenue from commercialization and sale of any of our product candidates . our r & d activities may be subject to change from time to time as we evaluate our priorities and available resources . 69 general and administrative expenses general and administrative , or g & a , expenses consist primarily of personnel costs , including salaries , benefits , share-based compensation and travel expenses for our executive , finance , human resources , legal , commercial operations and other administrative functions . g & a expenses also include expenses incurred under agreements with third parties relating to legal , accounting , auditing and tax services , rent and facilities costs , information technology costs , general overhead , costs billed to us under the services agreements , and share-based compensation expense and other costs allocated to us from rsl . we anticipate that our g & a expenses will increase in future periods as we expand our operations . these increases will likely include costs related to the hiring of additional personnel , costs to implement and upgrade certain information technology systems , professional fees and additional rent and other facilities related costs . in addition , we expect to incur increased costs associated with establishing sales , marketing , and commercialization functions in advance of potential future regulatory approvals and commercialization of our product candidates . if relugolix or mvt-602 obtains regulatory approval for marketing , we expect sales , marketing , and commercialization costs to be significant . changes in the fair value of the takeda warrant liability we remeasured the takeda warrant liability at fair value during each reporting period in which it was outstanding . the takeda warrant liability expired on april 30 , 2017 . interest expense interest expense consists of interest payments related to our outstanding debt as well as the associated non-cash amortization of debt discount and issuance costs . interest income interest income consists of interest earned on money market funds and the accretion of discounts to maturity for commercial paper . story_separator_special_tag the change in the fair value of the takeda warrant liability was recorded as $ 27.5 million of expense for the year ended march 31 , 2017 , as the fair value of the takeda warrant liability decreased to $ 0.1 million as of march 31 , 2017 from $ 5.4 million at april 29 , 2016 , the date of issuance of the warrant to takeda , primarily due to $ 32.8 million related to the fair value of the warrant exercised during the year ended march 31 , 2017 , primarily as a result of the issuance of an additional 1,977,269 common shares to takeda , pursuant to the automatic exercise of the warrant , based upon the sale and issuance of 14,500,000 common shares to investors in the ipo , partially offset by changes in the assumptions regarding probabilities of successful financing events used to estimate the fair value of the liability . interest expense interest expense increased by $ 6.8 million , to $ 8.8 million for the year ended march 31 , 2019 , as compared to $ 2.0 million for the year ended march 31 , 2018 . the increase was primarily the result of higher outstanding debt balances under our financing arrangements during the year ended march 31 , 2019 as compared to the prior year period . there was no interest expense for the year ended march 31 , 2017 . interest income interest income was $ 0.9 million for the year ended march 31 , 2019 . there was no interest income for the years ended march 31 , 2018 or 2017 . during the year ended march 31 , 2019 , we invested a portion of our cash in a combination of money market funds and commercial paper . there were no such investments during the years ended march 31 , 2018 or 2017 .
| r & d expenses were $ 222.6 million for the year ended march 31 , 2019 , and consisted primarily of cro , clinical drug supply and other study and manufacturing related costs of $ 186.4 million , personnel expenses of $ 23.2 million , share-based compensation expense of $ 7.2 million , of which $ 0.2 million was allocated to us by rsl , and costs billed to us under the services agreements of $ 2.3 million , including unallocated personnel expenses and third-party pass thru costs associated with our ongoing clinical and other research programs . r & d expenses were $ 116.8 million for the year ended march 31 , 2018 , and consisted primarily of cro , clinical drug supply and other study-related costs of $ 94.4 million , personnel expenses of $ 12.2 million , share-based compensation expense of $ 3.7 million , of which $ 0.3 million was allocated to us by rsl , and costs billed to us under the services agreements of $ 4.2 million , including unallocated personnel expenses and third-party pass thru costs associated with our clinical and other research programs . r & d expenses were $ 43.5 million for the year ended march 31 , 2017 , and consisted primarily of in-process r & d expenses of $ 13.1 million , which were related to our acquisition of the rights to our product candidates from takeda and consisted of $ 7.7 million for the estimated fair value of the 5,077,001 common shares issued to takeda and $ 5.4 million for the estimated 71 fair value of the warrant liability . the remainder consisted primarily of costs billed to us under the services agreements of $ 7.4 million , including unallocated personnel expenses and third-party pass thru costs associated with the preparation of our clinical and other research programs , clinical manufacturing costs of $ 5.6 million , cro costs of $ 4.7 million , and share-based compensation expense of $ 3.9 million , of which $ 2.2 million was allocated to us by rsl , and personnel expenses of $ 2.4 million . general and administrative expenses g & a expenses increased by $ 18.0 million , to $ 42.2 million , for the year ended march 31 , 2019 compared to $ 24.2 million for the year ended march 31 , 2018 . g & a expenses increased
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if we obtain marketing approval for contepo or any other product candidate that we develop , in-license or acquire , we expect to incur significant commercialization expenses related to product sales , marketing , distribution and manufacturing . based on our current forecasts and plans , we will need to obtain substantial additional funding in connection with our continuing operations . adequate additional capital may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we could be forced to delay , reduce or eliminate our research and development programs and commercialization efforts . market conditions for antibiotic companies continue to be challenging as evidenced by the bankruptcy of two organizations engaged in the research and development and commercialization of antibiotics in 2019. the cost of capital has risen significantly for others and us . on december 20 , 2019 , we issued 13.8 million ordinary shares and 13.8 million warrants with an exercise price of $ 1.90 per share that generated gross proceeds of $ 20.1 million . in addition , on march 11 , 2020 , we entered into an amendment , or the amendment , to our loan and security agreement , or the loan agreement , with hercules capital , inc. , or hercules , as administrative agent , collateral agent and lender . pursuant to the amendment , we agreed to repay to hercules between april 1 , 2020 and april 3 , 2020 , $ 30.0 million of the $ 35.0 million in aggregate principal amount of debt outstanding under the loan agreement , which we refer to as the prepayment . see “ —liquidity and capital resources. ” on march 1 , 2017 , nabriva therapeutics plc , or nabriva ireland , was incorporated in ireland under the name hyacintho 2 plc , and was renamed to nabriva therapeutics plc on april 10 , 2017 , in order to effectuate the change of the jurisdiction of incorporation of the ultimate company of the group from austria to ireland . nabriva ireland replaced nabriva therapeutics ag , or nabriva austria , as the ultimate parent company on june 23 , 2017 , following the conclusion of a tender offer , or the exchange offer , in which holders of 98.6 % of the outstanding share capital of nabriva austria exchanged their holdings for ordinary shares , $ 0.01 nominal value per share , of nabriva ireland , which we refer to as the redomiciliation transaction . the ordinary shares of nabriva ireland were issued on a one‑for‑ten basis to the holders of the nabriva austria common shares and on a one‑for‑one basis to the holders of the nabriva austria american depositary shares , or nabriva austria adss , participating in the exchange offer . on june 26 , 2017 , the ordinary shares of nabriva ireland began trading on the nasdaq global market under the symbol “ nbrv , ” the same symbol under which the nabriva austria adss were previously traded . this transaction was accounted for as a merger between entities under common control ; accordingly , the historical financial statements of nabriva austria for periods prior to this transaction are considered to be the historical financial statements of nabriva ireland . as of august 18 , 2017 , 100 % of nabriva austria share capital had been exchanged for ordinary shares of nabriva ireland . nabriva austria was incorporated in october 2005 in austria under the name nabriva therapeutics forschungs gmbh , a limited liability company organized under austrian law , as a spin‑off from sandoz gmbh and commenced operations in february 2006. in 2007 , nabriva austria transformed into a stock corporation ( aktiengesellschaft ) under the name nabriva therapeutics ag . on october 19 , 2017 , nabriva austria was converted into a limited liability company under austrian law and renamed nabriva therapeutics gmbh . in 2014 , we established our wholly owned u.s. subsidiary , which began operations in august 2014. acquisition of zavante on july 24 , 2018 , we acquired zavante , or the acquisition , a biopharmaceutical company focused on developing contepo ( fosfomycin for injection ) to improve the outcomes of hospitalized patients pursuant to the agreement and plan of merger dated july 23 , 2018 , or the merger agreement . upon the closing of the acquisition , or the closing , we issued 7,336,906 of our ordinary shares to former zavante stockholders , which together with the 815,186 ordinary shares that were issued in july 2019 upon release of the holdback shares ( as defined below ) constituted approximately 19.9 % of our ordinary shares outstanding as of immediately prior to the closing , or the upfront shares . 115 pursuant to the merger agreement , former zavante stockholders and other equity holders , in the aggregate and subject to the terms and conditions of the merger agreement , will also be entitled to receive from us up to $ 97.5 million in contingent consideration , of which $ 25.0 million would become payable upon the first approval of an nda from the fda , for fosfomycin for injection for any indication , or the approval milestone payment , and an aggregate of up to $ 72.5 million would become payable upon the achievement of specified sales milestones , or the net sales milestone payments with the first commercial milestone becoming payable when contepo exceeds $ 125 million in net sales in a calendar year . at our extraordinary general meeting of shareholders held in october 2018 , our shareholders approved the issuance of ordinary shares in settlement of potential milestone payment obligations that may become payable in the future to former zavante stockholders , including the approval milestone payment which will be settled in our ordinary shares . we also now have the right to settle the net sales milestone payments in our ordinary shares , except as otherwise provided in the merger agreement . story_separator_special_tag in addition , upon the closing , we assumed certain liabilities and obligations , including contractual liabilities and obligations . prior to the acquisition , zavante was obligated to make a cash milestone payment to the former stockholders of $ 3.0 million upon marketing approval by the fda with respect to any oral , intravenous or other form of fosfomycin , or the zavante products , and milestone payments that may be settled in ordinary shares of up to $ 26.0 million in the aggregate upon the occurrence of various specified levels of net sales with respect to the zavante products . in addition , zavante is obligated to make annual royalty payments of a mid-single-digit percentage of net sales of zavante products , subject to adjustment based on net sales thresholds and with such percentage reduced to low single-digits if generic fosfomycin products account for half of the applicable market on a product-by-product and country-by-country basis . zavante will also pay a mid-single-digit percentage of transaction revenue in connection with the consummation of the grant , sale , license or transfer of market exclusivity rights for a qualified infectious disease product ( within the meaning of the 21st century cures act , or the cures act ) related to a zavante product . zavante had entered into a manufacturing and supply agreement with ercros , s.a. , pursuant to which ercros , s.a. supplies to zavante , on an exclusive basis , a blend of fosfomycin disodium and succinic acid , or api mixture , for contepo in support of filing an nda and , if contepo is approved , will supply the commercial api mixture for contepo in the united states . in addition , zavante had entered into a manufacturing and supply agreement with fisiopharma , s.r.l . pursuant to which zavante has an obligation to purchase a minimum percentage of its commercial requirements of contepo in the united states . zavante had also entered into a manufacturing and exclusive supply agreement with laboratorios ern , s.a. , pursuant to which laboratorios ern , s.a. has agreed to supply zavante with certain technical documentation and data as required for submission of an nda or an abbreviated new drug application for contepo and certain regulatory support in connection with the commercial sale and use of contepo in the united states , and which provides for payments by zavante to laboratorios ern , s.a. of a one-time cash payment upon the first commercial sale of contepo and subsequent quarterly payments thereafter based on the number of vials of contepo sold in the united states during each quarter . in connection with the closing of the acquisition , we have assumed other agreements entered into by zavante , including , among others , a research and development office lease , a collaboration agreement governing the supply and manufacturing agreements described above and a commercial packaging agreement . we accounted for the acquisition as an asset acquisition as the arrangement did not meet the definition of a business pursuant to the guidance prescribed in accounting standards codification , or asc , topic 805 , business combinations . we concluded the acquisition did not meet the definition of a business because the transaction principally resulted in the acquisition of the exclusive rights to iv fosfomycin in the u.s. which is a single identifiable asset and represents substantially all the fair value of the assets acquired . we expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses . for the year ended december 31 , 2018 , we recorded an in-process research and development expense of $ 32.0 million which represented $ 26.9 million for the fair value of the upfront shares , $ 4.9 million of transaction costs and $ 0.2 million of net liabilities assumed . 116 license agreement with sinovant sciences , ltd. in march 2018 , we entered into a license agreement , or the sinovant license agreement , with sinovant sciences , ltd. or sinovant , an affiliate of roivant sciences , ltd. , to develop and commercialize lefamulin in the greater china region . as part of the sinovant license agreement , nabriva therapeutics ireland dac and nabriva therapeutics gmbh , our wholly owned subsidiaries , granted sinovant an exclusive license to develop and commercialize , and a non‑exclusive license to manufacture , certain products containing lefamulin , or the sinovant licensed products , in the people 's republic of china , hong kong , macau , and taiwan , which we refer to as the sinovant territory . we retain development and commercialization rights in the rest of the world . under the sinovant license agreement , sinovant and our subsidiaries have established a joint development committee , or the jdc , to review and oversee development and commercialization plans in the sinovant territory . we received a $ 5.0 million upfront payment pursuant to the terms of the sinovant license agreement and were initially eligible for up to an additional $ 91.5 million in milestone payments upon the achievement of certain regulatory and commercial milestone events related to lefamulin for cabp , plus an additional $ 4.0 million in milestone payments if any sinovant licensed product receives a second or any subsequent regulatory approval in the people 's republic of china . the first milestone was a $ 1.5 million payment for the submission of a clinical trial application , or cta , by sinovant to the chinese food and drug administration that was received in february 2019. we received an additional $ 5.0 million milestone payment from sinovant in the third quarter of 2019 due to the receipt of approval for xenleta from the fda in august 2019. the remaining milestone payments of $ 86.5 million are tied to additional regulatory approvals and annual sales targets . in addition , we are eligible to receive low double‑digit royalties on sales , if any , of sinovant licensed products in the sinovant territory .
| research and development expenses research and development expenses decreased by $ 55.9 million from $ 82.3 million for the year ended december 31 , 2018 to $ 26.4 million for the year ended december 31 , 2019. the decrease was primarily due to a charge of $ 32.0 million for in‑process research and development expenses associated with the acquisition of zavante assets during the year ended december 31 , 2018 , a $ 4.6 million decrease in research consulting fees , a $ 8.1 million decrease of filing and other fees inclusive of a $ 2.6 million nda filing fee refund for contepo in 2019 , a $ 10.6 million decrease in research materials and purchased services related to the development of lefamulin , a $ 1.2 million decrease in staff costs due to the reduction of employees and $ 0.1 million decrease in infrastructure and other expenses , partly offset by a $ 0.7 million increase in stock‑based compensation expense . selling , general and administrative expenses selling , general and administrative expense increased by $ 20.7 million from $ 41.7 million for the year ended december 31 , 2018 to $ 62.5 million for the year ended december 31 , 2019. the increase was due to a $ 8.6 million increase in staffing expense , primarily for our commercial sales force in connection with the product launch of xenleta in september 2019 , a $ 5.9 million increase in advisory and external consultancy expenses primarily related to pre‑commercialization activities and professional service fees , a $ 3.9 million increase in stock‑based compensation expense , a $ 1.1 million increase in legal fees , a $ 1.0 million increase in travel expenses , and a $ 0.6 million increase in infrastructure costs , partly offset by a $ 0.3 million decrease in other corporate costs . other income ( expense ) , net other income ( expense ) , net decreased by $ 0.5 million from $ 0.3 million of expense for the year ended december 31 , 2018 , to $ 0.2 million income for the year ended december 31 , 2019 primarily due to re‑measurements of our foreign currency cash balances . interest income ( expense ) , net during the year ended december 31 , 2019 , net interest expense increased over the prior year due to interest expense on our loan with hercules that was entered into in december 2018. income tax expense our income tax expense was $ 49,000 for the year ended
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the separation is expected to be completed in the second half of 2012. on february 13 , 2012 , the company entered into an agreement and plan of merger to reorganize itself as a holding company incorporated in hawaii . the holding company structure will help facilitate the separation by allowing the company to organize and segregate the assets of its different businesses in an efficient manner prior to the separation and facilitate the third party and governmental consent and approval process . in addition , the holding company reorganization will help preserve the company 's status as a u.s. citizen under certain u.s. maritime and vessel documentation laws ( popularly referred to as the jones act ) by , among other things , limiting the percentage of outstanding shares of common stock in the holding company that may be owned ( of record or beneficially ) or controlled in the aggregate by non-u.s. citizens ( as defined by the jones act ) to a maximum permitted percentage of 22 % . for more information on the jones act and its effect on the company , see “ description of business and properties – transportation – jones act. ” critical accounting estimates the company 's significant accounting policies are described in note 1 to the consolidated financial statements . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , upon which the md & a is based , requires that management exercise judgment when making estimates and assumptions about future events that may affect the amounts reported in the financial statements and accompanying notes . future events and their effects can not be determined with certainty and actual results will , inevitably , differ from those critical accounting estimates . these differences could be material . the company considers an accounting estimate to be critical if : ( i ) ( a ) the accounting estimate requires the company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made , ( b ) changes in the estimate are reasonably likely to occur in periods subsequent to the period in which the estimate was made , or ( c ) use of different estimates by the company could have been used , and ( ii ) changes in those assumptions or estimates would have had a material impact on the financial condition or results of operations of the company . the critical accounting estimates inherent in the preparation of the company 's financial statements are described below . impairment of long-lived assets and finite-lived intangible assets : the company 's long-lived assets , including finite-lived intangible assets , are reviewed for possible impairment when events or circumstances indicate that the carrying value may not be recoverable . in such an evaluation , the estimated future undiscounted cash flows generated by the asset are compared with the amount recorded for the asset to determine if its carrying value is not recoverable . if this review determines that the recorded value will not be recovered , the amount recorded for the asset is reduced to estimated fair value . the company has evaluated certain long-lived assets , including intangible assets , for impairment ; however , no impairment charges were recorded in 2011 , 2010 , and 2009 as a result of this process . these asset impairment analyses are highly subjective because they require management to make assumptions and apply considerable judgments to , among others , estimates of the timing and amount of future cash flows , expected useful lives of the assets , uncertainty about future events , including changes in economic conditions , changes in operating performance , changes in the use of the assets , and ongoing costs of maintenance and improvements of the assets , and thus , the accounting estimates may change from period to period . if management uses different assumptions or if different conditions occur in future periods , the company 's financial condition or its future operating results could be materially impacted . impairment of investments : the company 's investments in unconsolidated affiliates are reviewed for impairment whenever there is evidence that fair value may be below carrying cost . an investment is written down to fair value if fair value is below carrying cost and the impairment is other-than-temporary . in evaluating the fair value of an investment and whether any identified impairment is other-than-temporary , significant estimates and considerable judgments are involved . these estimates and judgments are based , in part , on the company 's current and future evaluation of economic conditions in general , as well as a joint venture 's current and future plans . additionally , these impairment calculations are highly subjective because they also require management to make assumptions and apply judgments to estimates regarding the timing and amount of future cash flows , probabilities related to various cash flow scenarios , and appropriate discount rates based on the perceived risks , among others . in evaluating whether an impairment is other-than-temporary , the company considers all available information , including the length of time and extent of the impairment , the financial condition and near-term prospects of the affiliate , the company 's ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value , and projected industry and economic trends , among others . changes in these and other assumptions could affect the projected operational results and fair value of the unconsolidated affiliates , and accordingly , may require valuation adjustments to the company 's investments that may materially impact the company 's financial condition or its future operating results . for example , if current market conditions deteriorate significantly or a joint venture 's plans change materially , impairment charges may be required in future periods , and those charges could be material . story_separator_special_tag in 2011 , the company recorded a $ 6.4 million reduction in the carrying value of its investment in waiawa , a residential joint venture on oahu , due to the joint venture 's termination of its development plans . the company 's remaining investment in the venture , which is not material , represents the company 's share of expected cash proceeds from the pending sale of the joint venture lands . continued weakness in the real estate sector , difficulty in obtaining or renewing project-level financing , and changes in the company 's development strategy , among other factors , may affect the value or feasibility of certain development projects owned by the company or by its joint ventures and could lead to additional impairment charges in the future . impairment of vessels : the company operates an integrated network of vessels , containers , and terminal equipment ; therefore , in evaluating impairment , the company groups its assets at the ocean transportation entity level , which represents the lowest level for which identifiable cash flows are available . the company 's vessels and equipment are reviewed for possible impairment when events or circumstances , such as recurring operating losses , indicate that their carrying values may not be recoverable . in evaluating impairment , the estimated future undiscounted cash flows generated by the asset group are compared with the amount recorded for the asset group to determine if its carrying value is not recoverable . if this review determines that the recorded value will not be recovered , the amount recorded for the asset group is reduced to estimated fair value . these asset impairment loss analyses are highly subjective because they require management to make assumptions and apply considerable judgments to , among other things , estimates of the timing and amount of future cash flows , expected useful lives of the assets , uncertainty about future events , including changes in economic conditions , changes in operating performance , changes in the use of the assets , and ongoing costs of maintenance and improvements of the assets , and thus , the accounting estimates may change from period to period . if management uses different assumptions or if different conditions occur in future periods , the company 's financial condition or its future operating results could be materially impacted . to date , the company has not recorded any impairment related to its vessels . additional information about the company 's vessels as of december 31 , 2011 is as follows : replace_table_token_8_th ( 1 ) purchase price includes any subsequent improvements or modifications . legal contingencies : the company 's results of operations could be affected by significant litigation adverse to the company , including , but not limited to , liability claims , construction defect claims , antitrust claims , and claims related to coastwise trading matters . the company records accruals for legal matters when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated . management makes adjustments to these accruals to reflect the impact and status of negotiations , settlements , rulings , advice of counsel and other information and events that may pertain to a particular matter . predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from those estimates . in making determinations of likely outcomes of litigation matters , the company considers many factors . these factors include , but are not limited to , the nature of specific claims including unasserted claims , the company 's experience with similar types of claims , the jurisdiction in which the matter is filed , input from outside legal counsel , the likelihood of resolving the matter through alternative dispute resolution mechanisms and the matter 's current status . a detailed discussion of significant litigation matters is contained in note 13 to the consolidated financial statements . allowance for doubtful accounts : receivables are recorded net of an allowance for doubtful accounts . the company estimates future write-offs based on delinquencies , credit ratings , aging trends , and historical experience . the company believes the allowance for doubtful accounts is adequate to cover anticipated losses ; however , significant deterioration in any of the aforementioned factors or in general economic conditions could change these expectations , and accordingly , the company 's financial condition or its future operating results could be materially impacted . revenue recognition for certain long-term real estate developments : as discussed in note 1 to the consolidated financial statements , revenues from real estate sales are generally recognized when sales are closed and title , risks and rewards passes to the buyer . for certain real estate sales , the company and its joint venture partners account for revenues on long-term real estate development projects that have continuing post-closing involvement , such as kukui ` ula , using the percentage-of-completion method . following this method , the amount of revenue recognized is based on the percentage of development costs that have been incurred through the reporting period in relation to total expected development cost associated with the subject property . accordingly , if material changes to total expected development costs or revenues occur , the company 's financial condition or its future operating results could be materially impacted . self-insured liabilities : the company is self-insured for certain losses including , but not limited to , employee health , workers ' compensation , general liability , real and personal property , and real estate construction warranty and defect claims . where feasible , the company obtains third-party excess insurance coverage to limit its exposure to these claims . when estimating its self-insured liabilities , the company considers a number of factors , including historical claims experience , demographic factors , current trends , and analyses provided by independent third-parties .
| year-over-year comparisons of revenue are also not complete without the consideration of results from the company 's investment in its real estate joint ventures , which are not included in consolidated operating revenue , but are included in segment operating profit . the analysis of operating revenue and profit by segment that follows , provides additional information on changes in real estate sales revenue and operating profit before reclassifications to discontinued operations . operating costs and expenses for 2011 increased by 8 percent , or $ 120 million , to $ 1,608 million . ocean transportation costs increased 13 percent , primarily due to higher vessel operating expenses and higher terminal handling costs . logistics services cost increased 11 percent due primarily to higher purchased transportation costs . real estate sales and leasing costs increased by 12 percent , primarily due to property acquisitions . these increases were offset by agribusiness costs , which decreased 13 percent due principally to a lower volume of sugar sold , combined with higher production levels . selling , general and administrative costs ( “ sg & a ” ) decreased 3 percent due principally to higher non-qualified benefits paid in 2010 related to the retirement of certain senior executives . the reasons for changes in business- and segment-specific year-to-year fluctuations in operating costs , which affect segment operating profit , are more fully described below in the analysis of operating revenue and profit by segment . other income and expense : other expense in 2011 increased $ 15 million , compared with 2010 , due primarily to $ 8 million in joint venture losses , a $ 4 million gain in 2010 related to the settlement of a non-performing mortgage note acquired as an investment , a $ 5 million payment received in 2010 for agriculture disaster relief , and a $ 2 million decrease in interest income in 2011 , partially offset by $ 1 million in lower interest expenses . income taxes were lower in 2011 compared with 2010 on an absolute basis due principally to lower income . the effective tax
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to strengthen our position in the portion of the workforce that participate as independent contractors , we made a minority equity investment in business talent group ( “ btg ” ) , a u.s.-based marketplace that connects highly skilled independent talent to some of the world 's largest businesses . we also continued to make investments in technology during 2018 , particularly that which supports greater efficiency in finding talent to answer customer needs . we are making substantial investments in our front and middle office platforms , which , when deployed , will streamline the processes and workflows associated with recruiting , onboarding and reassigning workers . these investments will create the platform from which we can deploy operational improvements that will enhance the experience of the hundreds of thousands of job seekers who interact and work with kelly each year . kelly continues to focus on accelerating the execution of our strategic plan and making the necessary investments and adjustments to advance that strategy . our objective is to become an even more competitive , consultative and profitable company , and we are reshaping our business to make that goal a reality . we will measure our progress against both revenue and gross profit growth , as well as earnings and conversion rate . we expect : to grow higher-margin specialty and outsourced solutions , creating a more balanced portfolio that yields benefits from improved mix ; to integrate our investments in specialty solutions with significant growth opportunities , such as our acquisitions of global technology associates and nextgen global resources ; to deliver structural improvements in costs through investments in technology and process automation ; and our conversion rate to continue to improve . 22 financial measures the constant currency ( “ cc ” ) change amounts in the following tables refer to the year-over-year percentage changes resulting from translating 2018 financial data into u.s. dollars using the same foreign currency exchange rates used to translate financial data for 2017. we believe that cc measurements are a useful measure , indicating the actual trends of our operations without distortion due to currency fluctuations . we use cc results when analyzing the performance of our segments and measuring our results against those of our competitors . additionally , substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling , general and administrative expenses ( “ sg & a ” ) within a single country and currency which , as a result , provides a natural hedge against currency risks in connection with their normal business operations . cc measures are non-gaap ( generally accepted accounting principles ) measures and are used to supplement measures in accordance with gaap . our non-gaap measures may be calculated differently from those provided by other companies , limiting their usefulness for comparison purposes . non-gaap measures should not be considered a substitute for , or superior to , measures of financial performance prepared in accordance with gaap . reported and cc percentage changes in the following tables were computed based on actual amounts in thousands of dollars . return on sales ( earnings from operations divided by revenue from services ) and conversion rate ( earnings from operations divided by gross profit ) in the following tables are ratios used to measure the company 's operating efficiency . days sales outstanding ( “ dso ” ) represents the number of days that sales remain unpaid for the period being reported . dso is calculated by dividing average net sales per day ( based on a rolling three-month period ) into trade accounts receivable , net of allowances at the period end . although secondary supplier revenues are recorded on a net basis ( net of secondary supplier expense ) , secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue amounts billed to the customer . 23 results of operations 2018 versus 2017 total company ( dollars in millions except per share data ) replace_table_token_3_th total company revenue from services for 2018 was up 2.6 % in comparison to the prior year on a reported basis , and up 2.2 % on a cc basis , reflecting the weakening of the u.s. dollar against several currencies , primarily the euro in the first half of 2018. as more fully described in the following discussions , revenue increased in americas staffing and international staffing , while gts revenue was relatively flat . the gross profit rate decreased 20 basis points year over year . as more fully described in the following discussions , a decline in the gross profit rate in international staffing was partially offset by an increase in the gts gross profit rate . the americas staffing gross profit rate was unchanged . total sg & a expenses increased 1.6 % on a reported basis ( 1.4 % on a cc basis ) , due primarily to increases in americas staffing sg & a expenses , as described in the following discussion . included in total sg & a expenses for 2017 are restructuring charges of $ 2.4 million , relating primarily to an initiative to optimize our gts service delivery models . diluted earnings per share for 2018 were $ 0.58 , as compared to $ 1.81 for 2017. included in diluted earnings per share for 2018 is approximately $ 1.69 per share related to the loss on investment in persol holdings , net of tax . included in diluted earnings per share for 2017 is approximately $ 0.35 per share related to the impact of revaluing net deferred tax assets as a result of the u.s. tax cuts and jobs act and approximately $ 0.04 per share related to restructuring charges . story_separator_special_tag 24 americas staffing ( dollars in millions ) replace_table_token_4_th the change in americas staffing revenue from services reflects the impact of a 2 % increase in average bill rates ( a 3 % increase on a cc basis ) , combined with the impact of the september 2017 acquisition of toc , and partially offset by a 1 % decrease in hours volume . the increase in average bill rates was the result of wage increases and stronger revenue growth in our service lines with higher pay rates . americas staffing represented 44 % of total company revenue in both 2018 and 2017. from a product perspective , the increase in revenue reflects an increase in commercial , including light industrial and educational staffing ( due primarily to the toc acquisition ) and professional/technical , including engineering , science and it products . these increases were partially offset by a decrease in our commercial office services volume . the americas staffing gross profit rate was unchanged from the prior year . increases related to higher staffing fee-based income and lower payroll taxes were offset by unfavorable customer mix . the increase in total sg & a expenses was due primarily to higher costs for recruiting and sales resources and additional effort to attract and place candidates in the current talent environment , combined with sg & a expenses related to toc . 25 gts ( dollars in millions ) replace_table_token_5_th revenue from services was flat in comparison to last year . lower demand in specific customers in centrally delivered staffing and ppo was offset by increased revenue in bpo , kellyconnect and cwo from program expansions and new customer wins in each product . gts revenue represented 36 % of total company revenue in 2018 and 37 % in 2017. the increase in the gts gross profit rate was due to improving product mix , partially offset by increases in employee-related healthcare costs . total sg & a expenses were flat in comparison to the prior year . increased headcount and costs related to new programs and expansion of programs in the cwo , bpo and kellyconnect practices were partially offset by lower salary costs in centrally delivered staffing and ppo . additionally , the year-over-year change in total sg & a expenses was impacted by restructuring charges of $ 2.0 million in 2017 , representing severance relating to an initiative to optimize our gts service delivery models . 26 international staffing ( dollars in millions ) replace_table_token_6_th the change in international staffing revenue from services reflects primarily a 6 % increase in average bill rates ( a 3 % increase on a cc basis ) , due to customer and country mix . hours volume was flat in comparison to the prior year . international staffing represented 20 % of total company revenue in both 2018 and 2017. the international staffing gross profit rate decreased primarily due to unfavorable customer mix and the effect of french payroll tax adjustments . these decreases were partially offset by an increase in staffing fee-based income . the increase in total sg & a expenses was due to the effect of currency exchange rates . on a constant currency basis , sg & a expenses decreased due to effective cost control in expenses across the region . 27 results of operations 2017 versus 2016 total company ( dollars in millions except per share data ) replace_table_token_7_th total company revenue from services for 2017 was up 1.9 % in comparison to 2016 on a reported basis , and up 1.3 % on a cc basis . as more fully described in the following discussions , revenue increases in the americas staffing and gts segments were partially offset by a decline in the international staffing segment . during 2016 , we transferred our apac staffing businesses for a 49 % interest in the persolkelly asia pacific joint venture , which is accounted for as an equity method investment , resulting in the decrease in international staffing segment revenue . the gross profit rate increased 60 basis points year over year . as more fully described in the following discussions , increases in the gts and americas staffing gross profit rates were partially offset by a decline in the gross profit rate in international staffing . total sg & a expenses increased 3.3 % on a reported basis and 2.9 % on a cc basis . year-over-year increases in sg & a expenses in americas staffing and gts reflect higher incentive-based compensation in those segments , and were partially offset by a decrease in international staffing sg & a expenses , as a result of the apac transaction . included in total sg & a expenses for 2017 are restructuring charges of $ 2.4 million , relating primarily to an initiative to optimize our gts service delivery models . included in total sg & a expenses for 2016 are restructuring charges of $ 3.4 million , which relate to actions taken in the americas staffing and international staffing segments to increase operational efficiency and prepare the businesses for future growth . diluted earnings per share for 2017 were $ 1.81 , as compared to $ 3.08 for 2016. included in diluted earnings per share for 2017 is approximately $ 0.35 per share related to the unfavorable impact of revaluing net deferred tax assets as a result of the u.s. tax cuts and jobs act and approximately $ 0.04 per share related to restructuring charges . included in diluted earnings per share for 2016 is the impact of approximately $ 1.62 per share for the gain on the investment in persolkelly asia pacific , net of taxes and the impact of approximately $ 0.06 per share for restructuring charges . 28 americas staffing ( dollars in millions ) replace_table_token_8_th the change in americas staffing revenue from services reflects a 7 % increase in average bill rates , while hours volume was flat year over year .
| global dso for the fourth quarter was 55 days for 2018 and 2017 . our working capital position ( total current assets less total current liabilities ) was $ 503.0 million at year-end 2018 , an increase of $ 44.9 million from year-end 2017 . the current ratio ( total current assets divided by total current liabilities ) was 1.6 at year-end 2018 and 1.5 at year-end 2017 . investing activities in 2018 , we used $ 29.8 million of net cash for investing activities , compared to using $ 61.0 million in 2017 and generating $ 10.6 million in 2016 . included in cash used for investing activities in 2018 is $ 7.0 million for loans to persolkelly asia pacific to fund working capital requirements as a result of their sustained revenue growth and $ 5.0 million for an investment in equity securities relating to the company 's investment in btg , partially offset by $ 7.9 million for proceeds from company-owned life insurance . included in cash used for investing activities in 2017 is $ 37.2 million for the acquisition of toc , net of the cash received . included in cash generated from investing activities in 2016 is $ 23.3 million of net cash representing the cash received less the cash deconsolidated relating to the persolkelly asia pacific joint venture transaction . capital expenditures , which totaled $ 25.6 million in 2018 , $ 24.6 million in 2017 and $ 12.7 million in 2016 , were primarily related to the company 's technology programs , it infrastructure and headquarters building improvements in 2018 and 2017. capital expenditures increased from 2016 to 2017 due to technology initiatives which were started in 2017. financing activities in 2018 , we used $ 26.5 million of cash for financing activities , as compared to using $ 3.4 million in 2017 and using $ 69.1 million in 2016 . changes in net cash from financing activities
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in late january 2019 , we announced the topline results of the full data set of the lock-it-100 study . the study continued enrolling and treating subjects until study termination , and the final efficacy analysis was based on a total of 795 subjects . 41 although the fda usually requires two pivotal clinical trials to provide substantial evidence of safety and effectiveness for approval of a new drug application , or the nda , we have had discussions with the fda and plan to proceed with the submission of the nda for neutrolin based on the results of lock-it-100 study . the fda has agreed that the neutrolin nda is eligible for both priority review and for submission under rolling review . in january 2020 , the fda granted the request for rolling review . a determination on priority review will not be made until the submitted nda is reviewed by the fda to determine the acceptance for filing . the fda also agreed that we could request consideration of neutrolin for approval under the limited population pathway for antibacterial and antifungal drugs , or lpad . lpad , passed as part of the 21 st century cures act , is a new program intended to expedite the development and approval of certain antibacterial and antifungal drugs to treat serious or life-threatening infections in limited populations of patients with unmet needs . we believe that lpad will provide additional flexibility for the fda to approve neutrolin to prevent crbsis in the limited population of patients with end-stage renal disease receiving hemodialysis through a central venous catheter . in the european union , or eu , neutrolin is regulated as a class 3 medical device . in july 2013 , we received ce mark approval for neutrolin . in december 2013 , we commercially launched neutrolin in germany for the prevention of crbsi , and maintenance of catheter patency in hemodialysis patients using a tunneled , cuffed central venous catheter for vascular access . to date , neutrolin is registered and may be sold in certain european union and middle eastern countries for such treatment . in september 2014 , the tuv-sud and the medicines evaluation board of the netherlands , or meb , granted a label expansion for neutrolin for these same expanded indications for the eu . in december 2014 , we received approval from the hessian district president in germany to expand the label to include use in oncology patients receiving chemotherapy , iv hydration and iv medications via central venous catheters . the expansion also adds patients receiving medication and iv fluids via central venous catheters in intensive or critical care units ( cardiac care unit , surgical care unit , neonatal critical care unit , and urgent care centers ) . an indication for use in total parenteral nutrition was also approved . in addition to neutrolin , we are sponsoring a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric tumors . in february 2018 , the fda granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children . we may seek one or more strategic partners or other sources of capital to help us develop and commercialize taurolidine for the treatment of neuroblastoma in children . we are also evaluating opportunities for the possible expansion of taurolidine as a platform compound for use in certain medical devices . patent applications have been filed in several indications , including wound closure , surgical meshes , and wound management . based on initial feasibility work , we are advancing pre-clinical studies for taurolidine-infused surgical meshes , suture materials and hydrogels . we will seek to establish development/commercial partnerships as these programs advance . the fda regards taurolidine as a new chemical entity and therefore an unapproved new drug . consequently , there is no appropriate predicate medical device currently marketed in the u.s. on which a 510 ( k ) approval process could be based . as a result , we will be required to submit a premarket approval application , or pma , for marketing authorization for any medical device indications that we may pursue . in the event that an nda for neutrolin is approved by the fda , the regulatory pathway for these medical device product candidates may be revisited with the fda . although there may be no appropriate predicate , de novo class ii designation can be proposed , based on a risk assessment and a reasonable assurance of safety and effectiveness . in april 2019 , we received net proceeds of approximately $ 5,100,000 from the sale of a portion of our unused new jersey nol for the state fiscal year 2018. the nol was sold through the state of new jersey 's economic development authority , or njeda , technology business tax certificate transfer program , which allowed us to sell approximately $ 5,400,000 of our total $ 6,100,000 in available nol tax benefits for the state fiscal year 2018. in september 2019 , our registration with the saudi arabia food and drug administration , or the sfda , expired . as a result , we can not sell neutrolin in saudi arabia . we intend to complete the documentation required to renew our registration with the sfda , however , we can not predict how long the renewal process will take . there is no assurance that the registration will be renewed by the sfda . since our inception , our operations have been primarily limited to conducting clinical trials and establishing manufacturing for our product candidates , licensing product candidates , business and financial planning , research and development , seeking regulatory approval for our products , initial commercialization activities for neutrolin in the eu and other foreign markets , and maintaining and improving our patent portfolio . we have funded our operations primarily through debt and equity financings . story_separator_special_tag we have generated significant losses to date , and we expect to use substantial amounts of cash for our operations as we prepare and submit a nda for neutrolin to the fda , commence pre-launch commercial activities for neutrolin for the u.s. market and commercialize neutrolin in the eu and other foreign markets , pursue business development activities , and incur additional legal costs to defend our intellectual property . as of december 31 , 2019 , we had an accumulated deficit of approximately $ 195.4 million . we are unable to predict the extent of any future losses or when we will become profitable , if ever . 42 financial operations overview revenue we have not generated substantial revenue since our inception . through december 31 , 2019 , we have funded our operations primarily through debt and equity financings . research and development expense research and development , or r & d , expense consists of : ( i ) internal costs associated with our development activities ; ( ii ) payments we make to third party contract research organizations , contract manufacturers , investigative sites , and consultants ; ( iii ) technology and intellectual property license costs ; ( iv ) manufacturing development costs ; ( v ) personnel related expenses , including salaries , stock–based compensation expense , benefits , travel and related costs for the personnel involved in drug development ; ( vi ) activities relating to regulatory filings and the advancement of our product candidates through pre-clinical studies and clinical trials ; and ( vii ) facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . all r & d is expensed as incurred . conducting a significant amount of development is central to our business model . product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development , primarily due to the significantly increased size and duration of the clinical trials . we expect to incur significant r & d expenses for the foreseeable future in order to complete development of neutrolin in the u.s. , including the planned filing of an nda for neutrolin . the process of conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . the probability of success for each product candidate and clinical trial may be affected by a variety of factors , including , among others , the quality of the product candidate 's early clinical data , investment in the program , competition , manufacturing capabilities and commercial viability . as a result of the uncertainties associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when , or to what extent , we will generate revenues from the commercialization and sale of any of our product candidates . development timelines , probability of success and development costs vary widely . we are currently focused on completing the necessary requirements for filing an nda for neutrolin in the u.s. as well as on continuing sales in foreign markets where neutrolin is approved . in december 2015 , we signed an agreement with a cro , to help us conduct our lock-it-100 phase 3 clinical trial in hemodialysis patients with central venous catheters to demonstrate the efficacy and safety of neutrolin in preventing catheter-related bloodstream infections and blood clotting in subjects receiving hemodialysis therapy as treatment for end stage renal disease . during 2018 , we contested a substantial amount of the unpaid clinical trial expense due to the unexpected delay and additional costs we incurred in preparing for the interim analysis of the lock-it-100 study . in november 2018 , we signed a settlement agreement with the cro . in parallel with the settlement agreement , a new work order under the master service agreement was executed specifying certain services the cro would provide to us related to the closeout of the study . the budgeted amount of the new work order was approximately $ 1.4 million , which has been completed . we are pursuing additional opportunities to generate value from taurolidine , an active component of neutrolin . based on initial feasibility work , we have completed an initial round of pre-clinical studies for taurolidine-infused surgical meshes , suture materials , and hydrogels , which require a pma regulatory pathway for approval . we are also involved in a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric tumors . in february 2018 , the fda granted orphan drug designation to taurolidine for the treatment of neuroblastoma in children . we may seek one or more strategic partners or other sources of capital to help us develop and commercialize taurolidine for the treatment of neuroblastoma in children . 43 selling , general and administrative expense selling , general and administrative , or sg & a , expense includes costs related to commercial personnel , medical education professionals , marketing and advertising , salaries and other related costs , including stock-based compensation expense , for persons serving in our executive , sales , finance and accounting functions . other sg & a expense includes facility-related costs not included in r & d expense , promotional expenses , costs associated with industry and trade shows , and professional fees for legal services and accounting services . foreign currency exchange transaction gain ( loss ) foreign currency exchange transaction gain ( loss ) is the result of re-measuring transactions denominated in a currency other than our functional currency and is reported in the consolidated statement of operations as a separate line item within other income ( expense ) .
| sg & a expense for the year ended december 31 , 2019 was $ 9,865,000 , an increase of $ 1,790,000 from $ 8,075,000 for the same period in 2018. the increase was primarily attributable to higher non-cash charges for stock-based compensation of $ 1,114,000 , an increase in consulting fees of $ 723,000 , mainly due to fees related to recruitment of additional personnel , and an increase in personnel expenses of $ 553,000 , mainly due to additional hires . these increases were partially offset , among other items of lesser significance , by a reduction in legal fees related to general legal advice of $ 242,000 , lower costs related to business development activities of $ 120,000 , reduced selling and distribution expenses in the eu of $ 104,000 , and decreases in marketing and research studies and investor relations activities of $ 100,000 and $ 92,000 , respectively . interest income . interest income for the year ended december 31 , 2019 was $ 323,000 , an increase of $ 286,000 from $ 37,000 for the same period in 2018. the increase was attributable to higher average interest-bearing cash balances and short-term investments during the year ending december 31 , 2019 as compared to the same period in 2018. foreign exchange transaction gain ( loss ) . foreign exchange transaction losses for the year ended december 31 , 2019 and 2018 were due to the re-measuring of transactions denominated in a currency other than our functional currency . interest expense . interest expense for the year ended december 31 , 2019 was $ 787,000 as compared to $ 2,000 for the same period in 2018. the increase is due primarily to the amortization of debt discount and non-cash interest expense recognized in connection with the senior secured convertible note issued in december 2018. tax benefit . tax benefit for the year ended december 31 , 2019 of $ 5,061,000 represents an income tax benefit due to the sale of our unused nol for state
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under the share exchange agreement , the mu yan shareholders exchanged 100 % of the outstanding shares of mu yan samoa 's common stock for 300,000,000 shares of the company 's common stock . as a result of the share exchange , effective september 22 , 2020 , the company 's name was changed to mu yan technology group co. , limited . for accounting purposes , the share exchange was treated as a recapitalization of the company with mu yan samoa as the acquirer . when we refer in this annual report to business and financial information for periods prior to the consummation of the share exchange , we are referring to the business and financial information of mu yan samoa unless the context suggests otherwise . as a result of the closing of the share exchange , the mu yan shareholders own approximately 98 % of the total outstanding common shares of the company and the former shareholders of the company own approximately 2 % . the shares issued to the mu yan shareholders in connection with the share exchange were not registered under the securities act in reliance upon the exemption from registration provided by section 4 ( a ) ( 2 ) of the securities act , which exempts transactions by an issuer not involving any public offering . these securities may not be offered or sold absent registration or an applicable exemption from the registration requirement . as a result of the recapitalization described above , management of the company believes that the company is no longer a shell company . the company 's operations now consist of the operations of mu yan samoa and its subsidiaries . since our operating subsidiary , mu yan shenzhen , was formed in september 2019 and did not commence sales of the huobaobao backpack until january 2020 , we have no comparable revenue data for a prior fiscal year , making it impossible to quantify or accurately assess the impact of the covid-19 pandemic on our revenues for the fiscal year ended july 31 , 2020. however , management believes that the pandemic did negatively impact our results of operations and anticipates that the ongoing pandemic will also have a negative effect on the company 's results of operations for the 2021 fiscal year , and possibly longer . throughout the remainder of this annual report , when we use phrases such as “ we , ” “ our , ” “ company ” and “ us , ” we are referring to the company and all of its subsidiaries , as a combined entity . story_separator_special_tag 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify ; text-indent : 35.65pt '' > off-balance sheet arrangements we have no off-balance sheet arrangements ( as that term is defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k ) as of july 31 , 2020 that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources . critical accounting policies and estimates we prepare our financial statements in conformity with u.s. gaap , which requires management to make certain estimates and apply judgments . we base our estimates and judgments on historical experience , current trends and other factors that management believes to be important at the time the financial statements are prepared . on a regular basis , we review our accounting policies and how they are applied and disclosed in our condensed financial statements . actual results could differ from those estimates made by management . 22 we believe that of our significant accounting policies , which are described in note 2 to our financial statements , the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . recently issued and adopted accounting pronouncements in february 2016 , the fasb issued asu 2016-02 , leases ( topic 842 ) . the guidance supersedes existing guidance on accounting for leases with the main difference being that operating leases are to be recorded in the statement of financial position as right-of-use assets and lease liabilities , initially measured at the present value of the lease payments . for operating leases with a term of 12 months or less , a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities . for public business entities , the guidance is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early application of the guidance is permitted . in transition , entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach . mu yan shenzhen leased an office in shenzhen , prc , under an operating lease which will terminate in 2022 ; hence , adoption of this standard by the company resulted in the recognition of right-of-use assets of $ 515,589 and operating lease liabilities of $ 515,589 for the fiscal year ended july 31 , 2020. in june 2016 , the fasb issued asu 2016-13 , financial instruments — credit losses ( topic 326 ) , measurement of credit losses on financial statements . this asu requires a financial asset ( or group of financial assets ) measured at amortized cost basis to be presented at the net amount expected to be collected . the allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset ( s ) to present the net carrying value at the amount expected to be collected on the story_separator_special_tag under the share exchange agreement , the mu yan shareholders exchanged 100 % of the outstanding shares of mu yan samoa 's common stock for 300,000,000 shares of the company 's common stock . as a result of the share exchange , effective september 22 , 2020 , the company 's name was changed to mu yan technology group co. , limited . for accounting purposes , the share exchange was treated as a recapitalization of the company with mu yan samoa as the acquirer . when we refer in this annual report to business and financial information for periods prior to the consummation of the share exchange , we are referring to the business and financial information of mu yan samoa unless the context suggests otherwise . as a result of the closing of the share exchange , the mu yan shareholders own approximately 98 % of the total outstanding common shares of the company and the former shareholders of the company own approximately 2 % . the shares issued to the mu yan shareholders in connection with the share exchange were not registered under the securities act in reliance upon the exemption from registration provided by section 4 ( a ) ( 2 ) of the securities act , which exempts transactions by an issuer not involving any public offering . these securities may not be offered or sold absent registration or an applicable exemption from the registration requirement . as a result of the recapitalization described above , management of the company believes that the company is no longer a shell company . the company 's operations now consist of the operations of mu yan samoa and its subsidiaries . since our operating subsidiary , mu yan shenzhen , was formed in september 2019 and did not commence sales of the huobaobao backpack until january 2020 , we have no comparable revenue data for a prior fiscal year , making it impossible to quantify or accurately assess the impact of the covid-19 pandemic on our revenues for the fiscal year ended july 31 , 2020. however , management believes that the pandemic did negatively impact our results of operations and anticipates that the ongoing pandemic will also have a negative effect on the company 's results of operations for the 2021 fiscal year , and possibly longer . throughout the remainder of this annual report , when we use phrases such as “ we , ” “ our , ” “ company ” and “ us , ” we are referring to the company and all of its subsidiaries , as a combined entity . story_separator_special_tag 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify ; text-indent : 35.65pt '' > off-balance sheet arrangements we have no off-balance sheet arrangements ( as that term is defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k ) as of july 31 , 2020 that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources . critical accounting policies and estimates we prepare our financial statements in conformity with u.s. gaap , which requires management to make certain estimates and apply judgments . we base our estimates and judgments on historical experience , current trends and other factors that management believes to be important at the time the financial statements are prepared . on a regular basis , we review our accounting policies and how they are applied and disclosed in our condensed financial statements . actual results could differ from those estimates made by management . 22 we believe that of our significant accounting policies , which are described in note 2 to our financial statements , the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . recently issued and adopted accounting pronouncements in february 2016 , the fasb issued asu 2016-02 , leases ( topic 842 ) . the guidance supersedes existing guidance on accounting for leases with the main difference being that operating leases are to be recorded in the statement of financial position as right-of-use assets and lease liabilities , initially measured at the present value of the lease payments . for operating leases with a term of 12 months or less , a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities . for public business entities , the guidance is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . early application of the guidance is permitted . in transition , entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach . mu yan shenzhen leased an office in shenzhen , prc , under an operating lease which will terminate in 2022 ; hence , adoption of this standard by the company resulted in the recognition of right-of-use assets of $ 515,589 and operating lease liabilities of $ 515,589 for the fiscal year ended july 31 , 2020. in june 2016 , the fasb issued asu 2016-13 , financial instruments — credit losses ( topic 326 ) , measurement of credit losses on financial statements . this asu requires a financial asset ( or group of financial assets ) measured at amortized cost basis to be presented at the net amount expected to be collected . the allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset ( s ) to present the net carrying value at the amount expected to be collected on the
| general and administrative expenses our general and administrative expenses for the fiscal years ended july 31 , 2020 and 2019 were $ 900,761 and $ 9,945 , respectively . general and administrative expenses consisted primarily of administrative payroll , office expense , depreciation charges and other office expenses that are not directly attributable to our revenues . research and development expenses our research and development expenses for the fiscal years ended july 31 , 2020 and 2019 were $ 322,839 and $ nil , respectively . research and development expenses consist primarily of researchers ' payroll and it services expenses . 21 other income other income was attributed from our one-time consulting service provided to potential distributors of our products in the fiscal year ended july 31 , 2020. income taxes income tax for the fiscal years ended july 31 , 2020 and 2019 were $ 1,044,138 and $ nil , respectively . summary of cash flows summary cash flows information for the fiscal years ended july 31 , 2020 and 2019 are as follow : july 31 , 2020 2019 ( in u.s. dollars ) net cash provided by ( used in ) operating activities $ 1,088,504 $ ( 12,445 ) net cash provided by ( used in ) financing activities $ - $ 13,400 net cash provided by ( used in ) investing activities $ ( 231,436 ) $ - net cash provided ( used ) by operating activities were $ 1,088,504 and $ ( 12,445 ) for the fiscal years ended july 31 , 2020 and 2019 , respectively . the cash provided by operating activities was primarily attributable to advances from customers , inventories , downpayments to suppliers , other payables and amount due to/from related parties . net cash used in investing activities during the fiscal year ended july 31 , 2020 consisted of the purchase of a motor vehicle and office equipment of $ 231,436. net cash used in investing activities during the fiscal year ended july 31 , 2019 was $ nil . financial condition , liquidity and capital resources as of july 31 , 2020 , we had cash on hand of $ $
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management believes that its estimates approximate the actual costs of these services , but estimates could differ from actual costs . total deferred preservation costs are then allocated among the different tissues processed during the period based on specific cost drivers such as the number of donors and the number of tissues processed . at each balance sheet date , a portion of the deferred preservation costs relates to tissues currently in active processing or held in quarantine pending release to implantable status . the company applies a yield estimate to all tissues in process and in quarantine to estimate the portion of tissues that will ultimately become implantable . management determines this estimate of quarantine yields based on its experience in prior periods and reevaluates this estimate periodically . due to the nature of this estimate and the length of the processing times experienced by the company , actual yields could differ from the company 's estimates . a significant change in quarantine yields could result in an adjustment to or write-down of deferred preservation costs and , therefore , materially affect the amount of deferred preservation costs on the company 's consolidated balance sheets and the cost of preservation services on the company 's consolidated statements of operations . as a part of the normal course of business , the company regularly evaluates its deferred preservation costs to determine if the costs are appropriately recorded at the lower of cost or market value or if there is any impairment to the costs for tissues not expected to ship prior to the expiration date of its packaging . cryolife records a charge to cost of preservation services to write-down the amount of deferred preservation costs not deemed to be recoverable . typically , lower of cost or market value write-downs are primarily due to excess tissue processing costs incurred that exceed the estimated market value of the tissue services , based on then recent average service fees . impairment write-downs are recorded based on the book value of the impaired tissues . actual results may differ from these estimates . these write-downs are permanent impairments that create a new cost basis , which can not be restored to its previous levels if the market value of tissue services increase or when tissues are shipped or become available for shipment . the company recorded write-downs to its deferred preservation costs totaling $ 270,000 , $ 187,000 , and $ 91,000 for the years ended december 31 , 2011 , 2010 , and 2009 , respectively . as of december 31 , 2011 deferred preservation costs consisted of $ 10.2 million for heart valves , $ 2.4 million for cardiac patch tissues , and $ 16.4 million for vascular tissues . as of december 31 , 2010 deferred preservation costs consisted of $ 12.0 million for heart valves , $ 2.5 million for cardiac patch tissues , and $ 17.1 million for vascular tissues . deferred income taxes deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax return purposes . the company periodically assesses the recoverability of its deferred tax assets , as necessary , when the company experiences changes that could materially affect its determination of the recoverability of its deferred tax assets . management provides a valuation allowance against the deferred tax asset when , as a result of this analysis , management believes it is more likely than not that some portion or all of its deferred tax assets will not be realized . assessing the recoverability of deferred tax assets involves a high degree of judgment and complexity . estimates and judgments used in the determination of the need for a valuation allowance and in calculating the amount of a needed valuation allowance include , but are not limited to , the following : projected future operating results , anticipated future state tax apportionment , timing and amounts of anticipated future taxable income , timing of the anticipated reversal of book/tax temporary differences , evaluation of statutory limits regarding usage of certain tax assets , and evaluation of the statutory periods over which certain tax assets can be utilized . significant changes in the factors above , or other factors , could materially adversely impact the company 's ability to use its deferred tax assets . such changes could have a material adverse impact on the company 's operations , financial condition , and cash flows . the company will continue to assess the recoverability of its deferred tax assets , as necessary , when the company experiences changes that could materially affect its prior determination of the recoverability of its deferred tax assets . the company believes that the realizability of its deferred tax assets will be limited in future periods due to a change in control of its subsidiary cardiogenesis , as mandated by section 382 of the internal revenue code of 1986 , as amended , as a result of the company 's acquisition of cardiogenesis in the second quarter of 2011. the deferred tax assets recorded on the 47 company 's consolidated balance sheets do not include amounts that it expects will not be realizable due to this change in control . the company 's tax years 2008 through 2011 generally remain open to examination by the major taxing jurisdictions to which the company is subject . however , certain returns from years prior to 2008 , in which net operating losses and tax credits have arisen , are still open for examination by the tax authorities . liability claims in the normal course of business the company is made aware of adverse events involving its tissues and products . any adverse event could ultimately give rise to a lawsuit against the company . in addition , tissue processing and product liability claims may be asserted against the company in the future based on events it is not aware of at the present time . story_separator_special_tag the company maintains claims-made insurance policies to mitigate its financial exposure to tissue processing and product liability claims . claims-made insurance policies generally cover only those asserted claims and incidents that are reported to the insurance carrier while the policy is in effect . thus , a claims-made policy does not generally represent a transfer of risk for claims and incidents that have been incurred but not reported to the insurance carrier during the policy period . any punitive damage components of claims are uninsured . the company estimates its liability for and any related recoverable under the company 's insurance policies as of each balance sheet date . the company uses a frequency-severity approach to estimate its unreported tissue processing and product liability claims , whereby , projected losses are calculated by multiplying the estimated number of claims by the estimated average cost per claim . the estimated claims are determined based on the reported claim development method and the bornhuetter-ferguson method using a blend of the company 's historical claim experience and industry data . the estimated cost per claim is calculated using a lognormal claims model blending the company 's historical average cost per claim with industry claims data . the company uses a number of assumptions in order to estimate the unreported loss liability including : a ceiling of $ 5.0 million was selected for actuarial purposes in determining the liability per claim given the uncertainty in projecting claim losses in excess of $ 5.0 million , the future claim reporting lag time would be a blend of the company 's experiences and industry data , the frequency of reported claims would be based on the company 's past experience for policy years 1993/1994 through the present with consideration given to the frequency spike experienced in policy year 2002/2003 , the average cost per claim would be consistent with the company 's historical experience , adjusted to current cost levels , the average cost per bioglue claim would be consistent with the company 's overall historical exposures until adequate historical data is available on these product lines , the number of bioglue claims per million dollars of bioglue revenue would be 60 % lower than non-bioglue claims per million dollars of revenue . the 60 % factor was selected based on bioglue claims experience to date and consultation with the actuary , and the number of cardiogenesis claims per million dollars of cardiogenesis revenue would be 85 % lower than non-cardiogenesis claims per million dollars of revenue . the 85 % factor was selected based on cardiogenesis claims experience to date and consultation with the actuary . the company believes that the assumptions it uses to determine its unreported loss liability provide a reasonable basis for its calculation . however , the accuracy of the estimates is limited by the general uncertainty that exists for any estimate of future activity due to uncertainties surrounding the assumptions used and due to company specific conditions and the scarcity of industry data directly relevant to the company 's business activities . due to these factors , actual results may differ significantly from the assumptions used and amounts accrued . the company accrues its estimate of unreported tissue processing and product liability claims as components of accrued expenses and other long-term liabilities and records the related recoverable insurance amounts as a component of receivables and other long-term assets . the amounts recorded represent management 's estimate of the probable losses and anticipated recoveries for unreported claims related to services performed and products sold prior to the balance sheet date . the company expenses the costs of legal services , including legal services related to tissue processing and product liability claims , as they are incurred . 48 valuation of acquired assets or businesses as part of its corporate strategy , the company is seeking to identify and evaluate acquisition opportunities of complementary product lines and companies . the company evaluates and accounts for acquired patents , licenses , distribution rights , and other tangible or intangible assets as the purchase of an asset or asset group , or as a business combination , as appropriate . the determination of whether the purchase of a group of assets should be accounted for as an asset group or as a business combination requires significant judgment based on the weight of available evidence . for the purchase of an asset group , the company allocates the cost of the asset group , including transaction costs , to the individual assets purchased based on their relative estimated fair values . in-process research and development acquired as part of an asset group is expensed upon acquisition . the company accounts for business combinations by allocating the purchase price to the assets and liabilities acquired at their estimated fair value . transaction costs related to a business combination are expensed as incurred . in-process research and development acquired as part of a business combination is accounted for as an indefinite-lived intangible asset until the related research and development project gains regulatory approval or is discontinued . the company engages external advisors to assist it in determining the fair value of acquired asset groups or business combinations , using cost , market , or income valuation methodologies , as appropriate , including : the excess earnings , the discounted cash flow , or the relief from royalty methods . the determination of fair value requires significant judgments and estimates , including , but not limited to : timing of product life cycles , estimates of future revenues , estimates of profitability for new or acquired products , cost estimates for new or changed manufacturing processes , estimates of the cost or timing of obtaining regulatory approvals , estimates of the success of competitive products , and discount rates . management , in consultation with its advisor ( s ) , makes these estimates based on its prior experiences and industry knowledge . management believes that its estimates are reasonable , but actual results could differ significantly from the company 's estimates .
| the reduction in revenues from the decrease in volume and cardiac tissue mix for both the three and twelve months ended december 31 , 2011 was primarily due to a decrease in volume of cardiac valve shipments . for the twelve months ended december 31 , 2011 this decrease was partially offset by an increase in the volume of lower fee cardiac patch tissues . the company believes that the decrease in unit shipments of cardiac valves was primarily due to increasing pressure from lower cost competitive products and to continuing cost containment practices at certain hospitals . the company believes that these pressures will persist , but that they will be largely offset in 2012 by the activities of its expanded sales staff which increased as a result of the company 's acquisition of cardiogenesis . revenues from synergraft processed tissues , including the cryovalve sgpv and cryopatch sg , accounted for 39 % and 40 % of total cardiac preservation services revenues for the three and twelve months ended december 31 , 2011 , respectively , and 40 % and 35 % of total cardiac preservation services revenues for the three and twelve months ended december 31 , 2010 , respectively . domestic revenues accounted for 92 % and 91 % of total cardiac preservation services revenues for the three and twelve months ended december 31 , 2011 , respectively , and 91 % and 93 % of total cardiac preservation services revenues for the three and twelve months ended december 31 , 2010 , respectively . vascular preservation services revenues from vascular preservation services increased 17 % for the three months ended december 31 , 2011 as compared to the three months ended december 31 , 2010 , primarily due to a 14 % increase in unit shipments of vascular tissues , which increased revenues by 16 % and by an increase in average service fees , which increased revenues by 1 % . revenues from vascular preservation services increased 5 % for the twelve months ended december 31 , 2011 as
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as a consequence of the business combination , we became a nasdaq-listed company , which will require that we continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices . we expect to incur additional annual expenses as a public company for , among other things , directors ' and officers ' liability insurance , director fees and additional internal and external accounting , legal and administrative resources , including increased audit , compliance , and legal fees . key factors affecting operating results we believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges , including those set forth in the section entitled `` risk factors . '' commercial launch of nikola heavy duty trucks and other products we expect to derive revenue from our bev trucks in late 2021 and fcev trucks in the second half 2023. prior to commercialization , we must complete modification or construction of required manufacturing facilities , purchase and integrate related equipment and software , and achieve several research and development milestones . as a result , we will require substantial additional capital to develop our products and services and fund operations for the foreseeable future . until we can generate sufficient revenue from product sales and hydrogen fcev leases , we expect to finance our operations through a combination of existing cash on hand , public offerings , private placements , debt financings , collaborations , and licensing arrangements . the amount and timing of our future funding requirements will depend on many factors , including the pace and results of our development efforts . any delays in the successful completion of our manufacturing facility will impact our ability to generate revenue . customer demand while our products are not yet commercially available , we have received significant interest from potential customers . going forward , we expect the size of our committed reservations to be an important indicator of our future performance . 55 basis of presentation currently , we conduct business through one reportable and one operating segment . see note 2 in the accompanying audited consolidated financial statements for more information . components of results of operations revenues to date , we have primarily generated revenue from services related to solar installation projects that are completed in one year or less . solar installation projects are not a part of our primary operations and were concluded in 2020. following the anticipated introduction of our products to the market , we expect the significant majority of our revenue to be derived from direct sales of bev trucks starting in 2021 and from the bundled leases of fcev trucks beginning in 2023. our bundled lease offering is inclusive of the cost of the truck , hydrogen fuel and regularly scheduled maintenance . we expect the bundled leases to qualify for the sales type lease accounting under gaap , with the sale of the truck recognized upon the transfer of the title , and hydrogen fuel and maintenance revenues recognized over time as they are being provided to the customer . cost of revenues to date , our cost of revenues has included materials , labor , and other direct costs related to solar installation projects . once we have reached commercial production , cost of revenues will include direct parts , material and labor costs , manufacturing overhead , including amortized tooling costs and depreciation of our greenfield manufacturing facility , depreciation of our hydrogen fueling stations , cost of hydrogen production , shipping and logistics costs and reserves for estimated warranty expenses . research and development expense research and development expenses consist primarily of costs incurred for the discovery and development of our vehicles , which include : fees paid to third parties such as consultants and contractors for outside development ; expenses related to materials , supplies and third-party services , including prototype tooling and non-recurring engineering . personnel-related expenses , including salaries , benefits , and stock-based compensation expense , for personnel in our engineering and research functions ; depreciation for prototyping equipment and r & d facilities . during the years ended december 31 , 2020 , 2019 , and 2018 our research and development expenses were primarily incurred in the development of the bev and fcev trucks . as a part of its in-kind investment , iveco is providing us with $ 100.0 million in advisory services ( based on pre-negotiated hourly rates ) , including project coordination , drawings , documentation support , engineering support , vehicle integration , and product validation support . during the years ended december 31 , 2020 and 2019 , we utilized $ 45.7 million and $ 8.0 million , respectively , of advisory services which were recorded as research and development expense . as of december 31 , 2020 , we have $ 46.3 million of prepaid in-kind advisory services remaining which is expected to be consumed in 2021 and will be recorded as research and development expense until we reach commercial production . we expect our research and development costs to increase for the foreseeable future as we continue to invest to achieve our technology and product roadmap goals . selling , general , and administrative expense selling , general , and administrative expenses consist of personnel related expenses for our corporate , executive , finance , and other administrative functions , expenses for outside professional services , including legal , audit and accounting services , as 56 well as expenses for facilities , depreciation , amortization , travel , and marketing costs . personnel related expenses consist of salaries , benefits , and stock-based compensation . story_separator_special_tag we expect our selling , general , and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business , and as a result of operating as a public company , including compliance with the rules and regulations of the securities exchange commission , legal , audit , additional insurance expenses , investor relations activities , and other administrative and professional services . impairment expense impairment expense consists of charges related to our powersports business unit that was discontinued in the fourth quarter of 2020 , including intangible assets consisting of in-process r & d and trademarks , and long-lived assets . interest income , net interest income , net consists primarily of interest received or earned on our cash and cash equivalents balances . interest expense consists of interest paid on our term loan and finance lease liability . revaluation of series a redeemable convertible preferred stock warrant liability the revaluation of series a redeemable convertible preferred stock warrant liability includes gains and losses from the remeasurement of our redeemable convertible preferred stock warrant liability . as of december 31 , 2019 , all of our outstanding redeemable convertible preferred stock warrants were exercised , therefore , subsequent to 2019 , there is no impact from the remeasurement of redeemable convertible preferred stock warrants . loss on forward contract liability the loss on forward contract liability includes losses from the remeasurement of the series d redeemable convertible preferred share forward contract liability . in april 2020 , the forward contract liability was fulfilled and , therefore , subsequent to june 30 , 2020 , there is no impact from the remeasurement of the forward contract liability . other income ( expense ) , net other income ( expense ) , net consists primarily of other miscellaneous non-operating items , such as government grants , subsidies , merchandising , foreign currency gains and losses , and unrealized gains and losses on investments . income tax expense ( benefit ) our income tax provision consists of an estimate for u.s. federal and state income taxes based on enacted rates , as adjusted for allowable credits , deductions , uncertain tax positions , changes in deferred tax assets and liabilities , and changes in the tax law . due to cumulative losses , we maintain a valuation allowance against u.s. and state deferred tax assets . cash paid for income taxes , net of refunds during the years ended december 31 , 2020 , 2019 , and 2018 was not material . equity in net loss of affiliate equity in net loss of affiliate consists of our portion of losses from our joint venture , nikola iveco europe , gmbh . 57 story_separator_special_tag 2020 . 59 comparison of year ended december 31 , 2019 to year ended december 31 , 2018 the following table sets forth our historical operating results for the periods indicated : replace_table_token_4_th solar revenues and cost of solar revenues solar revenues and cost of solar revenues for the years ended december 31 , 2019 and 2018 were related to solar installation service projects . solar installation projects are related to legacy projects that were not related to our primary operations and were concluded in 2020. solar revenues and costs of solar revenues were immaterial for the years ended december 31 , 2019 and 2018. research and development research and development expenses increased by $ 9.1 million or 16 % from $ 58.4 million during the year ended december 31 , 2018 to $ 67.5 million in the year ended december 31 , 2019. the increase was primarily due to an increase of $ 13.3 million in personnel related expenses , offset by a $ 4.4 million decrease in outside development expenses . the increase in personnel costs was primarily driven by our increased engineering headcount year over year as we continue to advance the development and design of our vehicles and invest in our in-house engineering capabilities . outside development and materials expenses were higher in the year ended december 31 , 2018 to support the development and build of the fcev trucks , along with other vehicles . additionally , in the year ended december 31 , 2019 , we managed our outside research and development spend by building our internal engineering team and expect to continue to do so going forward . 60 selling , general , and administrative selling , general , and administrative expenses increased by $ 8.5 million or 69 % from $ 12.2 million during the year ended december 31 , 2018 to $ 20.7 million during the year ended december 31 , 2019 , primarily due to a one-time payment of $ 2.1 million related to consulting services on future manufacturing site selection , and higher marketing expenses of $ 2.7 million primarily related to the nikola world event held in april 2019. the remaining $ 3.7 million increase is attributed to higher personnel expenses driven by growth in headcount and higher general corporate expenses , including depreciation of our headquarters in phoenix , arizona . interest income , net interest income , net increased by $ 0.8 million or 112 % , from $ 0.7 million during the year ended december 31 , 2018 to $ 1.5 million during the year ended december 31 , 2019. the increase was primarily due to the substantial portion of cash and cash equivalents on hand being moved to a higher interest-bearing investment account in the second quarter of 2019. revaluation of series a redeemable convertible preferred stock warrant liability the revaluation of series a redeemable convertible preferred stock warrant liability decreased $ 6.8 million due to a $ 3.5 million gain recorded during the year ended december 31 , 2018 on 3.0 million series a redeemable convertible preferred warrants which expired in march 2018 as opposed to a $ 3.3 million loss recorded during the year ended december 31 , 2019 on 720 thousand series a warrants which were exercised in december 2019. other income , net other income , net increased by $ 1.4 million , from $
| 58 selling , general , and administrative selling , general , and administrative expenses increased by $ 162.0 million or 783 % from $ 20.7 million during the year ended december 31 , 2019 to $ 182.7 million during the year ended december 31 , 2020. t he increase was primarily related to higher stock-based compensation expense of $ 117.9 million for rsu grants to executive officers in connection with the business combination and increased headcount . in addition , there was an increase in legal expenses of $ 27.5 million primarily related to regulatory and legal matters incurred in connection with the short-seller analyst report from september 2020. further , there was an increase in personnel expenses of $ 7.3 million driven by growth in headcount and higher general corporate expenses , professional services , travel , and depreciation of our headquarters . this was partially offset by a decrease in marketing costs due to the nikola world event held in 2019 , which was not held in 2020. impairment expense impairment expense of $ 14.4 million during the year ended december 31 , 2020 resulted from the discontinuation of the powersports business unit in the fourth quarter of 2020 , which resulted in an impairment charge on in-process r & d , trademarks and certain long-lived assets . interest income , net interest income , net decreased by $ 1.3 million or 86 % , from $ 1.5 million of income during the year ended december 31 , 2019 to $ 0.2 million of income during the year ended december 31 , 2020. the decrease is primarily due to an increase in interest expense from our finance lease liability and a lower average interest rate earned on deposits . this was partially offset by a higher cash and cash equivalents balance in 2020. loss on forward contract liability our loss on the forward contract liability represents recognized loss from a $ 1.3 million change in fair value as of the settlement date . the forward contract liability was settled in april 2020. other income ( expense ) , net other income ( expense ) , net decreased by $ 2.2 million , from $ 1.4 million of income during the year ended december 31 , 2019 to $ 0.8 million of expense during the year ended december 31 , 2020. the decrease was driven primarily
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other restaurant operating expenses other restaurant operating expenses , including preopening operating expenses , consist of company-operated restaurant-level ancillary expenses not inclusive of food and beverage , labor and rent expense . these expenses are generally marketing , advertisings , merchant and bank fees , utilities , leasehold and equipment repairs and maintenance . a portion of these costs are associated with third party delivery services such as uber eats , grub hub , doordash , seamless , etc . the fees associated with these third-party delivery services can range up to 25 % of the total order being delivered . management believes delivery is a critical component of our business model and industry trends will continue to push consumers towards delivery . our cost structure will need to be adjusted to reflect a different pricing model , portion sizes , menu offerings , etc to potentially offset these rising costs of delivery . 46 depreciation and amortization depreciation and amortization primarily consist of the depreciation of property and equipment and amortization of intangible assets at the restaurant level . other expenses incurred for closed locations other expenses incurred for closed locations consist of primarily of restaurant operating expenses incurred subsequent to store closures as the company still has to certain obligations to vendors due to signed agreements . general and administrative expenses general and administrative expenses include expenses associated with corporate and administrative functions that support our operations , including wages , benefits , travel expense , stock-based compensation expense , legal and professional fees , training , and other corporate costs . this expense item also includes national advertising and marketing campaigns to promote brand awareness which includes , but is not limited to , television , radio , social media , billboards , point-of-sale materials , sponsorships , and multi-media . a certain portion of these expenses are related to the preparation of an initial stock offering and should be considered one-time expenses . other ( expense ) income other ( expenses ) income primarily consists of amortization of debt discounts on the convertible notes payable to former parent and interest expense related to convertible notes payable . income taxes income taxes represent federal , state , and local current and deferred income tax expense . 47 story_separator_special_tag cellpadding= '' 0 '' cellspacing= '' 0 '' style= '' border-collapse : collapse ; width : 100 % ; font-size : 10pt '' > other restaurant operating expenses for the year ended december 31 , 2018 and december 31 , 2017 totaled $ 853,197 , or 22.0 % as a percentage of restaurant sales , and $ 1,283,286 , or 24.6 % as a percentage of restaurant sales , respectively . the $ 430,089 decrease is primarily attributed to eight store closures throughout 2018. cost of other revenues for the year ended december 31 , 2018 and december 31 , 2017 totaled $ 114,388 , or 46.8 % , as a percentage of other revenue , and $ 330,367 , or 45.5 % , as a percentage of other revenue , respectively . the $ 215,979 decrease resulted from the sale of cti during may 2018. the increase as a percentage of other revenues resulted primarily from increased costs from service providers with no corresponding increase in monthly services fees being charged to our customers . other expenses incurred for closed locations for the year ended december 31 , 2018 totaled $ 321,821. this consisted predominantly of rent expense of approximately $ 258,000 incurred for closed locations while the remaining expense of approximately $ 64,000 consisted of expenses that would typically be consider as other restaurant operating expenses if the locations where not closed but the company was still obligated to pay . depreciation and amortization expense for the year ended december 31 , 2018 and december 31 , 2017 totaled $ 200,885 and $ 446,369 , respectively . the $ 245,484 decrease is primarily attributable to lower depreciation expense of property and equipment due to the eight store closures throughout 2018 and impairment of property and equipment taken in the latter part of 2017. general and administrative expenses for the year ended december 31 , 2018 and december 31 , 2017 totaled $ 4,358,131 , or 72.4 % of total revenue , and $ 7,983,673 , or 100.7 % of total revenue , respectively . the $ 3,625,542 decrease is primarily attributable to less expenses incurred for developing the company 's corporate infrastructure the decrease is also attributed to a decrease in third party accounting and legal fees of approximately $ 1,259,000 as the company used less temporary accounting services and incurred fewer legal reorganizational research to facilitate sec financial statement preparation . in addition , there were decreases of approximately $ 1,001,000 in salaries , wages and benefits , approximately $ 348,000 in stock-based compensation as fewer restricted stock vest in the current period as compared to prior period , approximately $ 430,000 in cti expenses due to the sale of cti and approximately $ 583,000 in marketing expenses . the decreases are partially offset by an increase of approximately $ 584,000 in consulting expenses , approximately $ 82,000 in rent expense incurred due to the corporate office closure and the new corporate office space , approximately $ 73,000 in recruiting fees incurred specifically in connection with hiring new executives during 2018. loss from operations our loss from operations for the year ended december 31 , 2018 and december 31 , 2017 totaled $ 3,585,846 , or 59.5 % of total revenues and $ 11,931,024 , or 150.5 % of total revenue , respectively . this resulted in a decrease of $ 8,345,178 in loss from operations which is primarily attributable to a decrease in total cost of expenses of approximately $ 10,250,000 offset by a decrease in total revenues of approximately $ 1,907,000 . 50 other ( expense ) income other expense for the year ended december 31 , 2018 and december 31 , 2017 totaled $ 3,618,694 and $ 3,883,254 , respectively . story_separator_special_tag the $ 264,560 decrease in expense was primarily attributable to a decrease in amortization of debt discounts of approximately $ 1,682,000 in connection with convertible notes payable as compared to the prior year , partially offset by an increase in interest expense of approximately $ 968,000 incurred in connection with the default of a notes payable , accrued interest on notes and interest expense incurred in connection with warrants and the loss on sale of cti of approximately $ 456,000. net loss our net loss for the year ended december 31 , 2018 decreased by $ 8,363,211 to $ 7,204,540 as compared to 15,567,751 for the year ended december 31 , 2017 , resulting primarily from a significant decrease in loss of operations and a decrease in other ( expense ) income as discussed above . our net loss attributable to the controlling interest was $ 7,202,469 and $ 13,210,448 for the year ended december 31 , 2018 and december 31 , 2017 , respectively . liquidity and capital resources liquidity we measure our liquidity in a number of ways , including the following : replace_table_token_3_th availability of additional funds and going concern based upon our working capital deficiency and accumulated deficit of $ 3,879,163 and $ 23,833,656 , respectively , as of december 31 , 2018 , plus our use of $ 2,726,737 of cash in operating activities during the year ended december 31 , 2018 , we require additional equity and or debt financing to continue our operations . these conditions raise substantial doubt about our ability to continue as a going concern for at least one year from the date of this filing . as a result of the foregoing factors , together with our recurring losses from operations and negative cash flows since inception , our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited consolidated financial statements for the fiscal years ended december 31 , 2018 and 2017. during prior periods our operations have primarily been funded through proceeds from american restaurant holdings in exchange for equity and debt . our principal source of liquidity to date has been provided by ( i ) investment from american restaurant holdings , a private equity restaurant group , ( ii ) loans and convertible loans from related and unrelated third parties and ( iii ) the sale of common stock through private placements . more specifically , american restaurant holdings has invested over $ 5 million in growth capital into the company to date . additionally , the company has been funded through proceeds from the issuance of 15 % senior secured debt and 12 % secured convertible debt offer through various private offering in the aggregate amount of approximately $ 6,300,000 . 51 we expect to have ongoing needs for working capital in order to ( a ) fund operations ; plus ( b ) expand operations by opening additional corporate-owned restaurants . to that end , we may be required to raise additional funds through equity or debt financing . however , there can be no assurance that we will be successful in securing additional capital . if we are unsuccessful , we may need to ( a ) initiate cost reductions ; ( b ) forego business development opportunities ; ( c ) seek extensions of time to fund its liabilities , or ( d ) seek protection from creditors . in addition , if we are unable to generate adequate cash from operations , and if we are unable to find sources of funding , it may be necessary for us to sell one or more lines of business or all or a portion of our assets , enter into a business combination , or reduce or eliminate operations . these possibilities , to the extent available , may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our company . if we are able to raise additional capital , we do not know what the terms of any such capital raising would be . in addition , any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade . our inability to raise capital could require us to significantly curtail or terminate our operations . we may seek to increase our cash reserves through the sale of additional equity or debt securities . the sale of convertible debt securities or additional equity securities could result in additional and potentially substantial dilution to our shareholders . the incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity . in addition , our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties . our audited consolidated financial statements included elsewhere in this 10k document have been prepared in conformity with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) , which contemplate our continuation as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business . the carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values . the consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty . sources and uses of cash for the years ended december 31 , 2018 and december 31 , 2017 for the year ended december 31 , 2018 and 2017 , we used cash of $ 2,726,737and $ 3,676,999 , respectively , in operations .
| restaurant food and beverage costs for the year ended december 31 , 2018 and december 31 , 2017 totaled $ 1,432,653 or 37.0 % as a percentage of company restaurant net sales , and $ 1,946,643 or 37.3 % , as a percentage of company restaurant net sales , respectively . the $ 513,990 decrease resulted primarily from the eight store closures throughout 2018. the current management team in place since may 2018 believes the overall food cost percentages for both 2018 and 2017 are too high and have been working on implementing new operational measures to lower these costs in 2019. restaurant labor for the year ended december 31 , 2018 and december 31 , 2017 totaled $ 1,646,264 , or 42.5 % , as a percentage of company restaurant net sales , and $ 2,634,730 , or 50.5 % , as a percentage of company restaurant net sales , respectively . the $ 988,466 decrease results primarily from eight store closures throughout 2018. the decrease as a percentage of sales is primarily attributable to improved efficiencies and fewer new locations that are being opened as compared to the prior period as new locations typically have higher starting operation efficiencies . the current management team in place since may 2018 believes the overall labor cost percentages for both 2017 and 2018 are too high and have started to implement new operational measures to lower these costs as a percentage of corporate restaurant net sales in 2019. restaurant rent expense for the year ended december 31 , 2018 and december 31 , 2017 totaled $ 681,176 , or 17.6 % as a percentage of restaurant sales , and $ 927,610 , or 17.8 % , as a percentage of restaurant sales , respectively . the $ 246,434 decrease results primarily from the settlement on leases for the eight store closures throughout 2018.the decrease as a percentage of sales is primarily attributable to the impact of the eight store closures . our current strategy focuses on new corporately owned non-traditional locations such as military bases with variable rent structures no greater than 10 % of corporate restaurant revenue net sales . this is a significantly lower number than what was reported in 2018 and
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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 hurricane harvey on several of our properties in texas ; 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 ; in august , 2011 , the budget control act of 2011 ( the “ 2011 act ” ) was enacted into law . the 2011 act imposed annual spending 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 . the 2011 act provides for new spending on program integrity initiatives intended to reduce fraud and abuse under the medicare program . 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 , 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 federal other deficit reduction initiatives 31 m ay be proposed by congress going forward . we also can not predict the effect these enactments will have on operators ( including uhs ) , and , thus , our business ; in march , 2010 , the health care and education reconciliation act of 2010 and the patient protection and affordable care act ( the “ aca ” ) were enacted into law and created significant changes to health insurance coverage for u.s. citizens as well as material revisions to the federal medicare and state medicaid programs . the two combined primary goals of these acts are to provide for increased access to coverage for healthcare and to reduce healthcare-related expenses . medicare , medicaid and other health care industry changes are scheduled to be implemented at various times during this decade . initiatives to repeal the aca , in whole or in part , to delay elements of implementation or funding , and to offer amendments or supplements to modify its provisions , have been persistent . the ultimate outcomes of legislative attempts to repeal or amend the aca and legal challenges to the aca are unknown . recent congressional and presidential election results created a political environment in which there have been repeated attempts to repeal or replace substantial portions of the aca ; 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 . story_separator_special_tag 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 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 ; and ( vi ) the issuance of a proposed rule by the department of labor , treasury , and health and human services that would be incentivize the use of health reimbursement accounts by employers to permit employees to purchase health insurance in the individual market . 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 . 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 . while that ruling is stayed and has been appealed , it has caused greater uncertainty regarding the future status of the aca . if all or any parts of the aca are 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 our operators from other reits ; 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 four 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 32 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 ) sel l the entire ownership interest of the offering member to the non-offering member ( “ offer to sell ” ) at a price as determined by the offering member ( “ transfer price ” ) , or ; ( ii ) purchase the entire ownership interest of the non-offering member ( “ offer to pu rchase ” ) 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 offeri ng 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 .
| the increase in operating expenses during 2018 as compared to 2017 is partially due to : ( i ) the newly constructed medical office building which opened in april , 2017 , and ; ( ii ) approximately $ 400,000 of non-recurring repairs and remediation expenses incurred at one of our medical office buildings . 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 condensed consolidated statements of income . during 2018 , we had a total of 34 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 accounted for by the equity method . these leases comprised approximately 17 % of the aggregate rentable square feet of these properties ( 14 % related to renewed leases and 3 % related to new leases ) . during 2017 , we had a total of 38 new or renewed leases related to the medical office buildings , in which we have significant investments , some of which are accounted for by the equity method . these leases comprised approximately 10 % of the aggregate rentable square feet of these properties ( 7 % related to renewed leases and 3 % related to new leases ) . rental rates , tenant improvement costs and rental concessions vary from property to property based upon factors such as , but not limited to , the current occupancy and age of our buildings , local overall economic conditions , proximity to hospital campuses and the vacancy rates , rental rates and capacity of our competitors in the market . the weighted-average tenant improvement costs associated with new or renewed leases was approximately $
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during the year ended december 31 , 2019 , the retail/ltc segment filled 1.4 billion prescriptions on a 30-day equivalent basis . for the year ended december 31 , 2019 , the company dispensed approximately 26.6 % of the total retail pharmacy prescriptions in the united states . overview of the health care benefits segment the health care benefits segment is one of the nation 's leading diversified health care benefits providers , serving an estimated 37 million people as of december 31 , 2019 . the health care benefits segment has the information and resources to help members , in consultation with their health care professionals , make more informed decisions about their health care . the health care benefits segment offers a broad range of traditional , voluntary and consumer-directed health insurance products and related services , including medical , pharmacy , dental and behavioral health plans , medical management capabilities , medicare advantage and medicare supplement plans , pdps , medicaid health care management services , workers ' compensation administrative services and health information technology products and services . the health care benefits segment 's customers include employer groups , individuals , college students , part-time and hourly workers , health plans , health care providers ( “ providers ” ) , governmental units , government-sponsored plans , labor groups and expatriates . the company refers to insurance products ( where it assumes all or a majority of the risk for medical and dental care costs ) as “ insured ” and administrative services contract products ( where the plan sponsor assumes all or a majority of the risk for medical and dental care costs ) as “ asc. ” for periods prior to november 28 , 2018 ( the aetna acquisition date ) , the health care benefits segment was comprised of the company 's silverscript pdp business . overview of the corporate/other segment the company presents the remainder of its financial results in the corporate/other segment , which consists of : management and administrative expenses to support the overall operations of the company , which include certain aspects of executive management and the corporate relations , legal , compliance , human resources , information technology and finance departments , expenses associated with the company 's investments in its transformation and enterprise modernization programs and acquisition-related transaction and integration costs ; and products for which the company no longer solicits or accepts new customers such as large case pensions and long-term care insurance products . 59 story_separator_special_tag style= '' padding-bottom:4px ; font-family : times new roman ; font-size:10pt ; '' > in connection with certain business dispositions completed between 1995 and 1997 , the company retained guarantees on store lease obligations for a number of former subsidiaries , including linens ‘ n things , which filed for bankruptcy in 2008 , and bob 's stores , which filed for bankruptcy in 2016. the company 's loss from discontinued operations primarily includes lease-related costs required to satisfy its linens ‘ n things and bob 's stores lease guarantees . see “ discontinued operations ” in note 1 ‘ ‘ significant accounting policies '' and “ lease guarantees ” in note 16 ‘ ‘ commitments and contingencies '' included in item 8 of this 10-k for additional information about the company 's discontinued operations and the company 's lease guarantees , respectively . 61 outlook for 2020 with respect to 2020 , the company believes you should consider the following important information : the pharmacy services segment is expected to benefit from continued improvements in purchasing economics and enterprise modernization , partially offset by net selling season losses during 2020 and continued price compression . the retail/ltc segment is expected to benefit from projected adjusted script growth driven by the continued successful execution of patient care programs , partially offset by continued reimbursement pressure . the health care benefits segment is expected to benefit from government services membership growth including projected above-industry growth in its medicare advantage products and new medicaid contract wins , as well as integration synergies that will continue to disproportionately benefit the health care benefits segment . the patient protection and affordable care act and the health care and education reconciliation act of 2010 ( collectively , the “ aca ” ) imposes a significant industry-wide fee known as the health insurer fee ( the “ hif ” ) . the hif is non-deductible for federal income tax purposes and is allocated to insurers based on the ratio of the amount of an insurer 's net premium revenues written during the preceding calendar year to the amount of health insurance premium for all u.s. health risk for certain lines of business during the preceding calendar year . the hif was suspended for 2019 , will be $ 15.5 billion for 2020 and has been repealed for calendar years after 2020. while the company expects the reintroduction of the hif to result in a lower medical benefit ratio ( “ mbr ” ) in 2020 compared to 2019 , all else being equal , the company expects its 2020 consolidated net income will be negatively impacted due to an increase in its effective income tax rate in 2020 compared to 2019 as a result of the non-deductibility of the hif . the company believes that it is on track to achieve its 2020 target of $ 800-900 million of synergies from the aetna acquisition . the company expects changes to its business environment to continue for the next several years as elected and other government officials at the national and state levels continue to propose and enact significant modifications to public policy and existing laws and regulations that govern the company 's businesses . the company 's current expectations described above are forward-looking statements . please see “ risk factors ” in item 1a of this 10-k for information regarding important factors that may cause the company 's actual results to differ from those currently projected and or otherwise materially affect the company . story_separator_special_tag 62 segment analysis the following discussion of segment operating results is presented based on the company 's reportable segments in accordance with the accounting guidance for segment reporting and is consistent with the segment disclosure in note 17 ‘ ‘ segment reporting '' included in item 8 of this 10-k. the company has three operating segments , pharmacy services , retail/ltc and health care benefits , as well as a corporate/other segment . the company 's segments maintain separate financial information , and the codm evaluates the segments ' operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance . the codm evaluates the performance of the company 's segments based on adjusted operating income . effective for the first quarter of 2019 , adjusted operating income is defined as operating income ( gaap measure ) excluding the impact of amortization of intangible assets and other items , if any , that neither relate to the ordinary course of the company 's business nor reflect the company 's underlying business performance . segment financial information has been retrospectively adjusted to conform with the current period presentation . see the reconciliations of operating income ( gaap measure ) to adjusted operating income below for further context regarding the items excluded from operating income in determining adjusted operating income . the company uses adjusted operating income as its principal measure of segment performance as it enhances the company 's ability to compare past financial performance with current performance and analyze underlying business performance and trends . non-gaap financial measures the company discloses , such as consolidated adjusted operating income , should not be considered a substitute for , or superior to , financial measures determined or calculated in accordance with gaap . effective for the first quarter of 2019 , the company realigned the composition of its segments to correspond with changes to its operating model and reflect how the codm reviews information and manages the business . see note 1 ‘ ‘ significant accounting policies '' included in item 8 of this 10-k for further discussion of this realignment . segment financial information has been retrospectively adjusted to reflect these changes . the following is a reconciliation of financial measures of the company 's segments to the consolidated totals : replace_table_token_6_th _ ( 1 ) total revenues of the pharmacy services segment include approximately $ 11.5 billion , $ 11.4 billion and $ 10.8 billion of retail co-payments for 2019 , 2018 and 2017 , respectively . see note 1 ‘ ‘ significant accounting policies '' included in item 8 of this 10-k for additional information about retail co-payments . ( 2 ) intersegment eliminations relate to intersegment revenue generating activities that occur between the pharmacy services segment , the retail/ltc segment and or the health care benefits segment . 63 the following is a reconciliation of operating income to adjusted operating income for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_7_th replace_table_token_8_th 64 replace_table_token_9_th _ ( 1 ) the company 's acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks , customer contracts/relationships , covenants not to compete , technology , provider networks and value of business acquired . definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable . the amortization of intangible assets is reflected in the company 's statements of operations in operating expenses within each segment . although intangible assets contribute to the company 's revenue generation , the amortization of intangible assets does not directly relate to the underwriting of the company 's insurance products , the services performed for the company 's customers or the sale of the company 's products or services . additionally , intangible asset amortization expense typically fluctuates based on the size and timing of the company 's acquisition activity . accordingly , the company believes excluding the amortization of intangible assets enhances the company 's and investors ' ability to compare the company 's past financial performance with its current performance and to analyze underlying business performance and trends . intangible asset amortization excluded from the related non-gaap financial measure represents the entire amount recorded within the company 's gaap financial statements , and the revenue generated by the associated intangible assets has not been excluded from the related non-gaap financial measure . intangible asset amortization is excluded from the related non-gaap financial measure because the amortization , unlike the related revenue , is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised . ( 2 ) in 2019 , 2018 and 2017 , acquisition-related transaction and integration costs relate to the aetna acquisition . in 2018 and 2017 , acquisition-related transaction and integration costs also relate to the acquisition of omnicare , inc. ( “ omnicare ” ) . the acquisition-related transaction and integration costs are reflected in the company 's consolidated statements of operations in operating expenses within the corporate/other segment and the retail/ltc segment . ( 3 ) in 2019 , the store rationalization charges relate to the planned closure of 46 underperforming retail pharmacy stores during the second quarter of 2019 and the planned closure of 22 underperforming retail pharmacy stores during the first quarter of 2020. in 2019 , the store rationalization charges primarily relate to operating lease right-of-use asset impairment charges and are reflected in the company 's consolidated statements of operations in operating expenses within the retail/ltc segment . in 2017 , the store rationalization charges related to the company 's enterprise streamlining initiative and are reflected in the company 's consolidated statements of operations in operating expenses within the retail/ltc segment .
| please see “ segment analysis ” later in this md & a for additional information about the operating expenses of the company 's segments . operating income operating income increased $ 8.0 billion in 2019 compared to 2018 . the increase was primarily due to ( i ) the absence of the $ 6.1 billion of pre-tax goodwill impairment charges related to the ltc reporting unit recorded within the retail/ltc segment in 2018 , ( ii ) the impact of the aetna acquisition and ( iii ) increased prescription volume and improved purchasing economics in the pharmacy services and retail/ltc segments . the increase was partially offset by : continued reimbursement pressure in the retail/ltc segment ; continued price compression in the pharmacy services segment ; an increase in intangible asset amortization primarily related to the aetna acquisition ; higher operating expenses in the retail/ltc segment , including $ 231 million of store rationalization charges and the $ 205 million pre-tax loss on the sale of onofre ; and the absence of $ 536 million in interest income on the proceeds from the financing for the aetna acquisition recorded in the year ended december 31 , 2018. please see “ segment analysis ” later in this md & a for additional information about the operating income of the company 's segments . interest expense interest expense increased $ 416 million in 2019 compared to 2018 , primarily due to financing activity associated with the aetna acquisition and the assumption of aetna 's debt as of the aetna acquisition date . see note 8 ‘ ‘ borrowings and credit agreements '' included in item 8 of this 10-k for additional information . loss on early extinguishment of debt during 2019 , the loss on early extinguishment of debt relates to the company 's repayment of $ 4.0 billion of its outstanding senior notes pursuant to its tender offers for such senior notes in august 2019 , which resulted in a loss on early extinguishment of debt of $ 79 million . see note 8 ‘ ‘ borrowings and credit agreements '' included in
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retain qualified management and other personnel . therefore our profitability in the near future , or ever , will depend on successful execution of our strategy , along with market and environmental factors . ebitdas we use the non-gaap measurement of earnings before interest , taxes , depreciation , amortization , and stock-related non-cash charges , or ebitdas , to evaluate our performance . ebitdas is a non-gaap measure that we believe can be helpful in assessing our overall performance as an indicator of operating and earnings quality . we suggest that ebitdas be viewed in conjunction with our reported financial results or other financial information prepared in accordance with accounting principles generally accepted in the united states , or gaap . the following table reflects the ebitdas for the years ended december 31 , 2014 and 2013 , respectively : reconciliation of net loss to ebitdas replace_table_token_3_th 25 liquidity and capital resources as of december 31 , 2014 , we had $ 3.2 million of cash and cash equivalents and a working capital surplus of $ 1.3 million , an improvement from the working capital deficit of $ 5.4 million as of december 31 , 2013. during the year ended december 31 , 2014 , we received $ 18.6 million of net proceeds from the issuance of stock and warrants as described in note 12 to our consolidated financial statements included elsewhere in this annual report on form 10-k. additionally , we also retired $ 22.0 million of debt , of which $ 11.0 million was repaid with a portion of the proceeds from our public offering and $ 11.0 million was retired through equity conversions , during the year ended december 31 , 2014 as described in note 7 to our consolidated financial statements included elsewhere in this annual report on form 10-k. we derive our primary sources of funds for conducting our business activities from sales of services , commodities , consulting and advertising , from our credit facilities , and from the placement of our equity securities with investors . we require working capital primarily to increase accounts receivable during sales growth , service debt , purchase capital assets , fund operating expenses , address unanticipated competitive threats or technical problems , transition adverse economic conditions , fund potential acquisition transactions , and pursue our following goals : expanding sales staff and market reach ; expanding and developing our it infrastructure , operations applications , and mobile strategy ; enhancing , developing , and introducing services and offerings ; expanding visitors to the earth911.com website and increasing advertising , sponsorship , and retail product revenue ; and expanding our customer base for recycling services . we believe our existing cash and cash equivalents of $ 3.2 million , available borrowing capacity under our credit facility as of december 31 , 2014 of $ 4.8 million with an optional $ 5.0 million accordion feature , and our cash generated from operations will be sufficient to fund our operations for the next 12 months . cash flows the following discussion relates to the major components of our cash flows . cash flows from operating activities cash used in operating activities was $ 8.6 million and $ 4.4 million for the years ended december 31 , 2014 and 2013 , respectively . cash used in operating activities for the year ended december 31 , 2014 includes the net loss of $ 9.9 million and the net change in operating assets and liabilities of $ 9.3 million , offset by non-cash items of $ 10.6 million . the cash used in operating activities for the year ended december 31 , 2013 related to the net loss of $ 17.8 million , offset by non-cash items of $ 11.8 million and cash provided by the net change in operating assets and liabilities of $ 1.6 million . the non-cash items were primarily from depreciation , amortization of intangible assets , amortization of debt discounts , amortization of financing costs , stock based compensation , the loss on debt extinguishment , equity income in quest , and impairment of goodwill . the net changes in operating assets and liabilities are primarily related to changes in accounts receivable , accounts payable and accrued liabilities . our business , including revenue , operating expenses , and operating margins may vary depending on commodity prices , the blend of services , the nature of the contract , and volumes . our operating activities may require additional cash in the future depending on how we expand our operations and until such time as we generate positive cash flow from operations . cash flows from investing activities cash used in investing activities for the year ended december 31 , 2014 was $ 1.0 million . this was primarily from the investment in software development of $ 800,000 and acquisition of property and equipment of approximately $ 200,000. cash provided by investing activities for the year ended december 31 , 2013 was $ 5.2 million primarily from distributions received from quest of $ 1.1 million and the acquisition of $ 4.2 million of cash as part of the acquisition of the quest interests , offset by the purchase of customer lists of $ 150,000 and property and equipment of approximately $ 100,000. cash flows from financing activities cash provided by financing activities was $ 10.1 million and $ 1.5 million for the years ended december 31 , 2014 and 2013 , respectively . cash provided by financing activities for the year ended december 31 , 2014 was primarily due to $ 18.6 million of net proceeds from the issuance of stock and warrants and $ 2.5 million of proceeds from our regions bank line of credit , partially offset by a repayment of $ 11.0 million on our related party senior convertible notes . cash provided by financing activities for the year ended december 31 , 2013 was primarily due to $ 1.0 million of proceeds under our stockbridge senior related party secured convertible note and $ 500,000 of proceeds from our regions bank line of credit . story_separator_special_tag inflation we do not believe that inflation had a material impact on us during fiscal 2014 or 2013 . 26 critical accounting estimates and policies our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty . these areas include carrying amounts of accounts receivable , long-lived assets , goodwill and other intangible assets , deferred financing costs , warrant liability , stock-based compensation expense , and deferred taxes . we base our estimates on historical experience , our observance of trends in particular areas , and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources . actual amounts could differ significantly from amounts previously estimated . we believe that of our significant accounting policies , the following may involve a higher degree of judgment and complexity : collectability of accounts receivable our accounts receivable consist primarily of amounts due from customers for the performance of services , and we record the amount net of an allowance for doubtful accounts . to record our accounts receivable at its net realizable value , we assess its collectability , which requires a considerable amount of judgment . we perform a detailed analysis of the aging of our receivables , the credit worthiness of our customers , our historical bad debts , and other adjustments . if economic , industry , or specific customer business trends worsen beyond earlier estimates , we increase the allowance for uncollectible accounts by recording additional expense in the period in which we become aware of the new conditions . long-lived assets we periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of property and equipment , or other long-lived assets should be evaluated for possible impairment . instances that may lead to an impairment include the following : ( i ) a significant decrease in the market price of a long-lived asset group ; ( ii ) a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition ; ( iii ) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group , including an adverse action or assessment by a regulator ; ( iv ) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group ; ( v ) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group ; or ( vi ) a current expectation that , more likely than not , a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . upon recognition of an event , as previously described , we use an estimate of the related undiscounted cash flows , excluding interest , over the remaining life of the property and equipment and long-lived assets in assessing their recoverability . we measure impairment loss as the amount by which the carrying amount of the asset exceeds the fair value of the asset . we primarily employ the two following methodologies for determining the fair value of a long-lived asset : ( i ) the amount at which the asset could be bought or sold in a current transaction between willing parties ; or ( ii ) the present value of expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows . business combinations we account for business combinations using the acquisition method of accounting , and accordingly , we record the assets and liabilities of the acquired business at their fair values as of the date of acquisition . we record the excess of the purchase price over the estimated fair value as goodwill . any change in the estimated fair value of the net assets recorded for acquisitions prior to the finalization of more detailed analysis , but not exceeding one year from the date of acquisition , will change the amount of the purchase price allocable to goodwill . we expense all acquisition costs as incurred . the application of business combination accounting and the assigning of fair value to assets acquired and liabilities assumed requires the use of significant estimates and assumptions . we use information obtained during the acquisition due diligence process , including historic operating results , projected future results , the carrying value of assets and liabilities at the time of acquisition , and input from valuation specialists . to determine the fair value to record , we use this information along with our industry experience and expected returns to estimate ( i ) the amount at which the asset could be bought or sold or liability settled in a current transaction between willing parties and ( ii ) the present value of expected future cash flows . we include the results of operations of an acquired business in our consolidated financial statements from the acquisition date .
| margins will be affected quarter to quarter by the volumes of waste and recycling materials generated by our customers , frequency of services delivered , service price and commodity index adjustments , cost of contracted services , advertising rates and the sales mix between advertising , consulting , commodities , and services in any one reporting period . operating expenses for the year ended december 31 , 2014 , operating expenses increased $ 300,000 to $ 18.2 million from $ 17.9 million for fiscal 2013. the 2014 operating expenses were $ 3.7 million higher offset by a $ 3.4 million reduction due to 2013 operating expenses included $ 26.9 million of goodwill impairment related to the quest acquisition , partially offset by a gain on equity interest in quest related to the acquisition of $ 23.5 million , for a net loss of $ 3.4 million . see note 16 to our consolidated financial statements included elsewhere in this annual report on form 10-k for additional information on our impairment assessment . selling , general , and administrative expenses were $ 14.4 million and $ 12.7 million for the years ended december 31 , 2014 and 2013 , respectively , with the increase primarily due to $ 5.1 million from consolidating a full year of the quest expenses in 2014 compared to a partial year in 2013 subsequent to our acquisition of the quest interests on july 16 , 2013 , partially offset by $ 3.4 million in reduced expenses from consolidating operations in frisco and no restructuring charges in 2014. during the year ended december 31 , 2013 , we recorded earth911 and youchange nonrecurring restructuring charges of approximately $ 1.7 million . operating expenses also included depreciation and amortization of $ 3.8 million and $ 1.8 million for the years ended december 31 , 2014 and 2013 , respectively , an increase of $ 2.0 million primarily due to increased amortization beginning july 17 , 2013 from the recognition of $ 19.0 million of amortizable intangible assets related to the
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aruda dated december 31 , 2016 * 10.6 consulting agreement between the company and mr. matthew scott * 31.1 certification of the chief executive officer required under rule 13a-14 ( a ) /15d-14 ( a ) of the exchange act * 31.2 certification of the chief financial officer required under rule 13a-14 ( a ) /15d-14 ( a ) of the exchange act * 32.1 certification of the chief executive officer and chief financial officer required under section 1350 of the exchange act * 101.ins xbrl instance document * 101.sch xbrl taxonomy extension schema * 101.cal xbrl taxonomy extension calculation linkbase * 101.def xbrl taxonomy extension definition linkbase * 101.lab xbrl taxonomy extension label linkbase * 101.pre xbrl taxonomy extension presentation linkbase * * filed herewith 19 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . vet online supply , inc. date : april 14 , 2017 by : edward aruda edward aruda chief executive officer pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . edward aruda chief executive officer and director april 14 , 2017 edward aruda edward aruda chief financial officer april 14 , 2017 edward aruda matthew c. scott director april 14 , 2017 matthew c. scott 20 story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the notes thereto included in this report beginning on page f-1 . the results shown herein are not necessarily indicative of the results to be expected in any future periods . this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . significant accounting policies our discussion and analysis of our results of operations and liquidity and capital resources 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 us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , allowance for doubtful accounts , warranty liabilities , share-based payments , income taxes and litigation . we base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances , including assumptions as to future events . these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . by their nature , estimates are subject to an inherent degree of uncertainty . actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position . we believe that the significant accounting policies and assumptions as detailed in note 1 to the financial statements contained herein may involve a higher degree of judgment and complexity than others . emerging growth company we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : · have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; · comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis ) ; · submit certain executive compensation matters to shareholder advisory votes , such as “ say-on-pay ” and “ say-on-frequency ; ” and · disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act also provides that an emerging growth company can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . we will remain an “ emerging growth company ” for up to five years , or until the earliest of ( i ) the last day of the first fiscal year in which our total annual gross revenues exceed $ 1 billion , ( ii ) the date that we story_separator_special_tag aruda dated december 31 , 2016 * 10.6 consulting agreement between the company and mr. matthew scott * 31.1 certification of the chief executive officer required under rule 13a-14 ( a ) /15d-14 ( a ) of the exchange act * 31.2 certification of the chief financial officer required under rule 13a-14 ( a ) /15d-14 ( a ) of the exchange act * 32.1 certification of the chief executive officer and chief financial officer required under section 1350 of the exchange act * 101.ins xbrl instance document * 101.sch xbrl taxonomy extension schema * 101.cal xbrl taxonomy extension calculation linkbase * 101.def xbrl taxonomy extension definition linkbase * 101.lab xbrl taxonomy extension label linkbase * 101.pre xbrl taxonomy extension presentation linkbase * * filed herewith 19 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . vet online supply , inc. date : april 14 , 2017 by : edward aruda edward aruda chief executive officer pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . edward aruda chief executive officer and director april 14 , 2017 edward aruda edward aruda chief financial officer april 14 , 2017 edward aruda matthew c. scott director april 14 , 2017 matthew c. scott 20 story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the notes thereto included in this report beginning on page f-1 . the results shown herein are not necessarily indicative of the results to be expected in any future periods . this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . significant accounting policies our discussion and analysis of our results of operations and liquidity and capital resources 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 us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , allowance for doubtful accounts , warranty liabilities , share-based payments , income taxes and litigation . we base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances , including assumptions as to future events . these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . by their nature , estimates are subject to an inherent degree of uncertainty . actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position . we believe that the significant accounting policies and assumptions as detailed in note 1 to the financial statements contained herein may involve a higher degree of judgment and complexity than others . emerging growth company we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : · have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; · comply with any requirement that may be adopted by the public company accounting oversight board regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis ) ; · submit certain executive compensation matters to shareholder advisory votes , such as “ say-on-pay ” and “ say-on-frequency ; ” and · disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act also provides that an emerging growth company can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . we will remain an “ emerging growth company ” for up to five years , or until the earliest of ( i ) the last day of the first fiscal year in which our total annual gross revenues exceed $ 1 billion , ( ii ) the date that we
| during fiscal 2015 we recorded a gain of $ 19,480 in respect to the cancelation of a convertible note with no similar transaction in fiscal 2016. further in fiscal 2016 we incurred interest expense of $ 458 with no similar expense in fiscal 2015. liquidity and capital resources as of december 31 , 2016 , we had $ 319 in cash and $ 496 in total assets , as well as $ 80,352 in total liabilities as compared to $ 1,870 in cash and $ 14,547 total assets , and $ 88,377 in total liabilities as of december 31 , 2015. of our total assets in fiscal 2015 we reflected $ 12,500 in deferred offering costs which were subsequently expensed in fiscal 2016. the company requires additional capital to fully execute its marketing program and increase revenues . presently we are relying on short term loans from our sole officer and director to meet operational shortfalls . there can be no assurance that continued funding will be available on satisfactory terms . we intend to raise additional capital through the sale of equity , loans or other short term financing options . for the year ending december 31 , 2016 we used net cash of $ 38,755 in operating activities , compared to net cash of $ 24,710 used in operating activities during the same period in fiscal december 31 , 2015. there was no cash used in fiscal 2016 or 2105 in investing activates . during the year ended december 31 , 2016 , net cash of $ 37,204 was provided by financing activities , predominantly from the sale of common shares of $ 35,500 , compared to net cash of $ 26,216 during the same period in fiscal 2015. during fiscal 2015 we received proceeds from notes payable totaling $ 25,216. off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to
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( 4 ) the total purchase price of sterno includes the acquisition of rimports , inc. in february 2018 for a purchase price of $ 154.4 million . 89 ( 5 ) velocity outdoor ( formerly `` crosman corp. '' ) was purchased by the company in may 2006 and subsequently sold in january 2007. we reacquired velocity outdoor in june 2017. dispositions replace_table_token_16_th ( 1 ) codi portion of the net proceeds from disposition includes debt and equity proceeds and reflects the accounting for the redemption of the sold business 's minority shareholders and transaction expenses . ( 2 ) gain ( loss ) recognized on sale of our businesses is calculated by deducting our total invested capital from the net sale proceeds received . * we made loans to and purchased a controlling interest in fox on january 4 , 2008 , for approximately $ 80.4 million . in august 2013 , fox completed an initial public offering of its common stock . as a result of the initial public offering , our ownership interest in fox was reduced to approximately 53.9 % . no gain was reflected as a result of the sale of our fox shares in the initial public offering because our majority classification of fox did not change . fox used a portion of their net proceeds received from the sale of their shares as well as proceeds from a new external fox credit facility to repay $ 61.5 million in outstanding indebtedness to us under their existing credit facility with us . in july 2014 , through a secondary offering , our ownership in fox was lowered from approximately 53 % to approximately 41 % , and as a result we deconsolidated fox as of july 10 , 2014. in march and august 2016 , through two more secondary offerings and a share repurchase by fox , our ownership in the outstanding common stock of fox was further lowered to approximately 23 % as of september 30 , 2016. in november 2016 , through another secondary offering , our ownership in the outstanding common stock of fox was further lowered to approximately 14 % . on march 13 , 2017 , fox closed on a secondary public offering of 5,108,718 shares of fox common stock held by codi , which represented codi 's remaining investment in fox . we recognized total net proceeds from the sales of our fox shares of approximately $ 465.1 million , plus proceeds from the repayment of the fox credit facility of $ 61.5 million upon completion of their initial public offering , and a total gain of $ 428.7 million . we are dependent on the earnings of , and cash receipts from , the businesses that we own in order to meet our corporate overhead and management fee expenses and to pay distributions . the earnings and distributions of our businesses are generally lowest in the first quarter , and strongest in the third and fourth quarter , of each fiscal year . these earnings and distributions , net of any non-controlling interest in these businesses , are available to : meet capital expenditure requirements , management fees and corporate overhead charges ; fund distributions from the businesses to the company ; and be distributed by the trust to shareholders . 2018 highlights and recent events acquisition of foam fabricators on february 15 , 2018 , the company , through a wholly owned subsidiary ffi compass , inc. , acquired all of the issued and outstanding capital stock of foam fabricators , inc. , a delaware corporation ( “ foam fabricators ” ) , for a purchase price of approximately $ 253.4 million . foam fabricators is a leading designer and manufacturer of custom molded protective foam solutions and oem components made from expanded polymers such as expanded polystyrene and expanded polypropylene . founded in 1957 and headquartered in scottsdale , arizona , it operates 13 molding and fabricating facilities across north america and provides products to a variety of end-markets , including appliances and 90 electronics , pharmaceuticals , health and wellness , automotive , building products and others . we funded our acquisition of foam fabricators with a draw on our 2014 revolving credit facility . acquisition of rimports on february 26 , 2018 , our sterno subsidiary acquired all of the issued and outstanding capital stock of rimports , inc. , , pursuant to a stock purchase agreement , dated january 23 , 2018. sterno purchased a 100 % controlling interest in rimports . headquartered in provo , utah , rimports is a manufacturer and distributor of branded and private label scented wickless candle products used for home décor and fragrance . rimports offers an extensive line of wax warmers , scented wax cubes , essential oils and diffusers , and other home fragrance systems , through the mass retailer channel . the purchase price , net of transaction costs , was approximately $ 154.4 million , subject to any working capital adjustment . the purchase price of rimports includes a potential earn-out of up to $ 25 million contingent on the attainment of certain future performance criteria of rimports . at december 31 , 2018 , the earn-out was not expected to be paid . sterno funded the acquisition through their intercompany credit facility with the company . acquisition of esmi on may 23 , 2018 , clean earth acquired all of the outstanding capital stock of environmental soil management , inc. ( “ esmi ” ) , located in fort edward , new york and loudon , new hampshire . the acquisition provided clean earth the opportunity to geographically expand their soil and hazardous waste solutions in the new york and new england market . the purchase price was approximately $ 31.0 million . story_separator_special_tag acquisition of ravin on september 4 , 2018 , velocity outdoor ( formerly `` crosman corp. '' ) acquired all of the outstanding membership interests in ravin for a purchase price of approximately $ 98.0 million , net of transaction costs , plus a potential earn-out of up to $ 25.0 million based on gross profit levels as of december 31 , 2018. headquartered in superior , wisconsin , ravin crossbows is a leading designer , manufacturer and innovator of crossbows and accessories . ravin primarily focuses on the higher-end segment of the crossbow market and has developed significant intellectual property related to the advancement of crossbow technology . the acquisition of ravin positions velocity outdoor to more fully capitalize on the sizeable crossbow market , further diversify its customer base and take advantage of the product and market expertise inside of ravin . trust preferred share issuance on march 13 , 2018 , the trust issued 4,000,000 series b preferred shares for gross proceeds of $ 100.0 million , or $ 96.5 million net of underwriters ' discount and issuance costs . distributions on the series b preferred shares will be payable quarterly in arrears , when and as declared by the company 's board of directors on january 30 , april 30 , july 30 , and october 30 of each year , beginning on july 30 , 2018. distributions on the series b preferred shares are cumulative . senior notes and 2018 credit facility on april 18 , 2018 , we consummated the issuance and sale of $ 400.0 million aggregate principal amount of our 8.000 % senior notes due 2026 ( the “ notes ” or `` senior notes '' ) offered pursuant to a private offering . we used the net proceeds from the sale of the notes to repay debt under our existing credit facilities in connection with a concurrent refinancing of our 2014 credit facility . the notes will bear interest at the rate of 8.000 % per annum and will mature on may 1 , 2026. interest on the notes is payable in cash on may 1st and november 1st of each year , beginning on november 1 , 2018. the notes are general senior unsecured obligations and are not guaranteed by our subsidiaries . concurrent with the issuance of the notes , we entered into an amended and restated credit agreement ( the `` 2018 credit facility '' ) to amend and restate the 2014 credit facility , originally dated as of june 6 , 2014 ( as previously amended ) among the company , the lenders from time to time party thereto ( the “ lenders ” ) , and bank of america , n.a. , as administrative agent . the 2018 credit facility provides for ( i ) revolving loans , swing line loans and letters of credit ( the “ 2018 revolving credit facility ” ) up to a maximum aggregate amount of $ 600 million , and ( ii ) a $ 500 million term loan ( the “ 2018 term loan ” ) . the 2018 term loan was issued at an original issuance discount of 99.75 % . we used the proceeds from the 2018 credit facility and the proceeds from the notes offering to pay all amounts outstanding under our existing credit agreement and to pay the fees , original issue discount and expenses incurred in connection with the 2018 credit facility and notes . 91 2018 distributions common shares - for the 2018 fiscal year we declared distributions to our common shareholders totaling $ 1.44 per share . preferred shares - for the 2018 fiscal year we declared distributions to our preferred shareholders totaling $ 1.8125 per share on our series a preferred shares and $ 1.724375 on our series b preferred shares . subsequent event manitoba harvest on february 19 , 2019 , we entered into a definitive agreement ( the `` agreement '' ) with tilray , inc. ( `` tilray '' ) and a wholly-owned subsidiary of tilray , 1197879 b.c . ltd. ( “ tilray subco ” ) , to sell to tilray , inc. , through tilray subco , all of the issued and outstanding securities of manitoba harvest for total consideration of up to c $ 419 million . subject to certain customary adjustments , the shareholders of manitoba harvest , including the company , may receive the following from tilray as consideration for their shares of manitoba harvest : ( i ) c $ 150 million in cash to the holders of preferred shares of manitoba harvest and the holders of common shares of manitoba harvest ( “ common holders ” ) and c $ 127.5 million in shares of class 2 common stock of tilray ( “ common stock ” ) to the common holders on the closing date of the sale ( the “ closing date consideration ” ) , ( ii ) c $ 50 million in cash and c $ 42.5 million in common stock to the common holders on the date that is six months after the closing date of the arrangement ( the “ deferred consideration ” ) and ( iii ) c $ 49 million in common stock to the common holders , which amount may be reduced , potentially to zero , if manitoba harvest fails to attain certain levels of u.s. branded gross sales of edible or topical products containing broad spectrum hemp extracts or cannabidiols prior to december 31 , 2019. the cash portion of the closing date consideration will be reduced by the amount of the net indebtedness of manitoba harvest on the closing date and transaction expenses expected to be approximately $ 5 million . the common stock consideration is expected to be issued in reliance on the exemption from the registration requirements of the u.s. securities act and pursuant to exemptions from applicable securities laws of any state of the united states , such that any shares of common stock received by the common holders will be freely tradeable .
| the increase in selling , general and administrative expense is primarily due to increased commissions from higher sales and a full year of expense for the financial , sales , and production management added in 2017. selling , general and administrative expenses represented 16.3 % of net sales for the year ended december 31 , 2018 compared to 16.6 % of net sales in 2017. income from operations income from operations for the year ended december 31 , 2018 was approximately $ 26.3 million compared to $ 23.6 million in the same period in 2017 , an increase of approximately $ 2.8 million , as a result of the factors described above . year ended december 31 , 2017 compared to the year ended december 31 , 2016 net sales net sales for the year ended december 31 , 2017 were approximately $ 87.8 million compared to approximately $ 86.0 million for the same period in 2016 , an increase of approximately $ 1.7 million or 2.0 % . the increase in net sales during the year ended december 31 , 2017 was due to increased sales in quick-turn production pcbs by approximately $ 1.5 million , long-lead time pcbs by approximately $ 0.5 million , subcontract by approximately $ 0.6 million , and a decrease in promotions by approximately $ 0.4 million . this was partially offset by decreases in assembly by approximately $ 0.3 million and quick-turn small-run pcbs by approximately $ 1.0 million . on a consolidated basis , quick-turn small-run pcbs comprised approximately 20.4 % of gross sales and quick-turn production pcbs represented approximately 33.0 % of gross sales for the twelve months ended december 31 , 2017. quick-turn small-run pcbs comprised approximately 21.8 % of gross sales and quick-turn production pcbs represented approximately 31.8 % of gross sales for the twelve months ended december 31 , 2016. gross profit gross profit as a percentage of net sales increased 120 basis points during the year ended december 31 , 2017 ( 45.4 % in 2017 compared to 44.2 % in 2016 ) primarily as a result of sales mix . selling , general and administrative expense selling , general and administrative expenses were approximately $ 14.6 million in the year ended december 31 , 2017 as
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upon the termination of such redemption feature , we released the aggregate proceeds of the private placement funding from reserved cash , which we previously had voluntarily imposed in light of a potential redemption . on september 30 , 2020 , the application was approved by the listing committee of the star market . the listing committee subsequently determined to reassess the approval application in light of allegations regarding our business and operations that were contained in a report issued by j capital research usa ltd. on october 8 , 2020 and an ensuing putative class action lawsuit against our company and three of our current executive officers filed on december 21 , 2020 ( see “ item 3. legal proceedings ” of part i of this report ) . pending the completion of the listing committee 's reassessment , the star listing remains subject to submission of formal registration and to review and approval by the china securities regulatory commission . acm shanghai currently proposes to offer up to ten percent of its shares in the star ipo . the net proceeds of the star ipo are expected to be used to fund : the land lease for , and construction of , acm shanghai 's proposed development and production center in the lingang region of shanghai ; product development to upgrade and expand our process equipment targeted at more advanced process nodes , including technical improvement and development of tebo megasonic cleaning equipment , tahoe single wafer wet bench combined cleaning equipment , front-end brush scrubbing equipment , auto bench cleaning equipment , front end process electroplating equipment , stress free polish equipment and vertical furnace equipment , additional new products to expand our product portfolio ; and working capital . covid–19 outbreak following its initial outbreak in december 2019 , covid–19 , or the coronavirus , spread across the prc , the united states and globally . the covid–19 outbreak affected our business and operating results for the first quarter of 2020. since that time , our personnel have been largely unable to travel between our offices in the united states and our facilities in the prc , which may impact our ability to effectively operate our company and to oversee our operations . the covid–19 situation continues to evolve , and it is impossible for us to predict the effect and ultimate impact of the covid–19 outbreak on our business operations and results . while the quarantine , social distancing and other regulatory measures instituted or recommended in response to covid–19 are expected to be temporary , the duration of the business disruptions , and related financial impact , of the outbreak can not be estimated at this time . for an explanation of some of the risks we potentially face , please read carefully the information provided under “ item 1a . risk factors—risks related to the covid–19 outbreak , ” of part i of this report . the following summary reflects our expectations and estimates based on information known to us as of the date of this filing : operations : we conduct substantially all of our product development , manufacturing , support and services in the prc , and those activities have been directly impacted by the covid–19 outbreak and related restrictions on transportation and public appearances . in february 2020 our acm shanghai headquarters were closed for an additional six days beyond the normal lunar new year holiday in accordance with shanghai government restrictions related to the outbreak . we took steps before and after the lunar new year to ensure no employees took unreasonable risks to rush back to work . currently substantially all of our staff have returned to work at both of our shanghai facilities . to date we have not experienced absenteeism of management or other key employees , other than certain of our executive officers being delayed in traveling back to the prc after working from our california office in february . our corporate headquarters are located in alameda county in the san francisco bay area and are the subject of a number of state and county public health directives and orders . these actions have not negatively impacted our business to date , however , because of the limited number of employees at our headquarters and the nature of the work they generally perform . 48 customers : our customers ' business operations have been , and are continuing to be , subject to business interruptions arising from the covid–19 outbreak . historically a majority of our revenue from sales of single-wafer wet cleaning equipment for front-end manufacturing has been derived from customers located in the prc and surrounding areas that have been impacted by covid–19 . three customers that accounted for 75.8 % of our revenue in 2020 , 73.8 % in 2019 and 87.6 % of our revenue in 2018 are based in the prc and south korea . one of those customers , yangtze memory technologies co. , ltd. — which accounted for 26.8 % of our 2020 revenue , 27.5 % of our 2019 revenue and 39.6 % of our 2018 revenue — is based in wuhan . while yangtze memory technologies co. , ltd. and other key customers continued to operate their fabrication facilities without interruption during and after the first quarter of 2020 , they were forced to restrict access of service personnel and deliveries to and from their facilities . a portion of the shipments we previously had expected to deliver in the first quarter of 2020 were postponed due to these factors , and were subsequently delivered in the second quarter of 2020. suppliers : our global supply chain includes components sourced from the prc , japan , taiwan , the united states and europe . while the covid–19 outbreak has resulted in significant governmental measures being implemented to control the spread of covid–19 around the world , to date we have not experienced material issues with our supply chain . story_separator_special_tag as with our customers , we continue to be in close contact with our key suppliers to help ensure we are able to identify any potential supply issues that may arise . projects : our strategy includes a number of plans to support the growth of our core business , including the star listing and star ipo with respect to shares of acm shanghai described above as well as acm shanghai 's recent acquisition of a land use right in the lingang area of shanghai where we began construction of a new research and development center and factory in july 2020. the extent to which covid–19 impacts these projects will depend on future developments that are highly uncertain , but to date , the timing of these ongoing projects has not been delayed or disrupted by covid–19 or related government measures . key components of results of operations revenue we develop , manufacture and sell single-wafer wet cleaning equipment and custom-made wafer assembly and packaging equipment . because we sell tools to a small number of customers and we customize those tools to fulfill the customers ' specific requirements , our revenue generation fluctuates , depending on the length of the sales , development and evaluation phases : ● sales and development . during the sale process we may , depending on a prospective customer 's specifications and requirements , need to perform additional research , development and testing to establish that a tool can meet the prospective customer 's requirements . we then host an in-house demonstration of the customized tool prototype . sales cycles for orders that require limited customization and do not require that we develop new technology usually take from 6 to 12 months , while the product life cycle , including the initial design , demonstration and final assembly phases , for orders requiring development and testing of new technologies can take as long as 2 to 4 years . as we expand our customer base , we expect to gain more repeat purchase orders for tools that we have already developed and tested , which will eliminate the need for a demonstration phase and shorten the development cycle . ● evaluation periods . when a chip manufacturer proposes to purchase a particular type of tool from us for the first time , we offer the manufacturer an opportunity to evaluate the tool for a period that can extend for 24 months or longer . in some cases , we do not receive any payment on first-time purchases until the tool is accepted . as a result , we may spend more than $ 2.0 million to produce a tool without receiving payment for more than 24 months or , if the tool is not accepted , without receiving any payment . please see “ item 1a . risk factors—risks related to our business and our industry—we may incur significant expenses long before we can recognize revenue from new products , if at all , due to the costs and length of research , development , manufacturing and customer evaluation process cycles. ” ● purchase orders . in accordance with industry practice , sales of our tools are made pursuant to purchase orders . each purchase order from a customer for one of our tools contains specific technical requirements intended to ensure , among other things , that the tool will be compatible with the customer 's manufacturing process line . until a purchase order is received , we do not have a binding purchase commitment . our customers to date have provided us with non-binding one- to two-year forecasts of their anticipated demands , and we expect future customers to furnish similar non-binding forecasts for planning purposes . any of those forecasts would be subject to change , however , by the customer at any time , without notice to us . ● fulfillment . we seek to obtain a purchase order for a tool from three to four months in advance of the expected delivery date . depending upon the nature of a customer 's specifications , the lead time for production of a tool generally will extend from two to four months . the lead-time can be as long as six months , however , and in some cases we may need to begin producing a tool based on a customer 's non-binding forecast , rather than waiting to receive a binding purchase order . 49 we expect our sales prices generally to range from $ 2 million to more than $ 5 million for our single-wafer wet cleaning production tools . the sales price of a particular tool will vary depending upon the required specifications . we have designed equipment models using a modular configuration that we customize to meet customers ' technical specifications . for example , our ultra c models for saps , tebo and tahoe solutions use common modular configurations that enable us to create a wet-cleaning tool meeting a customer 's specific requirements , while using pre-existing designs for chamber , electrical , chemical delivery and other modules . because of the relatively large purchase prices of our tools , customers generally pay in installments . for a customer 's repeat purchase of a particular type of tool , the specific payment terms are negotiated in connection with acceptance milestones of a purchase order . based on our limited experience with repeat sales of our tools , we expect that we will receive an initial payment upon delivery of a tool in connection with a repeat purchase , with the balance being paid once the tool has been tested and accepted by the customer . our sales arrangements for repeat purchases do not include a general right of return . based on our market experience , we believe that implementation of our equipment by one of our selected leading companies will attract and encourage other manufacturers to evaluate our equipment , because the leading company 's implementation will serve as validation of our equipment and will enable the other manufacturers to shorten their evaluation processes .
| research and development expense increased $ 6.2 million for 2020 as compared to 2019 , primarily due to an increase in employee count , salaries and research and development parts . research and development expense represented 12.2 % and 12.0 % of our revenue in 2020 and 2019 , respectively . without reduction by grant amounts received from prc governmental authorities ( see “ —key components of results of operations—prc government research and development funding ” ) , gross research and development expense totaled $ 21.2 million , or 13.6 % of revenue , in 2020 and $ 16.1 million , or 14.9 % of revenue , in 2019. research and development expense increased $ 2.5 million for 2019 as compared to 2018 , primarily due to an increase in employee count , salaries and research and development parts . research and development expense represented 12.0 % and 13.9 % of our revenue in 2019 and 2018 , respectively . without reduction by grant amounts received from prc governmental authorities ( see “ —key components of results of operations—prc government research and development funding ” ) , gross research and development expense totaled $ 16.1 million , or 14.9 % of revenue , in 2019 and $ 11.9 million , or 15.9 % of revenue , in 2018. general and administrative expense increased $ 4.2 million for 2020 as compared to 2019 , primarily due to an increase in stock-based compensation , increased employee count , and an increase in legal , payroll tax and other fees . general and administrative expense increased $ 0.1 million for 2019 as compared to 2018. change in fair value of financial liability and trading securities replace_table_token_11_th change in fair value of financial liability was ( $ 12.0 ) million for 2020 as compared to $ 0 for 2019 and 2018. the decrease in 2020 was due to the non-cash , non-operating expense related to transactions as described in note 16. unrealized gain on trading securities was $ 12.6 million for 2020 as compared to $ 0 for 2019 and 2018 , due to an increase in the market value
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spn-812 completed a phase iia proof of concept trial in 2011 , demonstrating efficacy versus placebo and we have completed the development of several extended release formulations that will be tested in a future phase iib trial . we held a pre-ind ( investigational new drug application ) meeting with the fda for the extended release program in june 2013. we expect to conduct a multi-dose steady state pharmacokinetic study in the first half of 2014 to select the final product formulation for a phase iib trial . we expect to incur significant research and development expenses related to the continued development of each of our product candidates . critical accounting policies and the use of estimates the significant accounting policies and basis of presentation for our consolidated financial statements are described in note 2 `` summary of significant accounting policies '' . the preparation of our financial statements in accordance with u.s. generally accepted accounting principles , or gaap , requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , expenses and the disclosure of contingent assets and liabilities in our financial statements . actual results could differ from those estimates . we believe the following accounting policies and estimates to be critical : inventories we carry inventories at the lower of cost or market using the first-in , first-out method . inventory values include materials , labor , and other direct and indirect overhead . inventory is evaluated for impairment through consideration of factors such as net realizable value , obsolescence and expiry . our inventories have values that do not exceed either replacement cost or net realizable value . we believe oxtellar xr and trokendi xr have limited risk of obsolescence or expiry based on current demand and the market research we used to project future demand and product dating . we capitalize inventories produced in preparation for commercial launches when it becomes probable the related product candidates will receive regulatory approval and the related costs will be recoverable through the commercial sale of the product . prior to capitalization , the costs of manufacturing drug product are recognized as research and development expense in the period the cost is incurred . such costs incurred after capitalization are included in inventory and eventually cost of product sales . accordingly , we began to capitalize inventories for trokendi xr following the june 25 , 2012 tentative approval from the fda and for oxtellar xr following the october 19 , 2012 final approval from the fda . revenue recognition and deferred revenue at the present time , the company records trokendi xr shipments to wholesalers as deferred revenue , i.e. , sales price net of known sales deductions ( e.g . prompt pay discounts and other similar charges ) . 79 however , because trokendi xr was launched in the second half of 2013 , we lack the experiential data which would allow us to estimate all remaining sales rebates , allowances and returns . accordingly , we must wait until these data become available to the company . because this occurs approximately eight weeks after the close of the quarter , the company currently delays recognition of revenue on trokendi xr until the subsequent fiscal quarter . we expect to continue to report revenue based on trokendi xr prescriptions filled at the pharmacy level on a quarter lag basis until sufficient experience with rebates , allowances and net sales deductions is assembled to allow reporting of revenue based on shipments to wholesalers ( i.e . contemporaneous basis ) . we expect that this will occur no earlier than the second quarter of 2014. we expect to recognize higher levels of revenue during the quarter when sales are first reported based on shipments to wholesalers . the company recognized revenue for oxtellar xr in the fourth quarter of 2013 based on shipment to distributors as we have sufficient historical experience to estimate sales deductions , allowances and returns . all balances previously included in deferred revenue and deferred product costs associated with the sales of oxtellar xr to wholesalers have been recognized in net product sales on the statement of operations for the year ended december 31 , 2013. this includes all amounts related to prescriptions filled at the pharmacy level during the third and fourth quarters of 2013 for oxtellar xr , as well as product in the wholesale distribution pipeline as of december 31 , 2013. for a complete description of the trokendi xr and oxtellar xr gross revenue and gross to net adjustments see part ii , item 8 , financial statements and supplemental data , note 2 , revenue recognition . cost of product sales the cost of product sales consist primarily of materials , third-party manufacturing costs , freight and distribution costs , allocation of labor , quality control and assurance , and other overhead costs associated with the sales of oxtellar xr based on product shipped to distributors through december 31 , 2013 and sales of trokendi xr based on prescriptions filled at the pharmacy level during the third quarter of 2013. research and development expenses research and development expenditures are expensed as incurred . research and development costs primarily consist of employee-related expenses , including salaries and benefits ; expenses incurred under agreements with contract research organizations , investigative sites , and consultants that conduct the company 's clinical trials ; the cost of acquiring and manufacturing clinical trial materials ; the cost of manufacturing materials used in process validation , to the extent that those materials are manufactured prior to receiving regulatory approval for those products and are not expected to be sold commercially , facilities costs that do not have an alternative future use ; related depreciation and other allocated expenses ; license fees for and milestone payments related to in-licensed products and technologies ; share-based compensation expense ; and costs associated with non-clinical activities and regulatory approvals . story_separator_special_tag share-based compensation employee share-based compensation is measured based on the estimated fair value on the grant date . the grant date fair value of options granted is calculated using the black-scholes option-pricing model , which requires the use of subjective assumptions including volatility , expected term , risk-free rate , and the fair value of the underlying common stock . the company has awarded non-vested stock that vests based on service conditions . the company recognizes expense using the straight-line method less estimated forfeitures . 80 the company records the expense for stock option grants to non-employees based on the estimated fair value of the stock option using the black-scholes option-pricing model . the fair value of non-employee awards is re-measured at each reporting period . as a result , stock compensation expense for non-employee awards with vesting is affected by subsequent changes in the fair value of the company 's common stock . story_separator_special_tag style= '' font-family : times ; '' > 83 of approximately $ 0.1 million for the same period in 2011 , representing a change of $ 0.7 million . the change is primarily the result of the change in fair value in 2012 of the derivative warrant liability associated with our venture debt . interest expense . interest expense was approximately $ 3.6 million for the year ended december 31 , 2012 , compared to $ 1.9 million for the same period in 2011. this increase is primarily due to the drawdown of the second $ 15.0 million tranche under our secured credit facility in december 2011 , resulting in this additional amount of indebtedness being outstanding and accruing interest throughout 2012. loss from continuing operations . loss from continuing operations was $ 46.3 million for the year ended december 31 , 2012 , compared to a loss of $ 39.5 million for the same period in 2011. this increase is primarily due to increased interest expense and sales and marketing costs , offset by decreased clinical trial costs . income from discontinued operations . income from discontinued operations ( i.e. , tcd royalty sub ) was $ 77.0 million for the year ended december 31 , 2011. there were no activities related to discontinued operations in 2012. liquidity and capital resources our working capital at december 31 , 2013 was $ 70.8 million , an increase of $ 2.3 million compared to our working capital of $ 68.5 million at december 31 , 2012. this increase was attributable to the closing of our $ 90.0 million offering of convertible senior secured notes on may 3 , 2013 , as well as cash received for product shipments of oxtellar xr and trokendi xr to wholesalers and specialty distributors ( $ 17.3 million ) , offset by cash used to fund our continued loss from operations of $ 61.9 million . we expect to continue to incur significant sales and marketing expenses related to the commercial support of oxtellar xr and trokendi xr . in addition , we expect to incur substantial expenses related to our research and development efforts , primarily related to development of spn-810 and spn-812 as we continue to advance these clinical programs . in addition to revenues , we have historically financed our business through the sale of our debt and equity securities . on may 3 , 2013 , we issued $ 90.0 million aggregate principal amount of 7.50 % convertible senior secured notes due 2019 , or the notes , to qualified institutional buyers , the initial purchasers of the notes or the initial purchasers . we issued the notes under an indenture , dated may 3 , 2013 , or the indenture , that we entered into with u.s. bank national association , as trustee and collateral agent . aggregate offering expenses in connection with the transaction were approximately $ 3.5 million , resulting in net proceeds of approximately $ 86.5 million . we used approximately $ 19.6 million of these net proceeds to repay in full our borrowings under and terminate our then existing secured credit facility . the remainder of the net proceeds was used to fund the commercialization of our approved products , oxtellar xr and trokendi xr , as well as to continue development of our product candidates and for other general corporate purposes , which may include research and development expenses , capital expenditures , working capital and general administrative expenses . we believe that the net proceeds of this offering , along with our current working capital , will be sufficient to finance the company through the end of 2014 , by which time we project to be cash flow break even . the notes provide for 7.50 % interest per annum on the principal amount of the notes , payable semi-annually in arrears on may 1 and november 1 of each year , beginning on november 1 , 2013. interest will accrue on the notes from and including may 3 , 2013 , and the notes will mature on may 1 , 2019 , unless earlier converted , redeemed or repurchased by the company . the notes are secured by a 84 first-priority lien , other than customary permitted liens , on substantially all of our and our domestic subsidiaries ' assets , whether now owned or hereafter acquired . for a full description of the notes and the indenture , see note 8 to the financial statements included in part ii , item 8 of this annual report on form 10-k. as of december 31 , 2013 , holders of the notes have converted a total of approximately $ 40.5 million of the notes . through december 31 , 2013 , we issued a total of approximately 7.6 million shares of common stock in conversion of the principal amount of the notes and issued an additional 1.3 million shares of common stock and paid approximately $ 1.7 million cash in settlement of the interest make-whole provision related to the converted notes .
| research and development expenses during 2013 were $ 17.2 million as compared to $ 23.5 million in 2012 , a decrease of $ 6.3 million or 26.7 % . in 2013 , our research and development expense was primarily focused on preparation for future clinical trials for the product candidates , spn-810 and spn-812 . during the year ended december 31 , 2012 , research and development expense included outside services spending on contract research organizations , or cros , related to ongoing clinical trials . mainly due to the completion of the company 's phase iib study for spn-810 in 1012 , and because no new trials were commenced in 2013 , research and development expenses in 2012 exceeded 2013 research and development expenses . selling , general and administrative expenses . our selling , general and administrative expenses were $ 55.6 million in 2013 as compared to $ 20.1 million in 2012 , an increase of $ 35.5 million or 176.1 % . this increase was mainly due to hiring and training our sales force which consisted of approximately 110 sales representatives as of december 31 , 2013 , and an $ 8.8 million increase in advertising expenses focused on creating promotional and marketing related programs in support of the launch and commercialization activities for oxtellar xr and trokendi xr in 2013. we anticipate that these expenses will continue to increase in 2014 as we increase our sales force to more than 150 sales representatives . interest expense . interest expense was $ 7.8 million in 2013 as compared to $ 3.5 million in 2012. the increase of $ 4.3 million was primarily due to the interest relating to the $ 90.0 million of convertible debt which was issued in may 2013. changes in fair value of derivative liability . we recognized a non-cash charge of $ 13.4 million associated with the interest make-whole derivative liability related to our convertible debt during 2013 , primarily due to the passage of
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and expenses of our administrator , transfer agent or sub-transfer agent ; the cost of preparing stock certificates or any other expenses , including clerical expenses of issue , redemption or repurchase of our shares ; the fees and expenses of our directors who are not affiliated with our investment adviser ; the cost of preparing and distributing reports , proxy statements and notices to our stockholders , the sec and other regulatory authorities ; costs of holding stockholder meetings ; listing fees ; the fees or disbursements of custodians of our assets , including expenses incurred in the performance of any obligations enumerated by our certificate of incorporation or bylaws insofar as they govern agreements with any such custodian ; insurance premiums ; and costs incurred in connection with any claim , litigation , arbitration , mediation , government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith , or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business . 60 we expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines . incentive fees and costs relating to future offerings of securities would be incremental . we also incur interest and credit facility expenses in connection with our revolving credit facility with suntrust bank as the administrative agent and bank of america , n.a . as the syndication agent . interest and credit facility expenses under our revolving credit facility consist of interest expenses , amortization of financing costs and commitment fees on the unused portion of the revolving credit facility . leverage our revolving credit facility allows us to borrow money and lever our investment portfolio , subject to the limitations of the investment company act , with the objective of increasing our yield . this is known as leverage and could increase or decrease returns to our stockholders . the use of leverage involves significant risks . as a bdc , with certain limited exceptions , we are only permitted to borrow amounts such that our asset coverage ratio , as defined in the investment company act , equals at least 2 to 1 after such borrowing . certain trading practices and investments , such as reverse repurchase agreements , may be considered borrowings or involve leverage and thus may be subject to investment company act restrictions . in accordance with applicable sec staff guidance and interpretations , when we engage in such transactions , instead of maintaining an asset coverage ratio of at least 2 to 1 , we will segregate or earmark liquid assets , or enter into an offsetting position , in an amount at least equal to our exposure , on a mark-to-market basis , to such transactions ( as calculated pursuant to requirements of the sec ) . short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes . practices and investments that may involve leverage but are not considered borrowings are not subject to the investment company act 's asset coverage requirement and we will not otherwise segregate or earmark liquid assets or enter into offsetting positions for such transactions . the amount of leverage that we employ will depend on our investment adviser 's and our board of directors ' assessment of market conditions and other factors at the time of any proposed borrowing . portfolio and investment activity as of december 31 , 2015 and 2014 , our portfolio ( excluding our investment in a money market fund managed by an affiliate of group inc. of $ 10.12 million and $ 29.57 million , respectively ) consisted of the following : replace_table_token_10_th as of december 31 , 2015 and 2014 , the weighted average yield on our portfolio ( excluding our investment in a money market fund managed by an affiliate of group inc. ) , at cost and fair value ( both of which include interest income and amortization of fees and discounts ) , were as follows : replace_table_token_11_th ( 1 ) computed based on the net investment income earned from the senior credit fund for trailing twelve months ended december 31 , 2015 , which may include dividend income and loan origination and structuring fees divided by our average member 's equity at cost and fair value , adjusted for equity contributions . 61 the following table presents certain selected information regarding our investment portfolio ( excluding our investment in a money market fund managed by an affiliate of group inc. ) as of december 31 , 2015 and 2014 : replace_table_token_12_th ( 1 ) measured on a fair value basis . ( 2 ) includes income producing preferred stock investments . ( 3 ) for a particular portfolio company , ebitda typically represents net income before net interest expense , income tax expense , depreciation and amortization . the weighted average net debt to ebitda represents the last dollar attachment point of our debt investments ( net of cash ) in our portfolio companies as a multiple of ebitda . the weighted average interest coverage ratio ( ebitda to total interest expense ) of our portfolio companies reflects our portfolio companies ' ebitda as a multiple of interest expense . portfolio company statistics have been calculated as a percentage of debt investments and income producing preferred investments , including the underlying debt investments in the senior credit fund and excluding collateral loans where net debt to ebitda may not be the appropriate measure of credit risk . portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the reported year end date . portfolio company statistics have not been independently verified by us and may reflect a normalized or adjusted amount . story_separator_special_tag our investment adviser monitors our portfolio companies on an ongoing basis . it monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company . our investment adviser has several methods of evaluating and monitoring the performance and fair value of our investments , which may include the following : assessment of success in adhering to the portfolio company 's business plan and compliance with covenants ; periodic or regular contact with portfolio company management and , if appropriate , the financial or strategic sponsor to discuss financial position , requirements and accomplishments ; comparisons to our other portfolio companies in the industry , if any ; attendance at and participation in board meetings or presentations by portfolio companies ; and review of monthly and quarterly financial statements and financial projections of portfolio companies . as part of the monitoring process , our investment adviser also employs an investment rating system to categorize our investments . in addition to various risk management and monitoring tools , our investment adviser grades the credit risk of all investments on a scale of 1 to 4. this system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment ( i.e. , at the time of origination or acquisition ) , although it may also take into account the performance of the portfolio company 's business , the collateral coverage of the investment and other relevant factors . the grading system is as follows : investments with a grade of 1 involve the least amount of risk to our initial cost basis . the trends and risk factors for this investment since origination or acquisition are generally favorable , which may include the performance of the portfolio company or a potential exit ; investments graded 2 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition . this portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable . all investments or acquired investments in new portfolio companies are initially assessed a grade of 2 ; investments graded 3 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition , including as a result of factors such as declining performance and non-compliance with debt covenants ; however , payments are generally not more than 120 days past due ; and an investment grade of 4 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition , and the portfolio company likely has materially declining performance . for debt investments with an investment grade of 4 , most or all of the debt covenants are out of compliance and payments are substantially delinquent . for investments graded 4 , it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit . 62 our investment adviser grades the investments in our portfolio at least quarterly and it is possible that the grade of a portfolio investment may be reduced or increased over time . for investments graded 3 or 4 , our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company . the following table shows the composition of our portfolio ( excluding our investment in a money market fund managed by an affiliate of group inc. ) on the 1 to 4 grading scale as of december 31 , 2015 and 2014. replace_table_token_13_th the following table shows the amortized cost of our performing and non-accrual investments as of december 31 , 2015 and 2014. replace_table_token_14_th loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected . accrued interest generally is reversed when a loan or debt security is placed on non-accrual status . interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management 's judgment . non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and , in management 's judgment , are likely to remain current . we may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection . 63 the following table shows our investment activity for the years ended december 31 , 2015 , 2014 and 2013 by investment type : replace_table_token_15_th ( 1 ) net of capitalized fees , expenses and original issue discounts . ( 2 ) may include positions originated during the period but not held at the reporting date . ( 3 ) calculated as of the end of the relevant period and the maturity date of the individual investments . ( 4 ) may include preferred stock investments . story_separator_special_tag cellpadding= '' 0 '' cellspacing= '' 0 '' style= '' border-collapse : collapse ; font-family : times new roman ; font-size:8pt '' width= '' 100 % '' > ( 1 ) realized gains and losses for the year ended december 31 , 2013 consisted primarily of gains realized from investments held at the time of the conversion . these gains were recorded for financial reporting and tax purposes as a result of the conversion and did not result from the sale of any investments . in addition , gains were realized from the sale of investments during the year ended december 31 , 2013. net change in unrealized appreciation ( depreciation ) on investments any changes in fair value are recorded in change in unrealized appreciation ( depreciation ) on investments .
| the amortized cost of the portfolio increased from $ 492.55 million as of december 31 , 2013 to $ 927.70 million as of december 31 , 2014. included in interest , for the years ended december 31 , 2014 and 2013 , is $ 0.84 million and $ 0.04 million , respectively , in prepayment premium , and $ 1.25 million and $ 0.02 million , respectively , in accelerated accretion of upfront loan origination fees and unamortized discounts . dividend income dividend income increased from $ 3.19 million for the year ended december 31 , 2014 to $ 6.47 million for the year ended december 31 , 2015 primarily as a result of distributions by the senior credit fund during the year ended december 31 , 2015. the dividend income from senior credit fund increased from $ 0.31 million for the year ended december 31 , 2014 to $ 3.99 for the year ended december 31 , 2015. see senior credit fund , llc below for further detail . dividend income increased from $ 0.02 million for the year ended december 31 , 2013 to $ 3.19 million for the year ended december 31 , 2014. other income other income increased from $ 0.63 million for the year ended december 31 , 2014 to $ 2.27 million for the year ended december 31 , 2015 primarily as a result of excess loan origination fee income earned from the senior credit fund during the year ended december 31 , 2015. in addition , we earned higher commitment and administrative agent fees during the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. there was no other income for the year ended december 31 , 2013. other income for the year ended december 31 , 2014 was $ 0.63 million primarily as a result of administrative agent fees . 65 expenses replace_table_token_18_th interest and credit facility expense interest and credit facility expense increased from $ 4.68 million for the year ended december 31 , 2014 to $ 10.71 million for the year ended december 31 , 2015 primarily due to an increase in the average daily borrowings from $ 102.29 million to $ 358.44 million . interest and credit facility expense increased
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in the event of a future rate case , and subject to further regulatory guidance , we anticipate that the regulatory liability may be required to be amortized over the remaining useful life of the affected assets and would be one of many factors to be considered in establishing go forward rates . for all other operations , the change in the deferred tax liability is recorded as an adjustment to our deferred tax provision . while certain elements of the tcja require clarification through more detailed regulation or interpretive guidance , based on the information and guidance available and our analysis ( including computations of income tax effects ) completed to date , at this time , we do not expect that the tcja will have a material economic impact on us going forward . for additional information , refer to item 8. financial statements and supplementary data - note 24. income taxes . 53 united states sponsored vehicle strategy in 2017 , we continued the ongoing evaluation of our investment in our united states sponsored vehicles , and alternatives to such investment , and we completed or announced certain strategic reviews and transactions . we intend to review our united states sponsored vehicle strategy on a continuing basis . from time to time , we may formulate plans or proposals with respect to such matters and hold discussions with or make formal proposals to the board of directors of the sponsored vehicles or other third parties . these plans or proposals may , subject to price , market and general economic and fiscal conditions and other factors , include potential consolidations , acquisition or sale of assets or securities , changes to capital structure or other transactions . on april 28 , 2017 , we announced the completion of a strategic review of enbridge energy partners , l.p. ( eep ) . the following actions , together with the measures announced in january 2017 and disclosed in our 2016 annual md & a , have been taken to date to enhance eep 's value proposition to its unitholders and to us : acquisition of midcoast assets and privatization of midcoast energy partners , l.p. on april 27 , 2017 , we completed our previously-announced merger through which we privatized midcoast energy partners , l.p. ( mep ) by acquiring all of the outstanding publicly-held common units of mep , through a wholly-owned subsidiary , for total consideration of approximately us $ 170 million . on june 28 , 2017 , through a wholly-owned subsidiary , we acquired all of eep 's interest in the mep gas gathering and processing business for cash consideration of us $ 1.3 billion plus existing indebtedness of mep of us $ 953 million . as a result of the above transactions , we now own 100 % of the mep gas gathering and processing business . finalization of bakken pipeline system joint funding agreement on february 15 , 2017 , eep acquired an effective 27.6 % interest in the dakota access and energy transfer crude oil pipelines ( collectively , the bakken pipeline system ) . on april 27 , 2017 , we entered into a joint funding arrangement with eep whereby we own 75 % and eep owns 25 % of the combined 27.6 % effective interest in the bakken pipeline system ( our jointly held interest ) . under this arrangement , eep has retained a five-year option to acquire from us an additional 20 % interest of the jointly held interest . on finalization of this joint funding arrangement , eep repaid the outstanding balance on its us $ 1.5 billion credit agreement with us , which it had drawn upon to fund the initial purchase . eep strategic restructuring actions on april 27 , 2017 , eep redeemed all of its outstanding series 1 preferred units held by us at face value of us $ 1.2 billion through the issuance of 64.3 million class a common units to us . further , we irrevocably waived all of our rights associated with our ownership of 66.1 million class d units and 1,000 incentive distribution units ( idus ) of eep , in exchange for the issuance of 1,000 class f units . the class f units are entitled to ( i ) 13 % of all distributions in excess of us $ 0.295 per eep unit , but equal to or less than us $ 0.35 per eep unit , and ( ii ) 23 % of all distributions in excess of us $ 0.35 per eep unit . the irrevocable waiver was effective with respect to distributions declared with a record date after april 27 , 2017. in connection with these strategic restructuring actions , eep reduced its quarterly distribution from us $ 0.583 per unit to us $ 0.35 per unit . the irrevocable waiver of the class d units and idus , the redemption of the series 1 preferred units and the reduction in the quarterly distributions will result in a lower contribution of earnings from eep . this lower contribution will be partially offset by an increased contribution of earnings as a result of our increased ownership in the class a common units post restructuring . 54 restructuring of sep incentive distribution rights on january 22 , 2018 , enbridge and spectra energy partners , lp ( sep ) announced the execution of a definitive agreement , resulting in us converting all of our incentive distribution rights ( idrs ) and general partner economic interests in sep into 172.5 million newly issued sep common units . as part of the transaction , all of the idrs have been eliminated . we now hold a non-economic general partner interest in sep and own approximately 403 million of sep common units , representing approximately 83 % of sep 's outstanding common units . story_separator_special_tag asset monetization in conjunction with the announcement of the merger transaction in september 2016 , we announced our intention to divest $ 2 billion of assets over the ensuing 12 months in order to further strengthen our post-combination balance sheet and enhance the financial flexibility of the combined entity . with the completion of the secondary offering noted below , the ozark pipeline system sale , the olympic refined products pipeline sale and other divestitures completed in 2016 and previously disclosed , we exceeded the $ 2 billion monetization target established on announcement of the merger transaction . on april 18 , 2017 , enbridge income fund holdings inc. ( enf ) completed a secondary offering of 17,347,750 enf common shares to the public at a price of $ 33.15 per share , for gross proceeds to us of approximately $ 0.6 billion ( the secondary offering ) . to effect the secondary offering , we exchanged 21,657,617 enbridge income fund ( fund ) units we owned for an equivalent amount of enf common shares . in order to maintain our 19.9 % ownership interest in enf , we retained 4,309,867 of the common shares we received in the exchange , and sold the balance to the public through the secondary offering . we used the proceeds from the secondary offering to pay down short-term debt , pending reinvestment in our growing portfolio of secured projects . upon closing of the secondary offering , our total economic interest in enf decreased from 86.9 % to 84.6 % . on november 29 , 2017 , we finalized our 2018-2020 strategic plan and announced that we have identified a further $ 10 billion of non-core assets , of which a minimum of $ 3 billion we intend to sell or monetize in 2018. as a result of the announcement , we are in the process of selling certain assets within the us midstream business of our gas transmission and midstream segment . refer to item 8. financial statements and supplementary data - note 7. acquisitions and dispositions . alberta clipper ( line 67 ) presidential permit on october 16 , 2017 , we received a presidential permit for line 67 , following a nearly five-year process of review . line 67 currently operates under an existing presidential permit that was issued by the state department in 2009 and the 2017 presidential permit authorizes us to fully utilize line 67 's capacity across the united states/canada border . line 67 is a key component of our mainline system , which united states refineries rely on to provide vital products to consumers across the midwest united states . for additional information on line 67 , refer to growth projects - commercially secured projects - liquids pipelines - lakehead system mainline expansion . 55 canadian restructuring plan effective september 1 , 2015 , under an agreement with the fund and enf , enbridge transferred its canadian liquids pipelines business , held by enbridge pipelines inc. ( epi ) and enbridge pipelines ( athabasca ) inc. ( epai ) , and certain canadian renewable energy assets to the fund group ( comprising the fund , enbridge commercial trust , enbridge income partners lp ( eiplp ) and the subsidiaries of eiplp ) for consideration valued at $ 30.4 billion plus incentive distribution and performance rights ( the canadian restructuring plan ) . the consideration that we received included $ 18.7 billion of units in the fund group , comprised of $ 3 billion of fund units and $ 15.7 billion of equity units of eiplp , in which the fund has an interest . the fund group also assumed debt of epi and epai of approximately $ 11.7 billion . story_separator_special_tag northern gateway project application and rescind the certificates of public convenience and necessity for the project ; and an impairment charge of $ 184 million ( $ 108 million after-tax attributable to us ) recorded in 2016 related to our 75 % joint venture interest in eddystone rail , located in the philadelphia , pennsylvania area . demand for eddystone rail services declined as a result of a significant decrease in bakken crude oil and west africa/brent crude oil and increased competition in the region . after taking into consideration the factors above , the remaining $ 212 million increase is primarily explained by the following significant business factors : strong contributions from our liquids pipelines segment which benefited from a number of new assets that were placed into service in 2015 ; throughput growth period over period on the canadian mainline , lakehead pipeline system ( lakehead system ) and regional oil sands system primarily due to strong oil sands production growth in western canada enabled by completed pipeline expansion projects ; 58 contributions from the united states gulf coast and mid-continent systems in 2016 , attributable to increased transportation revenues mainly resulting from an increase in the level of committed take-or-pay volumes on the flanagan south pipeline ( flanagan south ) ; contributions from enbridge offshore pipelines ' heidelberg oil pipeline ( heidelberg pipeline ) which was placed into service in january 2016 and canadian gas transmission and midstream 's tupper main and tupper west gas plants ( the tupper plants ) which were acquired on april 1 , 2016 ; partially offset by higher earnings attributable to noncontrolling interests and redeemable noncontrolling interests in 2016 compared with 2015 driven by stronger operating performance at eep as a result of stronger contributions from its liquids business ; the impact of extreme wildfires in northeastern alberta during the second quarter of 2016 which led to a temporary shutdown of certain of our upstream pipelines and terminal facilities resulting in a disruption of service on our regional oil sands system with corresponding impacts into and out of our downstream pipelines , including canadian mainline and the lakehead system ; a combination of a lower average international joint tariff ( ijt ) residual benchmark toll and a lower foreign exchange hedge rate period over period used to convert canadian mainline united states dollar toll revenues to canadian dollars ;
| expense ) due to the enactment of the tcja by the united states in december 2017 , refer to item 8. financial statements and supplementary data - note 24. income taxes ; a non-cash , unrealized derivative fair value gain of $ 1,109 million in 2017 ( $ 624 million after-tax attributable to us ) , compared with $ 543 million ( $ 459 million after-tax attributable to us ) in the corresponding 2016 period reflecting net fair value gains and losses arising from changes in the mark-to-market value of derivative financial instruments used to manage foreign exchange and commodity prices risks ; and the absence of cumulative asset impairment charges of $ 1,561 million ( $ 456 million after-tax attributable to us ) recorded in 2016 related to eep 's sandpiper project , the northern gateway project and eddystone rail , as discussed below . we have a comprehensive long-term economic hedging program to mitigate interest rate , foreign exchange and commodity price risks which creates volatility in short-term earnings through the recognition of unrealized non-cash gains and losses on financial derivative instruments used to hedge these risks . over the long term , we believe our hedging program supports the reliable cash flows and dividend growth upon which our investors value proposition is based . after taking into consideration the factors above , the remaining $ 1,670 million decrease is primarily explained by the following significant business factors : increased depreciation and amortization expense primarily resulting from a significant number of new assets placed into service in 2017 ; increased interest expense primarily resulting from the settlement of certain pre-issuance hedges ; increased earnings attributable to noncontrolling interests and redeemable noncontrolling interests in 2017 , compared with the corresponding 2016 period . the increase was driven by higher earnings attributable to noncontrolling interests in eep during 2017 as a result of the eep strategic restructuring actions ; 57 the absence of earnings from certain assets that
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in addition to testing for physicians and their patients , we offer clinical trials testing and research services to help increase the efficiency and economic viability of clinical trials for pharmaceutical and biopharmaceutical companies and clinical research organizations both within and outside of the united states . we are currently exploring the possibility of introducing ctdna technology outside the united states as part of ivd test kits and or testing systems utilizing 66 our target-selector technologies . we plan to continue to coope rate with partners on accessing markets internationally either through partnerships with local groups and distributors or through the development of ivds and or test systems , including instrumentation . we also have a research and development program focuse d on technology enhancements , novel platform development , and evaluating clinical applications for our cancer diagnostic tests in different cancer types and clinical settings . to facilitate market adoption of our products and assays , we anticipate having to successfully complete additional clinical utility studies with clinical samples to generate clinical utility data and then publish our results in peer-reviewed scientific journals . our ability to complete such clinical studies is dependent upon our ability to leverage our collaborative relationships with leading institutions to facilitate our research , to conduct the appropriate clinical studies and to obtain favorable clinical data . we collaborate with physicians and researchers at sarah cannon research institute , university of colorado , the university of california , san diego , the john wayne cancer institute , columbia university , johns hopkins medical institute , vanderbilt university , university of texas southwestern medical center , and georgetown university and plan to expand our collaborative relationships to include other key thought leaders at other institutions for the cancer types we target with our target-selector commercialized assays and our planned future assays , as well as for our current and planned future products . such relationships help us develop and validate the effectiveness and utility of our products , commercialized assays and our planned future assays in specific , clinical settings and provide us access to patient samples and data . we believe that the factors discussed in the following paragraphs have had and are expected to continue to have a material impact on our results of operations and financial condition . revenues our revenues are generated from diagnostic services provided to physicians and billed to third-party insurance payers such as managed care organizations , medicare and medicaid and patients for any deductibles , coinsurance or copayments that may be due . commencing on march 31 , 2017 , we recognize revenue related to commercial assays delivered and billed to medicare and other third-party payers on an accrual basis when amounts that will ultimately be realized can be estimated upon delivery , whereby prior to march 31 , 2017 , we recognized revenues for such services on a cash basis as collected because the amounts ultimately expected to be received could not be estimated upon delivery due to insufficient collection history experience . commencing on january 1 , 2018 , we recognize revenue in accordance with asc 606 , revenue from contracts with customers , or asc 606 , which requires that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . we bill third-party payers on a fee-for-service basis at our list price and third-party commercial revenue is recorded net of contractual discounts , payer-specific allowances and other reserves . our development services revenues are supported by contractual agreements and generated from assay development services provided to entities , as well as certain other diagnostic services provided to physicians . diagnostic services are completed upon the delivery of assay results to the prescribing physician , at which time we bill for the service . our gross commercial revenues billed are subject to estimated deductions for such contractual discounts , payer-specific allowances and other reserves to arrive at reported net revenues , which relate to differences between amounts billed and corresponding amounts estimated to be subsequently collected . these third-party payer discounts and sales allowances are estimated based on a number of assumptions and factors , including historical payment trends , seasonality associated with the annual reset of patient deductible limits on january 1 of each year , and current and estimated future payments . the estimates of amounts that will ultimately be realized from commercial diagnostic services require significant judgment by us . patients do not enter into direct agreements with us that commit them to pay any portion of the cost of the tests in the event that they have not met their annual deductible limit under their insurance policy , if any , or if their insurance otherwise declines to reimburse us . adjustments to the estimated payment amounts are recorded at the time of final collection and settlement of each transaction as an adjustment to commercial revenue . costs and expenses we classify our costs and expenses into four categories : cost of revenues , research and development , sales and marketing , and general and administrative . our costs and expenses principally consist of facility costs and overhead , personnel costs , outside services and consulting costs , laboratory consumables , development costs , and legal fees . 67 cost of revenues . our cost of revenues consists principally of facility costs and overhead , personnel costs , and laboratory and manufacturing supplies and materials . we are pursuing various strategies to reduce and control our cost of revenues , including automating aspects of our processes , developing more efficient technology and methods , attempting to negotiate improved term s and volume discounts with our suppliers and exploring relocating our operations to a lower-cost facility . research and development expenses . we incur research and development expenses principally in connection with our efforts to develop and improve our tests . story_separator_special_tag our primary research and development expenses consist of direct personnel costs , laboratory equipment and consumables , and overhead expenses . we anticipate that research and development expenses will remain consistent in the near-term , principally to develop and validate tests in our pipeline and to perform work associated with clinical utility studies and development collaborations . in addition , we expect that our costs related to collaborations with research and academic institutions will increase . all research and development expenses are charged to operations in the periods in which they are incurred . sales and marketing expenses . our sales and marketing expenses consist principally of personnel and related overhead costs for our sales team and their support personnel , travel and entertainment expenses , and other selling costs including sales collaterals and trade shows . we anticipate sales and marketing expenses to increase as we work on generating higher revenues and marketing additional offerings . general and administrative expenses . general and administrative expenses consist principally of personnel-related expenses , professional fees , such as legal , accounting and business consultants , insurance costs , and other general expenses . we expect that our general and administrative expenses will increase as we expand our business operations . we further expect that general and administrative expenses will increase due to increased information technology , legal , insurance , accounting and financial reporting expenses associated with expanded commercial activities . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of our financial statements requires us to make estimates 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 based on historical experience and make various assumptions , which management believes to be reasonable under the circumstances , which form the basis for 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 . the notes to our audited financial statements , which are included elsewhere in this annual report , contain a summary of our significant accounting policies . we consider the following accounting policies critical to the understanding of the results of our operations : revenue recognition ; stock-based compensation ; and going concern . revenue recognition and related reserves our commercial revenues are generated from diagnostic services provided to patient 's physicians and billed to third-party insurance payers such as managed care organizations , medicare and medicaid and patients for any deductibles , coinsurance or copayments that may be due . through december 31 , 2017 , we recognized revenue in accordance with the provisions of accounting standards codification , or asc , 954-605 , health care entities—revenue recognition , which required that four basic criteria must be met prior to recognition of revenue : ( 1 ) persuasive evidence of an arrangement existed ; ( 2 ) delivery had occurred and title and the risks and rewards of ownership had been transferred to the client or services had been rendered ; ( 3 ) the price was fixed or determinable ; and ( 4 ) collectability was reasonably assured . commencing on march 31 , 2017 , we recognized commercial revenue related to billings for assays delivered and billed to medicare and other third-party payers on an accrual basis when amounts that will ultimately be realized can be estimated upon delivery , whereby prior to march 31 , 2017 , we recognized revenues for our commercial diagnostic services on a cash basis as collected because the amounts 68 ultimately expected to be received could not be estimated upon delivery due to insufficient collection history experience . commencing on january 1 , 2018 , we recognize revenue in accordance with asc 606 , revenue from contracts with customers , or asc 606 , which requires that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . we adopted the provisions of asc 606 using the modified retrospective application m ethod applied to all contracts , which did not impact amounts previously reported by us , nor did it require a cumulative effect adjustment upon adoption , as our method of recognizing revenue under asc 606 was analogous to the method utilized immediately pri or to adoption . contracts for our commercial revenues , while we market directly to physicians , our customer is the patient . patients do not enter into direct agreements with us that commit either them to pay any portion of the cost of the tests if they have not met their annual deductible limit under their insurance policy , if any , or if their insurance otherwise declines to reimburse us . accordingly , we establish a contract with a commercial patient in accordance with other customary business practices , as follows : approval of a contract is established via the order and accession , which are submitted by the patient 's physician . we are obligated to perform our diagnostic services upon receipt of a sample from a physician , and the patient and or applicable payer are obligated to reimburse us for services rendered based on the patient 's insurance benefits . payment terms are a function of a patient 's existing insurance benefits , including the impact of coverage decisions with cms and applicable reimbursement contracts established between us and payers , unless the patient is a self-pay patient , whereby we bill the patient directly after the services are provided .
| 72 total cash collections for commercial cases were $ 2,648 ,000 during the year ended december 31 , 201 8 as compared to $ 3,658,000 during the same period in 201 7 , a de crease of $ 1 ,000,000 due to a de crease in accession volume and the expected value per accession received prior to and during the year ended december 31 , 201 8 as compared to the same period in 201 7 . the net est imated revenue per commercial accession delivered since converting from cash-based revenue recognition to accrual-based revenue recognition on march 31 , 2017 and through december 31 , 2017 was approximately $ 988 , based on 2,880 commercial accessions deliver ed and approximately $ 2,845,000 in corresponding commercial accrual-based revenues during that period . the $ 1 , 81 9 ,000 decrease in net revenue recognized was primarily related to a de crease in the number of commercial accession s received during the year end ed december 31 , 201 8 as compared to the same period in 201 7 even though the value per commercial accession received slightly increased , as follows : replace_table_token_4_th * commercial value per accession received is reflected as expect reimbursement ( gross billed less contractual allowance ) . additionally , there was a $ 74,000 decrease in development services revenues during the year ended december 31 , 2018 as compared to the same period in 2017 , which was primarily related to a decrease in development services case volumes delivered and a decrease in the estimated value per development services case delivered , as follows : replace_table_token_5_th costs and expenses in the first quarter of 2018 we announced an initiative to reduce the use of cash . in july , we extinguished our term debt facility with oxford financial eliminating approximately $ 2.1 million in annual principal and interest payments and in other categories an additional approximate $ 1.2 million for a total reduction of approximately $
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10 mcdonald 's corporation 2012 annual report mcdonald 's customer-focused plan to win ( `` plan '' ) provides a common framework for our global business while allowing for local adaptation . through the execution of multiple initiatives surrounding the five pillars of our plan—people , products , place , price and promotion—we have enhanced the restaurant experience for customers worldwide and grown global comparable sales and guest counts in each of the last nine years . this plan , combined with financial discipline , has delivered strong results for our shareholders since its inception . to measure our performance as we continue to build the business , we have the following long-term , average annual constant currency financial targets : ▪ systemwide sales growth of 3 % to 5 % ; ▪ operating income growth of 6 % to 7 % ; ▪ roiic in the high teens . prior to 2012 , we exceeded each of these financial targets every year since the plan 's implementation in 2003 , after adjusting for the loss in 2007 from the latin america developmental license transaction . these targets have enabled us to make the best decisions for the long-term benefit of our shareholders , and we believe they remain realistic and sustainable for a company of our size . in 2012 , systemwide sales growth was 3 % ( 5 % in constant currencies ) , operating income growth was 1 % ( 4 % in constant currencies ) , one-year roiic was 15.4 % and three-year roiic was 28.6 % ( see reconciliation on page 24 ) . persistent global economic headwinds , heightened competitive activity and inflationary costs impacted results . in addition , planned strategic decisions , such as the 2012 london olympics sponsorship , investing in technology and the biennial worldwide owner/operator convention , also impacted results . in 2012 , we continued to focus on customers ' needs and remained aligned on our plan and the three global growth priorities of optimizing our menu , modernizing the customer experience , and broadening accessibility to our brand . we believe these priorities are relevant and actionable , and combined with our competitive advantages , will drive long-term sustainable growth . initiatives supporting these priorities resonated with customers and drove increases in global comparable sales and guest counts of 3.1 % and 1.6 % , respectively , despite challenging economies and a relatively flat or declining informal eating out ( `` ieo '' ) segment in most markets . in 2012 , we continued to grow market share in the u.s. , europe and apmea , amid a more competitive global environment and a slight decline in our fourth quarter comparable guest counts . comparable sales are impacted by guest counts , product mix shifts and menu pricing . specific menu pricing actions across our system reflect local market conditions as well as other factors , notably food away from home and food at home inflation indices . in our company-operated restaurants , we manage menu board prices to ensure value at all price points , increase profitability and mitigate inflation , all while trying to grow guest counts . in order to accomplish these objectives , we utilize a strategic pricing tool that balances price and product mix . franchisees also have access to , and many utilize , this strategic pricing tool . in general , we believe franchisees employ a similar pricing strategy . we look to optimize product mix by utilizing a menu with entry-point value , core , premium and promotional offerings . we also introduce new products to meet customers ' needs , which can expand average check and increase guest counts . in 2012 , average prices increased at company-operated restaurants in each area of the world , although increases varied by market and region . u.s. in the u.s. , comparable sales increased for the tenth consecutive year , rising 3.3 % in 2012 , while comparable guest counts rose 1.9 % . these results were achieved despite only modest growth in the ieo segment and heightened competitive activity . in the second half of the year , we experienced softer performance ; therefore , we adjusted our plans to re-energize our all-day everyday value offerings while providing the menu variety customers expect from mcdonald 's . in 2012 , we continued to highlight beverages , value , breakfast , and our classic core favorites . we expanded our mccafé beverage offerings with the chocolate chip frappé and cherry berry chiller . limited-time offers , such as chicken mcbites and the cheddar bacon onion premium sandwiches , complemented our core menu offerings . modernizing the customer experience continued through our major remodeling initiative , which provides contemporary restaurant designs and retailing efforts . the enhanced appearance and functionality of our restaurants deliver a more relevant experience for our customers . over 900 existing restaurants were remodeled during 2012 with the majority adding drive-thru capacity to capture additional guest counts . we broadened the accessibility of our convenient locations through extended hours and efficient drive-thru service . more than half of our restaurants use some form of multiple order points to maximize drive-thru capacity , including 1,500 with hand-held order takers to help improve customer service times . to further build on our competitive advantage , we focused on operations excellence initiatives to drive customer satisfaction as we strive to deliver fast , accurate and friendly service with every order . europe in europe , comparable sales rose 2.4 % , marking the ninth consecutive year of comparable sales increases , while guest counts declined 0.5 % . while low consumer confidence continues to negatively affect overall retail sales and the ieo segment , we outperformed the market and grew market share . major contributors to comparable sales were the u.k. and russia . despite ongoing economic challenges , the segment 's priority remains growing the overall business by balancing a strong focus on our unique value offerings , ongoing premium product innovation , and new products . story_separator_special_tag europe continued to see the benefit of providing a relevant , contemporary customer experience and completed almost 750 restaurant reimages . by the end of 2012 , over 90 % of restaurant interiors and approximately 50 % of exteriors had been reimaged . europe also invested in a roll-out of a new point-of-sale system , which allows us to continue to expand our menu offerings and improve order accuracy . by the end of 2012 , over 2,200 restaurants had deployed this system . we expanded our coffee business and have over 1,600 mccafé locations , which in europe are generally separate areas inside the restaurants that serve specialty coffees , desserts and snacks . in addition , we increased our accessibility and convenience with extended operating hours , self-order kiosks , optimized drive-thrus , and opened over 250 new restaurants . apmea in apmea , comparable sales rose 1.4 % and comparable guest counts rose 2.2 % , despite a challenging year of economic pressures , partly due to japan 's uneven recovery and china 's slower economic growth . positive performance was driven by china , australia and many other markets . unique value platforms , great tasting premium menu selections , locally-relevant menu variety , and convenience and service enhancements differentiated the mcdonald 's experience . australia launched the “ loose change menu , ” which is a branded affordability menu , while china focused on breakfast , lunch , and dinner value platforms . value initiatives were balanced with mid-tier offers , such as bubble tea in china , and premium limited-time offers , such as the serious lamb burger and wrap in australia . mcdonald 's corporation 2012 annual report 11 our breakfast business has expanded and is offered in approximately 75 % of apmea restaurants . desserts continued to play a meaningful role , particularly in china , where we remain one of the largest ice cream retailers . we opened over 750 new restaurants in apmea , of which over 250 were in china , where we have made significant progress toward our goal of 2,000 restaurants by the end of 2013. nearly two-thirds of apmea restaurants are offering some form of extended operating hours and over 5,400 restaurants are open 24 hours . delivery is offered in many apmea markets and is now available in over 1,700 restaurants , including nearly 550 in china . since japan 's natural disaster in march of 2011 , the economy remains a challenge . despite a declining ieo segment , mcdonald 's is gaining market share through a value platform of 100 , 250 , and 500 yen offerings , and family sharing boxes , such as 15-piece chicken mcnuggets . japan augmented its value platform with strategic couponing to encourage add-on and extra value meal purchases . consolidated globally , our approach to offering affordable value to our customers is complemented by a focus on driving operating efficiencies and leveraging our scale , supply chain infrastructure and our suppliers ' risk management practices to manage costs . we were able to execute our strategies in every area of the world , grow comparable sales and control selling , general and administrative expenses . however , in 2012 we faced top- and bottom-line pressures , some a result of planned strategic decisions , and others driven by the external environment . as a result , combined operating margin ( operating income as a percent of total revenues ) was 31.2 % in 2012 , down 0.4 percentage points as compared to 2011. in 2012 , cash from operations was nearly $ 7.0 billion . our substantial cash flow , strong credit rating and continued access to credit provide us flexibility to fund capital expenditures as well as return cash to shareholders . capital expenditures of approximately $ 3.0 billion were invested in our business primarily to reimage existing restaurants and open new restaurants . across the system , over 1,400 restaurants were opened and about 2,400 existing locations were reimaged . in addition , we returned $ 5.5 billion to shareholders consisting of $ 2.9 billion in dividends and $ 2.6 billion in share repurchases . cash from operations continues to benefit from our heavily franchised business model as the rent and royalty income received from owner/operators is a stable revenue stream that has relatively low costs . in addition , the franchise business model is less capital intensive than the company-owned model . we believe locally-owned and operated restaurants maximize brand performance and are at the core of our competitive advantages , making mcdonald 's not just a global brand but also a locally– relevant one . highlights from the year included : ▪ comparable sales grew 3.1 % and guest counts rose 1.6 % , building on 2011 increases of 5.6 % and 3.7 % , respectively . ▪ revenues increased 2 % ( 5 % in constant currencies ) . ▪ operating income increased 1 % ( 4 % in constant currencies ) . ▪ diluted earnings per share was $ 5.36 , an increase of 2 % ( 5 % in constant currencies ) . ▪ cash provided by operations was nearly $ 7.0 billion . ▪ one-year roiic was 15.4 % and three-year roiic was 28.6 % for the period ended december 31 , 2012 . ▪ the company increased the quarterly cash dividend per share 10 % to $ 0.77 for the fourth quarter—bringing our current annual dividend to $ 3.08 per share . ▪ the company returned $ 5.5 billion to shareholders through dividends and share repurchases . outlook for 2013 we will continue to build the business in 2013 and beyond by enhancing the customer experience across all pillars of our plan and our three global growth priorities to optimize our menu , modernize the customer experience and broaden accessibility to our brand . we remain focused on seizing the long-term opportunities in the $ 1 trillion ieo segment by leveraging our competitive advantages .
| a decrease of 2 % in diluted weighted average shares outstanding also contributed to the diluted earnings per share growth in 2012. in 2011 , net income increased 11 % ( 7 % in constant currencies ) to $ 5.5 billion and diluted earnings per common share increased 15 % ( 11 % in constant currencies ) to $ 5.27. foreign currency translation had a positive impact of $ 0.19 per share on diluted earnings per share . net income and diluted earnings per share growth in 2011 in constant currencies were positively impacted by growth in franchised margin dollars , and to a lesser extent , company-operated margin dollars , partly offset by a higher effective income tax rate . a decrease of 3 % in diluted weighted average shares outstanding also contributed to the diluted earnings per share growth in 2011. the company repurchased 28.1 million shares of its stock for $ 2.6 billion in 2012 and 41.9 million shares of its stock for $ 3.4 billion in 2011 , driving reductions in weighted average shares outstanding on a diluted basis in both periods . revenues the company 's revenues consist of sales by company-operated restaurants and fees from restaurants operated by franchisees . revenues from conventional franchised restaurants include rent and royalties based on a percent of sales along with minimum rent payments , and initial fees . revenues from franchised restaurants that are licensed to foreign affiliates and developmental licensees include a royalty based on a percent of sales , and generally include initial fees . in 2012 and 2011 , constant currency revenue growth was driven primarily by positive comparable sales as well as expansion . replace_table_token_3_th in the u.s. , the increase in revenues in 2012 was primarily due to positive comparable sales . everyday value offerings , menu variety and the enhanced customer experience due to reimaging contributed positively to results , despite broad competitive activity . revenues in 2011 were positively impacted by the ongoing appeal of our iconic core products and the success of new products , including additions to the mccafé beverage line , as well as continued focus on everyday value , convenience and modernizing the customer experience . europe 's constant currency increases in revenues in 2012 and 2011 were primarily driven by positive comparable sales in the u.k. and russia , the segment 's two
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the revenues generated from these products are based upon a fee for number of e-mails delivered to our audience , a fee for clicks delivered to the advertisers , a fee for placement of the advertising on our website or a fee based on a percentage of the face value of vouchers sold . we recognize revenue upon delivery of the e-mails , delivery of the clicks , over the period of placement of the advertising and upon the sale of the vouchers . 27 our search category of revenue includes comparison shopping tools for consumers to quickly and easily compare airfares , hotel and car rental prices and includes supersearch and fly.com products . the revenues generated from these products are based upon a fee for clicks delivered to the advertisers or a fee for clicks delivered to advertisers that resulted in revenue for advertisers ( i.e . successful clicks ) . we recognize revenue upon delivery of the clicks or successful clicks . our local category of revenue includes the publishing revenue for negotiated high-quality deals from local businesses , such as restaurants , spas , shows , and other activities and includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . the revenues generated from these products are based upon a percentage of the face value of vouchers or items sold or a fee for clicks delivered to the advertisers . we recognize revenue upon the sale of the vouchers , when we receive notification of the direct bookings or upon delivery of the clicks . the company earns a fee for acting as an agent in these transactions which is recorded on a net basis and is included in revenue upon completion of the voucher sale . certain merchant contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon expiration , which we recognize as revenue after the expiration of the redemption period and after there are no further obligations to provide funds to merchants , subscribers or others . trends in our business our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to existing and new advertisers , our ability to increase our audience reach and advertising rates and our ability to develop and launch new products . our current revenue model depends on advertising fees paid primarily by travel , entertainment and local companies . a number of factors can influence whether current and new advertisers decide to advertise their offers with us . we have been impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising , the relative health of the economy , competition and the introduction of new methods of advertising . for example , the consolidation of the airline industry reduced our revenues generated from this sector , the introduction of a new voucher-based product offered by competitive companies impacted our ability to sell our existing advertising products , the willingness of certain competitors to grow their business unprofitably and the economic uncertainty in europe impacted advertiser 's willingness to purchase our advertising . in addition , we have been impacted and expect to continue to be impacted by internal factors such as introduction of new advertising products , hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire . existing advertisers may shift from one advertising service ( e.g . top 20 ) to another ( e.g . local deals and getaways ) . these shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers , and in particular with local deals and getaways , depending on how many vouchers are purchased by subscribers . our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience to reach with our advertising publications . we monitor our subscribers and page views of our websites to assess our efforts to maintain and grow our audience reach . we obtain additional subscribers and activity on our websites by acquiring traffic from internet search companies . the costs to grow our audience have had , and we expect will continue to have , a significant impact on our financial results and can vary from period to period . we may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition . we believe that we can increase our advertising rates only if the reach of our publications increases . we do not know if we will be able to increase the reach of our publications . if we are able to increase the reach of our publications , we still may not be able to or want to increase rates given market conditions such as intense competition in our industry . for example , we did not significantly increase our advertising rates in the u.s. due to intense competition during 2008 , 2009 and 2010 ; however , we were able to increase rates in europe during 28 2009 and 2010 due in part to the increase in the reach of our publications . even if we increase our rates , based upon the increased price this may reduce the amount of advertisers willing to advertise for the increased rates and therefore decrease our revenue . we do not know what our cost of revenues as a percentage of revenues will be in future periods . our cost of revenues will increase if the number of searches performed on fly.com increases because we pay a fee based on the number of searches performed on fly.com . story_separator_special_tag our cost of revenues will increase if the face value of vouchers that we sell for local deals and getaways increases because we have credit card fees based upon face value of vouchers sold , customer service costs related to vouchers sold and subscriber refunds on vouchers sold . we expect fluctuations of cost of revenues as a percentage of revenues from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we do not know what our sales and marketing expenses as a percentage of revenue will be in future periods . increased competition in our industry may require us to increase advertising for our brand and for our products . in order to increase the reach of our publications , we have to acquire a significant number of new subscribers in every quarter and continue to promote our brand . one significant factor that impacts our advertising expenses is the average cost per acquisition of a new subscriber . increases in the average cost of acquiring new subscribers may result in an increase of sales and marketing expenses as a percentage of revenue . we believe that the average cost per acquisition depends mainly on the advertising rates which we pay for media buys , our ability to manage our subscriber acquisition efforts successfully , and the degree of competition in our industry . we may decide to accelerate our subscriber acquisition for various strategic and tactical reasons and , as a result , increase our marketing expenses . we may see a unique opportunity for a brand marketing campaign that will result in an increase of marketing expenses . further , we expect our strategy to replicate our business model in selected foreign markets to result in a significant increase in our sales and marketing expenses and have a material adverse impact on our results of operations . due to the continued desire to grow our business both in the north america and europe we expect relatively high level of sales and marketing expense in the foreseeable future . we expect fluctuations of sales and marketing expenses as a percentage of revenue from year to year and from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we do not know what our general and administrative expenses as a percentage of revenue will be in future periods . there may be fluctuations that have a material impact on our results of operations . we expect our headcount to continue to increase in the future . the company 's headcount is one of the main drivers of general and administrative expenses . therefore , we expect our absolute general and administrative expenses to continue to increase . we expect our continued expansion into foreign markets to result in a significant additional increase in our general and administrative expenses . our general and administrative expenses as a percentage of revenue may also fluctuate depending on the number of requests received related to a program under which the company intends to make cash payments to people who establish that they were former stockholders of travelzoo.com corporation , and who failed to submit requests to convert shares into travelzoo inc. within the required time period . we do not know what our income taxes will be in future periods . there may be fluctuations that have a material impact on our results of operations . our income taxes are dependent on numerous factors such as the geographic mix of our taxable income , federal and state and foreign country tax law and regulations and changes thereto , the amount of accumulated net operating loss we have to offset current taxable income , the determination of whether valuation allowances for certain tax assets are required or not , audits of previous year 's tax returns resulting in adjustments , resolution of uncertain tax positions and different treatment for certain items for tax versus books such as our disposition our asia business in 2009 or our state of delaware settlement during 2011. we expect fluctuations of in our income taxes from year to year and from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . our growth strategy key elements include building strong brand awareness , increasing reach , maintaining a high-quality user base , increasing the number of advertisers , providing advertisers with excellent service and replicating our business model in foreign markets . we expect to continue our efforts to grow ; however , we may not grow or we may experience slower growth . some recent examples of our efforts to expand our business 29 internationally since our inception from the u.s. have been expansion to the u.k. in 2005 , canada in 2006 , germany in 2006 , france in 2007 and spain in 2008. we also have launch new products to grow our revenue such as the introduction of fly.com in 2009 local deals in 2010 , getaways in 2011 as well as our mobile application launches in 2011. we believe that we can sell more advertising only if the market for online advertising continues to grow and if we can maintain or increase our market share . we believe that the market for advertising continues to shift from offline to online . we do not know if we will be able to maintain or increase our market share . we do not know if we will be able to increase the number of advertisers in the future . we do not know if we will have market acceptance of our new products .
| the decrease in search revenue of $ 934,000 was primarily due to the reduced number of clicks that generate revenue as a result from our reduced spending on traffic acquisition as well as lower average cost-per-click paid by our advertisers . the increase in local revenue of $ 17.7 million was primarily due to the increased number of local deals sold . north america revenues increased $ 10.0 million from 2009 to 2010. this increase was primarily due to growth of travel , search and local revenues . the increase in travel revenue of $ 4.9 million was primarily due to the increased number of emails delivered to our audience driven by advertiser demand offset by a lower average cost-per-email . the increase in search revenue of $ 1.1 million was primarily due to the growth of the fly.com product launched in february 2009. the increase in local revenue of $ 3.9 million was primarily due to the launch of our local deals in august 2010. europe europe revenues increased $ 14.7 million from 2010 to 2011. this increase was due to growth of travel , search and local revenues . the increase in travel revenue of $ 5.6 million was primarily due to the introduction of getaways , increase in top 20 and newsflash revenue from the increased number of emails delivered to our audience driven by advertiser demand and relatively stable average cost-per-email offset by some decrease due to increased competition and the economic uncertainty in europe . the increase in search revenue of $ 2.7 million was primarily due to the increased number of clicks that generate revenue as a result from increased spending on traffic acquisition as well as higher average cost-per-click paid by our advertisers . the increase in local revenue of $ 6.3 million was primarily due to the launch of our local deals in late 2010. europe revenues increased $ 8.9 million from 2009 to 2010. this increase was primarily due to growth of travel , search and local revenues . the increase in travel revenue of $ 7.1 million was primarily due to the increased number of emails
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the accompanying financial statements have been prepared on a going concern basis , which assumes that we will continue in operation for the next 12 months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business . the financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . critical accounting policies the preparation of consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the united states ( “ gaap ” ) requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes . the following is a summary of those accounting policies that we believe are necessary to understand and evaluate our reported financial results . revenue recognition . we sell our products in north america directly to customers through our field sales force and through non-exclusive distributors . we sell our products internationally through exclusive and non-exclusive distributors as well as directly to customers in certain countries . sales are recorded upon shipment from our facility , and payment of our invoices is generally due within 90 days or less . internationally , we primarily sell products through independent distributors . we record revenue based on four basic criteria that must be met before revenue can be recognized : ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery has occurred and title and the risks and rewards of ownership have been transferred to our customer , or services have been rendered ; ( iii ) the price is fixed or determinable ; and ( iv ) collectability is reasonably assured . revenue is recorded for all sales upon shipment assuming all other revenue recognition criteria are met . sales of our laser systems include separate deliverables consisting of the product , disposables used with the laser systems , installation , and training . for sale of deliverables that are part of a multiple-e lement arrangement , we apply a method which approximates the relative selling price method , which requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method . this requires us to use estimated selling prices of each of the deliverables in the total arrangement . the sum of those prices is then compared to the arrangement , and any difference is applied to the separate deliverable ratably . this method also establishes a selling price hierarchy for determining the selling price of a deliverable , which includes : ( i ) vendor-specific objective evidence ( “ vsoe ” ) , if available , ( ii ) third-party evidence if vsoe is not available , and ( iii ) estimated selling price if neither vsoe nor third-party evidence is available . vsoe is determined based on the value we sell the undelivered element to a customer as a stand-alone product . revenue attributable to the undelivered elements is included in deferred revenue when the product is shipped and is recognized when the related service is performed . disposables not shipped at time of sale and installation services are typically shipped or installed within 30 days . training is included in deferred revenue when the product is shipped and is recog nized when the related service is performed or upon the appropriate expiration of time offered under the agreement . key judgments related to our revenue recognition include the collectability of payment from the customer , the satisfaction of all elements of the arrangement having been delivered , and that no additional customer credits and discounts are needed . we evaluate a customer 's credit worthiness prior to the shipment of the product . based on our assessment of the available credit information , we may determine the credit risk is higher than normally acceptable , and we will either decline the purchase or defer the revenue until payment is reasonably assured . future obligations required at the time of sale may also cause us to defer the revenue until the obligation is satisfied . 43 although all sales are final , we accept returns of products in certain , limited circumstances and record a provision for sales returns based on historical experience concurrent with the recognition of revenue . the sales returns allowance is recorded as a reduction of accounts receivable and revenue . extended warranty contracts , which are sold to our laser and certain imaging customers , are recorded as revenue on a straight-line basis over the period of the contracts , which is typically one year . for sales transactions involving used laser trade-ins , we record the purchased trade-ins as inventory at the fair value of the asset surrendered with the offset to accounts receivable . in determining the estimated fair value of used laser trade-ins , we make an assessment of usable parts and key components and consider the ultimate resale value of the certified pre-owned ( or “ cpo ” ) laser with applicable margins . we sell these cpo laser trade-ins as refurbished lasers . trade-in rights are n ot established or negotiated with customers during the initial sales transaction of the original lasers . trade-in rights are promotional events used at our discretion to encourage existing laser customers to purchase new lasers by offering perceived discou nts in exchange for trade-ins of original lasers . a customer is not required to trade in a laser nor are we required to accept a trade-in . however , the promotional value offered in exchange for the trade-in laser is not offered without a laser trade-in . the transaction is treated as a monetary transaction as each sale transaction involving a customer trade-in includes significant boot of greater than 25 % of the fair value of the exchange . as a monetary transaction , the sale is recognized following our laser system revenue recognition policy . story_separator_special_tag there have been no sales transactions in which the cash consideration was less than 25 % of the total transaction value . we recognize revenue for royalties under licensing agreements for our patented technology when the product using our technology is sold . we estimate and recognize the amount earned based on historical performance and current knowledge about the business operations of our licensees . our estimates have been consistent with amounts historically reported by the licensees . licensing revenue related to exclusive licensing arrangements is recognized concurrent with the related exclusivity period . from time to time , we may offer sales incentives and promotions on our products . we record the cost of sales incen tives at the date at which the related revenue is recognized as a reduction in revenue , an increase in cost of goods sold , or a selling expense , as applicable , or later , in the case of incentives offered after the initial sale has occurred . accounting for stock-based payments . we recognize compensation cost related to all stock-based payments based on the grant-date fair value using the black-scholes option valuation model , taking into consideration the probability of vesting and estimated forfeitures . valuation of accounts receivable . we maintain an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers . we evaluate our allowance for doubtful accounts based upon our knowledge of customers and their comp liance with credit terms . the evaluation process includes a review of customers ' accounts on a regular basis , which incorporates input from sales , service , and finance personnel . the review process evaluates all account balances with amounts outstanding more than 90 days from the due date and other specific amounts for which information obtained indicates that the balance may be uncollectible . the allowance for doubtful accounts is adjusted based on such evaluation , with a corresponding provision included in general and administrative expenses . account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered . we do not have any off-balance-sheet credit exposure related to our customers . valuation of inventory . inventory is valued at the lower of cost or market , with cost determined using the first-in , first-out method . we periodically evaluate the carrying value of inventory and maintain an allowance for excess and obsolete inventory to adjust the carrying value as necessary to the lower of cost or market . we evaluate quantities on hand , physical condition , and technical functionality , as these characteristics may be impacted by anticipated customer demand for current products and new product introductions . unfavorable changes in estimates of excess and obsolete inventory would result in an increase in cost of revenue and a decrease in gross profit . valuation of long-lived assets . property , plant , and equipment and certain intangibles with finite lives are amortized over their estimated useful lives . useful lives are based on our estimate of the period that the assets will generate revenue or otherwise productively support our business goals . we monitor events and changes in circumstances that could indicate that the carrying balances of long-lived assets may exceed the undiscounted expected future cash flows from those assets . if such a condition were to exist , we would determine if an impairment loss should be recognized by comparing the carrying amount of the assets to their fair value . valuation of goodwill and other intangible assets . goodwill and other intangible assets with indefinite lives are not subject to amortization but are evaluated for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired . we conducted our annual impairment analysis of our goodwill as of june 30 , 2015 and concluded there had been no impairment in goodwill . we closely monitor our stock price and market capitalization and perform such analysis when events or circumstances indicate that there may have been a change to the carrying value of those assets . 44 warranty cost . we provide warranties against defects in materials and workmanship of our laser systems for sp ecified periods of time . for the years ended december 31 , 2015 , 2014 , and 2013 laser systems sold domestically were covered by our warranty for a period of up to two years from the date of sale by us or the distributor to the end-user . laser systems sold internationally were covered by our warranty for a period of up to 28 months from the date of sale to the international distributor . estimated warranty expenses are recorded as an accrued liability with a corresponding provision to cost of revenue . this e stimate is recognized concurrent with the recognition of revenue on the sale to the distributor or end-user . warranty expenses expected to be incurred after one year from the time of sale to the distributor are classified as a long-term warranty accrual . o ur overall accrual is based on our historical experience and our expectation of future conditions , taking into consideration the location and type of customer and the type of laser , which directly correlate to the materials and components under warranty , t he duration of the warranty period , and the logistical costs to service the warranty . additional factors that may impact our warranty accrual include changes in the quality of materials , leadership and training of the production and services departments , k nowledge of the lasers and workmanship , training of customers , and adherence to the warranty policies . additionally , an increase in warranty claims or in the costs associated with servicing those claims would likely result in an increase in the accrual and a decrease in gross profit . we offer extended warranties on certain imaging products . however , all imaging products are initially covered by the manufacturer 's warranties . litigation and other contingencies .
| consumables and other net revenue , which includes products such as disposable tips and shipping revenue , increased approximately $ 353,000 , or 5 % , in fiscal 2015 , as compared to fiscal 2014. the increase in consumables and other net revenue was primarily a result of auxiliary sales to our growing laser customer base . services net revenue , which consists primarily of extended warranty service contracts and advanced training pro grams , decreased by approximately $ 746,000 , or 10 % , in fiscal 2015 , as compared to fiscal 2014. the decrease in revenue was mainly attributed to the impact from recognizing $ 708,000 in deferred training service revenues during the third quarter of 2014 , which resulted from making a change in estimate in the period over which deferred training service revenue are being recognized . license fees and royalty revenues increased by approximately $ 60,000 , or 41 % , to approximately $ 205,000 in fiscal 2015 compared to $ 145,000 in fiscal 2014. these license fees and royalty revenues were attributable to intellectual property related to our laser technologies . the increase was primarily due to the settlement of the fotona proizvodnja optoelektronskih naprav d.d . and fotona llc intellectual property litigation ( the “ fotona litigation ” ) . we anticipate license fees and royalty revenue to return to more normalized levels in the year ending december 31 , 2016 ( “ fiscal 2016 ” ) . 47 cost of revenue . cost of revenue in fiscal 2 015 increased by $ 3.0 million , or 10 % , to $ 32.5 million , or 67 % of net revenue , compared with cost of revenue of $ 29.5 million , or 62 % of net revenue , in fiscal 2014. the increase in cost of revenue was mainly attributable to increased bundling and other promotional arrangements related to the launch of the epic x and waterlase iplus 2.0 and an increased concentration of international sales . international sales typically have lower margins than our domestic sales . gross profit . gross
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our truckload transportation costs were relatively unchanged , excluding the estimated impacts of the change in fuel . ltl net revenues increased 39.3 percent to $ 360.7 million in 2015 from $ 258.9 million in 2014 . freightquote contributed approximately 33 percentage points to our ltl net revenue growth in 2015. net revenue margin increased in 2015 as the result of a change in our freight mix with more small customers from the higher margin freightquote business . ltl volumes increased approximately 32 percent in 2015. our intermodal net revenue increased 1.0 percent to $ 41.1 million in 2015 from $ 40.6 million in 2014 . freightquote contributed approximately $ 3.4 million to our intermodal net revenues in 2015. conversion to truckload from intermodal negatively impacted intermodal volumes and net revenues throughout 2015. our intermodal net revenues declined throughout 2015 and that trend has continued into 2016. our ocean transportation net revenues increased 7.3 percent to $ 223.6 million in 2015 from $ 208.4 million in 2014 . the increase in net revenues was primarily due to increased net revenue margin and volumes . our air transportation net revenues were unchanged at $ 79.1 million in 2015 from $ 79.1 million in 2014 . this was the result of higher volumes offset by pricing declines . our customs net revenues increased 5.7 percent to $ 43.9 million in 2015 from $ 41.6 million in 2014 . the increase was due to increased transaction volumes . other logistics services net revenues , which include managed services , warehousing , and small parcel , increased 12.9 percent to $ 82.5 million in 2015 from $ 73.1 million in 2014 . the increase in 2015 was primarily due to growth in managed services as a result of adding new customers . freightquote contributed approximately two percentage points to our other logistics services net revenue growth in 2015. sourcing net revenues increased 4.7 percent to $ 121.0 million in 2015 from $ 115.5 million in 2014 . this increase was primarily due to an increase in case volumes , slightly offset by a decrease in net revenue per case . our net revenue margin increased to 8.1 percent in 2015 compared to 7.5 percent in 2014 . operating expenses . operating expenses increased 12.0 percent to $ 1.4 billion in 2015 from $ 1.3 billion in 2014 . this was due to an increase of 12.0 percent in personnel expenses and an increase of 12.0 percent in other selling , general , and administrative expenses . as a percentage of net revenues , operating expenses decreased to 62.2 percent in 2015 from 62.7 percent in 2014 . our personnel expenses are driven by headcount and earnings growth . in 2015 , personnel expenses increased to $ 1.1 billion from $ 0.9 billion in 2014 . our personnel expenses as a percentage of net revenue decreased in 2015 to 46.3 percent from 46.8 percent in 2014 . the increase in personnel expense was due primarily to an increase in average headcount growth of approximately 14 percent in 2015. freightquote contributed approximately eight percentage points of the growth in average headcount during 2015. in addition , we experienced growth in expenses related to incentive plans that are designed to keep expenses variable with changes in net revenues and profitability . other selling , general , and administrative expenses increased 12.0 percent to $ 358.8 million in 2015 from $ 320.2 million in 2014 . the increase in our selling , general , and administrative expenses is primarily due to our acquisition of freightquote , including amortization expense of $ 7.6 million , and an increase in travel expenses . income from operations . income from operations increased 14.7 percent to $ 858.3 million in 2015 from $ 748.4 million in 2014 . income from operations as a percentage of net revenues increased to 37.8 percent in 2015 from 37.3 percent in 2014 . this increase was due to our net revenues growing more than our operating expenses . 27 interest and other expense . interest and other expense was $ 35.5 million in 2015 compared to $ 25.0 million in 2014 . during the fourth quarter , we wrote off an indemnification asset of $ 7.2 million related to the acquisition of phoenix as the indemnification obligations of the sellers expired . the impact of this write off was partially offset within the provision for income taxes by related tax liabilities that expired under applicable statute of limitations . in addition , we had a higher average outstanding balance on our short-term borrowings throughout 2015 compared to 2014 , primarily due to the acquisition of freightquote . provision for income taxes . our effective income tax rate was 38.1 percent for 2015 and 37.8 percent for 2014 . the effective income tax rate for both periods is greater than the statutory federal income tax rate , primarily due to state income taxes , net of federal benefit . net income . net income increased 13.3 percent to $ 509.7 million in 2015 from $ 449.7 million in 2014 . basic net income per share increased 15.0 percent to $ 3.52 from $ 3.06 in 2014 . diluted net income per share increased 15.1 percent to $ 3.51 from $ 3.05 in 2014 . 2014 compared to 2013 total revenues and direct costs . our consolidated total revenues increased 5.6 percent in 2014 compared to 2013 . total transportation revenues increased 7.7 percent to $ 11.9 billion in 2014 from $ 11.1 billion in 2013 . this increase in transportation revenues was driven by higher volumes in nearly all of our transportation modes and increased pricing to our customers . total purchased transportation and related services increased 7.2 percent in 2014 to $ 10.0 billion from $ 9.4 billion in 2013 . this increase was due to higher volumes in nearly all of our transportation modes and higher transportation costs . our sourcing revenue decreased 8.1 percent to $ 1.5 billion in 2014 from $ 1.7 billion in 2013 . story_separator_special_tag purchased products sourced for resale decreased 8.1 percent in 2014 to $ 1.4 billion from $ 1.5 billion in 2013 . these decreases were primarily due to decreased case volumes and a change in customer , product , and service mix . net revenues . total transportation net revenues increased 10.7 percent to $ 1.9 billion in 2014 from $ 1.7 billion in 2013 . our transportation net revenue margin increased to 15.9 percent in 2014 from 15.4 percent in 2013 , largely driven by an increase in transportation rates charged to our customers , partially offset by higher transportation costs . our truckload net revenues increased 11.7 percent to $ 1.2 billion in 2014 from $ 1.1 billion in 2013 . truckload volumes increased approximately 3 percent in 2014 . truckload net revenue margin increased in 2014 due to increased rates charged to our customers , partially offset by increased cost of capacity . excluding the estimated impact of the change in fuel , on average , our truckload rates increased approximately 11 percent in 2014 . our truckload transportation costs increased approximately 10 percent , excluding the estimated impacts of the change in fuel . ltl net revenues increased 8.1 percent to $ 258.9 million in 2014 from $ 239.5 million in 2013 . the increase in net revenues was driven by an increase in total shipments of approximately seven percent and increased customer pricing , partially offset by decreased net revenue margin . our intermodal net revenue increase of 4.0 percent to $ 40.6 million in 2014 from $ 39.1 million in 2013 was driven largely by a change in the mix of business and improved customer pricing , partially offset by volume declines . our ocean transportation net revenues increased 11.1 percent to $ 208.4 million in 2014 from $ 187.7 million in 2013 . the increase in net revenues was primarily due to increased volumes and net revenue margin . our air transportation net revenues increased 8.3 percent to $ 79.1 million in 2014 from $ 73.1 million in 2013 . the increase was primarily due to increased net revenue margin and volumes . our customs net revenues increased 13.7 percent to $ 41.6 million in 2014 from $ 36.6 million in 2013 . the increase was due to increased transaction volumes . other logistics services net revenues , which include managed services , warehousing , and small parcel , increased 7.6 percent to $ 73.1 million in 2014 from $ 67.9 million in 2013 . the increase in 2014 was primarily due to growth in managed services as a result of adding new customers . sourcing net revenues decreased 9.0 percent to $ 115.5 million in 2014 from $ 127.0 million in 2013 . this decrease was primarily due to a change in customer , product , and service mix . our net revenue margin decreased to 7.5 percent in 2014 compared to 7.6 percent in 2013 . 28 operating expenses . operating expenses increased 9.2 percent to $ 1.3 billion in 2014 from $ 1.2 billion in 2013 . this was due to an increase of 13.6 percent in personnel expenses and a decrease of 2.0 percent in other selling , general , and administrative expenses . as a percentage of net revenues , operating expenses decreased to 62.7 percent in 2014 from 62.8 percent in 2013 . our personnel expenses are driven by headcount and earnings growth . in 2014 , personnel expenses increased to $ 939.0 million from $ 826.7 million in 2013 . our personnel expenses as a percentage of net revenue increased in 2014 to 46.8 percent from 45.0 percent in 2013 . the increase in personnel expense was due primarily to an increase in expenses related to incentive plans that are designed to keep expenses variable with changes in net revenues and profitability , in addition to average headcount growth of 2.7 percent in 2014 . other selling , general , and administrative expenses decreased 2.0 percent to $ 320.2 million in 2014 from $ 326.8 million in 2013 . the decrease in our selling , general , and administrative expenses is primarily related to decreases in claims and travel expenses . income from operations . income from operations increased 9.6 percent to $ 748.4 million in 2014 from $ 682.7 million in 2013 . income from operations as a percentage of net revenues increased to 37.3 percent in 2014 from 37.2 percent in 2013 . this increase was due to our net revenues growing more than our operating expenses . interest and other expense . interest and other expense was $ 25.0 million in 2014 compared to $ 9.3 million in 2013 . the increase was due primarily to the interest expense related the long-term notes issued during the third quarter of 2013. provision for income taxes . our effective income tax rate was 37.8 percent for 2014 and 38.2 percent for 2013 . the effective income tax rate for both periods is greater than the statutory federal income tax rate , primarily due to state income taxes , net of federal benefit . net income . net income increased 8.1 percent to $ 449.7 million in 2014 from $ 415.9 million in 2013 . basic net income per share increased 15.5 percent to $ 3.06 from $ 2.65 in 2013 . diluted net income per share increased 15.1 percent to $ 3.05 from $ 2.65 in 2013 . our weighted average basic and diluted shares outstanding decreased 6.2 percent and 6.1 percent respectively in 2014 compared to 2013 , primarily due to the 8.5 million shares repurchased as part of accelerated share ( “ asr ” ) repurchase program initiated in 2013. liquidity and capital resources we have historically generated substantial cash from operations , which has enabled us to fund our growth while paying cash dividends and repurchasing stock .
| in some cases , we also arrange the transportation of the produce we sell through our relationships with specialized transportation companies . those revenues are reported as transportation revenues . our business model . we are primarily a service company . we add value and expertise in the procurement and execution of transportation and logistics , including sourcing of produce products for our customers . our total revenues represent the total dollar value of services and goods we sell to our customers . our net revenues are our total revenues less purchased transportation and related services , including contracted motor carrier , rail , ocean , air , and other costs , and the purchase price and services related to the products we source . our net revenues are the primary indicator of our ability to source , add value , and sell services and products that are provided by third parties , and we consider them to be our primary performance measurement . accordingly , the discussion of our results of operations below focuses on the changes in our net revenues . we keep our business model as variable as possible to allow us to be flexible and adapt to changing economic and industry conditions . we sell transportation services and produce to our customers with varied pricing arrangements . some prices are committed to for a period of time , subject to certain terms and conditions , and some prices are set on a spot market basis . we buy most of our truckload transportation capacity and produce on a spot market basis . because of this , our net revenue per transaction tends to increase in times when there is excess supply and decrease in times when demand is strong relative to supply . in 2015 , changing market conditions impacted our results . fuel prices declined throughout 2015 , which contributed to slower growth of our total revenues and an increase in our transportation net revenue margins . in 2015 , we completed the acquisition of freightquote.com , inc. ( “ freightquote ” ) . this acquisition
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under the eisai agreement , we and eisai have initially prioritized the development areas of smoking cessation , a once-daily formulation , and co-administration with phentermine , as well as exploring belviq 's effect on conversion to type 2 diabetes and improvements in cardiovascular outcomes . we plan to initiate a phase 2 clinical trial in the first half of 2014 to evaluate the potential of lorcaserin as a drug candidate for smoking cessation , for which we and eisai will share equally the expenses . we have completed an initial study to evaluate the safety , tolerability and pharmacokinetic properties of different formulations of lorcaserin 20 mg extended release tablets , and selected a once-daily formulation for further development . we and eisai will share equally the expenses related to the once-daily formulation . in november 2013 , eisai initiated dosing in a pilot study of 12-week duration to preliminarily assess as the primary outcome the short-term safety and tolerability of lorcaserin and phentermine when co-administered , for which eisai is responsible for 100 % of the expenses . in january 2014 , eisai initiated enrollment in the cardiovascular outcomes trial , or cvot , required by the us food and drug administration , or fda , as a postmarketing commitment . the cvot is also referred to as camellia ( cardiovascular and metabolic effects of lorcaserin in overweight and obese patients ) . we and eisai will be responsible for 10 % and 90 % , respectively , of the expenses for the fda-required portion of such trial . in addition , camellia will also evaluate whether lorcaserin reduces the incidence of conversion to type 2 diabetes in patients without type 2 diabetes at baseline and the incidence of mace+ ( mace or hospitalization for unstable angina or heart failure , or any coronary revascularization ) , both as compared to placebo . we and eisai will share equally the expenses for this non-fda required portion of the trial up to $ 40.0 million each , and eisai will be responsible for 100 % of such expenses thereafter . camellia is expected to run approximately five years . we also intend to utilize our discovery and development approach focused on g protein-coupled receptors , or gpcrs , to advance other of our internally discovered drug candidates , which include the following clinical-stage , orally available candidates : apd811 , an agonist of the prostacyclin receptor intended for the treatment of pulmonary arterial hypertension , has completed single- and multiple-ascending dose phase 1 trials and is expected to begin a phase 2 trial in the first half of 2014. temanogrel , an inverse agonist of the serotonin 2a receptor intended for the treatment of thrombotic diseases , has completed single- and multiple-ascending dose phase 1 trials . under our co-development and license agreement with ildong , which we refer to as the ildong temanogrel agreement , we expect ildong to fund and complete an additional phase 1 trial in healthy volunteers and potentially a phase 2a proof-of-concept trial in patients . we expect ildong to initiate the phase 1 trial in the first quarter of 2014 to evaluate the safety of co-administration of temanogrel with aspirin and clopidogrel . 66 apd334 , an agonist of the sphingosine 1-phosphate subtype 1 , or s1p 1 , receptor intended for the treatment of a number of conditions related to autoimmune diseases , which has completed a phase 1 single-ascending dose trial . we plan to initiate a phase 1 multiple-ascending dose trial in 2014. apd371 , an agonist of the cannabinoid-2 receptor intended for the treatment of pain , for which we have initiated a phase 1 single-ascending dose trial . developing marketed drugs is a long , uncertain and expensive process , and our ability to achieve our goals , including furthering our collaborators ' commercialization of belviq , and obtaining regulatory approval of , and commercializing , belviq in additional territories , conducting required postmarketing and other studies of belviq , and advancing our drug candidates , depends on numerous factors , many of which we do not control . we will continue to seek to balance the high costs of research , development and manufacturing against the need to maintain our operations long enough to achieve sustained profitability . we will require substantial cash to achieve our goals . to date , we have generated limited revenues from sales of belviq , which is our first and only drug approved by any regulatory authority . we may continue to incur substantial losses , and do not expect to generate consistent positive operating cash flows for at least the short term . accordingly , we will need to receive additional funds under our existing collaborative agreements , under future collaborative agreements for belviq or one or more of our drug candidates or programs , or by raising additional funds through equity , debt or other financing transactions . we have obtained cash and funded our operations to date primarily through the sale of common and preferred stock , the issuance of debt and related financial instruments , payments from collaborators and sale leaseback transactions . from our inception through december 31 , 2013 , we have generated $ 1.8 billion in cash from these sources , of which $ 1.2 billion was through sales of equity , $ 425.0 million was through payments from collaborators , $ 96.9 million was through the issuance of debt and related financial instruments to certain deerfield entities and $ 77.1 million was from sale and leaseback transactions . at december 31 , 2013 , we had $ 221.9 million in cash and cash equivalents . see the above business section for a more complete discussion of our business . story_separator_special_tag story_separator_special_tag style= '' margin-top:0px ; margin-bottom:0px '' > 69 cardiovascular outcomes trial , ( ii ) $ 4.0 million in salary and other personnel costs , primarily as a result of an increase in headcount , ( iii ) $ 2.5 million in non-cash share-based compensation expense and ( iv ) $ 2.3 million in research supply costs . we expect to continue to incur substantial research and development expenses in 2014 , which we expect will be substantially higher than 2013. such expenses will include costs for fda-required and non-fda required development work relating to belviq , including studies for smoking cessation and using a once-daily formulation , as well as our other research and development programs . included in the $ 16.4 million total external clinical and preclinical study fees and internal non-commercial manufacturing costs for the year ended december 31 , 2013 , was $ 7.2 million of non-commercial manufacturing and other development costs related to belviq , $ 4.5 million related to belviq , $ 1.9 million related to apd811 , $ 1.2 million related to apd334 and $ 1.1 million related to apd371 . included in the $ 12.1 million total external clinical and preclinical study fees and internal non-commercial manufacturing costs for the year ended december 31 , 2012 , was $ 4.4 million related to belviq , $ 4.2 million of non-commercial manufacturing and other development costs related to belviq , $ 2.2 million related to apd811 and $ 1.0 million related to apd371 . cumulatively through december 31 , 2013 , we have recognized external clinical and preclinical study fees and internal non-commercial manufacturing costs of $ 267.3 million for belviq , $ 43.7 million for nelotanserin ( an inverse agonist of the serotonin 2a receptor , which we previously studied in phase 2 for the treatment of insomnia ) , $ 33.0 million of non-commercial manufacturing and other development costs related to belviq , $ 8.5 million for apd811 , $ 7.3 million for temanogrel , $ 3.0 million for apd334 and $ 2.2 million for apd371 . as described above , ildong will be responsible for funding and conducting the next two planned clinical trials of temanogrel under the ildong temanogrel agreement . while expenditures on current and future clinical development programs are expected to be substantial , they are subject to many uncertainties , including whether we have adequate funds and develop our drug candidates with one or more collaborators or independently . as a result of such uncertainties , we can not predict with any significant degree of certainty the duration and completion costs of our research and development projects or whether , when and to what extent we will generate revenues from the commercialization and sale of belviq or any of our drug candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of factors , including : the nature and number of trials and studies in a clinical program ; the potential therapeutic indication ; the number of patients who participate in the trials ; the number and location of sites included in the trials ; the rates of patient recruitment and enrollment ; the duration of patient treatment and follow-up ; the costs of manufacturing drug candidates ; and the costs , requirements , timing of , and the ability to secure regulatory approvals . general and administrative expenses . general and administrative expenses increased by $ 5.5 million to $ 31.7 million for the year ended december 31 , 2013 , from $ 26.2 million for the year ended december 31 , 2012. this was primarily due to increases of ( i ) $ 1.6 million in salary and other personnel costs , ( ii ) $ 1.5 million in non-cash share-based compensation and ( iii ) $ 1.1 million in consultants and contractors . we expect that our 2014 general and administrative expenses will be higher than in 2013. amortization of intangibles . we recognized $ 0.7 million for amortization of intangibles related to our manufacturing facility production licenses for the year ended december 31 , 2012 , and none for the year ended december 31 , 2013. in june 2012 when we received fda approval for belviq , we began to capitalize into inventory amortization expense related to the manufacturing of belviq . such amortization will subsequently be recognized as cost of product sales when the related inventory is sold . 70 interest and other income ( expense ) , net . interest and other income ( expense ) , net , increased to income of $ 3.5 million for the year ended december 31 , 2013 , from an expense of $ 28.4 million for the year ended december 31 , 2012. this $ 31.9 million increase was primarily due to ( i ) a $ 10.2 million non-cash gain from revaluation of our derivative liabilities for the year ended december 31 , 2013 , compared to a $ 13.4 million loss for the year ended december 31 , 2012 , ( ii ) a $ 6.3 million non-cash loss on extinguishment of debt recognized for the year ended december 31 , 2012 , and ( iii ) a $ 2.0 million decrease in interest expense due to the may 2012 payoff of our then-outstanding loan from certain deerfield entities . although our total interest expense decreased due to the payoff of the deerfield loan , we expect that it will continue to be substantial due to payments on our lease financing obligations . year ended december 31 , 2012 , compared to year ended december 31 , 2011 revenues .
| of such amount , $ 102.1 million is attributable to upfront payments we received under our collaboration with eisai , $ 30.3 million is attributable to the belviq product supply , $ 4.6 million is attributable to the upfront payment we received under the ildong belviq agreement and $ 2.2 million is attributable to the upfront payment we received under the cyb agreement . absent any new collaborations , we expect our 2014 revenues will primarily consist of ( i ) revenues from sales of belviq , ( ii ) amortization of the upfront payments we have received from eisai and ( iii ) reimbursements from eisai for development expenses . 68 revenues from sales of belviq and for milestones that may be achieved in the future are difficult to predict , and our revenues will likely vary significantly from quarter to quarter and year to year . we expect that this will particularly be the case in the short term as we transition from a research and development company to a company with a marketed drug . with respect to the united states , we expect that eisai 's sales of belviq will increase , but , due to the early stage of commercialization , it is difficult to predict the amount or timing of such sales or the related revenues we will generate . future sales of belviq will depend on , among other factors , the availability and use of belviq , the effectiveness of eisai 's marketing program , competition and reimbursement coverage . revenues we generate from eisai 's sales of belviq depend on eisai 's net product sales of belviq , which are the gross invoiced sales less certain deductions described in the eisai agreement . deductions from gross sales to net product sales may vary from period to period , particularly in the near term , depending on the amount and extent of such deductions , which include deductions for vouchers , savings cards or other promotions for free or discounted product . eisai has reported that a majority of all belviq prescriptions utilized vouchers or savings cards . in addition to revenues
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shareholders of britton & koontz received $ 16.14 per share in cash , yielding an aggregate purchase price of $ 34.5 million . as a result of the acquisition , five former britton & koontz branches in west mississippi were added to the bank 's branch office network , net of two former britton & koontz banking offices that were closed or consolidated in march 2014. assets acquired from britton & koontz totaled $ 298.9 million , which included loans of $ 161.2 million , investment securities of $ 98.0 million and cash of $ 15.3 million . the bank also recorded a core deposit intangible asset of $ 3.0 million and goodwill of $ 43,000 relating to the acquisition , and assumed liabilities of $ 264.5 million , which included $ 216.6 million in deposits , $ 9.3 million in fhlb advances and $ 27.3 million in securities sold under repurchase agreements . on july 15 , 2011 , the company acquired gs financial corporation ( gsfc ) , the former holding company of guaranty savings bank of metairie , louisiana . shareholders of gsfc received $ 21.00 per share in cash , yielding an aggregate purchase price of $ 26.4 million . as a result of the acquisition , the four former guaranty branches in the greater new orleans area were added to the bank 's branch office network . assets acquired from gsfc totaled $ 256.7 million , which included loans of $ 182.4 million , investment securities of $ 46.5 million and cash of $ 9.3 million . the bank also recorded a core deposit intangible asset of $ 859,000 and goodwill of $ 296,000 relating to the acquisition of gsfc , and assumed liabilities of $ 230.6 million , which included $ 193.5 million in deposits and $ 34.7 million in fhlb advances . on march 12 , 2010 , the bank acquired certain assets and liabilities of the former statewide bank , a full-service community bank formerly headquartered in covington , louisiana , from the fdic . as a result of the statewide acquisition , the bank 's branch office network was expanded to include six branches in the northshore ( of lake pontchartrain ) region of louisiana . assets acquired in the statewide transaction totaled $ 188.0 million , which included loans of $ 110.4 million , investment securities of $ 24.8 million and cash of $ 11.6 million . in addition , the bank recorded a fdic asset , representing the portion of estimated losses covered by loss sharing agreements between the bank and the fdic , of $ 34.4 million . the loss sharing agreements between the bank and the fdic afforded us significant protection against losses in the loan portfolio and repossessed assets acquired in the statewide transaction . the bank also recorded a core deposit intangible asset of $ 1.4 million and goodwill of $ 560,000 relating to the statewide acquisition , and assumed liabilities of $ 223.9 million , which included $ 206.9 million in deposits and $ 16.8 million in fhlb advances . critical accounting policies the accounting and financial reporting policies of the company conform to generally accepted accounting principles in the united states ( gaap ) and to general practices within the banking industry . accordingly , the financial statements require certain estimates , judgments and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most 20 critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for loan losses on loans in our portfolio is maintained at an amount which management determines covers the reasonably estimable and probable losses on such portfolio . the allowance for loan losses is established through a provision for loan losses charged to expense . loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely . subsequent recoveries are added to the allowance . the allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio , based on evaluations of the collectability of loans . the evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio , historical loss experience , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , estimated losses relating to specifically identified loans and current economic conditions . this evaluation is inherently subjective as it requires material estimates including , among others , exposure to default , the amount and timing of expected future cash flows on loans , value of collateral , estimated losses on our commercial and residential loan portfolios as well as consideration of general loss experience . all of these estimates may be susceptible to significant change . while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . the occ , as an integral part of its examination processes , periodically reviews our allowance for loan losses . the occ may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods . story_separator_special_tag as part of the risk management program , an independent review is performed on the loan portfolio , which supplements management 's assessment of the loan portfolio and the allowance for loan losses . the result of the independent review is reported directly to the audit committee of the board of directors . acquired loans were recorded at fair value at the date of acquisition with no carryover of the allowance for loan losses . as of december 31 , 2016 , our allowance for loan losses included $ 291,000 allocated to acquired loans with credit quality which had deteriorated since the date of acquisition . our accounting policy for acquired loans is described below . accounting for loans . the following briefly describes the distinction between originated and acquired loans and certain significant accounting policies relevant to each category . originated loans loans originated for investment are reported at the principal balance outstanding net of unearned income . interest on loans and accretion of unearned income are computed in a manner that approximates a level yield on recorded principal . interest on loans is recorded as income as earned . the accrual of interest on an originated loan is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due . the company maintains an allowance for loan losses on originated loans that represents management 's estimate of probable losses incurred in this portfolio category . acquired loans acquired loans are those collectively associated with our acquisitions of statewide , gsfc , britton & koontz and bno . these loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses . the acquired loans were segregated between those considered to be performing ( acquired performing ) and those with evidence of credit deterioration ( acquired impaired ) , and then further segregated into loan pools designed to facilitate the estimation of expected cash flows . the fair value estimate for each pool of acquired performing and acquired impaired loans was based on the estimate of expected cash flows , both principal and interest , from that pool , discounted at prevailing market interest rates . the difference between the fair value of an acquired performing loan pool and the contractual amounts due at the acquisition date ( the fair value discount ) is accreted into income over the estimated life of the pool . management estimates an allowance for loan losses for acquired performing loans using a methodology similar to that used for 21 originated loans . the allowance determined for each loan pool is compared to the remaining fair value discount for that pool . if the allowance amount calculated under the company 's methodology is greater than the company 's remaining discount , the additional amount called for is added to the reported allowance through a provision for loan losses . if the allowance amount calculated under the company 's methodology is less than the company 's recorded discount , no additional allowance or provision is recognized . actual losses first reduce any remaining fair value discount for the loan pool . once the discount is fully depleted , losses are applied against the allowance established for that pool . acquired performing loans are placed on nonaccrual status and considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio . the excess of cash flows expected to be collected from an acquired impaired loan pool over the pool 's estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the pool . each pool of acquired impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows . management recasts the estimate of cash flows expected to be collected on each acquired impaired loan pool periodically . if the present value of expected cash flows for a pool is less than its carrying value , an impairment is recognized by an increase in the allowance for loan losses and a charge to the provision for loan losses . if the present value of expected cash flows for a pool is greater than its carrying value , any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool . acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans , even if they would otherwise qualify for such treatment . certain loans purchased in the statewide acquisition are covered by loss sharing agreements between the fdic and the company . historically , the company has referred to loans subject to loss share agreements with the fdic as covered loans. however , as of march 31 , 2015 , a significant portion of the loss share agreements had expired and any future losses on certain formerly covered loans are no longer eligible for reimbursement from the fdic . as of march 2015 , only residential mortgage loans acquired from statewide remained subject to loss sharing agreements with the fdic . as of december 31 , 2016 , the company 's remaining covered loans amounted to approximately $ 2.8 million , or 0.2 % of the company 's total loan portfolio , at such date . given the limited amount of covered loans remaining , the company is no longer reporting such loans as covered loans , and the remaining covered loans are included in acquired loans. income taxes . we make estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our deferred tax assets , which arise from temporary differences between the tax and financial statement recognition of revenues and expenses .
| the increases in 2015 compared to 2014 were primarily due to increases in average loans and deposits driven by organic growth and acquired balances from louisiana bancorp in the third quarter of 2015. the company 's net interest spread was 4.22 % , 4.32 % and 4.45 % for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the company 's net interest margin , which is net interest income as a percentage of average interest-earning assets , was 4.34 % , 4.43 % and 4.54 % during the years ended december 31 , 2016 , 2015 and 2014 , respectively . 31 the following table sets forth , for the periods indicated , information regarding ( i ) the total dollar amount of interest income to the company from interest-earning assets and the resultant average yields ; ( ii ) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate ; ( iii ) net interest income ; ( iv ) net interest spread ; and ( v ) net interest margin . information is based on average monthly balances during the indicated periods . taxable equivalent ( te ) yields have been calculated using a marginal tax rate of 35 % . replace_table_token_21_th ( 1 ) nonperforming loans are included in the respective average loan balances , net of deferred fees , discounts and loans in process . acquired loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the respective loans . 32 the following table displays the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities . the table distinguishes between ( i ) changes attributable to volume ( changes in average volume between periods times prior year rate ) , ( ii ) changes attributable to rate ( changes in average rate between periods times prior year volume ) and ( iii ) total increase ( decrease ) . replace_table_token_22_th interest income includes interest income earned on earning assets as well as applicable loan fees earned . interest income that
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additionally , third parties operate approximately 99 % of the wells on the underlying properties and , therefore , enduro is not in a position to control the timing of development efforts , associated costs , or the rate of production of the reserves . the trust is required to make monthly cash distributions of substantially all of its monthly cash receipts , after deducting the trust 's administrative expenses , to holders of record ( generally the last business day of each calendar month ) on or before the 10 th business day after the record date . the net profits interest is entitled to a share of the profits from and after july 1 , 2011 attributable to production occurring on or after june 1 , 2011. the amount of trust revenues and cash distributions to trust unitholders depends on , among other things : · oil and gas sales prices ; · volumes of oil and natural gas produced and sold attributable to the underlying properties ; · production and development costs ; · price differentials ; · potential reductions or suspensions of production ; and · the amount and timing of trust administrative expenses . 2014 recap and 2015 outlook in 2014 , there were 46 gross , 4.9 net to enduro 's interest , wells drilled on the underlying properties . this activity was all in the permian basin and primarily concentrated in the wolfcamp play in the midland basin . during 2014 , enduro participated in 20 gross well proposals received from pioneer natural resources ( pioneer ) for the rocker b drilling program in the wolfcamp play . distributions paid in 2014 were reduced by $ 19.6 million in development costs related to the wolfcamp rocker b program , while these wells contributed $ 2.6 million in cash receipts from eight rocker b wells that were producing through august 2014 ( the last production period included in 2014 distributions ) . of the remaining 12 gross wells , five wells experienced delays on first production payments and the other seven began producing in october and december 2014 and , as a result , did not contribute to 2014 distributions . while the majority of development costs associated with this drilling program were included in 2014 distributions , this development will impact the trust 's oil production in 2015 as cash receipts from the remaining 12 wells are or will be included starting with distributions made during the first and second quarters of 2015. beginning with 2014 production , which first impacted distributions paid in the second quarter of 2014 , production attributable to the trust was unhedged . as the terms of the net profits interest prohibit enduro from entering into new hedging arrangements burdening the trust , all future production attributable to the trust will also be unhedged , and the amount of future cash distributions will be subject to the full impact of fluctuations in oil and natural gas prices . since the last distribution paid in 2014 , which primarily represented oil production during the month of august 2014 , nymex oil prices have declined approximately 50 % . the recent decline in prices has and will continue to negatively affect the amount of cash flow available for distribution to the trust unitholders in 2015. the relatively low prices for production from september 2014 through february 2015 have had and will have a material adverse effect on distributions to the trust unitholders for the related distribution months , and the material adverse effects will continue unless commodity prices increase substantially . additionally , lower prices may reduce the amount of oil and natural gas that enduro and its third party operators can economically produce . in light of the current commodity price environment , the operators of the properties underlying the trust continue to evaluate capital activity during 2015. enduro anticipates total capital expenditures included in 2015 distributions to be considerably less than 2014. based on currently available information , enduro anticipates 2015 capital expenditures to range from $ 12 to $ 16 million attributable to the properties in which the trust owns a net profits interest , or $ 10 to $ 13 million net to the trust 's 80 % net profits interest . enduro expects that the 2015 capital program will continue to focus primarily on permian basin projects , including legacy waterfloods , infill drilling , and wolfcamp permian basin oil development projects in the midland basin . as noted above , to date enduro has participated in 20 gross wells in the rocker b permian development program with pioneer . of the wells drilled , the primary reservoir targeted has been the wolfcamp b and results have been best for those wells drilled in the b2 reservoir . in the current commodity environment , enduro continues to evaluate the total capital to be committed to this program in 2015 and enduro 's participation in proposed additional wolfcamp wells . 30 story_separator_special_tag roman ; '' > liquidity and capital resources the trust 's principal sources of liquidity are cash flow generated from the net profits interest and borrowing capacity under the letter of credit described below . other than trust administrative expenses , including any reserves established by the trustee for future liabilities , the trust 's only use of cash is for distributions to trust unitholders . available funds are the excess cash , if any , received by the trust from the net profits interest and other sources ( such as interest earned on any amounts reserved by the trustee ) in any given month , over the trust 's expenses paid for that month . story_separator_special_tag available funds are reduced by any cash the trustee determines to hold as a reserve against future expenses . the trustee may create a cash reserve to pay for future liabilities of the trust . if the trustee determines that the cash on hand and the cash to be received are , or will be , insufficient to cover the trust 's liabilities , the trustee may authorize the trust to borrow money to pay administrative or incidental expenses of the trust that exceed cash held by the trust . the trustee may authorize the trust to borrow from any person , including the trustee or the delaware trustee or an affiliate thereof , although none of the trustee , the delaware trustee or any affiliate thereof intends to lend funds to the trust . the trustee may also cause the trust to mortgage its assets to secure payment of the indebtedness . the terms of such indebtedness and security interest , if funds were loaned by the entity serving as trustee or delaware trustee or an affiliate thereof , would be similar to the terms which such entity would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship . in addition , enduro has agreed to provide the trust with a $ 1 million letter of credit to be used by the trust in the event that its cash on hand ( including available cash reserves ) is not sufficient to pay ordinary course administrative expenses . further , if the trust requires more than the $ 1 million under the letter of credit to pay administrative expenses , enduro has agreed to loan funds to the trust necessary to pay such expenses . any loan made by enduro to the trust would be evidenced by a written promissory note , be on an unsecured basis , and have terms that are no less favorable to enduro as those that would be obtained in an arm 's length transaction between enduro and an unaffiliated third party . if the trust borrows funds , draws on the letter of credit or enduro loans funds to the trust , no further distributions will be made to trust unitholders until such amounts borrowed or drawn are repaid . except for the foregoing , the trust has no source of liquidity or capital resources . the trustee has no current plans to authorize the trust to borrow money . at december 31 , 2014 and 2013 , the trust held cash reserves of $ 249,068 and $ 85,352 , respectively , for future trust expenses . since its formation , the trust has not borrowed any funds and no amounts have been drawn on the letter of credit . cash held by the trustee as a reserve against future liabilities or for distribution at the next distribution date may be held in a noninterest-bearing account or may be invested in : · interest-bearing obligations of the united states government ; · money market funds that invest only in united states government securities ; · repurchase agreements secured by interest-bearing obligations of the united states government ; or · bank certificates of deposit . as substantially all of the underlying properties are located in mature fields , enduro does not expect future costs for the underlying properties to change significantly as compared to recent historical costs other than changes due to fluctuations in the cost of oilfield services generally . the amounts received by enduro from hedge contract counterparties upon settlement of the hedge contracts reduced the operating expenses related to the underlying properties in calculating income from the net profits interest in the first and second quarters of 2014 and the years ended december 31 , 2013 and 2012. enduro has not entered into any hedge contracts relating to oil and natural gas volumes expected to be produced after 2013 and the terms of the conveyance prohibit enduro from entering into new hedging arrangements burdening the trust . the trust pays the trustee an administrative fee of $ 200,000 per year . the trust pays the delaware trustee a fee of $ 2,000 per year . the trust also incurs , either directly or as a reimbursement to the trustee , legal , accounting , tax and engineering fees , printing costs and other expenses that are deducted by the trust before distributions are made to trust unitholders . the trust also is responsible for paying other expenses incurred as a result of being a publicly traded entity , including costs associated with annual and quarterly reports to trust unitholders , tax return and form 1099 preparation and distribution , nyse listing fees , independent auditor fees and registrar and transfer agent fees . the trust does not have any transactions , arrangements or other relationships with unconsolidated entities or persons that could materially affect the trust 's liquidity or the availability of capital resources . off-balance sheet arrangements the trust has no off-balance sheet arrangements . the trust has not guaranteed the debt of any other party , nor does the trust have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt , losses or contingent obligations . contractual obligations a summary of the trust 's contractual obligations as of december 31 , 2014 is provided in the following table : replace_table_token_14_th ( a ) under the terms of the trust agreement , the trust pays an annual administrative fee of $ 200,000 to the trustee and $ 2,000 to the delaware trustee .
| underlying properties from august 2013 through july 2014 ; and · direct operating and development expenses primarily related to expenses and capital incurred from october 2013 to september 2014. net profits attributable to the underlying properties for the year ended december 31 , 2014 were $ 36.6 million compared to $ 61.3 million for the year ended december 31 , 2013. the $ 24.7 million decrease from 2013 to 2014 was primarily due to the following items : · development expenses increased $ 15.5 million due to increased capital activity from operators of the underlying properties . this increase in capital activity was primarily due to enduro 's participation in 20 gross well proposals received from pioneer for wolfcamp permian basin oil projects in the midland basin . distributions paid in 2014 were reduced by $ 19.6 million in development expenses related to the pioneer wolfcamp rocker b program . · hedge settlements decreased $ 6.4 million due to the maturation of all hedge contracts related to 2013 production . for further information on commodity hedges , see note 4 of the notes to financial statements . · natural gas sales decreased $ 5.7 million due to reduced sales volumes , which decreased natural gas sales by $ 13.3 million , partially offset by an increase in average nymex natural gas prices , which contributed $ 7.6 million of additional natural gas sales as compared to 2013. natural gas sales volumes decreased 36 % primarily as a result of the natural decline of wells located in north louisiana . the average natural gas price received increased 26 % primarily due to a 21 % increase in the average nymex natural gas price for the relevant production months . · oil sales increased $ 2.8 million due to higher realized prices , which contributed an additional $ 5.1 million of oil sales , partially offset by a decrease in sales volumes , which reduced oil sales
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to further enhance the company 's financial position and return capital to shareholders , arconic 's board of directors authorized a share repurchase program of up to $ 500 of its outstanding common stock and a $ 500 early debt reduction . under the share repurchase program , the company may repurchase shares from time to time , in amounts , at prices , and at such times as the company deems appropriate . repurchases will be subject to market conditions , legal requirements and other considerations . the company is not obligated to repurchase any specific number of shares or to do so at any particular time , and the share repurchase program may be suspended , modified or terminated at any time without prior notice . for the early debt reduction , arconic intends to redeem in march 2018 all of its outstanding 5.72 % notes due in 2019. beginning in the first quarter of 2018 , the company 's primary measure of segment performance will change from adjusted ebitda to operating income , which more closely aligns segment performance with operating income as presented in the statement of consolidated operations . as part of this change , lifo and metal price lag will be included in the operating income of the segments . in conjunction with the implementation of the new accounting guidance on changes to the classification of certain cash receipts and cash payments within the statement of cash flows ( effective january 1 , 2018 and to be applied retrospectively ) , specifically as it relates to the requirement to reclassify cash received from net sales of beneficial interest in sold receivables from cash from operations to cash provided from investing activities , the company has changed the calculation of its measure of free cash flow to cash from operations plus cash received from net sales of beneficial interest in sold receivables , less capital expenditures . this change to our measure of free cash flow is being implemented to ensure consistent presentation of this measure across all historical periods , once the required accounting guidance reclassification is reflected in our financial results beginning in the first quarter of 2018. the adoption of this accounting change does not reflect a change in our underlying business or activities . 2016 separation transaction . on november 1 , 2016 , the company completed the separation of its business into two standalone , publicly-traded companies , arconic inc. and alcoa corporation . following the separation transaction , arconic comprises the global rolled products ( other than the rolling mill in warrick , indiana , and the 25.1 % equity ownership stake in the ma'aden rolling company ) , the engineered products and solutions , and the transportation and construction solutions segments . alcoa corporation comprises the alumina and primary metals segments , the rolling mill in warrick , indiana , and the 25.1 % equity ownership stake in the ma'aden rolling company in saudi arabia . 35 the separation transaction was effected by the distribution of 80.1 % of the outstanding shares of alcoa corporation common stock to the company 's shareholders ( the “ distribution ” ) . the company 's shareholders of record as of the close of business on october 20 , 2016 ( the “ record date ” ) received one share of alcoa corporation common stock for every three shares of the company 's common stock held as of the record date . the company distributed 146,159,428 shares of common stock of alcoa corporation in the distribution and retained 36,311,767 shares , or approximately 19.9 % ( see disposition of retained shares under results of operations below ) , of the common stock of alcoa corporation immediately following the distribution . as a result of the distribution , alcoa corporation is now an independent public company trading under the symbol “ aa ” on the new york stock exchange , and the company trades under the symbol “ arnc ” on the new york stock exchange . on october 31 , 2016 , arconic entered into several agreements with alcoa corporation that govern the relationship of the parties following the completion of the separation transaction . these agreements include the following : separation and distribution agreement , transition services agreement , tax matters agreement , employee matters agreement , alcoa corporation to arconic inc. patent , know-how , and trade secret license agreement , arconic inc. to alcoa corporation patent , know-how , and trade secret license agreement , alcoa corporation to arconic inc. trademark license agreement , toll processing and services agreement , master agreement for the supply of primary aluminum , massena lease and operations agreement , fusina lease and operations agreement , and stockholder and registration rights agreement . story_separator_special_tag related to the annual impairment review of the soft alloy extrusion business in brazil . see goodwill under critical accounting policies and estimates below . restructuring and other charges— restructuring and other charges for each year in the three-year period ended december 31 , 2017 were comprised of the following : replace_table_token_5_th layoff costs were recorded based on approved detailed action plans submitted by the operating locations that specified positions to be eliminated , benefits to be paid under existing severance plans , union contracts or statutory requirements , and the expected timetable for completion of the plans . 2017 actions . story_separator_special_tag in 2017 , arconic recorded restructuring and other charges of $ 165 ( $ 143 after-tax ) , which were comprised of the following components : $ 69 ( $ 47 after-tax ) for layoff costs related to cost reduction initiatives including the separation of approximately 880 employees ( 400 in the engineered products and solutions segment , 245 in the global rolled products segment , 135 in the transportation and construction solutions segment and 100 in corporate ) , a charge of $ 60 ( $ 60 after-tax ) related to the sale of the fusina , italy rolling mill ; a charge of $ 41 ( $ 41 after-tax ) for the impairment of assets associated with the agreement to sell the latin america extrusions business ( see note f to the consolidated financial statements in part ii item 8 of this form 10-k ) ; a net benefit of $ 6 ( $ 4 after-tax ) , for the reversal of forfeited executive stock compensation of $ 13 , partially offset by a charge of $ 7 for the related severance ; a net charge of $ 12 ( $ 7 after-tax ) for other miscellaneous items ; and a favorable benefit of $ 11 ( $ 8 after-tax ) for the reversal of a number of small layoff reserves related to prior periods . as of december 31 , 2017 , approximately 300 of the 880 employees were separated . the remaining separations for 2017 restructuring programs are expected to be completed by the end of 2018 . in 2017 , cash payments of $ 28 were made against layoff reserves related to 2017 restructuring programs . 2016 actions . in 2016 , arconic recorded restructuring and other charges of $ 155 ( $ 114 after-tax ) , which were comprised of the following components : $ 57 ( $ 46 after-tax ) for costs related to the exit of certain legacy firth rixson operations in the u.k. ; $ 37 ( $ 24 after-tax ) for exit costs related to the decision to permanently shut down a can sheet facility ; $ 20 ( $ 14 after-tax ) for costs related to the closures of five facilities , primarily in the transportation and construction solutions segment and engineered products and solutions segment , including the separation of approximately 280 employees ; $ 53 ( $ 33 after-tax ) for other layoff costs , including the separation of approximately 1,315 employees ( 1,045 in the engineered products and solutions segment , 210 in corporate , 30 in the global rolled products segment and 30 in the transportation and construction solutions segment ) ; $ 11 ( $ 8 after-tax ) for other miscellaneous items , including $ 3 ( $ 2 after-tax ) for the sale of remmele medical ; $ 2 ( $ 1 after-tax ) for a pension settlement ; and $ 25 ( $ 12 after-tax ) for the reversal of a number of small layoff reserves related to prior periods . in 2016 , management made the decision to exit certain legacy firth rixson facilities in the u.k. costs related to these actions included asset impairments and accelerated depreciation of $ 51 ; other exit costs of $ 4 ; and $ 2 for the separation of 60 employees . also in 2016 , management approved the shutdown and demolition of the can sheet facility in tennessee upon completion of the toll processing agreement with alcoa corporation ( see global rolled products under segment information below ) . costs related to this action included $ 21 in asset impairments ; $ 9 in other exit costs ; and $ 7 for the separation of 145 employees . the other exit costs of $ 9 represent $ 4 in asset retirement obligations and $ 3 in environmental remediation , both of which were triggered by the decision to permanently shut down and demolish the can sheet facility in tennessee , and $ 2 in other exit costs . 37 as of december 31 , 2017 , approximately 1,280 of the 1,700 ( previously 1,750 ) employees were separated . the total number of employees associated with 2016 restructuring programs was updated to reflect employees , who were initially identified for separation , accepting other positions within arconic and natural attrition . the remaining separations for 2016 restructuring programs are expected to be completed by the end of 2018. in 2017 and 2016 , cash payments of $ 26 and $ 16 were made against layoff reserves related to 2016 restructuring programs . 2015 actions . in 2015 , arconic recorded restructuring and other charges of $ 214 ( $ 192 after-tax ) , which were comprised of the following components : a $ 136 ( $ 134 after-tax ) net loss related to the march 2015 divestiture of a rolling mill in russia and post-closing adjustments associated with the december 2014 divestitures of three rolling mills located in spain and france ; $ 97 ( $ 70 after-tax ) for layoff costs , including the separation of approximately 1,505 employees ( 590 in the engineered products and solutions segment , 425 in the transportation and construction solutions segment , 400 in corporate , and 90 in the global rolled products segment ) ; an $ 18 ( $ 13 after-tax ) gain on the sale of land related to one of the rolling mills in australia that was permanently closed in december 2014 ; a net charge of $ 7 ( $ 4 after-tax ) for other miscellaneous items ; and $ 8 ( $ 3 after-tax ) for the reversal of a number of small layoff reserves related to prior periods . as of december 31 , 2017 , the separations associated with the 2015 restructuring programs were essentially complete . in 2017 , 2016 and 2015 , cash payments of $ 5 , $ 55 and $ 18 , respectively , were made against layoff reserves related to 2015 restructuring programs .
| cogs as a percentage of sales was 79.2 % in 2016 compared with 81.4 % in 2015. the primary drivers in the improvement in cogs as a percentage of sales were productivity gains across all segments and higher volume in the engineered products and solutions segment due to the benefit of a full-year effect of two 2015 acquisitions . this benefit was somewhat offset by overall cost increases across all segments and unfavorable product pricing and mix impacts primarily in the engineered products and solutions and global rolled products segments . selling , general administrative , and other expenses ( sg & a ) — sg & a expenses were $ 731 , or 5.6 % of sales , in 2017 compared with $ 942 , or 7.6 % of sales , in 2016 . the decrease in sg & a was the result of expenses related to the separation transaction of $ 193 in 2016 compared to $ 18 in 2017 , as well as ongoing overhead cost reduction efforts ( see restructuring and other charges below ) , partially offset by proxy , advisory and governance-related costs of $ 58 , external legal and other advisory costs related to grenfell tower of $ 14 and costs associated with the company 's delaware reincorporation of $ 3 in 2017. , sg & a expenses were $ 942 , or 7.6 % of sales , in 2016 compared with $ 765 , or 6.2 % of sales , in 2015. the increase in sg & a was primarily due to costs related to the separation transaction of $ 193 in 2016 , an increase of $ 169 from 2015 separation costs . research and development expenses ( r & d ) — r & d expenses were $ 111 in 2017 compared with $ 132 in 2016 and $ 169 in 2015. the decrease in 2017 as compared to 2016 was driven by lower spending . the decrease in 2016 as compared to 2015 was driven by the decrease in spending for the micromill in san antonio , tx which was completed in 2015 and began production of automotive
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at the time of establishing its estimates , an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates . our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends , expected claims severity , judicial theories of liability and other factors . however , during the loss adjustment period , our insurance subsidiaries may learn additional facts regarding individual claims , and , consequently , it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities . we reflect any adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates . our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims . our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses , including investigation and litigation costs . our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved , knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred . our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance . our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results . our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques . our insurance subsidiaries do not discount their liabilities for losses and loss expenses . reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries ' external environment and , to a lesser extent , assumptions related to our insurance subsidiaries ' internal operations . for example , our insurance subsidiaries have experienced an increase in claims severity and a lengthening of the claim settlement periods on bodily injury claims during the past several years . these trend changes give rise to greater uncertainty as to the pattern of future loss settlements on bodily injury claims . related uncertainties regarding future trends include the cost of medical technologies and procedures and changes in the utilization of medical procedures . assumptions related to our insurance subsidiaries ' external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure , consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation . internal assumptions include consistency in the recording of premium and loss statistics , consistency in the recording of claims , payment and case reserving methodology , accurate measurement of the impact of rate changes and changes in policy provisions , consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses , among other items . to the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed , our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes . accordingly , our insurance subsidiaries ' ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at december 31 , 2018. for every 1 % change in our insurance subsidiaries ' loss and loss expense reserves , net of reinsurance recoverable , the effect on our pre-tax results of operations would be approximately $ 4.8 million . the establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries ' ultimate liability will not exceed our insurance subsidiaries ' loss and loss expense reserves and have an adverse effect on our results of operations and financial condition . furthermore , we can not predict the timing , frequency and extent of adjustments to our insurance subsidiaries ' estimated future liabilities , because the historical conditions and events that serve as a basis for our insurance subsidiaries ' estimates of ultimate claim costs may change . as is the case for substantially all property and casualty insurance companies , our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and , in other periods , their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses . changes in our insurance subsidiaries ' estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period . during 2018 , our insurance subsidiaries received new information on previously-reported commercial automobile and personal automobile claims that led our insurance subsidiaries -39- to conclude that their prior actuarial assumptions did not fully anticipate recent changes in severity and reporting trends . our insurance subsidiaries have encountered increasing difficulties in projecting the ultimate severity of automobile losses over recent accident years , which our insurance subsidiaries attribute to worsening litigation trends and an increased delay in the reporting to our insurance subsidiaries of information with respect to the severity of claims . as a result , our insurance subsidiaries ' actuaries increased their projections of the ultimate cost of our insurance subsidiaries ' prior-year personal automobile and commercial automobile losses . our insurance subsidiaries recognized an increase in their liability for losses and loss expenses of prior years of $ 35.6 million , $ 6.6 million and $ 3.0 million in 2018 , 2017 and 2016 , respectively . story_separator_special_tag our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel , and they have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in these years . the 2018 development represented 9.3 % of the december 31 , 2017 net carried reserves and resulted primarily from higher-than-expected severity in the commercial multiple peril , personal automobile and commercial automobile lines of business , offset by lower-than-expected severity in the workers ' compensation line of business , in accident years prior to 2018. the majority of the 2018 development related to increases in the liability for losses and loss expenses of prior years for atlantic states , southern and peninsula . the 2017 development represented 1.9 % of the december 31 , 2016 net carried reserves and resulted primarily from higher-than-expected severity in the commercial multiple peril , personal automobile and commercial automobile lines of business , offset by lower-than-expected severity in the workers ' compensation line of business , in accident years prior to 2017. the majority of the 2017 development related to increases in the liability for losses and loss expenses of prior years for atlantic states and peninsula . the 2016 development represented 0.9 % of the december 31 , 2015 net carried reserves and resulted primarily from higher-than-expected severity in the commercial multiple peril and commercial automobile liability lines of business , offset by lower-than-expected severity in the workers ' compensation line of business in accident years prior to 2016. the majority of the 2016 development related to increases in the liability for losses and loss expenses of prior years for atlantic states and southern . excluding the impact of severe weather events , our insurance subsidiaries have noted stable amounts in the number of claims incurred and the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business . however , the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as rising medical loss costs and increased litigation trends . we have also experienced a general slowing of settlement rates in litigated claims . our insurance subsidiaries could have to make further adjustments to their estimates in the future . however , on the basis of our insurance subsidiaries ' internal procedures , which analyze , among other things , their prior assumptions , their experience with similar cases and historical trends such as reserving patterns , loss payments , pending levels of unpaid claims and product mix , as well as court decisions , economic conditions and public attitudes , we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses . atlantic states ' participation in the pool with donegal mutual exposes atlantic states to adverse loss development on the business of donegal mutual that the pool includes . however , pooled business represents the predominant percentage of the net underwriting activity of both companies , and donegal mutual and atlantic states share proportionately any adverse risk development relating to the pooled business . the business in the pool is homogeneous and each company has a pro-rata share of the entire pool . since the predominant percentage of the business of atlantic states and donegal mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement , the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies . donegal mutual and our insurance subsidiaries operate together as the donegal insurance group and share a combined business plan designed to achieve market penetration and underwriting profitability objectives . the products our insurance subsidiaries and donegal mutual offer are generally complementary , thereby allowing donegal insurance group to offer a broader range of products to a given market and to expand donegal insurance group 's ability to service an entire personal lines or commercial lines account . distinctions within the products of donegal mutual and our insurance subsidiaries generally relate to specific risk profiles targeted within similar classes of business , such as preferred tier products compared to standard tier products , but we do not allocate all of the standard risk gradients to one company . therefore , the underwriting profitability of the business the individual companies write directly will vary . however , because the pool homogenizes the risk characteristics of the predominant percentage of the business donegal mutual and atlantic states write directly and each company shares the underwriting results according to each company 's participation percentage , each company realizes its percentage share of the underwriting results of the pool . -40- our insurance subsidiaries ' liability for losses and loss expenses by major line of business at december 31 , 2018 and 2017 consisted of the following : replace_table_token_12_th the substantial increases in reserves in 2018 compared to 2017 reflected changes in actuarial assumptions that resulted in higher projections of the ultimate cost of our insurance subsidiaries ' losses for claims that occurred in 2018 and prior years . we have evaluated the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables we consider in establishing loss and loss expense reserves . we established the range of reasonably likely changes based on a review of changes in accident year development by line of business and applied it to our insurance subsidiaries ' loss reserves as a whole . the selected range does not necessarily indicate what could be the potential best or worst case or the most-likely scenario .
| million ) and $ 5.7 million , respectively . the net investment losses for 2018 were primarily related to a decrease in the market value of the equity securities we held at december 31 , 2018. we adopted new accounting guidance effective january 1 , 2018 that requires us to measure equity investments at fair value and recognize changes in fair value in our results of operations . the net investment gains for 2017 resulted primarily from strategic sales of equity securities within our investment portfolio and unrealized gains within a limited partnership that invests in equity securities . we did not recognize any impairment losses during 2018 or 2017. equity in earnings of dfsc our equity in the earnings of dfsc in 2018 and 2017 was $ 2.7 million and $ 1.6 million , respectively . we attribute the increase in dfsc 's earnings primarily to higher net interest income related to loan portfolio growth that dfsc achieved during 2018. losses and loss expenses our insurance subsidiaries ' loss ratio , which is the ratio of incurred losses and loss expenses to premiums earned , was 77.8 % in 2018 , compared to 69.4 % in 2017. our insurance subsidiaries ' commercial lines loss ratio increased to 72.9 % in 2018 , compared to 62.0 % in 2017. this increase resulted primarily from the commercial automobile loss ratio increasing to 101.9 % in 2018 , compared to 80.3 % in 2017 , and the commercial multi-peril loss ratio increasing to 67.0 % in 2018 , compared to 64.6 % in 2017. the personal lines loss ratio was 81.8 % in 2018 compared to 75.5 % in 2017. our insurance subsidiaries experienced unfavorable loss reserve development of approximately $ 35.6 million during 2018 in their reserves for prior accident years , compared to approximately $ 6.6 million during 2017. the unfavorable loss reserve development resulted primarily from higher-than-expected severity in the commercial multiple peril , personal automobile and commercial automobile lines of business ,
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approximately 91 % , 90 % and 91 % of our revenues for years ended december 31 , 2017 , 2016 and 2015 , respectively , are attributable to monthly subscription fees charged to customers for our video , internet , voice and commercial services provided by 29 our cable systems . generally , these customer subscriptions may be discontinued by the customer at any time subject to a fee for certain commercial customers . the remaining 9 % , 10 % and 9 % of revenue for fiscal years 2017 , 2016 and 2015 , respectively , is derived primarily from advertising revenues , franchise and other regulatory fee revenues ( which are collected by us but then paid to local authorities ) , vod and pay-per-view programming , installation , processing fees or reconnection fees charged to customers to commence or reinstate service , revenue from regional sports and news channels and commissions related to the sale of merchandise by home shopping services . we incurred the following transition costs in connection with the transactions ( in millions ) . replace_table_token_4_th amounts included in transition operating expenses and transition capital expenditures represent incremental costs incurred to integrate the legacy twc and legacy bright house operations and to bring the three companies ' systems and processes into a uniform operating structure . costs are incremental and would not be incurred absent the integration . other operating expenses associated with the transactions represent merger and restructuring costs and include advisory , legal and accounting fees , employee retention costs , employee termination costs and other exit costs . critical accounting policies and estimates certain of our accounting policies require our management to make difficult , subjective and or complex judgments . management has discussed these policies with the audit committee of charter 's board of directors , and the audit committee has reviewed the following disclosure . we consider the following policies to be the most critical in understanding the estimates , assumptions and judgments that are involved in preparing our financial statements , and the uncertainties that could affect our results of operations , financial condition and cash flows : property , plant and equipment capitalization of labor and overhead costs valuation and impairment of property , plant and equipment useful lives of property , plant and equipment intangible assets valuation and impairment of franchises valuation and impairment of goodwill valuation , impairment and amortization of customer relationships income taxes litigation programming agreements pension plans in addition , there are other items within our financial statements that require estimates or judgment that are not deemed critical , such as the allowance for doubtful accounts and valuations of our financial instruments , but changes in estimates or judgment in these other items could also have a material impact on our financial statements . property , plant and equipment the cable industry is capital intensive , and a large portion of our resources are spent on capital activities associated with extending , rebuilding , and upgrading our cable network . as of december 31 , 2017 and 2016 , the net carrying amount of our property , plant and equipment ( consisting primarily of cable distribution systems ) was approximately $ 33.6 billion ( representing 23 % of total assets ) and $ 32.7 billion ( representing 22 % of total assets ) , respectively . total capital expenditures for the years ended december 31 , 2017 , 2016 and 2015 were approximately $ 8.7 billion , $ 5.3 billion and $ 1.8 billion , respectively . capitalization of labor and overhead costs . costs associated with network construction or upgrades , initial placement of the customer drop to the dwelling and the initial placement of outlets within a dwelling along with the costs associated with the initial deployment of customer premise equipment necessary to provide video , internet or voice services , are capitalized . costs capitalized 30 include materials , direct labor and certain indirect costs . these indirect costs are associated with the activities of personnel who assist in installation activities , and consist of compensation and overhead costs associated with these support functions . while our capitalization is based on specific activities , once capitalized , we track these costs on a composite basis by fixed asset category at the cable system level , and not on a specific asset basis . for assets that are sold or retired , we remove the estimated applicable cost and accumulated depreciation . the costs of disconnecting service and removing customer premise equipment from a dwelling and the costs to reconnect a customer drop or to redeploy previously installed customer premise equipment are charged to operating expense as incurred . costs for repairs and maintenance are charged to operating expense as incurred , while plant and equipment replacement , including replacement of certain components , betterments , and replacement of cable drops and outlets , are capitalized . we make judgments regarding the installation and construction activities to be capitalized . we capitalize direct labor and overhead using standards developed from actual costs and applicable operational data . we calculate standards annually ( or more frequently if circumstances dictate ) for items such as the labor rates , overhead rates , and the actual amount of time required to perform a capitalizable activity . for example , the standard amounts of time required to perform capitalizable activities are based on studies of the time required to perform such activities . overhead rates are established based on an analysis of the nature of costs incurred in support of capitalizable activities , and a determination of the portion of costs that is directly attributable to capitalizable activities . the impact of changes that resulted from these studies were not material in the periods presented . labor costs directly associated with capital projects are capitalized . story_separator_special_tag capitalizable activities performed in connection with installations include such activities as : dispatching a “ truck roll ” to the customer 's dwelling or business for service connection or placement of new equipment ; verification of serviceability to the customer 's dwelling or business ( i.e. , determining whether the customer 's dwelling is capable of receiving service by our cable network ) ; customer premise activities performed by in-house field technicians and third-party contractors in connection with the installation , replacement and betterment of equipment and materials to enable video , internet or voice services ; and verifying the integrity of the customer 's network connection by initiating test signals downstream from the headend to the customer premise equipment , as well as testing signal levels at the utility pole or pedestal . judgment is required to determine the extent to which overhead costs incurred result from specific capital activities , and therefore should be capitalized . the primary costs that are included in the determination of the overhead rate are ( i ) employee benefits and payroll taxes associated with capitalized direct labor , ( ii ) direct variable costs associated with capitalizable activities , ( iii ) the cost of support personnel , such as care personnel and dispatchers , who assist with capitalizable installation activities , and ( iv ) indirect costs directly attributable to capitalizable activities . while we believe our existing capitalization policies are appropriate , a significant change in the nature or extent of our system activities could affect management 's judgment about the extent to which we should capitalize direct labor or overhead in the future . we monitor the appropriateness of our capitalization policies , and perform updates to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies . we capitalized direct labor and overhead of $ 1.7 billion , $ 991 million and $ 420 million , respectively , for the years ended december 31 , 2017 , 2016 and 2015 . valuation and impairment of property , plant and equipment . we evaluate the recoverability of our property , plant and equipment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable . such events or changes in circumstances could include such factors as the impairment of our indefinite life assets , changes in technological advances , fluctuations in the fair value of such assets , adverse changes in relationships with local franchise authorities , adverse changes in market conditions , or a deterioration of current or expected future operating results . a long-lived asset is deemed impaired when the carrying amount of the asset exceeds the projected undiscounted future cash flows associated with the asset . no impairments of long-lived assets to be held and used were recorded in the years ended december 31 , 2017 , 2016 and 2015 . we utilize the cost approach as the primary method used to establish fair value for our property , plant and equipment in connection with business combinations . the cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility , then adjusts the value in consideration of physical depreciation and functional and economic obsolescence as of the valuation date . the cost approach relies on management 's assumptions regarding current material and labor costs required to rebuild and repurchase significant components of our property , plant and equipment along with assumptions regarding the age and estimated remaining useful lives of our property , plant and equipment . useful lives of property , plant and equipment . we evaluate the appropriateness of estimated useful lives assigned to our property , plant and equipment , based on annual analysis of such useful lives , and revise such lives to the extent warranted by changing facts and circumstances . any changes in estimated useful lives as a result of this analysis are reflected prospectively beginning in the 31 period in which the study is completed . our analysis of useful lives in 2017 did not indicate any significant changes in useful lives . the effect of a one-year decrease in the weighted average remaining useful life of our property , plant and equipment as of december 31 , 2017 would be an increase in annual depreciation expense of approximately $ 943 million . the effect of a one-year increase in the weighted average remaining useful life of our property , plant and equipment as of december 31 , 2017 would be a decrease in annual depreciation expense of approximately $ 1.4 billion . depreciation expense related to property , plant and equipment totaled $ 7.8 billion , $ 5.0 billion and $ 1.9 billion for the years ended december 31 , 2017 , 2016 and 2015 , respectively , representing approximately 21 % , 19 % and 21 % of costs and expenses , respectively . depreciation is recorded using the straight-line composite method over management 's estimate of the useful lives of the related assets as listed below : cable distribution systems 8-20 years customer premise equipment and installations 3-8 years vehicles and equipment 4-9 years buildings and improvements 15-40 years furniture , fixtures and equipment 7-10 years intangible assets valuation and impairment of franchises . the net carrying value of franchises as of december 31 , 2017 and 2016 was approximately $ 67.3 billion ( representing 46 % of total assets ) and $ 67.3 billion ( representing 45 % of total assets ) , respectively . for more information and a complete discussion of how we value and test franchise assets for impairment , see note 6 to the accompanying consolidated financial statements contained in “ part ii . item 8. financial statements and supplementary data. ” we perform an impairment assessment of franchise assets annually or more frequently as warranted by events or changes in circumstances . we performed a qualitative assessment in 2017 .
| the increases in video revenues are attributable to the following ( dollars in millions ) : replace_table_token_7_th on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , residential video customers decreased by 226,000 in 2016 and the increases in video revenues is attributable to the following ( dollars in millions ) : replace_table_token_8_th 35 residential internet customers grew by 1,171,000 in 2017 and , excluding the impacts of the transactions , grew by 461,000 customers in 2016 . the increases in internet revenues from our residential customers are attributable to the following ( dollars in millions ) : replace_table_token_9_th on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , residential internet customers increased by 1,463,000 in 2016 and the increases in internet revenues is attributable to the following ( dollars in millions ) : replace_table_token_10_th residential voice customers grew by 100,000 in 2017 and , excluding the impacts of the transactions , grew by 95,000 customers in 2016 . the increases in voice revenues from our residential customers is attributable to the following ( dollars in millions ) : replace_table_token_11_th on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , residential voice customers increased by 368,000 in 2016 and the increase in voice revenues is attributable to the following ( dollars in millions ) : replace_table_token_12_th 36 small and medium business psus increased by 326,000 in 2017 and , excluding the impacts of the transactions , increased by 128,000 in 2016 . the increases in small and medium business commercial revenues are attributable to the following ( dollars in millions ) : replace_table_token_13_th on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , small and medium business psus increased by 291,000 in 2016 and the increases in small and medium business commercial revenues is attributable to the following ( dollars in millions ) : replace_table_token_14_th enterprise psus increased by 17,000 in 2017 and , excluding the impacts of the transactions , increased by 6,000 in 2016 . on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , enterprise psus increased by 16,000 in 2016 . the transactions increased enterprise commercial revenues for years ended 2017 and 2016 as compared to the corresponding prior periods by approximately $ 655 million and $
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as of december 31 , 2018 , tenants representing 1 % or more of our total annualized rental revenues were as follows ( square feet in thousands ) : replace_table_token_7_th ( 1 ) rented square feet is pursuant to existing leases as of december 31 , 2018 , and includes ( i ) space being fitted out for occupancy , if any , and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants , if any . ( 2 ) on december 19 , 2018 , american tire distributors , inc. , which occupies five of our mainland properties with a total of approximately 722 rentable square feet , had its amended joint plan of reorganization in chapter 11 bankruptcy confirmed pursuant to which it assumed all of its leases with us . the tenant has paid its rental obligations through february 2019 . ( 3 ) square feet excludes a 194 square foot expansion to be constructed prior to the commencement of the lease . mainland properties . we generally will seek to renew or extend the terms of leases at our mainland properties as their expirations approach . because of the capital many of the tenants in our mainland properties have invested in these properties and because many of these properties appear to be of strategic importance to the tenants ' businesses , we believe that it is likely that these tenants will renew or extend their leases prior to their expirations . if we are unable to extend or renew our leases , it may be time consuming and expensive to relet some of these properties . hawaii properties . as of december 31 , 2018 , our hawaii properties represented approximately 58.1 % of our annualized rental revenues . as of december 31 , 2018 , certain of our hawaii properties are lands leased for rents that periodically reset based on fair market values , generally every ten years . revenues from our hawaii properties have generally increased under our or our predecessors ' ownership as rents under the leases for those properties have been reset or renewed . lease renewals , lease extensions , new leases and rental rates for our hawaii properties in the future will depend on prevailing market conditions when 49 these lease renewals , lease extensions , new leases and rental rates are set . as rent reset dates or lease expirations approach at our hawaii properties , we generally negotiate with existing or new tenants for new lease terms . if we are unable to reach an agreement with a tenant on a rent reset , our hawaii properties ' leases typically provide that rent is reset based on an appraisal process . despite our and our predecessors ' prior experience with rent resets , lease extensions and new leases in hawaii , our ability to increase rents when rents reset , leases are extended , or leases expire depends upon market conditions which are beyond our control . accordingly , we can not be sure that the historical increases achieved at our hawaii properties will continue in the future . the following chart shows the annualized rental revenues as of december 31 , 2018 subject to rent reset at our hawaii properties : scheduled rent resets at hawaii properties ( dollars in thousands ) replace_table_token_8_th rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions , lease renewals or new leases are negotiated . whenever we extend , renew or enter new leases for our properties , we intend to seek rents that are equal to or higher than our historical rents for the same properties ; however , our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions , which are beyond our control . since the leases at certain of our hawaii properties were originally entered , in some cases as long as 40 or 50 years ago , the characteristics of the neighborhoods in the vicinity of some of those properties have changed . in such circumstances , we and our predecessors have sometimes engaged in redevelopment activities to change the character of certain properties in order to increase rents . because our hawaii properties are currently experiencing strong demand for their current uses , we do not currently expect redevelopment efforts in hawaii to become a major activity of ours in the near term ; however , we may undertake such activities on a selective basis . tenant review process . our manager , rmr llc , employs a tenant review process for us . rmr llc assesses tenants on an individual basis and does not employ a uniform set of credit criteria . in general , depending on facts and circumstances , rmr llc evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and , in some cases , information that is publicly available or obtained from third party sources . rmr llc also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized credit rating agency . investment activities ( dollars in thousands ) during the year ended december 31 , 2018 , we acquired four properties with a combined 985,235 rentable square feet for an aggregate purchase price of $ 120,025 , excluding acquisition related costs of $ 1,360 , and a land parcel adjacent to a property we own located in ankeny , ia for a purchase price of $ 450 , excluding acquisition related costs , to be used for a 194,000 square foot expansion for the existing tenant at such property . story_separator_special_tag in february 2019 , we entered an agreement to acquire a portfolio of eight industrial properties located in the indianapolis and cincinnati market areas , that are leased to 10 tenants with an aggregate of approximately 4,202,000 rentable square feet for a purchase price of $ 280,000 , excluding acquisition related costs . we completed the acquisition of seven of the eight properties on february 14 , 2019. the acquisition of the remaining property is expected to occur by april 15 , 2019 . 50 also in february 2019 , we entered an agreement to acquire a portfolio of 18 industrial properties located in 12 states that are leased to 13 tenants with an aggregate of approximately 8,694,000 rentable square feet for a purchase price of $ 625,300 , excluding acquisition related costs and including the assumption of $ 57,000 of mortgage debt . the acquisition of these properties is expected to occur by april 15 , 2019. for more information regarding our investment activities , see note 3 to the notes to consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. financing activities ( dollars in thousands ) on january 17 , 2018 , we completed our ipo , in which we issued 20,000,000 of our common shares for net proceeds of approximately $ 444,309 , after deducting the underwriting discounts and commissions and expenses . upon the completion of our ipo , our secured revolving credit facility converted into a four year unsecured revolving credit facility , and we used substantially all of the net proceeds from our ipo to reduce amounts outstanding under our revolving credit facility . we also reimbursed sir $ 7,271 for costs that it incurred in connection with our formation and the preparation for our ipo . on january 29 , 2019 , we obtained a $ 650,000 mortgage loan secured by 186 of our properties ( 178 land parcels and eight buildings ) containing approximately 9.6 million square feet located on the island of oahu , hawaii . the non-amortizing loan matures on february 7 , 2029 and requires monthly interest payments at a fixed rate of 4.31 % per annum . we used the proceeds from this loan to repay outstanding borrowings under our $ 750,000 unsecured revolving credit facility and to fund acquisitions . for more information regarding our financing activities , see “ management 's discussion and analysis of financial condition and results of operations—liquidity and capital resources—our investment and financing liquidity and resources ” of this annual report on form 10-k. 51 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > real estate taxes . the increase in real estate taxes primarily reflects tax valuation and tax rate increases at certain of our comparable properties and our acquisition activity . other operating expenses . other operating expenses primarily include snow removal , environmental remediation , bad debt , legal and property management fees . the increase in other operating expenses is primarily due to increases in snow removal , bad debt expense , repairs and maintenance expenses and legal fees at certain of our comparable properties and our acquisition activity . 53 depreciation and amortization . the increase in depreciation and amortization primarily reflects our acquisition activity and increased depreciation of capital improvements and leasing costs at our comparable properties . acquisition and transaction related costs . the decrease in acquisition and transaction related costs primarily reflects accounting fees related to our ipo that were required to be expensed under gaap in the 2017 period . general and administrative . subsequent to our ipo , general and administrative expenses primarily include fees paid under our business management agreement , legal fees , audit fees , trustee cash fees and equity compensation expense . prior to our ipo , general and administrative expense were primarily allocated to us by sir based on the historical cost of all of its properties . the decrease in general and administrative expenses primarily reflects higher costs incurred in 2017 associated with our ipo and our allocated portion of the estimated management incentive fees recognized by sir in the 2017 period , partially offset by an increase in costs associated with our becoming a separate public company incurred in 2018. interest income . interest income represents interest earned on our cash balances . interest expense . the increase in interest expense primarily reflects the change in our capital structure , including our ipo , and our acquisitions which resulted in changes in borrowings under our revolving credit facility during the 2018 period , partially offset by the prepayment of certain mortgage notes in december 2017. income tax expense . income tax expense primarily reflects state income taxes payable in certain jurisdictions despite our expected qualification for taxation as a reit for federal income tax purposes . net income . the decrease in net income for the 2018 period compared to the 2017 period reflects the changes noted above . weighted average common shares outstanding . the increase in weighted average common shares outstanding primarily reflects common shares that were outstanding for part or all of the year ended december 31 , 2018 , but only partially or not outstanding for any of the corresponding 2017 period , including ( i ) common shares issued to sir in connection with the formation and contribution of our initial properties in september 2017 , ( ii ) common shares sold in our ipo in january 2018 , ( iii ) common shares granted to our trustees in march , may and december 2018 , and ( iv ) common shares granted to our officers and certain other employees of rmr llc in september 2018. net income per common share - basic and diluted . net income per common share reflects the changes to net income and weighted average common shares noted above .
| other real estate companies and reits may calculate noi differently than we do . ( 4 ) we calculate ffo and normalized ffo as shown above . ffo is calculated on the basis defined by the national association of real estate investment trusts , or nareit , which is net income , calculated in accordance with gaap , plus real estate depreciation and amortization , as well as certain other adjustments currently not applicable to us . our calculation of normalized ffo differs from nareit 's definition of ffo because we include business management incentive fees , if any , only in the fourth quarter versus the quarter when they are recognized as expense in accordance with gaap due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year and we exclude acquisition and transaction related costs expensed under gaap . we consider ffo and normalized ffo to be appropriate supplemental measures of operating performance for a reit , along with net income . we believe that ffo and normalized ffo provide useful information to investors because by excluding the effects of certain historical amounts , such as depreciation expense , ffo and normalized ffo may facilitate a comparison of our operating performance between periods and with other reits . ffo and normalized ffo are among the factors considered by our board of trustees when determining the amount of distributions to our shareholders . other factors include , but are not limited to , requirements to qualify for taxation as a reit , limitations in our credit agreement , the availability to us of debt and equity capital , our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations . ffo and normalized ffo do not represent cash generated by
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as discussed further in note 10 , on may 7 , 2018 , the compensation committee of the board of directors , as required by the terms of the 2018 stock plan in order to maintain parity , adjusted the terms of the ceo option , such that the exercise price of the ceo option was reduced from $ 3.00 per share to $ 2.00 per share , effective as of june 5 , 2018 , the date the special $ 1.00 cash dividend was paid in order to maintain parity , and from $ 2.00 to $ 1.75 per share , effective as of january 24 , 2019 , the date of the special $ 0.25 cash dividend was paid in order to maintain parity . asset purchase agreement with mylan we have indemnification obligations to mylan under the asset purchase agreement with mylan ( the “ asset purchase agreement ” ) that may require us to make future payments to mylan and other related persons for any damages incurred by mylan or such related persons as a result of any breaches of our representations , warranties , covenants or agreements contained in the asset purchase agreement , or arising from the retained liabilities ( as such term is defined in the asset purchase agreement ) or certain third-party claims specified in the asset purchase agreement . generally , our representations and warranties survive for a period of 24 months from the closing date , which was march 29 , 2017 , other than certain fundamental representations which survive until the expiration of the applicable statute of limitations . there is a limited indemnification cap with respect to a majority of the company 's indemnification obligations under the asset purchase agreement with the exception of claims for actual fraud , the breach of any fundamental representations and certain other items , which have a larger indemnification cap ( e.g. , the purchase price ) . pursuant to the terms of the asset purchase agreement , we , mylan , and an escrow agent entered into an escrow agreement at closing , pursuant to which mylan deposited $ 5 million of the aggregate purchase price for the cold-eeze ® business into an escrow account established with the escrow agent in order to satisfy , in whole or in part , certain of our indemnity obligations under the asset purchase agreement . if , on the 18th month anniversary of the closing date , there are funds remaining in the escrow account , then the escrow account will be reduced by the difference , if a positive number , of ( i ) $ 2.5 million minus ( ii ) the aggregate amount of all escrow claims asserted by mylan prior to this date that have either been paid out of the escrow account or are pending as of such date , and , within two business days of such date , the escrow agent will disburse such difference , if a positive number , to us . within two business days of the second anniversary of the closing date , the escrow agent will release any funds remaining in the escrow account to us minus any amounts being reserved for escrow claims asserted by mylan prior to such date . upon the resolution of any pending escrow claims , the escrow agent will , within two business days of receipt of joint instructions or a final order from a court ( as described in the escrow agreement ) disburse such reserved amount to the parties entitled to such funds . - 21 - on may 31 , 2018 , we received notice of an indemnification claim for $ 800,000 in losses . we have resolved this claim pursuant to a settlement agreement with mylan , which became effective october 16 , 2018 , pursuant to which $ 160,000 of the funds held in escrow were released to mylan . this expense is reflected in discontinued operations for the year ended december 31 , 2018. on august 2 , 2018 , we received notice of an indemnification claim from mylan in relation to certain product advertising claims brought against mylan related to certain cold-eeze ® products . pursuant to the terms of the asset purchase agreement , we have elected to assume the defense of these claims on behalf of mylan . we dispute these product advertising claims and intend to vigorously contest such claims . while we believe these claims are without merit , in the event that these or any other indemnity claims are successful , we may be required to pay mylan such amounts out of escrow fund , pursuant to the indemnification provisions of the asset purchase agreement , which may reduce the amount we ultimately collect from escrow or could even require us to return a portion of the net proceeds received from the sale of the cold-eeze ® business if the escrow funds are insufficient to cover the losses . management expects to collect the full remaining escrow balance within the next twelve months , net of an immaterial reserve representative of our best estimate of the cost to adjudicate this matter . general management is not aware of any other trends , events or uncertainties that have or are reasonably likely to have a material negative impact upon our ( i ) short-term or long-term liquidity , or ( ii ) net sales or income from continuing operations . any challenge to our trademark rights could have a material adverse effect on our future ; however , we are not aware of any condition that would make such an event probable . our business is subject to seasonal variations thereby impacting our liquidity and working capital during the course of our fiscal year . to the extent that we do not generate sufficient cash from operations , our cash balances will decline . we may also use our cash to explore and or acquire new product technologies , applications , product line extensions , new contract manufacturing applications and other new business opportunities . story_separator_special_tag in the event that our available cash is insufficient to support such initiatives , we may need to incur indebtedness or issue common stock to finance plans for growth . volatility in the credit markets and the liquidity of major financial institutions may have an adverse effect on our ability to fund our business strategy through borrowings , under either existing or newly created instruments in the public or private markets on terms that we believe to be reasonable , if at all . off-balance sheet arrangements it is not our usual business practice to enter into off-balance sheet arrangements such as guarantees on loans and financial commitments and retained interests in assets transferred to an unconsolidated entity for securitization purposes . we have no off-balance sheet arrangements that have , or are reasonably likely to have , a material current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources . - 22 - impact of inflation we are subject to normal inflationary trends and anticipate that any increased costs would be passed on to our customers . inflation has not had a material effect on our business . critical accounting policies and estimates our significant accounting policies are described in note 2 of the notes to consolidated financial statements included under item 8 of this part ii . however , certain accounting policies are deemed “ critical ” , as they require management 's highest degree of judgment , estimates and assumptions . these accounting policies , estimates and disclosures have been discussed with the audit committee of our board of directors . a discussion of our critical accounting policies and estimates , the judgments and uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions are as follows : use of estimates the preparation of financial statements and the accompanying notes thereto , in conformity with generally accepted accounting principles in the united states of america ( “ gaap ” ) , requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the respective reporting periods . examples include the provision for bad debt , sales returns and allowances , inventory obsolescence , useful lives of property and equipment , impairment of property and equipment , income tax valuations and assumptions related to accrued advertising . when providing for the appropriate sales returns , allowances , cash discounts and cooperative incentive promotion costs , we apply a uniform and consistent method for making certain assumptions for estimating these provisions . these estimates and assumptions are based on historical experience , current trends and other factors that management believes to be relevant at the time the financial statements are prepared . management reviews the accounting policies , assumptions , estimates and judgments on a quarterly basis . actual results could differ from those estimates . revenue recognition we generate sales principally through two types of customers , contract manufacturing customers and retail customers . sales from product shipments to contract manufacturing and retailer customers are recognized at the time ownership is transferred to the customer . in 2018 , approximately $ 12.7 million of our approximately $ 13.1 million of sales were from contract manufacturing customers . revenue recognition – sales allowances when providing for the appropriate sales returns , allowances , cash discounts and cooperative incentive promotion costs ( “ sales allowances ” ) , we apply a uniform and consistent method for making certain assumptions for estimating these provisions . these estimates and assumptions are based on historical experience , current trends and other factors that management believes to be relevant at the time the financial statements are prepared . management reviews the accounting policies , assumptions , estimates and judgments on a quarterly basis . actual results could differ from those estimates . our return policy accommodates returns for ( i ) discontinued products , ( ii ) store closings and ( iii ) products that have reached or exceeded designated expiration date . the following is a summary of the change in the return provision for the years ended december 31 , 2018 ( in thousands ) : replace_table_token_0_th - 23 - for fiscal 2018 , the return provision decreased by $ 284,000. the decrease in the return provision was principally due to net returns associated with fiscal 2017. a one percent deviation for these sales allowance provisions for fiscal 2018 and 2017 would affect net sales by approximately $ 60,000 and $ 169,000 , respectively . income taxes accounting for income taxes requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns . under this method , deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities . these deferred taxes are measured by applying the provisions of tax laws in effect at the balance sheet date , including the impact of the tcja enacted on december 22 , 2017. the tcja made broad and significant changes to the u.s. tax code that affects the year ended december 31 , 2017 , including , but not limited to , a change in the federal rate from 35 % to 21 % effective january 1 , 2018. the company recognizes in income the effect of a change in tax rates on deferred tax assets and liabilities in the period that includes the tcja enactment date . we utilize the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns .
| interest income and other expense for fiscal 2018 was $ 358,000 and $ 191,000 , respectively , as compared to $ 231,000 and $ 54,000 , respectively , for fiscal 2017. the increase in interest income in fiscal 2018 as compared to fiscal 2017 is principally due to interest earned on our investment account . the increase in other expense is principally due to the realized losses on our investment account . the other income for fiscal 2018 was zero compared to $ 150,000 for fiscal 2017. the decrease in other income is principally due to the transition service fees received from mylan in 2017 earned in pursuant to the terms of the transition service agreement with mylan . as a result of the effects of the above , the loss from continuing operations for fiscal 2018 was $ 1.6 million , or ( $ 0.14 ) per share , as compared to a loss from continuing operations of $ 2.2 million , or ( $ 0.14 ) per share , for fiscal 2017. loss from discontinued operations for fiscal 2018 was $ 170,000 , or ( $ 0.01 ) per share , as compared to income from discontinued operations of $ 42.8 million , or $ 2.75 per share , for fiscal 2017. net loss for fiscal 2018 was $ 1.7 million , or ( $ 0.15 ) per share , as compared to a net income of $ 40.6 million , or $ 2.61 per share for fiscal 2017. liquidity and capital resources our aggregate cash and cash equivalents and marketable securities as of december 31 , 2018 were $ 8.2 million as compared to $ 21.9 million at december 31 , 2017. our working capital was $ 14.0 million and $ 26.6 million as of december 31 , 2018 and 2017 , respectively . the decrease of $ 13.7 million in our cash and cash equivalents and marketable securities balance for the 12 months ended december 31 ,
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results of operations overview the discussion below relates to the financial condition and results of operations for the years ended december 31 , 2017 , 2016 , and 2015. year ended december 31 , 2017 compared to the year ended december 31 , 2016 the following table summarizes the historical results of operations for the years ended december 31 , 2017 and 2016 ( amounts in thousands ) : 52 replace_table_token_14_th rental revenue the increase in rental income was primarily attributable to increased rental rates and higher occupancy . tenant expense reimbursement tenant expense reimbursements were consistent with 2016. observatory revenue observatory revenues were higher primarily due to an improvement in our ticket mix and higher per person average ticket price . the increase was partially offset by an increased number of bad weather days . third-party management and other fees the decrease reflects lower management fee income due to the wind-down of activities in certain managed entities . other revenues and fees the increase in other revenues and fees was primarily due to higher lease termination fee income of $ 5.9 million in 2017 , higher interest income of $ 2.3 million and a real estate tax refund of $ 1.1 million . total lease termination fee income was $ 13.6 million and $ 7.7 million for the years ended december 31 , 2017 and 2016 , respectively . property operating expenses the increase in property operating expenses was primarily due to higher repairs and maintenance costs and higher payroll costs , partially offset by lower bad debt expense . 53 ground rent expenses the ground rent expense was consistent with 2016. general and administrative expenses the increase in general and administrative expenses was primarily due to increased equity compensation expense partially offset by lower cash incentive compensation expense . observatory expenses the increase in observatory expenses was primarily due to higher payroll and repair and maintenance costs , partially offset by lower marketing costs . real estate taxes the increase in real estate taxes was primarily attributable to higher assessed values for several properties . acquisition expenses no acquisition expenses were incurred in 2017. depreciation and amortization the increase in depreciation and amortization was primarily attributable to assets that were placed in service towards the end of 2016 and hence , subject to a full year 's depreciation for the year ended december 31 , 2017. interest expense interest expense declined due to lower interest rates on new mortgage loan refinancings which occurred during the year ended december 31 , 2017. loss on early extinguishment of debt the loss on early extinguishment of debt reflects deferred financing costs written off in connection with the modification of the unsecured revolving credit and term loan facility in august 2017. loss from derivative financial instruments the loss from derivative financial instruments consists of the ineffectiveness attributable to a partial termination and re-designation of related cash flow hedges during the year ended december 31 , 2017. income taxes the increase in income tax expense was attributable to a write-off of a deferred tax asset resulting from the reduction of the federal corporate tax rate from 34 % to 21 % . private perpetual preferred unit distributions the private perpetual preferred unit distributions were consistent with 2016. net income attributable to non-controlling interests an increase due to an increase in net income was offset by a lower non-controlling ownership percentage due to the redemption of operating partnership units into class a common shares . year ended december 31 , 2016 compared to the year ended december 31 , 2015 the following table summarizes the historical results of operations for years ended december 31 , 2016 and 2015 ( amounts in thousands ) : 54 replace_table_token_15_th rental revenue the increase in rental income was primarily attributable to increased rental rates . tenant expense reimbursement the decrease in tenant expense reimbursement was primarily due to a decrease in property operating expenses in the year ended december 31 , 2016. observatory revenue the increase in observatory revenues was due to increased tourist visits , ticket price increases , changes in ticket mix and more favorable weather conditions in 2016. construction revenue the construction business ceased operations in 2015 , which is reflected in the elimination of construction revenues . third-party management and other fees the decrease reflects lower management fee income due to the wind-down of activities in managed entities . 55 other revenues and fees the increase in other revenues and fees was primarily due to higher lease termination fee income of $ 5.7 million in 2016 , partially offset by a $ 2.5 million acquisition break-up fee received in 2015. total lease termination fee income was $ 7.7 million and $ 2.0 million for the years ended december 31 , 2016 and 2015 , respectively . property operating expenses the decrease in property operating expenses was primarily due to lower repairs and maintenance costs and lower utility costs . ground rent expenses the ground rent expense was consistent with 2015. general and administrative expenses the increase in general and administrative expenses was due to $ 5.2 million related to higher 2016 incentive compensation bonus accruals and salaries , $ 4.2 million related to higher equity compensation expense and $ 1.7 million of incremental legal costs pertaining to formation transactions litigation . observatory expenses the decrease in observatory expenses primarily reflects lower personnel costs and lower professional fees . construction expenses the construction business ceased operations in 2015 , which is reflected in the elimination of construction expenses . real estate taxes the increase in real estate taxes was primarily attributable to higher assessed values for several properties . acquisition expenses acquisition expenses were consistent with 2015. depreciation and amortization the decrease in depreciation and amortization was primarily attributable to assets that became fully depreciated during 2015 and 2016. interest expense the increase in interest expense was due to higher interest rates . in march 2015 , we issued $ 350.0 million of senior unsecured notes with a weighted average fixed interest rate of 4.08 % . story_separator_special_tag the proceeds were partially used to repay our unsecured revolving credit facility which had a variable interest rate of 1.33 % in the first quarter 2015. income taxes the increase in income tax expense was attributable to activities within our taxable reit subsidiaries , primarily due to higher observatory taxable income . private perpetual preferred unit distributions the private perpetual preferred unit distributions were consistent with 2015. net income attributable to non-controlling interests the increase is due to an increase in net income offset by a lower non-controlling ownership percentage due to issuance of new class a common shares and redemption of operating partnership units into class a common shares . 56 liquidity and capital resources liquidity is a measure of our ability to meet potential cash requirements , including ongoing commitments to repay borrowings , fund and maintain our assets and operations , including lease-up costs , fund our redevelopment and repositioning programs , acquire properties , make distributions to our securityholders and other general business needs . based on the historical experience of our management and our business strategy , in the foreseeable future we anticipate we will generate positive cash flows from operations . in order to qualify as a reit , we are required under the code to distribute to our securityholders , on an annual basis , at least 90 % of our reit taxable income , determined without regard to the deduction for dividends paid and excluding net capital gains . we expect to make quarterly distributions to our securityholders . while we may be able to anticipate and plan for certain liquidity needs , there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations . for example , we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties , thereby increasing our liquidity needs . even if there are no material changes to our anticipated liquidity requirements , our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or needed . our primary sources of liquidity will generally consist of cash on hand and cash generated from our operating activities , debt issuances and unused borrowing capacity under our unsecured revolving credit and term loan facility . we expect to meet our short-term liquidity requirements , including distributions , operating expenses , working capital , debt service , and capital expenditures from cash flows from operations , debt issuances , and available borrowing capacity under our unsecured revolving credit and term loan facility . the availability of these borrowings is subject to the conditions set forth in the applicable loan agreements . we expect to meet our long-term capital requirements , including acquisitions , redevelopments and capital expenditures through our cash flows from operations , cash on hand , our unsecured revolving credit and term loan facility , mortgage financings , debt issuances , common and or preferred equity issuances and asset sales . our properties require periodic investments of capital for individual lease related tenant improvements allowances , general capital improvements and costs associated with capital expenditures . our overall leverage will depend on our mix of investments and the cost of leverage . our charter does not restrict the amount of leverage that we may use . at december 31 , 2017 , we had approximately $ 464.3 million available in cash and cash equivalents and there was $ 1.1 billion available under our unsecured revolving credit facility . through august 2021 , qia will have a right of first offer to co-invest with us as a joint venture partner in real estate investment opportunities initiated by us where we have elected , at our discretion , to seek out a joint venture partner . the right of first offer period will be extended for 30 months so long as at least one joint venture transaction is consummated by us and qia during the initial term , and will be extended for a further 30-month term if at least one more joint venture transaction is consummated during such initial extension period . as of december 31 , 2017 , we had approximately $ 1.7 billion of total consolidated indebtedness outstanding , with a weighted average interest rate of 4.05 % and a weighted average maturity of 6.2 years . as of december 31 , 2017 , exclusive of principal amortization , we have approximately $ 262.2 million of debt maturing in 2018 and approximately $ 250.0 million of debt maturing in 2019. during january 2018 , we refinanced and increased our mortgage debt on 1333 broadway from $ 66.6 million to $ 160.0 million , due february 2033 with interest fixed at 4.21 % . a portion of this increase was applied to release the $ 75.8 million mortgage lien on 1400 broadway . during december 2017 , we entered into an agreement to issue and sell an aggregate principal amount of $ 450 million of our senior unsecured notes in a private placement , of which $ 115 million was sold and purchased in december 2017 and $ 335 million will be sold and purchased in march 2018. we intend to use the net proceeds from the march 2018 issuance to repay the remainder of our 2018 debt maturities , and for general corporate purposes . given our current liquidity , including availability under our unsecured revolving credit and term loan facility , we believe we will be able to refinance future maturing debt . unsecured revolving credit and term loan facility during august 2017 , we entered into an amended and restated senior unsecured revolving credit and term loan facility with bank of america , n.a.
| achieved empire state building observatory revenue growth of 1.8 % to $ 127.1 million from $ 124.8 million in 2016. realized lease termination fee income , included in other revenues and fees , of $ 13.6 million or approximately $ 0.045 per fully diluted share , which was partially offset by the write off of associated straight line rent receivables associated with the terminated leases of $ 1.4 million or approximately $ 0.005 per fully diluted share . 50 amended and restated the company 's $ 1.1 billion undrawn , unsecured revolving credit facility and $ 265 million term loan , which extended the revolving credit facility maturity , lowered the borrowing costs and added flexibility to the financial covenants . refinanced all $ 336 million of 2017 mortgage maturities with $ 315 million in new long term fixed rate mortgages with a lower weighted average interest rate . entered into an agreement to issue and sell an aggregate principal amount of $ 450 million of senior unsecured notes in a private placement , of which $ 115 million was sold and purchased in december 2017 and $ 335 million will be sold and purchased in march 2018. declared and paid aggregate dividends of $ 0.42 per share during 2017. as of december 31 , 2017 , our total portfolio contained 10.1 million rentable square feet of office and retail space . we owned 14 office properties ( including three long-term ground leasehold interests ) encompassing approximately 9.4 million rentable square feet of office space . nine of these properties are located in the midtown manhattan market and aggregate approximately 7.6 million rentable square feet of office space , including the empire state building . our manhattan office properties also contain an aggregate of 507,395 rentable square feet of premier retail space on their ground floor and or contiguous levels . our remaining five office properties are located in fairfield county , connecticut and westchester county , new york , encompassing in the aggregate approximately 1.9 million rentable square feet . the majority of square footage for these five properties is located in densely populated metropolitan communities with immediate access to mass transportation . additionally , we have entitled land at the stamford transportation center in stamford , connecticut , adjacent to one of our office properties , that will support the development of an approximately 380,000
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our these were partly offset by our increased gold and silver sales from el gallo 1 in the mine 's first full year of production , reduced exploration expenses , and a recovery of income taxes due to the devaluation of the argentine peso relative to the u.s. dollar . we also recorded a net income of $ 0.8 million on our investment in msc . we ended the quarter with $ 25.6 million in cash and precious metals and no debt . the company expects consolidated production for 2014 to be in line with 2013 consolidated production , with a forecast of 135,000 to 140,000 gold equivalent ounces ( approximately 81,000 gold ounces and 3,225,000 silver ounces , based on a silver to gold ratio of 60:1 for 2014 ) . development and exploration activities el gallo complex , mexico el gallo 1 during 2013 , we commenced work on the expansion of the mill at el gallo 1 in order to increase capacity from a nominal 3,000 tonnes per day to 4,500 tonnes per day . the expansion is currently ahead of schedule with completion expected in april 2014. commissioning is expected to commence during the second quarter of 2014 , with the expansion fully operational during the second half of 2014. key advancements in the year focused on the heap leach pad construction , crushing and processing plant upgrades and requisitions of long lead capital items , as these areas are critical for increased production at el gallo 1. for the year ended december 31 , 2013 , we spent $ 1.4 million on the expansion , and estimate remaining costs to be incurred in 2014 to be $ 1.6 million , for a total cost of $ 3.0 million . remaining equipment upgrades and development activities are summarized below : installing a new series of pumps , generators and carbon columns . upgrading the electro-winning cells at the adr ( adsorption-desorption-recovery ) process plant . expanding the heap leach pad to accommodate the increased throughput and subsequent ore delivery rate . 49 el gallo 2 during 2013 , we continued to work on permitting requirements for our el gallo 2 project . we have now received all required permits for construction and operation of the project . the final permit , from the secretariat of environment and natural resources for the state of sinaloa for the land use change , was received in january 2014. the following table summarizes the status of our key environmental permits for el gallo 2 as the time of filing this report : el gallo 2 : permitting schedule and update key environmental permits permit purpose agency status environmental impact statement ( mia ) construction/operation semarnat approved land use change ( etj ) construction/operation semarnat approved risk analysis ( ra ) construction/operation semarnat approved municipal construction permit construction municipality approved explosives & storage permit construction/operation sedena approved archeological release construction inah approved water use permit construction/operation conagua approved two additional permits associated with el gallo 2 will be submitted in q1 2014. these permits will not prevent construction from proceeding . one of these permits is to allow for the mining of a satellite deposit , palmarito , in 2016. the second permit is for a right-of-way for electrical power to connect to the process plant . construction of the mine could begin with power provided by generators with the option of later connecting to the electrical grid . in 2013 , we made advances of $ 3.9 million for the ball mill and filter presses , and expect to disburse an additional $ 2.4 million for the mill in the second and third quarters of 2014. for the year ended december 31 , 2013 , we spent $ 0.8 million on mine development costs . we also advanced $ 1.5 million for the land use change permit in january 2014. based on recently completed cost savings studies , we believe that approximately $ 20 million in capital costs can be reduced from previous estimates with minimal impact on production by : 1 ) reducing the number of leach tanks ; 2 ) building a smaller process plant / refinery ; 3 ) using modular crushers ; and , 4 ) reducing the number of transformers . with these projected savings and taking into account the funds spent to date , approximately $ 150 million would be required in order to complete the mine . a final decision to proceed with the construction of el gallo 2 has not been made . any decision to proceed would be based on silver prices and securing financing on terms that are more favorable than those that were available to us at the time of filing this report . in order to prepare for a possible construction decision later this year , we have been evaluating possible debt financing alternatives and advancing the ball mill , which is the longest lead time item associated with the mine . the ball mill is 60 % complete and expected to be delivered in the fourth quarter of 2014. exploration in 2013 , approximately 89,700 ft. ( 27,334 m ) of drilling was completed at the el gallo complex . drilling at the el gallo complex in 2013 was primarily focused on a new area discovered in april 2013 called `` central '' , which is situated between two known deposits , lupita and sagrado corazon , located at el gallo 1. the key objectives of recent drilling have been three fold : 1 ) extend the mineralized zone to depth ; 2 ) increase the strike length ; and , 3 ) infill areas between the historic near-surface 50 drilling and our recent discovery holes . drilling was successful in each objective and expanded the central area in several directions . drilling was also completed on the csx zone , located 2 km from el gallo 2 and 7 km from the el gallo 1 mine , as well as on the recently discovered twin domes area . story_separator_special_tag initial test results show that the gold mineralization at twin domes is potentially amenable to heap leaching , which would allow it to be processed at el gallo 1. currently , one core drill is operating at the el gallo 1 mine . drilling is focused on establishing an initial resource for the new twin domes discovery and testing exploration targets at the mine . in addition , several geotechnical drilling programs are ongoing relating to the el gallo 1 heap leach pad expansion , pit design for central and el gallo 2 plant site civil development . during the year , we released an updated ni 43-101 resource estimate for the el gallo complex . the complete report was filed on august 29 , 2013 on sedar under the company 's profile and is subject to the assumptions and conditions set forth therein . for 2014 , we have budgeted $ 4.8 million in total exploration costs at el gallo , which includes drilling of approximately 49,200 ft. ( 15,000 m ) . los azules copper project , argentina during the 2012-2013 field season , which ran from october 2012 to march 2013 , a total of 52,000 ft. ( 15,843 m ) was drilled at the los azules copper project , of which 21,000 ft. ( 6,407 m ) was drilled in the first quarter of 2013. drilling was focused on expanding the resource both laterally and to depth , with the drill results being incorporated into an updated ni 43-101 mineral resource estimate which was released in may 2013. the updated resource estimate outlined 0.4 billion tonnes of mineralized material with a weighted average grade of 0.63 percent copper , including indicated resources only . this new resource estimate was included in an updated ni 43-101 preliminary economic assessment ( `` pea '' ) , which we filed in november 2013. the pea was expanded to include the increased mineralized material estimate , new metallurgical processes and an increased production profile . it contemplates the construction of a mine and process plant operating over a 35-year mine life at a throughput of 120,000 tonnes per day . the proposed mine would produce a copper cathode via a pressure oxidative leach process , in addition to heap leaching the lower grade mineralized material . the advantages of being able to produce a copper cathode rather than a copper concentrate would be to eliminate the capital intensive concentrate pipeline through chile , reduce the applicable export tax from 10 % on concentrate to 5 % on cathode , and remove the treatment and refining charges from the smelting process . the complete technical report was filed on november 7 , 2013. it is available on our website and on sedar under the company 's profile , and is subject to the assumptions and conditions set forth therein . the pea is preliminary in nature , includes mineral resources that are considered too speculative geologically to have economic considerations applied to them that would allow them to be categorized as mineral reserves , and there is no certainty that the pea will be realized . in june 2013 , we decided to suspend the previously announced evaluation of a potential los azules sale which had begun in january 2013. the 2013-2014 season started in december 2013 , and we expect to complete baseline studies regarding flora , fauna , water quality and glaciers . we do not expect to complete significant exploration work during this 2013-2014 season . the 2014 budget for the los azules project is estimated to be $ 1.7 million . santa cruz exploration , argentina during the second quarter of 2013 , we recorded an impairment charge of $ 27.7 million relating to our exploration properties in the province of santa cruz . the impairment was primarily due to an 51 unexpected significant decline in gold and silver market prices , continued inflationary pressures and the new tax on mining reserves in the province , discussed below , resulting in a depressed market for exploration properties in argentina . we engaged a third party valuator to determine the fair value of these mineral property interests by using the observed market value per acre in the region . the carrying value of these properties exceeded their estimated fair value , resulting in an impairment charge of $ 27.7 million . in june 2013 , the province of santa cruz passed amendments to the provincial tax code and provincial tax law , which imposes a new tax on mining reserves in the province . the law came into effect on july 5 , 2013. the tax will amount to 1 % of the value of mine reserves reported in feasibility studies and financial statements inclusive of variations resulting from ongoing operations . regulations require that the tax be calculated on `` measured '' reserves , and msc has interpreted this to mean `` proven '' reserves . the province has disputed this interpretation but has not provided further clarification on the definition of `` measured '' reserves , and the outcome is not clear at the time . msc has filed a legal claim disputing the legality of the new tax and has paid the initial installment under protest . in october 2013 , the company and hochschild entered into a vend-in agreement with msc pursuant to which we agreed to contribute to msc the mining rights of certain of our santa cruz exploration properties . the properties transferred , totaling approximately 48,900 hectares , include amongst others the telken , piramides , tobias , and este tenements , and are in close proximity to or abutting the properties comprising the san josé mine . hochschild also contributed to msc certain of their mineral properties located in the same region , totaling approximately 82,700 hectares . we believe this agreement could create synergies through utilizing the operational and geological expertise of the san josé mine 's exploration team , along with passing on the tax deductibility of all exploration expenditures to the mine .
| in addition to the impairment charges discussed in general above , production costs applicable to the sales at el gallo 1 also increased our total costs and expenses , although these were partly offset by the decrease in mine construction and mine operating costs that were incurred in 2012 prior to the el gallo 1 mine starting production activities for accounting purposes on september 1 , 2012. we also incurred no acquisition costs in 2013 , compared to the same period in 2012 when we incurred costs for the acquisition of minera andes production costs applicable to sales at el gallo were $ 34.6 million in the year ended december 31 , 2013. production costs consist of direct mining costs which include contract mining services , processing costs , personnel costs , certain general and administrative costs , energy costs , operating materials and supplies , repairs and maintenance costs , transport fees , royalty expense and third-party refining costs . production cost applicable to sales is calculated based on the weighted average cost of ounces sold during the period . this compares to $ 3.9 million for the same period in 2012 , as the el gallo 1 mine only started production for accounting purposes on september 1 , 2012. income on investment in msc during the year ended december 31 , 2013 , net of amortization and excluding the impairment charges discussed below , was $ 0.8 million , compared to $ 20.8 million in 2012. the decline is primarily a result of lower average realized prices and increased operating costs due to several labor stoppages during 2013 and inflationary pressure on labor costs , materials and supplies within argentina , which more than offset the higher sales volumes . impairment of investment in msc for year ended december 31 , 2013 was $ 95.9 million , compared to $ nil in the same period in 2012. in the second quarter of 2013 , we concluded there were indicators that there was a loss in value in our investment in msc that was other than temporary based on a
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covered loans and related indemnification asset during the third quarter of 2015 , the bank entered into an agreement with the fdic to terminate all remaining loss-sharing agreements . as a result , all fdic-acquired assets are now classified as non-covered . all acquired loans are recorded at their discounted net present value ; therefore , they are excluded from the computations of the asset quality ratios for the legacy loan portfolio , except for their inclusion in total assets . under the early termination , all rights and obligations of the bank and the fdic under the fdic loss share agreements , including the clawback provisions and the settlement of loss share and expense reimbursement claims , have been resolved and terminated . under the terms of the agreement , the fdic made a net payment of $ 2,368,000 to simmons bank as consideration for the early termination of the loss share agreements . the early termination was recorded in our financial statements by removing the fdic indemnification asset , receivable from fdic , the fdic true-up provision and recording a one-time , pre-tax charge of $ 7,476,000. prior to the termination of the loss share agreements , deterioration in the credit quality of the loans ( immediately recorded as an adjustment to the allowance for loan losses ) would immediately increase the basis of the shared-loss agreements , with the offset recorded through the consolidated statement of income . increases in the credit quality or cash flows of loans ( reflected as an adjustment to yield and accreted into income over the remaining life of the loans ) decrease the basis of the shared-loss agreements , with such decrease being accreted into income over 1 ) the same period or 2 ) the life of the shared-loss agreements , whichever is shorter . loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset . fair value accounting incorporates into the fair value of the indemnification asset an element of the time value of money , which was accreted back into income over the life of the shared-loss agreements . goodwill and intangible assets goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired . other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract , asset or liability . we perform an annual goodwill impairment test , and more than annually if circumstances warrant , in accordance with asc topic 350 , intangibles – goodwill and other , as amended by asu 2011-08 – testing goodwill for impairment . asc topic 350 requires that goodwill and intangible assets that have indefinite lives be reviewed for impairment annually or more frequently if certain conditions occur . impairment losses on recorded goodwill , if any , will be recorded as operating expenses . employee benefit plans we have adopted various stock-based compensation plans . the plans provide for the grant of incentive stock options , nonqualified stock options , stock appreciation rights , restricted stock awards , restricted stock units , and performance stock units . pursuant to the plans , shares are reserved for future issuance by the company upon exercise of stock options or awarding of bonus shares granted to directors , officers and other key employees . in accordance with asc topic 718 , compensation – stock compensation , the fair value of each option award is estimated on the date of grant using the black-scholes option-pricing model that uses various assumptions . this model requires the input of highly subjective assumptions , changes to which can materially affect the fair value estimate . for additional information , see note 14 , employee benefit plans , in the accompanying notes to consolidated financial statements included elsewhere in this report . income taxes we are subject to the federal income tax laws of the united states , and the tax laws of the states and other jurisdictions where we conduct business . due to the complexity of these laws , taxpayers and the taxing authorities may subject these laws to different interpretations . management must make conclusions and estimates about the application of these innately intricate laws , related regulations , and case law . when preparing the company 's income tax returns , management attempts to make reasonable interpretations of the tax laws . taxing authorities have the ability to challenge management 's analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts and the developing case law . management assesses the reasonableness of its effective tax rate quarterly based on its current estimate of net income and the applicable taxes expected for the full year . on a quarterly basis , management also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities and reserves for contingent tax liabilities . 22 the adoption of asu 2016-09 – compensation-stock compensation : improvements to employee share-based payment accounting decreased the effective tax rate during 2017 as the new standard impacted how the income tax effects associated with stock-based compensation are recognized . 2017 overview our net income for the year ended december 31 , 2017 was $ 92.9 million and diluted earnings per share were $ 1.33 ( split adjusted ) , compared to net income of $ 96.8 million and $ 1.56 diluted earnings per share ( split adjusted ) in 2016. net income for both 2017 and 2016 included several significant non-core items that impacted net income , mostly related to our acquisitions . story_separator_special_tag excluding all non-core items , core earnings for the year ended december 31 , 2017 was $ 119.0 million , or $ 1.70 diluted core earnings per share ( split adjusted ) , compared to $ 101.4 million , or $ 1.64 diluted core earnings per share ( split adjusted ) in 2016. see “ gaap reconciliation of non-gaap financial measures for additional discussion and reconciliation of non-gaap measures ” . on january 17 , 2017 , we merged simmons first finance company , a wholly-owned subsidiary of simmons bank , into simmons bank to reduce regulatory risks related to its operations relative to the size of its assets . at december 31 , 2017 , the loan balance of this portfolio was $ 29 million . in february 2017 , we executed the sale of 11 substandard loans , which were primarily loans acquired , with a net principal balance of $ 11 million . we recognized a loss of $ 676,000 on this sale . during march 2017 , we exited the indirect lending market as this is a low-margin unit and we made a financial decision to reallocate our capital resources . at december 31 , 2017 , the loan balance of this portfolio was $ 170 million . on may 15 , 2017 , we closed the transaction to acquire hardeman county investment company , inc. ( “ hardeman ” ) including its wholly-owned bank subsidiary , first south bank . the company completed the systems conversion and merged first south bank into simmons bank in september 2017. as a result of this acquisition , we recognized $ 7.9 million in pretax merger related expenses during year ended december 31 , 2017. in june 2017 , we executed a sale of thirty-five classified loans with a discounted principal balance of $ 13.8 million , which included $ 7.3 million of legacy loans and $ 6.5 million of loans acquired . the loans acquired portion of the sale resulted in a benefit of $ 1.4 million accretion income and $ 714,000 increase in provision expense for loans acquired , resulting in a net pretax benefit of approximately $ 700,000. during august 2017 , we were the successful bidder at public auction held to discharge certain indebtedness owed to simmons bank and became the sole shareholder of heartland bank in little rock , arkansas . in december 2017 , heartland bank announced the sale of the majority of its branches , as well as all of its deposits , to relyance bank , n.a . the completion of the transaction is contingent on the satisfaction of conditions set forth in the purchase and assumption agreement . the transaction is expected to close in march 2018 and the company will continue to work through the disposition of heartland bank 's remaining assets and expects to be complete within one year of the acquisition . see note 4 for additional information related to assets and liabilities held for sale related to heartland bank as of december 31 , 2017. in september 2017 , we completed the sale of our property and casualty insurance business lines and an after-tax gain of $ 1.8 million was recognized on the transaction . tangible common equity was positively impacted by $ 7.2 million due to a reduction in intangible assets related to the sold business . we completed the acquisitions of southwest bancorp , inc. , including its wholly-owned bank subsidiary , bank snb , and first texas bhc , inc. , including its wholly-owned bank subsidiary , southwest bank , in october 2017. the systems conversions are planned during the first half of 2018 , at which time the subsidiary banks will be merged into simmons bank . southwest bank was merged in to simmons bank on february 20 , 2018 and bank snb is scheduled to be merged in may 2018. see note 2 for additional information related to these acquisitions . 23 2017 was a momentous year for our company . we created a stronger organization with assets exceeding $ 15 billion , expanded in to new territories , welcomed new associates and customers , all while maintaining our community first approach and producing exceptional results . as a result of acquisitions and compliance initiatives in recent reporting periods , we have and will continue to recognize one-time revenue and expense items which may skew our short-term core business results but provide long-term performance benefits . our focus continues to be improvement in core operating income . we are also very pleased with the positive trends in our balance sheet , as reflected in our organic loan growth during the past year as well as our growth from acquisitions . stockholders ' equity as of december 31 , 2017 was $ 2.1 billion , book value per share was $ 22.65 ( split adjusted ) and tangible book value per share was $ 12.34 ( split adjusted ) . our ratio of common stockholders ' equity to total assets was 13.9 % and the ratio of tangible common stockholders ' equity to tangible assets was 8.1 % at december 31 , 2017. see “ gaap reconciliation of non-gaap financial measures ” for additional discussion and reconciliation of non-gaap measures . the company 's tier i leverage ratio of 9.2 % , as well as our other regulatory capital ratios , remain significantly above the “ well capitalized ” . see table 18 – risk-based capital for regulatory capital ratios . total loans , including loans acquired , were $ 10.7 billion at december 31 , 2017 , an increase of $ 5.1 billion , or 91.9 % , from the same period in 2016. acquired loans increased by $ 3.8 billion , net of discounts , while legacy loans ( all loans excluding acquired loans ) grew $ 1.4 billion , or 31.9 % . excluding the $ 214 million in loan balances that migrated from acquired loans , legacy loans grew $ 1.2 billion , or 32.7 % .
| quarterly results selected unaudited quarterly financial information for the last eight quarters is shown in table 26. table 26 : quarterly results replace_table_token_29_th ( 1 ) eps are computed independently for each quarter and therefore the sum of each quarterly eps may not equal the year-to-date eps . as a result of the large stock issuances as part of the company 's acquisitions , the computed independent quarterly average common shares outstanding and the computed year-to-date average common shares may differ significantly . the difference is based on the direct result of the varying denominator for each period presented . ( 2 ) the quarterly basic and diluted earnings per share have been retrospectively adjusted to reflect the two-for-one stock split of our common stock effected on february 8 , 2018 . 54 item
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pandemic ; ineffectiveness of risk management policies and procedures in identifying , monitoring and managing risks ; and the risk factors or uncertainties listed from time to time in our filings with the sec . other factors and assumptions not identified above are also relevant to the forward-looking statements , and if they prove incorrect , could also cause actual results to differ materially from those projected . all written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement . our forward-looking statements speak only as of the date made . we assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results , future events or developments , changes in assumptions or changes in other factors affecting the forward-looking statements . the reporting of rbc measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing , advertising or promotional activities . 47 overview we are a holding company for a group of insurance companies operating throughout the united states that develop , market and administer health insurance , annuity , individual life insurance and other insurance products . we focus on serving the senior and middle-income markets , which we believe are attractive , underserved , high growth markets . we sell our products through three distribution channels : career agents , independent producers ( some of whom sell one or more of our product lines exclusively ) and direct marketing . we measure segment performance by excluding the loss related to reinsurance transactions , net realized investment gains ( losses ) , fair value changes in embedded derivative liabilities ( net of related amortization ) , fair value changes and amendment related to the agent deferred compensation plan , income taxes and other non-operating items consisting primarily of earnings attributable to vies ( `` pre-tax operating earnings '' ) because we believe that this performance measure is a better indicator of the ongoing business and trends in our business . our primary investment focus is on investment income to support our liabilities for insurance products as opposed to the generation of net realized investment gains ( losses ) , and a long-term focus is necessary to maintain profitability over the life of the business . the loss related to reinsurance transactions , net realized investment gains ( losses ) , fair value changes in embedded derivative liabilities ( net of related amortization ) , fair value changes and amendment related to the agent deferred compensation plan and other non-operating items consisting primarily of earnings attributable to vies depend on market conditions or represent unusual items that do not necessarily relate to the underlying business of our segments . net realized investment gains ( losses ) and fair value changes in embedded derivative liabilities ( net of related amortization ) may affect future earnings levels since our underlying business is long-term in nature and changes in our investment portfolio may impact our ability to earn the assumed interest rates needed to maintain the profitability of our business . on september 27 , 2018 , the company completed a long-term care reinsurance transaction pursuant to which its wholly-owned subsidiary , bankers life , entered into an agreement to cede all of its legacy ( prior to 2003 ) comprehensive and nursing home long-term care policies ( with statutory reserves of $ 2.7 billion ) through 100 % indemnity coinsurance . in anticipation of the reinsurance agreement , the company reorganized its business segments to move the block to be ceded from the `` bankers life segment '' to the `` long-term care in run-off segment '' in the third quarter of 2018. all prior period segment disclosures have been revised to conform to management 's current view of the company 's operating segments . the company 's insurance segments are described below : bankers life , which underwrites , markets and distributes medicare supplement insurance , interest-sensitive life insurance , traditional life insurance , fixed annuities and long-term care insurance products to the middle-income senior market through a dedicated field force of career agents , financial and investment advisors , and sales managers supported by a network of community-based sales offices . the bankers life segment includes primarily the business of bankers life and casualty company . bankers life also has various distribution and marketing agreements with other insurance companies to use bankers life 's career agents to distribute medicare advantage and pdp products in exchange for a fee . washington national , which underwrites , markets and distributes supplemental health ( including specified disease , accident and hospital indemnity insurance products ) and life insurance to middle-income consumers at home and at the worksite . these products are marketed through pma and through independent marketing organizations and insurance agencies including worksite marketing . the products being marketed are underwritten by washington national . this segment 's business also includes certain closed blocks of annuities and medicare supplement policies which are no longer being actively marketed by this segment and were primarily issued or acquired by washington national . colonial penn , which markets primarily graded benefit and simplified issue life insurance directly to customers in the senior middle-income market through television advertising , direct mail , the internet and telemarketing . the colonial penn segment includes primarily the business of colonial penn . long-term care in run-off consists of : ( i ) the long-term care business that was recaptured due to the termination of certain reinsurance agreements effective september 30 , 2016 ( such business is not actively marketed and was issued or acquired by washington national and bclic ) ; and ( ii ) certain legacy ( prior to 2003 ) comprehensive and nursing home long-term care policies which were ceded in september 2018 ( such business is not actively marketed and was issued by bankers life ) . story_separator_special_tag 48 the following summarizes our earnings for the three years ending december 31 , 2018 ( dollars in millions , except per share data ) : replace_table_token_9_th 49 ( a ) management believes that an analysis of net operating income provides a clearer comparison of the operating results of the company from period to period because it excludes : ( i ) loss related to reinsurance transaction , including impact of taxes ; ( ii ) net realized investment gains or losses from sales and impairments , net of related amortization and taxes ; ( iii ) net change in market value of investments recognized in earnings , net of taxes ; ( iv ) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities , net of related amortization and taxes ; ( v ) fair value changes and amendment related to the agent deferred compensation plan , net of taxes ; ( vi ) changes in the valuation allowance for deferred tax assets and other tax items ; and ( vii ) other non-operating items consisting primarily of earnings attributable to vies . adjusted ebit is presented as net operating income excluding corporate interest expense and income tax expense . the table above reconciles the non-gaap measure to the corresponding gaap measure . in addition , management uses these non-gaap financial measures in its budgeting process , financial analysis of segment performance and in assessing the allocation of resources . we believe these non-gaap financial measures enhance an investor 's understanding of our financial performance and allows them to make more informed judgments about the company as a whole . these measures also highlight operating trends that might not otherwise be apparent . however , adjusted ebit and net operating income are not measurements of financial performance under gaap and should not be considered as alternatives to cash flow from operating activities , as measures of liquidity , or as alternatives to net income as measures of our operating performance or any other measures of performance derived in accordance with gaap . in addition , adjusted ebit and net operating income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items . adjusted ebit and net operating income have limitations as analytical tools , and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under gaap . our definitions and calculation of adjusted ebit and net operating income are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation . at cno , our mission is to enrich lives by providing financial solutions that help protect the health and retirement needs of middle-income americans , while building enduring value for all our stakeholders . we remain committed to our strategic priorities to grow the franchise , launch new products and services , expand to the right to reach slightly younger , wealthier consumers within the middle market , and deploy excess capital to its highest and best use . our middle-market focus and diverse distribution is a key strength and opportunity for cno . we have career agents at bankers life , wholly-owned and independent distributors at washington national and a direct-to-consumer business at colonial penn to reach consumers according to their preferences . our product portfolio mix is well-aligned to the retirement , healthcare , supplemental health and income accumulation needs of working-age consumers as well as those in and near retirement . as americans live longer into their retirement years , consumers need holistic retirement income planning , which includes our insurance and annuity solutions , and the investments offered by our broker-dealer and growing force of registered investment advisors . specifically , we are focused on the following priorities : growth maximize our product portfolio to ensure it meets our customers ' needs for integrated products and advice covering a broad range of their financial goals respond effectively to evolving customer preferences expand and enhance elements of our broker-dealer and registered investment advisor program continue our `` expand to the right '' strategy to reach slightly younger and wealthier consumers within the middle-income market increase the speed-to-market for new products that are a good fit for our customers make strategic , measured changes to our business practices to improve our competitive advantage continue to invest in technology to support agent productivity and relationships with our customers increase profitability and return on equity maintain our strong capital position and favorable financial metrics work to increase our return on equity maintain pricing discipline 50 effectively manage risk and deploy capital maintain an active enterprise risk management process utilize excess cash flow to maximize long-term returns maintain a competitive dividend payout ratio continue to invest in talent attract , retain and develop the best talent to help us drive sustainable growth recruit , develop and retain our agent force critical accounting policies the preparation of financial statements in accordance with 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 financial statements and the reported amounts of revenues and expenses during the reporting period . management has made estimates in the past that we believed to be appropriate but were subsequently revised to reflect actual experience . if our future experience differs materially from these estimates and assumptions , our results of operations and financial condition could be materially affected . we base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances . we continually evaluate the information used to make these estimates as our business and the economic environment change . the use of estimates is pervasive throughout our financial statements . the accounting policies and estimates we consider most critical are summarized below .
| realized investment gains ( losses ) , fair value changes in embedded derivative liabilities , fair value changes related to the agent deferred compensation plan and earnings attributable to vies depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments . however , `` pre-tax operating earnings '' does not replace `` income ( loss ) before income taxes '' as a measure of overall profitability . we may experience realized investment gains ( losses ) , which will affect future earnings levels since our underlying business is long-term in nature and we need to earn the assumed interest rates on the investments backing our liabilities for insurance products to maintain the profitability of our business . in addition , management uses this non-gaap financial measure in its budgeting process , financial analysis of segment performance and in assessing the allocation of resources . we believe these non-gaap financial measures enhance an investor 's understanding of our financial performance and allows them to make more informed judgments about the company as a whole . these measures also highlight operating trends that might not otherwise be apparent . the table above reconciles the non-gaap measure to the corresponding gaap measure . general : cno is the top tier holding company for a group of insurance companies operating throughout the united states that develop , market and administer health insurance , annuity , individual life insurance and other insurance products . we distribute these products through our bankers life segment , which utilizes a career agency force , through our washington national segment , which utilizes independent producers and through our colonial penn segment , which utilizes direct response marketing . we also have a long-term care in run-off segment that consists of : ( i ) the long-term care business that was recaptured due to the termination of certain reinsurance agreements effective september 30 , 2016 ( such business is not actively marketed and was issued or acquired by washington national and bclic ) ; and ( ii ) certain legacy ( prior to 2003 ) comprehensive and nursing home long-term care policies that were ceded in
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critical accounting policies the following accounting policies are important to understanding our financial condition and results of operations and should be read as an integral part of the discussion and analysis of the results of our operations and financial position . for additional accounting policies , see note 2 to our consolidated financial statements , “ summary of significant accounting policies. the company has entered into a number of license agreements covering potential products using the company 's spd technology . the company receives fees and minimum annual royalties under certain license agreements and records fee income on a ratable basis each quarter . in instances when sales of licensed products by its licensees exceed minimum annual royalties , the company recognizes fee income as the amounts have been earned . certain of the fees are accrued by , or paid to , the company in advance of the period in which they are earned resulting in deferred revenue . the company expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items . all of our research and development costs are charged to operations as incurred . our research and development expenses consist of costs incurred for internal and external research and development . these costs include direct and indirect overhead expenses . 28 the company has historically used the black-scholes option-pricing model to determine the estimated fair value of each option grant . the black-scholes model includes assumptions regarding dividend yields , expected volatility , expected lives , and risk-free interest rates . these assumptions reflect our best estimates , but these items involve uncertainties based on market conditions generally outside of our control . as a result , if other assumptions had been used in the current period , stock-based compensation expense could have been materially impacted . furthermore , if management uses different assumptions in future periods , stock-based compensation expense could be materially impacted in future years . on occasion , the company may issue to consultants either options or warrants to purchase shares of common stock of the company at specified share prices . these options or warrants may vest based upon specific services being performed or performance criteria being met . in accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , the company would be required to record consulting expenses based upon the fair value of such options or warrants on the earlier of the service period or the period that such options or warrants vest as determined using a black-scholes option pricing model . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , and reported amounts of revenues and expenses during the reporting periods . actual results could differ from these estimates . an example of a critical estimate is the full valuation allowance for deferred taxes that was recorded based on the uncertainty that such tax benefits will be realized in future periods . story_separator_special_tag technological developments , the timing and costs of patent filings , and the development of new licensees and changes in the company 's relationship with existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . during 2012 , the company 's cash and cash equivalents balance increased by $ 5,986,869 principally as a result of cash proceeds from the sale of common stock of $ 12,250,500 partially offset by cash used for operations of $ 2,679,093 , as well as cash invested in certificates of deposit of $ 3,797,865. at december 31 , 2012 , the company had working capital of $ 14,091,029 and total shareholders ' equity of $ 14,172,675. during 2011 , the company 's cash and cash equivalents balance decreased by $ 4,554,180 principally as a result of cash used for operations of $ 3,352,584 as well as net cash invested in certificates of deposits of $ 1,255,056. during 2010 , the company 's cash and cash equivalents balance increased by $ 3,197,010 principally as a result of cash proceeds from the sale of common stock of $ 6,409,376 partially offset by cash used for operations of $ 3,202,053 . 31 the company expects to use its cash to fund its research and development of spd light valves , its expanded marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including the results of research and development activities , competitive and technological developments , the timing and cost of patent filings , the development of new licensees and changes in the company 's relationships with its existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . story_separator_special_tag based upon existing levels of cash expenditures , existing cash reserves and budgeted revenues , the company believes that it would not require additional funding for the forseeable future . there can be no assurance that expenditures will not exceed the anticipated amounts or that additional financing , if required , will be available when needed or , if available , that its terms will be favorable or acceptable to the company . eventual success of the company and generation of positive cash flow will be dependent upon the extent of commercialization of products using the company 's technology by the company 's licensees and payments of continuing royalties on account thereof . to date the company has not generated sufficient revenue from its licensees to fund its operations . inflation the company does not believe that inflation has a significant impact on its business . contractual obligations the company occupies premises under an operating lease agreement which expires on january 31 , 2014 and requires minimum annual rent which rises over the term of the lease to approximately $ 177,000 , plus tenant 's share of applicable taxes . these lease obligations are summarized over time as of december 31 , 2012 : payments due by period < 1 year 1-3 years 4-5 years > 5 years total operating lease obligations $ 190,000 $ 20,000 $ -- $ -- $ 210,000 off-balance sheet arrangements we have no variable interest entities or other off-balance sheet obligation arrangements . related party transactions none . forward looking statements the information set forth in this report and in all publicly disseminated information about the company , including the narrative contained in management 's discussion and analysis of financial condition and results of operations above , includes forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended , and is subject to the safe harbor created by that section . readers are cautioned not to place undue reliance on these forward-looking statements as they speak only as of the date hereof and are not guaranteed . 32 item 7a . quantitative and qualitative disclosure about market risk at times , the company invests available cash and cash equivalents in money market funds or in short-term u.s. treasury securities with maturities that are generally one year or less . although the rate of interest paid on such investments in money market funds may fluctuate over time , each of the company 's investments in u.s. treasury securities is made at a fixed interest rate over the duration of the investment . accordingly , the company does not believe it is materially exposed to changes in interest rates as it generally holds these treasury securities until maturity . the company does not currently have any sales , purchases , assets or liabilities determined in currencies other than the u.s. dollar , and as such , is not subject to foreign currency exchange risk . item 8 . financial statements and supplementary data the consolidated financial statements listed in item 15 ( a ) ( 1 ) and ( 2 ) are included in this report beginning on page f-1 . item 9 . changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures conclusion regarding the effectiveness of disclosure controls and procedures as of the end of the period covered by this annual report on form 10-k , the company carried out an evaluation , under the supervision and with the participation of the company 's management , including the company 's chairman and its chief executive officer and chief financial officer , of the effectiveness of the design and operation of the company 's disclosure controls and procedures pursuant to exchange act rule 13a-15 ( e ) and 15d-15 ( e ) . based upon that evaluation , the company 's chairman and its chief executive officer and chief financial officer concluded that the company 's disclosure controls and procedures are effective in timely alerting them to material information relating to the company ( including its consolidated subsidiary ) required to be included in the company 's periodic sec filings . our officers have concluded that as of december 31 , 2012 our disclosure controls and procedures are designed , and are effective , to ensure that information required to be disclosed by our company in the reports we file or submit under the exchange act is recorded , processed , summarized and reported , within the time periods specified in the commission 's rules and forms , and are also effective to ensure that information required to be disclosed in the reports that we file or submit under the exchange act is accumulated and communicated to our management , including our chief executive officer and chief financial officer , to allow timely decisions regarding required disclosure . there were no changes in the company 's internal control over financial reporting during the quarterly period ended december 31 , 2012 that has materially affected , or is reasonably likely to materially affect , the company 's internal control over financial reporting . 33 management 's report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting , as such term is defined in exchange act rule 13a-15 ( f ) . our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements .
| because the company 's license agreements typically provide for the payment of royalties by a licensee on product sales within 45 days after the end of the quarter in which a sale of a licensed product occurs ( with some of the company 's more recent license agreements providing for payments on a monthly basis ) , and because of the time period which typically will elapse between a customer order and the sale of the licensed product and installation in a home , office building , automobile , aircraft , boat or any other product , there could be a delay between when economic activity between a licensee and its customer occurs and when the company gets paid its royalty resulting from such activity . operating expenses increased by $ 376,998 for the year ended december 31 , 2012 to $ 3,995,633 from $ 3,618,635 for the year ended december 31 , 2011. this increase was principally the result of higher payroll and related costs ( $ 285,000 ) , plus higher professional fees ( $ 71,000 ) . included in operating expenses are approximately $ 736,000 and $ 594,000 of non cash compensation charges for the years ended december 31 , 2012 and 2011 , respectfully , relating to common stock and options granted to directors , employees and consultants . 29 research and development expenditures increased by $ 281,183 to $ 1,671,872 for the year ended december 31 , 2012 from $ 1,390,689 for the year ended december 31 , 2011. this increase was principally the result of higher payroll and related costs ( $ 103,000 ) as well as higher materials and project costs ( $ 98,000 ) and higher allocated office costs ( $ 64,000 ) . included in research and development expenses are approximately $ 143,000 and $ 108,000 of non-cash compensation charges for the years ended december 31 , 2012 and 2011 , respectively . the company 's net investment income for the year ended december 31 , 2012 was $ 33,171 as compared to $ 29,724 for the year ended december 31 , 2011. the difference was primarily due to interest from higher cash balances available for investment partially offset the interest on the note from spd control systems which was collected at the end of march 2012. the company recorded an income tax benefit of $ 613,397 for the year ended december 31 , 2012. this benefit results from state research and development refundable credits that the company applied for related to the years ended december 31 , 2006 , 2007 , 2008 , and 2009. the company does not currently expect to collect additional credits . no
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the following table sets forth the net sales , operating profit and ebitda for each of our business segments for 2014 , 2013 and 2012 ( dollars in millions ) : replace_table_token_3_th the following table sets forth ebitda for our consolidated results for 2014 , 2013 and 2012 ( dollars in millions ) : replace_table_token_4_th 21 the following table sets forth ebitda for each of our business segments for 2014 , 2013 and 2012 ( dollars in millions ) : replace_table_token_5_th year 2014 compared to year 2013 net sales net sales were $ 4,239.1 million for 2014 compared with $ 4,219.9 million for 2013. the $ 19.2 million increase in 2014 compared with 2013 was attributable to paper packaging ( $ 30.8 million increase ) , rigid industrial packaging & services ( $ 14.9 million increase ) , land management ( $ 3.6 million decrease ) , and flexible products & services ( $ 22.9 million decrease ) . the 0.5 percent increase in net sales for 2014 compared with 2013 was primarily due to an increase in sales prices of 2.5 percent , partially offset by a decrease in sales volumes of 0.8 percent and a 1.2 percent negative impact of foreign currency translation . volumes decreased in the rigid industrial packaging & services and the flexible packaging & services segment with prices increasing in all segments . operating costs gross profit decreased to $ 811.0 million for 2014 from $ 832.2 million for 2013. gross profit margin was 19.1 percent for 2014 versus 19.7 percent for 2013. the decrease in gross profit margin was principally due to lower volumes in the rigid industrial packaging & services segment of 0.6 percent and the flexible packaging & services segment of 5.9 percent partially offset by price and volume increases in the paper packaging segment of 3.2 percent and 1.4 percent , respectively . selling , general and administrative ( sg & a ) expenses were $ 496.7 million , or 11.7 percent of net sales , in 2014 compared with $ 477.3 million , or 11.3 percent of net sales , in 2013. the $ 19.4 million increase in sg & a expenses was primarily due to higher professional fees of $ 6.7 million , salaries of $ 4.2 million and bad debt of $ 3.7 million . restructuring charges restructuring charges were $ 16.1 million and $ 4.8 million for 2014 and 2013 , respectively . restructuring charges for 2014 consisted of $ 12.0 million in employee separation costs and $ 4.1 million in other costs primarily consisting of lease termination costs , professional fees and other miscellaneous exit costs . these charges were related to the rationalization of operations and closing underperforming assets in both the flexible products & services and rigid industrial packaging & services segments . eight plants were closed during 2014 , and 850 employees were severed throughout the year as part of our restructuring efforts . anticipated cost savings related to current year restructuring activity is expected to be approximately $ 16.8 million with payback periods ranging from one to five years among the plans . as of october 31 , 2014 , $ 9.2 million of restructuring charges were anticipated , but were not yet incurred . restructuring charges for 2013 consisted of $ 2.8 million in employee separation costs and $ 2.0 million in other costs primarily consisting of lease termination costs , professional fees and other miscellaneous exit costs . these charges were related to the consolidation of operations in the rigid industrial packaging & services . no plants were closed during 2013 , but 278 employees were severed during 2013 as part of our restructuring efforts . the anticipated cost savings related to fiscal year 2013 restructuring activity was expected to be approximately $ 7.7 million with a payback period of less than one year which were mostly realized throughout 2014. for restructuring activities entered into in 2014 and 2013 , actual cost savings realized were not materially different than those anticipated . refer to note 7 restructuring charges , within the notes to consolidated financial statements in item 8 of this form 10-k. 22 impairment charges goodwill impairment charges were $ 50.3 million for 2014. these charges were related to the impairment of all goodwill within our flexible products & services segment . there were no goodwill impairment charges for 2013. non-cash asset impairment charges were $ 35.5 million and $ 31.4 million for 2014 and 2013 , respectively . in 2014 , these charges were primarily related to the fabric hub in the kingdom of saudi arabia in the flexible products & services segment and various other locations in both the flexible products & services segment and rigid industrial packaging & services segment compared to impairment charges in 2013 related to various locations in the rigid industrial packaging & services segment and flexible products & services segment . acquisition-related costs acquisition-related costs were $ 1.6 million and $ 0.8 million for 2014 and 2013 , respectively . for 2014 , these costs included $ 1.1 million of acquisition-related costs and $ 0.5 million of post-acquisition integration costs . for 2013 , these costs included $ 0.4 million of acquisition-related costs and $ 0.4 million of post-acquisition integration costs attributable to acquisitions completed during 2011. operating profit operating profit was $ 249.3 million and $ 341.6 million in 2014 and 2013 , respectively . the $ 92.3 million decrease was due to lower results in land management ( $ 0.7 million ) , rigid industrial packaging & services ( $ 26.7 million ) , and flexible products & services ( $ 66.9 million ) , partially offset by higher results in paper packaging ( $ 2.0 million ) ; compared with 2013. the decrease compared to 2013 is primarily attributable to an increase in non-cash asset impairment charges of $ 54.4 million , higher sg & a costs of $ 19.4 million , adverse weather-related conditions in two of our business segments and the negative impact of foreign currency translation . story_separator_special_tag ebitda ebitda was $ 395.6 million and $ 486.1 million for 2014 and 2013 , respectively . the $ 90.5 million decrease was primarily due to the same segment results that impacted operating profit . depreciation , depletion and amortization expense was $ 155.8 million for 2014 compared with $ 157.6 million for 2013. trends while we anticipate that the overall global economy will continue to reflect a modest recovery in fiscal 2015 , with the positive aspects of the improving economy in the united states being offset by the negative trends globally , particularly in europe and latin america , we expect our net sales and net income to remain relatively flat . we anticipate that foreign currency matters will continue to be a challenge for us , as the strengthening of the united states dollar will continue to impact our revenues and net income . in addition , an expected approximately two-week shutdown of our riverville mill for the installation of upgrades will negatively impact our 2015 net income . during the fourth quarter , we sold several businesses and plan to continue to accelerate restructuring plans , facility closures and pursue the sale of select non-core assets as part of our overall strategic transformation . we also plan to implement sg & a cost savings actions throughout 2015 and beyond . segment review rigid industrial packaging & services our rigid industrial packaging & services segment offers a comprehensive line of rigid industrial packaging products , such as steel , fibre and plastic drums , rigid intermediate bulk containers , closure systems for industrial packaging products , water bottles and remanufactured and reconditioned industrial containers , and services , such as container life cycle management , blending , filing , logistics , warehousing and other packaging services . key factors influencing profitability in the rigid industrial packaging & services segment are : selling prices , customer demand and sales volumes ; raw material costs , primarily steel , resin and containerboard and used industrial packaging for reconditioning ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; contributions from recent acquisitions ; divestiture of businesses and facilities ; and impact of foreign currency translation . 23 net sales were $ 3,077.0 million for 2014 compared with $ 3,062.1 million for 2013 the 0.5 percent increase in net sales for 2014 compared with 2013 was primarily due to a 2.8 percent increase in sales prices primarily from the pass-through of higher raw material costs to customers offset by a 0.6 percent decrease in volumes and a 1.7 percent negative impact of foreign currency translation . gross profit was $ 553.4 million and $ 555.5 million for 2014 and 2013 , respectively . gross profit margin decreased to 18.0 percent from 18.1 percent for 2014 and 2013 , respectively . operating profit was $ 170.1 million and $ 196.8 million for 2014 and 2013 , respectively . the $ 26.7 million decrease was primarily due to a $ 9.1 million non-cash loss on the sale of a business , increases in sg & a expenses of $ 20.2 million primarily due to professional fees and higher restructuring costs and the impact of adverse weather-related conditions in north america during the first two quarters of 2014. ebitda was $ 271.7 million and $ 295.3 million for 2014 and 2013 , respectively . this decrease was due to the same factors that impacted the segment 's operating profit . depreciation , depletion and amortization expense was $ 108.4 million for 2014 compared with $ 107.4 million for 2013. paper packaging our paper packaging segment produces and sells containerboard , corrugated sheets , corrugated containers and other corrugated products to customers in north america . key factors influencing profitability in the paper packaging segment are : selling prices , customer demand and sales volumes ; raw material costs , primarily old corrugated containers ; energy and transportation costs ; and benefits from executing the greif business system . net sales were $ 706.8 million for 2014 compared with $ 676.0 million for 2013. the 4.6 percent increase in net sales for 2014 compared with 2013 was primarily due to a 3.2 percent increase in sales prices due to implementation and realization of two containerboard price increases since the third quarter of 2012 and a 1.4 percent increase in volumes . gross profit was $ 182.8 million for 2014 compared with $ 179.8 million for 2013. this increase was primarily due to higher selling prices , partially offset by input and logistic costs associated with adverse weather-related conditions during the first two quarters of 2014. gross profit margin decreased to 25.9 percent from 26.6 percent for 2014 and 2013 , respectively . operating profit was $ 125.8 million and $ 123.8 million for 2014 and 2013 , respectively . the $ 2.0 million increase was primarily due to higher prices and higher volumes . ebitda was $ 155.6 million and $ 154.3 million for 2014 and 2013 , respectively . this increase was due to the same factors that impacted the segment 's operating profit . depreciation , depletion and amortization expense was $ 29.8 million for 2014 compared with $ 30.3 million for 2013. flexible products & services our flexible products & services segment offers a comprehensive line of flexible products , such as flexible intermediate bulk containers , and through august 2014 , multiwall bags . key factors influencing profitability in the flexible products & services segment are : selling prices , customer demand and sales volumes ; raw material costs , primarily resin ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; divestiture of businesses and facilities ; and impact of foreign currency translation .
| the $ 12.8 million increase was primarily due to higher volumes , improved performance in latin america , lower restructuring charges and lower acquisition-related costs , partially offset by higher non-cash asset impairment charges . ebitda was $ 295.3 million and $ 279.1 million for 2013 and 2012 , respectively . this increase was due to the same factors that impacted the segment 's operating profit . depreciation , depletion and amortization expense was $ 107.4 million for 2013 compared with $ 106.0 million for 2012. paper packaging our paper packaging segment produces and sells containerboard , corrugated sheets and corrugated containers in north america . key factors influencing profitability in the paper packaging segment are : selling prices , customer demand and sales volumes ; raw material costs , primarily old corrugated containers ; energy and transportation costs ; and benefits from executing the greif business system . net sales were $ 676.0 million for 2013 compared with $ 573.8 million for 2012. the 17.8 percent increase in net sales for 2013 compared with 2012 was primarily due to a 12.9 percent increase in sales prices due to implementation and realization of two containerboard price increases since the third quarter of 2012 and a 4.9 increase in volumes . gross profit was $ 179.8 million for 2013 compared with $ 135.7 million for 2012. gross profit margin increased to 26.6 percent from 23.6 percent for 2013 and 2012 , respectively . this increase was primarily due to higher selling prices . operating profit was $ 123.8 million and $ 83.5 million for 2013 and 2012 , respectively . the $ 40.3 million increase was primarily due to higher prices and higher volumes . ebitda was $ 154.3 million and $ 115.1 million for 2013 and 2012 , respectively . this increase was due to the same factors that impacted the segment 's operating profit . depreciation , depletion and amortization expense was $ 30.3 million for 2013 compared with $ 31.6 million for 2012. flexible products & services our flexible products & services segment offers a comprehensive line of flexible products , such as flexible intermediate bulk containers and multiwall bags . key factors influencing profitability
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which was divested in january 2011 , ( 4 ) the term minority investments refers collectively to nanotope , inc. ( nanotope ) and leonardo biosystems , inc. ( leonardo ) in which the company holds a less than majority ownership position , and ( 5 ) the term common stock refers to arrowhead 's common stock and the term stockholder ( s ) refers to the holders of arrowhead common stock . 21 overview arrowhead research corporation is a nanomedicine company developing innovative therapies at the interface of biology and nanoengineering to cure disease and improve human health . arrowhead has one of the most advanced and broadest technology platforms for therapeutics based on rna interference ( rnai ) , including access to five different rnai delivery systems and the three primary small interfering rna ( sirna ) structures in commercial development for rnai therapeutics . this broad technology platform enables optimization of sirna therapeutic candidates for delivery based on sirna chemistry , tissue type , disease state , and target [ gene ] and sirna type and chemistry on a target-by-target basis . arrowhead is leveraging its in house r & d expertise and capabilities , as well as a broad intellectual property portfolio for rnai therapeutics , to attract development partnerships with other pharmaceutical and biotech companies committed to bringing rnai therapeutics to market , as well as continuing the preclinical and clinical development its own clinical candidates . arrowhead 's non-rnai development programs include a unique therapeutic candidate that shows promise for the treatment of obesity and advanced bioactive materials for the regeneration of injured tissues . critical accounting policies and estimates management makes certain judgments and uses certain estimates and assumptions when applying accounting principles generally accepted in the united states in the preparation of our consolidated financial statements . we evaluate our estimates and judgments on an ongoing basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances . our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results . we believe the following accounting policies are the most critical to us , in that they are important to the portrayal of our consolidated financial statements and require our most difficult , subjective or complex judgments in the preparation of our consolidated financial statements . for further information , see note 1 , organization and significant accounting policies , to our consolidated financial statements which outlines our application of significant accounting policies and new accounting standards . revenue recognition revenue from product sales are recorded when persuasive evidence of an arrangement exists , title has passed and delivery has occurred , a price is fixed and determinable , and collection is reasonably assured . we may generate revenue from technology licenses , collaborative research and development arrangements , research grants and product sales . revenue under technology licenses and collaborative agreements typically consists of nonrefundable and or guaranteed technology license fees , collaborative research funding , and various milestone and future product royalty or profit-sharing payments . revenue associated with research and development funding payments under collaborative agreements is recognized ratably over the relevant periods specified in the agreement , generally the research and development period . revenue from up-front license fees , milestones and product royalties are recognized as earned based on the completion of the milestones and product sales , as defined in the respective agreements . payments received in advance of recognition as revenue are recorded as deferred revenue . impairment of long-lived assets we review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of assets may not be fully recoverable or that our assumptions about the useful lives of these assets are no longer appropriate . if impairment is indicated , recoverability is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . stock-based compensation we recognize stock-based compensation expense based on the grant date fair value using the black-scholes options pricing model , which requires us to make assumptions regarding certain variables including the risk-free interest rate , expected stock price volatility , and the expected life of the award . the assumptions used in calculating stock-based compensation expense represent management 's best estimates , but these estimates involve inherent uncertainties , and if factors change or the company used different assumptions , its stock-based compensation expense could be materially different in the future . derivative assets and liabilities we account for warrants and other derivative financial instruments as either equity or assets/liabilities based upon the characteristics and provisions of each instrument . warrants classified as equity are recorded as additional paid-in capital on our consolidated balance sheet and no further adjustments to their valuation are made . some of our warrants were determined to be ineligible for equity classification because of provisions that may result in an adjustment to their exercise price . story_separator_special_tag warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as assets or liabilities are recorded on our consolidated balance sheet at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire , with any changes in the fair value between reporting periods recorded as other income or expense . we estimate the fair value of these assets/liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date , as well as assumptions for expected volatility , expected life and risk-free interest rate . changes in the assumptions used could have a material impact on the resulting fair value . the primary input affecting the value of our derivatives liabilities is the company 's stock price . for example , a 50 % change in the value of the company 's stock price would affect the value of the derivative liability by approximately $ 0.5 million to $ 0.6 million , depending on other inputs . 22 intellectual property intellectual property consists of patents and patent applications internally developed , licensed from universities or other third parties or obtained through acquisition . patents and patent applications are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable , and any impairment is recorded . licensed or internally developed patents are amortized over the life of the patent . purchased patents are amortized over three years . reverse stock split as of november 17 , 2011 , the company effected a 1 for 10 reverse stock split ( the reverse stock split ) . as a result of the reverse stock split , each ten shares of the company 's common stock issued and outstanding immediately prior to the reverse split was combined into one share of common stock . also , as a result of the reverse stock split , the per share exercise price of , and the number of shares of common stock underlying outstanding company stock options , warrants , series a preferred and any common stock based equity grants outstanding immediately prior to the reverse stock split was proportionally adjusted , based on the one-for-ten split ratio , in accordance with the terms of such options , warrants or other common stock based equity grants as the case may be . no fractional shares of common stock were issued in connection with the reverse split . stockholders will instead receive cash payment in lieu of any fractional shares . unless otherwise noted , all share and per share amounts in these have been retrospectively adjusted to reflect the reverse stock split . story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px ; text-indent:4 % '' > communication and technology expense was $ 96,000 during the year ended september 30 , 2011 , compared to $ 105,000 in the comparable prior period . the decrease in communication and technology cost is due to lower technology consulting expense and lower telephone and software maintenance cost at arrowhead and calando . office expense was $ 54,000 during the year ended september 30 , 2011 , compared to $ 65,000 in the comparable prior period . the decrease in office expense primarily relates to the reduction of office costs after the company moved to a smaller temporary facility that provides certain amenities as part of the lease . research and development expenses fiscal 2011 compared to fiscal 2010 most of arrowhead 's r & d expenses for fiscal 2011 and fiscal 2010 were related to research and development activities by arrowhead 's subsidiaries . the following table provides details of r & d expenses for fiscal 2011 and 2010 : ( in thousands ) replace_table_token_4_th outside lab and services expense was $ 776,000 during the year ended september 30 , 2011 , compared to $ 199,000 in the comparable prior period . the majority of the increase was related to calando . outside lab services and contract services were higher in fiscal 2011 to support the clinical trial taking place . in the previous year , the clinical trial had lower enrollment and thus incurred lower cost . in addition , the company experienced outside costs related to its new subsidiary , ablaris , which was not operating in the prior year . consulting expense was $ 440,000 during the year ended september 30 , 2011 , compared to $ 326,000 in the comparable prior period . the primary reason for the increase in consulting expense is due to technical consulting costs related to the company 's new subsidiary , ablaris therapeutics , inc. and the costs associated with new scientific advisory board members . license , royalty & milestone expense was $ 2,045,000 during the year ended september 30 , 2011 , compared to ( $ 2,000 ) in the comparable prior period . the licensing fees , royalty and milestones expenses during the year reflect to $ 2 million in licensing fees paid to university of texas m.d . anderson cancer center related to a patent and technology license agreement entered into in december 2010 , and related to ablaris . other income / expense other income decreased from $ 1,521,000 in fiscal 2010 to $ 1,045,000 in fiscal 2011. the main reason for the decrease in other income was due to the change in the value of derivative liabilities , which contributed $ 1.8 million to other income in fiscal 2010 , compared to $ 1.1 million in fiscal 2011. the change in the value of the derivative is related to warrants issued in june 2010 , that contain antidilution protection ( see note
| operating expenses the analysis below details the operating expenses and discusses the expenditures of the company within the major expense categories . for purposes of comparison , the amounts for the years ended september 30 , 2011 and 2010 are shown in the table below . salary & wage expenses - fiscal 2011 compared to fiscal 2010 arrowhead employs management , administrative and technical staff . salary and wage expense consists of salary , benefits , and non-cash charges related to equity-based compensation from the issuance of stock options . salary and benefits are allocated to two major categories : general and administrative compensation expense and research and development compensation expense depending on the primary activities of each employee . the following table provides details of salary and related expenses for fiscal 2011 and fiscal 2010 . 23 ( in thousands ) replace_table_token_2_th during the year ended september 30 , 2011 , g & a compensation expense increased $ 233,000. the prior year included a nonrecurring charge of certain general and administrative expenses to the company 's minority investment companies , nanotope and leonardo , for which the company provides management services . this charge served to decrease the company 's consolidated salary costs during the year ended september 30 , 2010. arrowhead 's management headcount has remained relatively constant over the past year . r & d compensation related costs remained relatively constant during the year and on a year-to-date basis , as compared to the prior periods . with the addition of personnel in arrowhead 's newly acquired madison facility , salary and wage expenses are expected to increase sharply in fiscal 2012. general & administrative expenses fiscal 2011 compared to fiscal 2010 the following table provides details of our general and administrative expenses for the fiscal years 2011 and 2010 . ( in thousands ) replace_table_token_3_th professional/outside services include legal , accounting and other outside services retained by arrowhead and its subsidiaries . all periods include normally occurring legal and accounting expenses related to sec compliance and other corporate matters .
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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 ; in august , 2011 , the budget control act of 2011 ( the “ 2011 act ” ) was enacted into law . the 2011 act imposed annual spending 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 . the 2011 act provides for new spending on program integrity initiatives intended to reduce fraud and abuse under the medicare program . 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 , 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 federal other deficit reduction initiatives may be proposed by congress going forward . we also can not predict the effect these enactments will have on operators ( including uhs ) , and , thus , our business ; in march , 2010 , the health care and education reconciliation act of 2010 and the patient protection and affordable care act ( the “ aca ” ) were enacted into law and created significant changes to health insurance coverage for u.s. citizens as well as material revisions to the federal medicare and state medicaid programs . the two combined primary goals of these acts are to provide for increased access to coverage for healthcare and to reduce healthcare-related expenses . medicare , medicaid and other health care industry changes are scheduled to be implemented at various times during this decade . initiatives to repeal the aca , in whole or in part , to delay elements of implementation or funding , and to offer amendments or supplements to modify its provisions , have been persistent and may increase as a result of the 2016 election . the ultimate outcomes of legislative attempts to repeal or amend the aca and legal challenges to the aca are unknown . results of recent congressional elections and the change of presidential administrations beginning in 2017 could create a political environment in which substantial portions of the aca are repealed or revised . specifically , president donald trump 's 100 day action plan called for full repeal of the aca and its replacement with health savings accounts , cross-states sales of health insurance , and modifications to state-managed medicaid programs . nevertheless , 30 prospects for rapid enactment of radical change in the health care regulatory landscape are not clear , and president donald trump has already indicated that popula r provisions of the aca should be preserved . it remains unclear what portions of the aca may remain , or what any replacement or alternative programs may be created by any future legislation . any such future repeal or replacement may have significant impa ct on the reimbursement for healthcare services generally , and may create reimbursement for services competing with the services offered by our hospitals . accordingly , there can be no assurance that the adoption of any future federal or state healthcare re form legislation will not have a negative financial impact on our hospitals , including their ability to compete with alternative healthcare services funded by such potential legislation , or for the operators of our hospitals to receive payment for services ; competition for our operators from other reits ; 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 . story_separator_special_tag 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 132-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 five 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 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 . we assume no obligation to publicly update any forward-looking statements to reflect actual results , changes in assumptions or changes in other factors affecting forward-looking information , except as may be required by law . all forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . we consider our critical accounting policies to be those that require us to make significant judgments and estimates when we prepare our financial statements , including the following : revenue recognition : our revenues consist primarily of rentals received from tenants , which are comprised of minimum rent ( base rentals ) , bonus rentals and reimbursements from tenants for their pro-rata share of expenses such as common area maintenance costs , real estate taxes and utilities . 31 the minimum rent for our six hospital facilities , which is paid monthly , is fixed over the term of the respective leases which are scheduled to expire in 2019 ( 2 hospitals ) or 2021 ( 4 hospitals ) . in addition , for the three hospital facilities leased to subsidiaries of uhs , bonus rents are paid on a quarterly basis , based upon a computation that compares the hospitals ' current quarter net revenues to the corresponding quarter in the base year . rental income recorded by our other properties , including our consolidated an d unconsolidated mobs , relating to leases in excess of one year in length , is recognized using the straight-line method under which contractual rents are recognized evenly over the lease term regardless of when payments are due . the amount of rental revenu e resulting from straight-line rent adjustments is dependent on many factors including the nature and amount of any rental concessions granted to new tenants , stipulated rent increases under existing leases , as well as the acquisitions and sales of propert ies that have existing in-place leases with terms in excess of one year . as a result , the straight-line adjustments to rental revenue may vary from period-to-period . tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses are incurred . purchase accounting for acquisition of investments in real estate : purchase accounting is applied to the assets and liabilities related to all real estate investments acquired from third parties . in accordance with current accounting guidance , the fair value of the real estate acquired is allocated to the acquired tangible assets , consisting primarily of land , building and tenant improvements , and identified intangible assets and liabilities , consisting of the value of above-market and below-market leases , and acquired ground leases , based in each case on their fair values . loan premiums , in the case of above market rate loans , or loan discounts , in the case of below market loans , are recorded based on the fair value of any loans assumed in connection with acquiring the real estate .
| 33 total revenue increased $ 3.1 million , or 4.9 % , during the year ended december 31 , 2016 , as compared to 2015 , due primarily to the revenues generated at mobs acquired during 2016 , as well as net increases at various other properties . included in our other operating expenses are expenses related to the consolidated medical office buildings , which totaled $ 16.4 million for each of the years ended december 31 , 2016 and 2015. 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 or included in base rental amounts . during 2016 , we had a total of 32 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 accounted for by the equity method . these leases comprised approximately 10 % of the aggregate rentable square feet of these properties ( 7 % related to renewed leases and 3 % related to new leases ) . rental rates , tenant improvement costs and rental concessions vary from property to property based upon factors such as , but not limited to , the current occupancy and age of our buildings , local overall economic conditions , proximity to hospital campuses and the vacancy rates , rental rates and capacity of our competitors in the market . the weighted-average tenant improvement costs associated with these new or renewed leases was approximately $ 12 per square foot during 2016. the weighted-average leasing commissions on the new and renewed leases commencing during 2016 was approximately 2 % of base rental revenue over the term of the leases . the average aggregate value of the tenant concessions , generally consisting of rent abatements , provided in connection with new and renewed leases commencing during 2016 was approximately 2 % of the future aggregate base rental revenue over the lease terms . rent abatements were , or will be , recognized in our results of operations under the straight-line method over the lease term regardless of when payments are due . in connection with lease renewals executed
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paper is the largest component of our material cost ; however , paper pricing typically does not significantly affect our operating margins due , in part , to our efforts to pass increased costs on to our customers . we closely monitor material cost as a percentage of net sales to measure volume and waste . we also track labor utilization , or net sales per employee , to measure productivity and determine staffing levels . we maintain low levels of inventory . historically , our capital expenditure requirements have varied due to the cost and availability of finance lease lines of credit . our relationships with credit providers have provided attractive lease rates over the past two years , and as a result , we chose to lease rather than purchase equipment in a significant portion of our engagements . research and development costs consist mainly of the salaries , leased building space , and computer equipment that comprises our data storage and development centers in san ramon , california and kolkata , india . such costs are primarily recorded to cost of sales . 22 covid-19 pandemic the global spread of the novel coronavirus ( covid-19 ) has negatively impacted the global economy , disrupted global supply chains and created significant volatility and disruption of financial markets . the impact of this pandemic has created significant prolonged uncertainty in the global economy and has negatively affected our business , employees , suppliers , and customers . despite a strong start to the year thanks to a reconfiguration of our sales and marketing functions in late -2019 , the decline in demand for our products and services that began in late march 2020 as a result of the covid-19 pandemic , negatively impacted our sales and profitability during 2020. the duration of these trends and the magnitude of such impacts can not be precisely estimated at this time , as they are affected by a number of factors , many of which are outside management 's control , including those presented in item 1a . risk factors of this annual report . to adapt to the uncertainty and shifting demands brought on by the covid-19 pandemic , we began to transform our business during the second quarter of 2020 into a smaller but stronger company , offering a range of products beyond the construction vertical and our historical print segments , and reconfiguring our operations and cost structure to fit the needs of our customers in the current market . we have repositioned the company based on the belief that there is potential for new growth and similar , if not better margins , barring any unforeseen changes that may arise due to the covid-19 pandemic or otherwise . sustained adverse impacts to us , as well as to certain of our suppliers , dealers or customers may also affect our future valuation of certain assets and therefore may increase the likelihood of an impairment charge , write-off , or reserve associated with such assets , including goodwill , intangible assets , property and equipment , inventories , accounts receivable , tax assets , and other assets . we believe that we have taken appropriate measures to mitigate the impacts of the covid-19 pandemic as it relates to the health and safety of our employees and customers . as the situation continues to persist , we will continue to analyze additional mitigation measures that may be needed to preserve the health and safety of our workforce and our customers , and the ongoing continuity of our business operations . those measures might include temporarily suspending operations at select service centers , modifying workspaces , continuing social distancing protocols , incorporating additional personal protective equipment and or incorporating health screening policies at our facilities , or such other industry best practices needed to comply with applicable government orders and to continue to maintain a healthy and safe environment for our employees during the covid-19 pandemic . given the ongoing economic uncertainty resulting from the covid-19 pandemic , we have taken actions to improve our current liquidity position , including reducing working capital , suspending share repurchases and dividend payouts for a portion of 2020 , postponing capital expenditures , reducing operating costs , initiating workforce reductions and salary reductions , and substantially reducing discretionary spending . we are the largest document services provider to industries that build and maintain our country 's infrastructure and thus were considered an essential business and permitted to remain open in most markets during 2020. we also serve the housing , healthcare , and technology industries , and we were able to keep almost all of our 148 service centers open , though at reduced volumes , in order to fulfill our customers ' needs . however , there is uncertainty around the extent and duration of interruptions to our business related to the covid-19 pandemic , as well as the pandemic 's overall impact on the u.s. economy , on our clients ' ongoing business operations , and on our results of operations and financial condition . while our management team is actively monitoring the impacts of the covid-19 pandemic , and may take further actions altering our business operations that we determine are in the best interests of our employees and clients or as required by federal , state , or local authorities , the full impact of the covid-19 pandemic on the results of our operations , financial condition , or liquidity for the future can not be estimated at this point . the following discussions are subject to the future effects of the covid-19 pandemic on our ongoing business operations . 23 story_separator_special_tag new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > gross profit decreased to $ 92.9 million in 2020 , compared to $ 125.2 million in 2019. gross margin decreased to 32.1 % in 2020 , compared to 32.7 % in 2019 , on a net sales decrease of $ 92.9 million . story_separator_special_tag despite the 24.3 % drop in net sales due to the covid-19 pandemic , gross margin during 2020 decreased by just 60 basis points . gross margins were aided by the drop in low margin equipment and supplies sales and cost saving activities in connection with the restructuring plan we initiated in the third quarter of 2019 , as well as cost savings initiated in response to the current covid-19 pandemic . during the second quarter of 2020 we reconfigured our operating structure and costs to serve new customer needs and to reflect the reduction in our revenues as a result of the covid-19 pandemic . selling , general and administrative expenses selling , general and administrative expenses decreased by $ 28.2 million or 26.3 % in 2020 compared to 2019. the reduction was due to cost saving activities in connection with the restructuring plan we initiated in the third quarter of 2019 , as well as cost savings initiated in response to the current covid-19 pandemic including headcount reductions , suspension of most business travel , reduced consulting expenses , and reduced bonuses and commissions . amortization of intangibles amortization of intangibles of $ 1.5 million in 2020 decreased compared to 2019 , primarily due to the completed amortization of certain customer relationships related to historical acquisitions . interest expense , net net interest expense totaled $ 3.9 million in 2020 , compared to $ 5.2 million in 2019. the decrease in 2020 compared to 2019 was due to our continued pay down of our long-term debt , decrease in libor , and decrease in bank debt interest spread due to the improvement in our leverage ratio . income taxes we recorded an income tax provision of $ 2.7 million in relation to a pretax income of $ 8.5 million for 2020 , which resulted in an effective income tax rate of 32.2 % . our effective income tax rate for 2020 was primarily impacted by certain stock-based compensation , a change in valuation allowances against certain deferred tax assets and non-deductible expenses . excluding the impact of valuation allowances , internal revenue code section 162 ( m ) , and other discrete tax items , our effective income tax rate for the consolidated company would have been 30.0 % and our effective income tax rate attributable to arc document solutions , inc. would have been 28.8 % . we recorded an income tax provision of $ 5.7 million in relation to a pretax income of $ 8.6 million for 2019 , which resulted in an effective income tax rate of 66.8 % . excluding the impact of valuation allowances , internal revenue code section 162 ( m ) , and other discrete tax items , our effective income tax rate would have been 31.9 % . noncontrolling interest net income attributable to noncontrolling interest represents 35 % of the income of our chinese joint venture with uds and its subsidiaries , which together comprise our chinese joint-venture operations . 26 net income attributable to arc net income attributable to arc was $ 6.2 million in 2020 , as compared to $ 3.0 million in 2019. the increase in net income attributable to arc in 2020 compared to the prior year is driven by the decrease in income taxes as 2019 had a significant tax expense related to nonqualified stock options that expired in 2019. ebitda ebitda margin increased to 14.9 % in 2020 from 12.0 % in 2019. excluding the effect of stock-based compensation , restructuring expense , and the loss on extinguishment and modification of debt , adjusted ebitda margin increased to 15.5 % in 2020 from 12.9 % in 2019. the increase in adjusted ebitda in 2020 was primarily due to the significant decline in selling , general and administrative expenses , as noted above . impact of inflation we do not believe inflation has had a significant effect on our operations . price increases for raw materials , such as paper and fuel charges , typically have been , and we expect will continue to be , passed on to customers in the ordinary course of business . non-gaap financial measures . ebitda and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . these measures are not measurements of our financial performance under gaap and should not be considered as alternatives to net income , income from operations , or any other performance measures derived in accordance with gaap or as an alternative to cash flows from operating , investing or financing activities as a measure of our liquidity . ebitda represents net income before interest , taxes , depreciation and amortization . ebitda margin is a non-gaap measure calculated by dividing ebitda by net sales . we have presented ebitda and related ratios because we consider them important supplemental measures of our performance and liquidity . we believe investors may also find these measures meaningful , given how our management makes use of them . the following is a discussion of our use of these measures . we use ebitda to measure and compare the performance of our operating segments . our operating segments ' financial performance includes all of the operating activities except debt and taxation which are managed at the corporate level for u.s. operating segments . we use ebitda to compare the performance of our divisions and to measure performance for determining consolidated-level compensation . in addition , we use ebitda to evaluate potential acquisitions and potential capital expenditures . ebitda and related ratios have limitations as analytical tools , and should not be considered in isolation , or as a substitute for analysis of our results as reported under gaap .
| mps engagements on construction job sites continued to operate , and many customers have required minimums that helped mitigate the drop in print volumes . we have experienced modest improvement in net sales sequentially after april 2020 when work-from-home orders started to lift in most states . revenues from mps services sales represented approximately 27 % and 32 % of total net sales for 2020 and 2019 , respectively . the number of mps locations have remained relatively flat year-over-year at approximately 10,750 as of december 31 , 2020. aim . year-over-year sales of aim services decreased by $ 1.8 million , or 12.7 % , in 2020 , compared to 2019. the decrease in aim was primarily driven by the lack of office activity resulting from the covid-19 pandemic , which caused a reduction in scanning opportunities . we continue to drive an expansion of our addressable market for aim services by targeting building 25 owners and facilities managers that require on-demand access to legacy documents to operate their assets efficiently . we believe over time , with the expansion of our addressable market and the desire of our customers to have digital access to documents wherever they work , that our aim services will grow in the future . equipment and supplies . equipment and supplies sales decreased by $ 17.2 million , or 43.5 % , in 2020 , compared to 2019 , primarily driven by the slowdown in china related to the covid-19 pandemic , which decreased sales from unis document solutions co. ltd ( `` uds '' ) , our chinese joint venture . equipment and supplies sales represented approximately 8 % of total net sales for 2020 and approximately 10 % for 2019. equipment and supplies sales derived from uds , were $ 7.7 million in 2020 , as compared to $ 19.6 million in 2019. traditionally , our customers in china have exhibited a preference for owning print and imaging related equipment opposed to using equipment through onsite services arrangements . we do not anticipate growth in equipment and supplies sales due to the softening of the chinese market as well
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further initiatives to increase our generation and sales of renewable energy , chemicals and other by-products will continue to be a key focus for us . such further initiatives may require additional capital spending . energy and chemicals are by-products of our pulp and lumber production and the volumes generated and sold are primarily related to the rate of production . prices for our energy and chemical sales are generally stable and unrelated to cyclical changes in pulp or lumber prices . in 2019 , energy and chemical revenues increased by approximately 16 % compared to 2018 when one turbine at our stendal mill was taken offline for scheduled maintenance . our production costs are influenced by the availability and cost of raw materials , energy and labor , and our plant efficiencies and productivity . our main raw material is fiber in the form of wood chips , pulp logs and sawlogs . wood chip , pulp log and sawlog costs are primarily affected by the supply of , and demand for , lumber and pulp , which are both highly cyclical . higher fiber costs could affect producer profit margins if they are unable to pass along price increases to pulp and lumber customers or purchasers of surplus energy . in 2019 , our per unit fiber costs decreased by approximately 16 % for our pulp segment and 26 % for our wood products segment primarily due to lower fiber costs for our german mills due to the availability of storm and beetle damaged wood . in 2019 , fiber costs for our canadian mills remained high due to strong demand in the celgar mill 's fiber procurement areas . production costs also depend on the total volume of production . high operating rates and production efficiencies permit us to lower our average per unit cost by spreading fixed costs over more units . higher operating rates also permit us to increase our generation and sales of surplus renewable energy and chemicals . our production levels are also dependent on , among other things , the number of days of maintenance downtime at our mills . the following table sets out the number of days and admts of annual maintenance downtime for our pulp segment for the periods indicated : year ended december 31 , 2019 2018 ( 1 ) days admts days admts ( in thousands , except number of days ) pulp segment 82 108.1 54 75.6 ( 1 ) excluding mpr , which was acquired on december 10 , 2018 . ( 55 ) in 20 20 , excluding the peace river mill , we currently have scheduled maintenance downtime for our pulp mills of 45 days , or approximately 56,3 00 admts . of such downtime , three days , or approximately 4,100 admts will be in the first quarter , an aggregate of 11 days , or approximately 13,4 00 admts , will be in the second quarter , an aggregate of 1 0 days , or approximately 13,700 admts , in the third quarter and an aggregate of 21 days , or 25,100 admts , in the fourth quarter . the peace river mill had previously scheduled downtime in 2019 to undertake the replacement of the lower furnace of the boiler at the peace river mill as a result of a boiler incident that occurred in 2017. such work has been rescheduled to 2020 primarily due to a delay in the delivery of parts . the work is planned to commence in august 2020 , take approximately 60 days , or approximately 82,000 admts , and insurance is expected to cover the estimated costs of about $ 43 million . upon completion , the mill will have a new state-of-the-art boiler . we also expect to receive business interruption insurance for the extra downtime for repairs resulting from the prior incident . such business interruption insurance proceeds will be recorded as a reduction to our cost and expenses . unexpected maintenance downtime can be particularly disruptive in our industry . selected 2019 highlights in 2019 , we : integrated the operations of mpr into our pulp segment ; and successfully refinanced our remaining 2022 senior notes with a portion of the proceeds from the issue of $ 200 million of additional 2025 senior notes . current market environment in 2019 , pulp demand remained steady but high producer inventory levels led to lower pulp sales realizations compared to 2018. in 2019 , our nbsk pulp sales realizations decreased by 19 % compared to 2018. as of december 31 , 2019 , nbsk list prices in europe , china and north america were approximately $ 820 , $ 580 and $ 1,115 per admt , respectively , and nbhk prices in china and north america were $ 475 and $ 890 per admt , respectively . going into 2020 , we currently expect pulp markets to improve over the year as a result of continued steady demand . however , the current ongoing coronavirus outbreak could create inland logistics restrictions or other disruptions that may , over time , begin to slow down paper manufacturing in china and put pressure on pulp pricing and demand . we are currently unable to determine the full impact at this time . we continue to closely monitor this developing situation . in 2019 , the lumber market was steady but prices declined as a result of the supply of lumber processed from beetle and storm damaged wood in europe and high producer inventories in the u.s. market . we currently expect modestly higher lumber prices going into 2020 primarily due to stronger demand in the u.s. in the near term . story_separator_special_tag ( 56 ) story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > ( 1 ) includes results of mpr from december 10 , 2018. pulp revenues in 2019 increased by approximately 15 % to $ 1,370.7 million from $ 1,190.6 million in 2018 due to the inclusion of mpr for a full year and higher sales volumes partially offset by lower sales realizations . ( 59 ) energy and chemical revenues in creased by approximately 1 1 % to $ 86.4 million in 201 9 from $ 77.6 million in 201 8 when one turbine at our stendal mill was taken offline for scheduled maintenance . nbsk pulp production increased by approximately 20 % to 1,736,372 admts in 2019 from 1,451,327 admts in 2018. in 2019 , we also produced 304,210 admts of nbhk pulp from 21,263 admts in 2018. in 2019 , we had annual scheduled maintenance downtime of 82 days ( approximately 108,100 admts ) , compared to 54 days ( approximately 75,600 admts ) in 2018. we estimate that such maintenance downtime in 2019 adversely impacted our operating income by approximately $ 95.4 million , comprised of approximately $ 72.6 million in direct out-of-pocket expenses and the balance in reduced production . many of our competitors that report their financial results using international financial reporting standards , referred to as “ ifrs ” , capitalize their direct costs of maintenance downtime . nbsk pulp sales volumes increased by approximately 25 % to 1,773,153 admts in 2019 compared to 1,417,961 admts in 2018 primarily due to the inclusion of mpr for a full year and steady demand from china and north america . in 2019 , we also sold 325,665 admts of nbhk pulp compared to 22,907 admts in 2018. in 2019 , list prices for nbsk pulp decreased from 2018 , largely as a result of high producer inventory levels . average list prices for nbsk pulp in europe were approximately $ 946 per admt in 2019 , compared to approximately $ 1,183 per admt in 2018. average list prices for nbsk pulp in china and north america were approximately $ 634 per admt and $ 1,239 per admt , respectively , in 2019 compared to approximately $ 878 per admt and $ 1,337 per admt , respectively , in 2018. average nbsk pulp sales realizations decreased by approximately 19 % to $ 663 per admt in 2019 from $ 821 per admt in 2018 due to lower list prices . in 2019 , nbhk pulp sales realizations decreased by approximately 20 % to $ 567 per admt in 2019 from $ 707 per admt in 2018. in 2019 , we recorded inventory impairment charges of $ 23.0 million as a result of the decline in pulp prices and increased fiber costs for our canadian mills . in 2019 , the net positive impact on operating income due to foreign exchange was $ 18.5 million primarily due to a stronger dollar on average compared to the euro which decreased the dollar cost of our euro denominated costs and expenses compared to 2018. costs and expenses in 2019 increased by approximately 37 % to $ 1,367.1 million from $ 995.2 million in 2018 primarily due to the inclusion of mpr for a full year , higher pulp sales volumes and higher maintenance costs partially offset by lower per unit fiber costs , the positive impact of a stronger dollar primarily on our euro denominated costs and expenses and the reversal of $ 20.9 million in accrued wastewater fees at our german pulp mills . in 2019 , depreciation and amortization increased to $ 117.1 million from $ 87.6 million in 2018 primarily due to the inclusion of mpr for a full year . on average , in 2019 , overall per unit fiber costs decreased by approximately 16 % from 2018 primarily as a result of lower per unit fiber costs for our german mills . in 2019 , the per unit fiber costs for our german mills declined due to the availability of storm and beetle damaged wood . for our canadian mills , per unit fiber costs remained high due to strong demand for fiber in celgar 's fiber procurement area . in 2020 , we currently expect stable per unit fiber costs due to the continued availability of beetle damaged wood in germany and continued strong demand for fiber in celgar 's fiber procurement area . transportation costs increased by approximately 80 % to $ 144.5 million in 2019 from $ 80.4 million in 2018 primarily as a result of the inclusion of mpr for a full year . in 2019 , pulp segment operating income decreased by approximately 67 % to $ 90.6 million from $ 274.4 million in 2018 primarily due to lower pulp sales realizations and higher maintenance costs partially offset by lower per unit fiber costs , the reversal of $ 20.9 million of accrued wastewater fees and the positive impact of a stronger dollar primarily on our euro denominated costs and expenses . ( 60 ) wood products segment – year ended december 31 , 201 9 compared to year ended december 31 , 201 8 selected financial information replace_table_token_23_th in 2019 , lumber revenues decreased by approximately 16 % to $ 142.2 million from $ 168.7 million , primarily due to lower sales realizations . in 2019 approximately 30 % of sales volumes were in the u.s. market and the majority of remaining sales were to europe . energy and wood residual revenues decreased by approximately 13 % to $ 17.7 million in 2019 from $ 20.4 million in 2018 primarily due to lower sales realizations . production increased by approximately 4 % to 414.7 mmfbm of lumber in 2019 from 398.7 mmfbm in 2018 primarily due to planned downtime in 2018 for capital projects .
| costs and expenses in 2019 increased by approximately 29 % to $ 1,540.4 million from $ 1,189.9 million in 2018 due to the inclusion of mpr costs for a full year , higher sales volumes and higher maintenance costs partially offset by lower per unit fiber costs , the positive impact of a stronger dollar primarily on our euro denominated costs and expenses and the reversal of $ 20.9 million in accrued wastewater fees at our german pulp mills . ( 58 ) in 201 9 , cost of sales depreciation and amortization increased to $ 125.8 million from $ 96.3 million in 201 8 primarily due to the inclusion of mpr for a full year . selling , general and administrative expenses increased to $ 74.2 million in 2019 from $ 61.5 million in 2018 primarily due to the inclusion of mpr for a full year . in 2019 , our operating income decreased by approximately 69 % to $ 84.0 million from $ 267.9 million in 2018 as lower sales realizations and higher maintenance costs were partially offset by lower per unit fiber costs , the positive impact of a stronger dollar primarily on our euro denominated costs and expenses and a $ 20.9 million reversal of accrued wastewater fees . in 2019 , we redeemed $ 100.0 million of 2022 senior notes at a cost , including premium , of $ 103.9 million and recorded a loss on such redemption of $ 4.8 million ( being $ 0.07 per share ) . in 2018 , we redeemed $ 300.0 million of 2022 senior notes at a cost , including premium , of $ 317.4 million and recorded a loss on such redemption of $ 21.5 million ( being $ 0.33 per share ) . interest expense in 2019 increased to $ 75.8 million from $ 51.5 million in 2018 primarily as a result of the issuance in december 2018 of $ 350.0 million of our 2025 senior notes to finance the acquisition of mpr . in 2018 , we incurred expenses of $ 7.0 million in connection with the legal cost award against us and $ 5.3 million in an acquisition commitment fee related to our acquisition of mpr . in 2019 , we had $ 6.1 million of other income primarily due to interest
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you can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters . rather , forward-looking statements relate to anticipated or expected events , activities , trends or results as of the date they are made . because forward-looking statements relate to matters that have not yet occurred , these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements . many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements . these factors include those set forth below as well as those contained in “ item 1a - risk factors ” of this annual report on form 10-k. we do not undertake any obligation to update forward-looking statements , except as required by applicable law . these forward-looking statements reflect our views only as of the date they are made with respect to future events and financial performance . overview we are primarily engaged in the development , manufacture and marketing of non-invasive , whole body periodic acceleration ( “ wbpa ” ) therapeutic platforms , which are motorized platforms that move a subject repetitively head to foot . our acceleration therapeutic platforms are the inventions of marvin a. sackner , m.d. , our founder , former ceo and a current director . over thirty peer reviewed scientific publications attest to the benefits of whole body periodic acceleration in animal and human research investigations . according to those studies , the application of this wbpa technology provides objective benefits in patients with angina pectoris and increases the blood supply to the heart muscle in both healthy individuals and patients with heart disease . these findings are not being claimed as an intended use of the device for marketing purposes , but demonstrate a potential mechanism for its benefits . the development and commercialization of the exer-rest has historically necessitated substantial expenditures and commitments of capital . although we have recently reduced these expenditures , we continue to anticipate expenses and associated losses to continue for the foreseeable future , as we expect to continue minimal sales efforts in the united states , canada , the uk , india , mexico , latin america , the middle east and the far east . we will be required to raise additional capital to fulfill our business plan , but no commitment to raise such additional capital exists or can be assured . if we are unsuccessful in our efforts to expand sales and or raise capital , we will not be able to continue operations . 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 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 . on an on-going basis , we evaluate our estimates , including those related to accounts receivable , inventory , property and equipment , intangible assets , contingencies and litigation . regarding inventories , the provision is an estimate based on multiple factors as further described in notes 2 and 3. the ultimate realization of the inventory amount may be materially different . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . a more detailed discussion on the application of these and other accounting policies can be found in note 2 in the notes to the consolidated financial statements set forth in item 8 of this annual report on form 10-k. while we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies , we can not guarantee that the results will always be accurate . since the determination of these estimates requires the exercise of judgment , actual results could differ from such estimates . 20 story_separator_special_tag times new roman , times , serif ; margin : 0 ; text-align : justify ; text-indent : 0.5in '' > net cash provided by financing activities increased to $ 300,000 for the year ended july 31 , 2018 as compared to $ 100,000 for the year ended july 31 , 2017. this $ 200,000 increase was principally due to a decrease in proceeds from promissory notes in 2018 ( see note 5 to the accompanying audited consolidated financial statements ) . at july 31 , 2018 , the company had available federal and state net operating loss carry forwards of approximately $ 16.4 million and foreign net operating loss carry forwards of approximately $ 0.1 million which expire in various years beginning in 2019. the net operating loss carry forwards may be subject to limitation due to change of ownership provisions under section 382 of the internal revenue code and similar state provisions . 2010 credit facility . on march 31 , 2010 , we entered into a new note and security agreement with frost gamma investments trust , a trust controlled by dr. phillip frost , which beneficially owns in excess of 10 % of our common stock , and hsu gamma investments , lp , an entity controlled by our chairman ( together , the “ lenders ” ) , pursuantto which the lenders have provided a revolving credit line ( the “ credit facility ” ) in the aggregate principal amount of up to $ 1.0 million , secured by all of our personal property . story_separator_special_tag we are permitted to borrow and reborrow from time to time under the credit facility until july 31 , 2013 and subsequently the date was extended to july 31 , 2020 ( the “ credit facility maturity date ” ) . the company received a waiver from the lenders relating to the covenant prohibiting aggregate borrowings in excess of $ 100,000. the interest rate payable on amounts outstanding under the credit facility is 11 % per annum , and increases to 16 % per annum after the credit facility maturity date or after an event of default . all amounts owing under the credit facility are required to be repaid by the credit facility maturity date , and amounts outstanding are prepayable at any time . as of july 31 , 2018 , we had drawn an aggregate of $ 1,000,000 under the credit facility and there is no available balance remaining . 2011 promissory notes . on september 12 , 2011 , we entered into two promissory notes in the principal amount of $ 50,000 each with frost gamma , a trust controlled by dr. phillip frost , which beneficially owns in excess of 10 % of the company 's common stock , and with an unrelated third party for a total of $ 100,000. the interest rate payable by the company on both the frost gamma note and the unrelated third party note is 11 % per annum , payable on the maturity date of september 12 , 2014 and subsequently the date was extended to july 31 , 2020 ( the “ promissory notes maturity date ” ) . we may prepay either or both notes in advance of the promissory notes maturity date without premium or penalty . 2012 promissory note . on may 30 , 2012 , we entered into a promissory note in the principal amount of $ 50,000 with hsu gamma , an entity controlled by our chairman of the board and interim chief executive officer , jane h. hsiao , ( the “ hsu gamma note ” ) . the interest rate payable by the company on the hsu gamma note is 11 % per annum , payable on the maturity date of september 12 , 2014 and subsequently the date was extended to july 31 , 2020. the hsu gamma note may be prepaid in advance of the promissory notes maturity date without premium or penalty . 2013 promissory note . on february 22 , 2013 , we entered into a promissory note in the amount of $ 50,000 with jane hsiao , our chairman of the board and interim chief executive officer ( the “ 2013 hsiao note ” ) . the interest rate payable by the company on the 2013 hsiao note is 11 % per annum , originally payable on the maturity date of september 12 , 2014 and subsequently the date was extended to july 31 , 2020. the 2013 hsiao note may be prepaid in advance of the promissory notes maturity date without premium or penalty . 22 2014 promissory note . on september 24 , 2014 , we entered into a promissory note ( the “ 2014 hsiao note ” ) in the principal amount of $ 50,000 with jane hsiao , our chairman of the board and interim chief executive officer . the interest rate payable by the company on the 2014 hsiao note is 11 % per annum , originally payable on the maturity date of july 31 , 2015 and subsequently the date was extended to july 31 , 2020. the 2014 hsiao note may be prepaid in advance of the promissory notes maturity date without penalty . 2015 promissory notes . on february 2 , 2015 , we entered into a promissory note ( the “ 2015 hsiao note ” ) in the principal amount of $ 50,000 with jane hsiao , our chairman of the board and interim chief executive officer . the interest rate payable by the company on the 2015 hsiao note is 11 % per annum , originally payable on the maturity date of july 31 , 2015 and subsequently the date was extended to july 31 , 2020. the 2015 hsiao note may be prepaid in advance of the promissory notes maturity date without penalty . on april 16 , 2015 , we entered into a promissory note ( “ april 2015 frost note ” ) in the amount of $ 100,000 with frost gamma , a trust controlled by dr. phillip frost , which beneficially owns in excess of 10 % of the company 's common stock . the interest rate payable by the company on the april 2015 frost note is 11 % per annum , originally payable on the maturity date of july 31 , 2015 and subsequently the date was extended to july 31 , 2020. the april 2015 frost note may be prepaid in advance of the promissory notes maturity date without premium or penalty . on august 12 , 2015 , we entered into a promissory note in the principal amount of $ 25,000 with frost gamma ( the “ august 2015 frost note ” ) , a trust controlled by dr. phillip frost , which beneficially owns in excess of 10 % of the company 's common stock . the interest rate payable by the company on the august 2015 frost note is 11 % per annum , originally payable on the maturity date of july 31 , 2017 and subsequently the date was extended to july 31 , 2020. the august 2015 frost note may be prepaid in advance of the promissory notes maturity date without premium or penalty .
| total operating costs and expenses was $ 225,000 for the year ended july 31 , 2018 , as compared to $ 301,000 for the year ended july 31 , 2017. this $ 76,000 decrease is primarily attributable to the inventory impairment adjustments noted above . interest expense . interest expense was $ 220,000 for the year ended july 31 , 2018 , as compared to $ 193,000 for the year ended july 31 , 2017. this $ 27,000 increase was primarily attributable to the increase in net interest expense resulting from the additional promissory notes entered into during the year ended july 31 , 2018 as described in note 5. liquidity and capital resources our operations have been primarily financed through private sales of our equity securities and advances under credit facilities available to us . we currently do not have any additional borrowing capacity under our $ 1.0 million revolving credit facility , described below . in september 2011 , we issued two promissory notes in the aggregate principal amount of $ 100,000 , in may 2012 we issued an additional promissory note in the principal amount of $ 50,000 , in february 2013 we issued an additional promissory note in the principal amount of $ 50,000 , in september 2014 we issued an additional promissory note in the principal amount of $ 50,000 , in february 2015 we issued an additional promissory note in the principal amount of $ 50,000 , in april 2015 we issued an additional promissory note in the principal amount of $ 100,000 , in august 2015 we issued an additional promissory note in the principal amount of $ 25,000 , in october 2015 we issued two promissory notes in the aggregate principal amount of $ 100,000 , in june 2016 we issued two promissory notes in the aggregate principal amount of $ 200,000 , in april 2017 we issued two promissory notes in the aggregate principal amount of $ 100,000 , in september 2017 we issued two promissory notes in the aggregate principal amount of $ 100,000 and most recently in february 2018 we issued two promissory notes in the aggregate principal amount of $
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north america , asia pacific and europe , middle east and africa contributed to an overall growth of 4.2 % with notable increases in supplies and printer sales . the growth in supplies , which includes labels and wristbands , is the result of the laserband acquisition in july of 2012 plus organic growth in supplies . sales to customers by geographic region were as follows ( in thousands , except percentages ) : replace_table_token_18_th gross profit gross profit increased 2.4 % due to higher volumes partially offset by unfavorable movements in product mix . movements in foreign currency , net of hedges , decreased gross profit by $ 1,014,000. operating expenses operating expenses are summarized below ( in thousands , except percentages ) : replace_table_token_19_th operating expenses for 2013 increased 4.9 % . the increase is due to increased expenses across all functional areas offset by the absence of a goodwill impairment charge which represents 2.8 % of 2012 operating expenses . the acquisition of both laserband and stepone contributed to the increase in zebra 's operating expenses . several categories accounted for these increases , including compensation costs , outside professional services , depreciation and information systems expenses . acquisition costs are related to investigated and completed acquisitions during the period . amortization of intangible assets increased from additions of current technology , patent and patent rights and customer relationships during the year , including the acquisition of laserband in july 2012. exit and restructuring costs in 2012 and 2013 primarily relate to the restructuring of the location solutions business management structure . 25 exit and restructuring costs during the third quarter of 2012 , revenue from location solutions fell below plan from slower than anticipated growth in the automotive and process manufacturing industries and weakness in the government sector . as a result , we initiated the locations solutions 2012 restructuring plan . in the second quarter of 2013 , management determined that additional restructuring actions would be required to meet our financial goals for the location solutions business . we anticipate that the results of our restructuring actions will reduce costs of the location solutions business by $ 4,000,000 per year . these savings should be fully realized by the first quarter 2014. the savings from the location solutions restructuring plan will primarily benefit cost of goods sold , engineering and selling and marketing expenses . during 2007 , zebra began a plan to outsource printer manufacturing to a third-party contract manufacturer . the transition to the third-party manufacturer was completed during 2010. during the fourth quarter of 2012 , we determined that further supply chain cost reductions were possible by moving certain supply chain support operations closer to our contract printer manufacturer 's facility , which is located in china . we anticipate these actions will generate $ 2,600,000 in annual savings to our cost of goods sold . these actions were completed by the end of 2013. operating income the operating income decrease for 2013 was the result of operating expense increases as noted above and partially offset by higher gross profit . other income ( expense ) zebra 's non-operating income and expense items are summarized in the following table ( in thousands ) : replace_table_token_20_th the increase in other income is the result of a net $ 1,557,000 favorable litigation settlement associated with an investment loss that was recorded in prior years . year ended rate of return analysis : december 31 , 2013 december 31 , 2012 average cash and marketable securities balances $ 404,935 $ 360,385 annualized rate of return 0.6 % 0.7 % investment income decreased due to a lower yield on invested financial assets compared with 2012 , even though cash and investment balances were higher in 2013 versus 2012. income taxes the effective income tax rate for 2013 was 18.1 % compared with an income tax rate of 25.8 % . the 2012 rate reflects a discrete item for nondeductible asset impairment charge , increasing the tax rate by 1.9 % for the full year . further , in 2012 , in order to streamline the management , financing and capital structure of its foreign affiliates , zebra established a foreign holding company and restructured the ownership structure of its foreign affiliates . this new holding company structure allows zebra to consolidate the ownership of its significant foreign affiliates under a single holding company . in addition , the structure introduced leverage which gives zebra the ability to facilitate cash pooling and improve the capital structure of its non-us operations . the new capital structure and global financing favorably impacts the zebra 's effective tax rate and facilitates the tax efficient movement of zebra 's foreign cash to finance the ongoing operating and investment needs of the foreign subsidiaries . the restructuring was completed in the second quarter of 2012 and was in place for the full year in 2013. in addition , the us r & d credit reinstatement for the 2012 income tax year resulted in a tax benefit of $ 900,000. finally , zebra recorded a favorable provision to return adjustment resulting in a reduction to the effective tax rate of 1.1 % following the filing of zebra 's 2012 income tax returns . 26 comparison of years ended december 31 , 2012 and 2011 story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px ; text-indent:4 % '' > maintenance and support agreements we enter into post-contract maintenance and support agreements . revenues are recognized ratably over the service period and the cost of providing these services is expensed as incurred . shipping and handling we charge our customers for shipping and handling services based upon our internal price list for these items . the amounts billed to customers are recorded as revenue when the product ships . any costs incurred related to these services are included in cost of sales . zebra enters into sales transactions that include more than one product type . story_separator_special_tag this bundle of products might include printers , current or future supplies , and services . when this type of transaction occurs , we allocate the purchase price to each product type based on the fair value of the individual products determined by vendor specific objective evidence . the revenue for each individual product is then recognized when the recognition criteria for that product is fully met . investments and marketable securities the composition of investments and marketable securities at december 31 , 2013 , was as follows : replace_table_token_27_th ( 1 ) includes investments in notes issued by the federal home loan mortgage corporation , the federal national mortgage association and the federal home loan bank . 30 trading securities are bought and held principally for the purpose of selling them in the near term . held-to-maturity securities are those debt securities that zebra has the ability and intent to hold until maturity . securities not included in trading or held-to-maturity are classified as available-for-sale . trading and available-for-sale securities are recorded at fair value . held-to-maturity securities are recorded at amortized cost , adjusted for the amortization or accretion of discounts or premiums . unrealized holding gains and losses on trading securities are included in earnings . unrealized holding gains and losses , net of the related tax effect , on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders ' equity until realized . zebra 's investments in marketable debt securities are classified as available-for-sale except for securities held in zebra 's deferred compensation plan which are considered to be trading securities . investments in marketable debt securities are classified based on intent and ability to sell investment securities . zebra 's available-for-sale securities are used to fund future acquisitions and other operating needs and therefore can be sold prior to maturity . investments in marketable debt securities for which zebra intends to sell within the next year are classified as current and those that we intend to hold in excess of one-year are classified as non-current . 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 , adjustments to credit limits based upon payment history and the customer 's current credit worthiness , active collection efforts by regional credit functions , reporting directly to the corporate financial officers , and limited credit insurance on the majority of our international revenues . we reserve for estimated credit losses based upon historical experience and specific customer collection issues . over the last three years , accounts receivable reserves varied from 0.3 % to 0.9 % of total accounts receivable . accounts receivable reserves as of december 31 , 2013 , were $ 453,000 , or 0.3 % of the balance due . we believe this reserve level is appropriate considering the quality of the portfolio as of december 31 , 2013. while credit losses have historically been within expectations and the provisions established , we can not guarantee that our credit loss experience will continue to be consistent with historical experience . inventories we value our inventories at the lower of the actual cost to purchase or manufacture using the first-in , first-out ( fifo ) method , or the current estimated market value . we review inventory quantities on hand and record a provision for excess and obsolete inventory based on forecasts of product demand and production requirements for the subsequent twelve months . over the last three years , our inventory reserves have ranged from 8.8 % to 11.9 % of gross inventory . as of december 31 , 2013 , inventory reserves were $ 12,561,000 , or 9.4 % of gross inventory . we believe this reserve level is appropriate considering the quantities and quality of the inventories as of december 31 , 2013. valuation of goodwill we test the impairment of goodwill each year as of the end of may or whenever events or changes in circumstances indicate that the carrying value may not be recoverable . we completed our annual qualitative assessment , in accordance with asu 2011-08 goodwill and other ( topic 350 ) , during june 2013 and determined that our goodwill was not impaired as of the end of may 2013. goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . examples of such events or circumstances include : significant adverse change in legal factors or in the business climate , adverse action or assessment by a regulator , unanticipated competition , loss of key personnel , more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of , 31 testing for recoverability of a significant asset group within a reporting unit , allocation of a portion of goodwill to a business to be disposed of . in accordance with asu 2011-08 , zebra 's qualitative analysis determined that it is not more likely than not that the fair value of our goodwill is less than the carrying amount and therefore , performing the two-step impairment test was not necessary . if zebra concluded otherwise , we would perform the first step of the two-step impairment test by calculating the fair value and comparing the fair value to the carrying amount . if the carrying amount exceeded the fair value , we would perform the second step of goodwill impairment test to determine the amount of impairment loss . the second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit 's goodwill with the carrying value of that goodwill .
| operating expenses operating expenses are summarized below ( in thousands , except percentages ) : replace_table_token_25_th operating expenses for 2012 increased 7.4 % . this is primarily due to greater selling and marketing and general and administrative expenses . the asset impairment charge accounted for 40.4 % of the total increase in 2012. several other categories accounted for these increases , including compensation costs , outside professional services , rent , depreciation and information systems expenses . acquisition costs are related to investigated and completed acquisitions during the period . amortization of intangible assets increased due to additions of current technology , patent and patent rights and customer relationships during the year as a result of the acquisition of laserband . exit and restructuring costs in 2012 relate to the restructuring of the location solutions business management structure while costs in 2011 relate to the relocation and consolidation of administrative , accounting and distribution functions of our location solutions operations to illinois . the asset impairment charge in 2012 relates to the goodwill associated with zebra 's smaller reporting unit . 28 operating income the operating income decrease for 2012 was the result of operating expense increases as noted above and partially offset by higher gross profit . other income ( expense ) zebra 's non-operating income and expense items are summarized in the following table ( in thousands ) : replace_table_token_26_th other expense decreased in 2012 as a result of decreases in foreign exchange losses . year ended rate of return analysis : december 31 , 2012 december 31 , 2011 average cash and marketable securities balances $ 360,385 $ 292,646 annualized rate of return 0.7 % 0.7 % investment income increased overall from higher cash and investment balances in 2012 versus 2011. income taxes the effective income tax rate for 2012 was 25.8 % compared with an income tax rate of 27.5 % for 2011. during 2012 , zebra established a foreign holding company structure that is designed to accomplish various international business objectives .
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additional ariel4 study results are expected to be submitted for presentation at a medical congress meeting in 2021. ariel4 is a phase 3 multicenter , randomized study of rubraca versus chemotherapy , which enrolled relapsed ovarian cancer patients with brca mutations ( inclusive of germline and or somatic ) who had received two or more prior lines of chemotherapy . completion of ariel4 is a post-marketing commitment in the u.s. and europe . beyond our labeled indications , we have a clinical development program underway to further evaluate rubraca in a variety of solid tumor types , either as monotherapy or in combination with other agents , including several studies as part of our ongoing clinical collaboration with bristol myers squibb to evaluate its immunotherapy opdivo ( nivolumab ) in combination with rubraca . we anticipate initial data of rubraca monotherapy versus placebo from our athena study in the second half of 2021 , with the results of rubraca versus opdivo in all study populations a year or more later . however , the timing of the athena data readouts is dependent on the timing of data maturity driven by pfs events . we initiated the phase 2 lodestar study in december 2019 to evaluate rubraca as monotherapy treatment in patients with recurrent solid tumors associated with a deleterious mutation in homologous recombination repair genes . based on our interactions with the fda , we believe that this study may be registration-enabling for a targeted gene- and tumor-agnostic label , if data from the trial support the potential for an accelerated approval . assuming enrollment in this 71 study continues as planned , and subject to the data , we may potentially file an snda with the fda for this indication in the second half of 2021 or the first half of 2022 . pursuant to our license and collaboration agreement with 3bp , entered into in september 2019 , we have initiated development of a peptide-targeted radionuclide therapy ( “ ptrt ” ) and imaging agent targeting fibroblast-activating protein ( “ fap ” ) . we have completed sufficient preclinical work to support an ind for the lead candidate under our license and collaboration agreement , designated internally as fap-2286 . accordingly , we submitted two inds for fap-2286 for use as imaging and treatment agents in december 2020 to support an initial phase 1 study to determine the dose and tolerability of fap-2286 as a therapeutic agent with expansion cohorts planned in multiple tumor types as part of a global development program . the inds are expected to become effective following receipt and submission , and acceptance by the fda , of satisfactory chemistry , manufacturing and controls ( “ cmc ” ) data for the imaging agent from clinical sites . the fap-targeting imaging agent will be utilized to identify tumors that contain fap for treatment in the phase 1 lumiere clinical study , which we anticipate initiating in the first half of 2021 . in addition to our planned studies , the university of california san francisco is sponsoring a separate , investigator-initiated , imaging-only study with gallium-68 labeled fap-2286 ( nct04621435 ) to evaluate fap expression in multiple tumor types ; their study is currently recruiting . we hold u.s. and global rights to fap-2286 , excluding europe ( defined to include russia , turkey and israel ) , where 3bp retains rights . we are also collaborating with 3bp on a discovery program directed to up to three additional , undisclosed targets for targeted radionuclide therapy , to which we would obtain global rights for any resulting product candidates . lucitanib , our second product candidate currently in clinical development , is an investigational , oral , potent angiogenesis inhibitor which inhibits vascular endothelial growth factor receptors 1 through 3 ( “ vegfr1-3 ” ) , platelet-derived growth factor receptors alpha and beta ( “ pdgfr α/β ” ) and fibroblast growth factor receptors 1 through 3 ( “ fgfr1-3 ” ) . lucitanib inhibits the same three pathways as lenvima® ( lenvatinib ) , which has received an fda approval for use in endometrial cancer in combination with keytruda® ( pembrolizumab ) , a pd-1 inhibitor . this , together with preclinical data for lucitanib in combination with a pd-1 inhibitor that demonstrated enhanced anti-tumor activity compared to that of single agents , represent a scientific rationale for development of lucitanib in combination with a pd-1 inhibitor , and in february 2019 , lucitanib was added to our clinical collaboration with bristol myers squibb . the clovis-sponsored lio-1 study of lucitanib in combination with nivolumab in advanced solid tumors and gynecologic cancers is currently enrolling patients in the phase 2 part of the study . we expect to present interim data from this study at medical meetings in 2021 , which are expected to include interim results from the ovarian and endometrial cancer expansion cohorts . we hold the global ( excluding china ) development and commercialization rights for lucitanib . we commenced operations in april 2009. to date , we have devoted substantially all of our resources to identifying and in-licensing product candidates , performing development activities with respect to those product candidates and the general and administrative support of these operations . for the year ended december 31 , 2020 , we generated $ 164.5 million product revenue related to sales of rubraca . we have principally funded our operations using the net proceeds from public offerings of our common stock , convertible senior notes offerings and our financing agreement related to our athena trial . we have never been profitable and , as of december 31 , 2020 , we had an accumulated deficit of $ 2,612.7 million . we incurred net losses of $ 369.2 million , $ 400.4 million and $ 368.0 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively , and had cash and cash equivalents totaling $ 240.2 million at december 31 , 2020 . story_separator_special_tag we expect to incur significant losses for the foreseeable future , as we incur costs related to commercial activities associated with rubraca . based on current estimates , we believe that our cash , cash equivalents and liquidity available under our financing agreement related to our athena trial will allow us to fund our operating plan through at least the next 12 months . until we can generate a sufficient amount of revenue from rubraca , we expect to finance our operations in part through additional public or private equity or debt offerings and may seek additional capital through arrangements with strategic partners or from other sources . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenues to achieve profitability , and we may never do so . 72 product license agreements for a discussion of our product license agreements , see note 14 , license agreements , in the notes to consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k. financial operations overview revenue during 2020 , we recorded $ 164.5 million in revenue related to sales of rubraca . for further discussion of our revenue recognition policy , see “ critical accounting policies and significant judgments and estimates ” below . our ability to generate revenue and become profitable depends upon our ability to successfully commercialize products . any inability on our part to successfully commercialize rubraca in the united states , europe and any foreign territories where it may be approved , or any significant delay in such approvals , could have a material adverse impact on our ability to execute upon our business strategy and , ultimately , to generate sufficient revenues from rubraca to reach or maintain profitability or sustain our anticipated levels of operations . we supply commercially labeled rubraca free of charge to eligible patients who qualify due to financial need through our patient assistance program and the majority of these patients are on medicare . this product is distributed through a separate vendor who administers the program on our behalf . it is not distributed through our specialty distributor and specialty pharmacy network . this product is neither included in the transaction price nor the variable considerations to arrive at product revenue . manufacturing costs associated with this free product is included in selling , general and administrative expenses . for the year ended december 31 , 2020 and 2019 , the supply of this free drug was approximately 17 % and 20 % , respectively , of the overall commercial supply or the equivalent of $ 30.4 million and $ 34.8 million , respectively , in commercial value . our ability to generate product revenue for the year ended december 31 , 2020 was negatively affected by the covid-19 pandemic due to fewer diagnoses and fewer patients going to in-person office visits as oncology practices and patients continue to adapt to the impact of the virus . as a result of the covid-19 pandemic , our u.s. and european sales forces have had physical access to hospitals , clinics , doctors and pharmacies curtailed and or have been limited . our european launches in italy , spain and france occurred in an environment in which our field-based personnel in those countries have not been allowed to visit hospitals since late february 2020. similarly , we launched rubraca for prostate cancer in the u.s beginning in may 2020 , but our physical access to hospital , clinics , doctors and pharmacies has been limited . 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 consolidated statements of operations and comprehensive loss 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 ; ● the cost of acquiring , developing and manufacturing clinical trial materials ; ● costs associated with non-clinical activities and regulatory operations ; ● market research and disease education ; 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 and manufacturing of clinical supply , 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 . our research and development expenses decreased for 2020 compared to 2019. we expect research and development costs to be lower in the full year 2021 compared to 2020 . 73 we did not see material disruption to our clinical trials as a result of the covid-19 pandemic for the year ended december 31 , 2020 as we completed target enrollment of athena , our largest clinical trial , during the second quarter . however , we may see disruption during 2021. for example , new patient recruitment in certain clinical studies may be affected and the conduct of clinical trials may vary by geography as some regions are more adversely affected . additionally , we may slow or delay enrollment in certain trials to manage expenses .
| cost of sales - product . product cost of sales for the year ended december 31 , 2020 increased primarily due to the increase in product revenue . product cost of sales primarily relate to manufacturing , freight and royalties costs associated with rubraca sales in the period . u.s. product cost of sales for the year ended december 31 , 2020 increased $ 1.3 million compared to the same period in the prior year due to the increase in product revenue . ex-u.s. product cost of sales for the year ended december 31 , 2020 increased $ 4.9 million compared to the same period in the prior year due to the increase in product revenue . cost of sales – intangible asset amortization . for the year ended december 31 , 2020 and 2019 , we recognized cost of sales of $ 5.2 million and $ 4.8 million , respectively , associated with the amortization of capitalized milestone payments related to the approvals of rubraca by the fda and the european commission . research and development expenses . except for activities related to medical research and disease education , research and development expenses are attributable to our u.s. segment . research and development expenses decreased during the year ended december 31 , 2020 compared to the same period in the prior year primarily due to lower research and development costs for rubraca . the decrease related to our triton studies for prostate cancer , our ariel studies for ovarian cancer , discontinuation of our atlas study , diagnostic development costs and personnel costs . these decreases were partially offset by increased costs related to our athena combination study with bristol myers squibb 's immunotherapy opdivo for ovarian cancer . the athena study was initiated in the second quarter of 2018 and we completed target enrollment during the second quarter of 2020. in addition , research and development costs related to fap and lucitanib have
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2010-29 , disclosure of supplementary pro forma information for business combinations , which requires a public entity presenting comparative financial statements to disclose revenue and earnings of the combined entity as though the business combination occurring during the current year had occurred as of the beginning of the comparable prior annual reporting period . additionally , the standard expands the supplemental pro forma disclosures to include a description of the nature and amount of material , nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings . the standard is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after december 15 , 2010. the company does not expect the adoption of this standard to impact the consolidated financial statements except for the requirement of additional pro forma disclosures . in may 2011 , the fasb issued asu no . 2011-04 , amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss , which requires the categorization by level for items that are only required to be disclosed at fair value and information about transfers between level 1 and level 2. in addition , the asu provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements . the asu requires additional disclosure for level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs . the guidance is effective for fiscal years beginning after december 15 , 2011. the company does not expect the adoption of this standard to impact the consolidated financial statements . 15 in june 2011 , the fasb issued asu no . 2011-05 , presentation of comprehensive income , which amends asc 220 , comprehensive income , by requiring all nonowner changes in shareholders ' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements . the guidance is effective retrospectively for fiscal years and interim periods within those years beginning after december 15 , 2011. the company is currently evaluating the impact of the adoption of the guidance on its consolidated financial statements . in september 2011 , the fasb issued asu no . 2011-08 , intangibles goodwill and other . asu no . 2011-08 allows entities to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test . if an entity believes , as a result of its qualitative assessment , that it is more likely than not that the fair value of a reporting period is less than its carrying amount , the quantitative two-step goodwill impairment test is required . an entity has the unconditional option to bypass the qualitative assessment and proceed directly to performing the first step of the goodwill impairment test . the guidance is effective for annual and interim impairment tests for fiscal years beginning after december 15 , 2011. the company does not expect the adoption of this standard to impact the consolidated financial statements . 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 : inventories inventories are stated at the lower of cost or market . cost is determined by the last-in , first-out ( lifo ) method for the company 's lindsay , nebraska inventory and two warehouses in idaho and texas . cost is determined by the first-in , first-out ( fifo ) method for inventory at the company 's omaha , nebraska warehouse , and at operating locations in california , wisconsin , china and australia . cost is determined by the weighted average cost method for inventory at the company 's other operating locations in washington state , france , brazil , italy and south africa . 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 . valuation of goodwill , identifiable intangible assets and other long-lived assets assessment of the potential impairment of goodwill , intangible assets and other long-lived 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 the 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 . story_separator_special_tag 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 . the company performs the impairment analysis at the reporting unit level using a two-step impairment test . fair value is typically estimated using a discounted cash flow analysis , which requires the company to estimate the future cash flows anticipated to be generated by the particular assets being tested for impairment as well as to select a discount rate to measure the present value of the anticipated cash flows . when determining future cash flow estimates , the company considers historical results adjusted to reflect current and anticipated operating conditions . estimating future cash flows requires significant judgment and assumptions by management in such areas as future economic conditions , industry-specific conditions , product pricing , and necessary capital expenditures . to the extent that the reporting unit is unable to achieve these assumptions , impairment losses may emerge . the company updated its impairment evaluation of goodwill and intangible assets with indefinite useful lives at august 31 , 2011 . 16 while the fair value of most of the company 's reporting units exceeded the respective carrying values by a substantial margin , one international reporting unit , which has goodwill of $ 6.1 million , had an estimated fair value less than 10 % in excess of carrying value . accordingly , no impairment losses were indicated as a result of the annual impairment testing for fiscal years 2011 , 2010 , and 2009. if assumptions on discount rates and future cash flows change as a result of events or circumstances , and the company believes that the long-term profitability may have declined in value , then the company may record impairment charges , resulting in lower profits . sales and profitability of each of the company 's reporting units may fluctuate from year to year and within a year . in the evaluation of the fair value of reporting units , the company looks at the long-term prospects for the reporting unit and recognizes that current performance may not be the best indicator of future prospects or value , which requires management judgment . indefinite life intangible assets primarily consist of tradenames/trademarks . the fair value of these assets are determined using a relief from royalty analysis that determines the fair value of each trademark through use of a discounted cash flow model that incorporates an estimated royalty rate the company would be able to charge a third party for the use of the particular trademark . when determining the future cash flow estimates , the company must estimate future net sales and a fair market royalty rate for each applicable tradename at an appropriate discount rate to measure the present value of the anticipated cash flows . estimating future net sales requires significant judgment by management in such areas as future economic conditions , industry-specific conditions , product pricing , and consumer trends . revenue recognition 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 seller 's 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 irrigation products to its u.s. independent dealers , international locations , and sales by its international locations are recognized based on the delivery terms in the sales contract . if an arrangement involves multiple deliverables , the delivered items are considered separate units of accounting if the items have value on a stand-alone basis and there is objective and reliable evidence of their fair values . revenues from the arrangement are allocated to the separate units of accounting based on their objectively determined fair value . revenues for retail sales of irrigation products are recognized when the product or service is delivered to the end-user customers . a small portion of the company 's revenues relate to subscription revenue of wireless management services and are recognized on a straight-line basis over the contract term . revenues from the sale of infrastructure products are usually recognized when the product is delivered to the customer ; however , they are dependent on the specific delivery terms in the sales contract . the company leases certain infrastructure property held for lease to customers such as moveable concrete barriers and qmb ® systems . revenues for the lease of infrastructure property held for lease are recognized on a straight-line basis over the lease term . if an infrastructure project is completed ahead of schedule and prior to the lease term end date , the company accelerates the lease term and the timing of recognized revenue once the company is no longer required to perform under the lease contract . 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 .
| long-term market drivers of improving diets in a growing world-wide population combined with the water use efficiencies available from mechanized irrigation systems continue to be positive drivers for global irrigation equipment demand . infrastructure products segment revenues of $ 109.0 million increased by $ 9.2 million or 9 % compared to the prior fiscal year . the increase in infrastructure revenues was driven primarily by higher qmb ® system revenue and from railroad signals and structures , commercial tubing and contract manufacturing businesses . gross margin gross profit was $ 129.8 million for fiscal 2011 , an increase of $ 30.9 million compared to fiscal 2010. gross margin was 27.1 % for fiscal 2011 compared to 27.6 % for the prior fiscal year . gross margins were lower primarily due to regional sales mix , product mix , and factory inefficiencies during the implementation of a new enterprise resource planning system in the nebraska-based operations . operating expenses the company 's operating expenses of $ 73.2 million for fiscal 2011 increased $ 12.1 million compared to fiscal 2010 operating expenses of $ 61.1 million . the increase in operating expenses for fiscal 2011 was primarily attributable to investments in sales and marketing , higher research and development expenses , higher incentive compensation , and inclusion of operating expenses from acquisitions completed in fiscal 2010. operating expenses were 15.3 % of sales for fiscal 2011 compared to 17.0 % of sales for fiscal 2010. income taxes income tax expense of $ 19.7 million for fiscal 2011 increased $ 7.8 million compared to fiscal 2010 income tax expense of $ 11.9 million . the increase in income tax expense was primarily due to increases in pretax income . the effective income tax rate increased to 34.9 % in fiscal 2011 compared to 32.4 % in fiscal 2010. the increase in the effective income tax rate is primarily due to a reduction in state income tax credits of $ 1.4 million compared to fiscal 2010. net earnings net earnings for fiscal 2011 were $ 36.8 million or $ 2.90 per diluted
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if actual collection experience changes , revisions to the allowance may be required . we have a limited number of customers with individually large amounts due at any given balance sheet date . any unanticipated change in the creditworthiness of any of these customers could have a material effect on our results of operations in the period in which such changes or events occur . after all reasonable attempts to collect an account receivable have failed , the amount of the receivable is written off against the allowance . based on the information available , we believe that our allowance for doubtful accounts as of december 31 , 2012 was adequate . however , actual write-offs might exceed the recorded allowance . 10 inventories inventories are valued at the lower of cost or market . cost is determined by the first-in , first-out method or the weighted average method . inventory , which includes materials , labor , and manufacturing overhead costs , is recorded net of an allowance for obsolete or unmarketable inventory . such allowance is based upon both historical experience and management 's understanding of market conditions and forecasts of future product demand . in addition , all items in inventory in excess of one year 's usage are considered for inclusion in the calculation of inventory obsolescence . if the actual amount of obsolete or unmarketable inventory significantly exceeds the estimated allowance , our cost of sales , gross profit and net earnings would be significantly affected . goodwill and other intangible assets in accordance with authoritative guidance issued by the financial accounting standards board ( “ fasb ” ) we test goodwill for impairment on an annual basis in the fourth quarter or more frequently if we believe indicators of impairment might exist . the evaluation of goodwill and other intangible assets requires that management prepare estimates of future operating results for each of our operating units . these estimates are made with respect to future business conditions and estimated expected future cash flows to determine estimated fair value . however , if , in the future , key drivers in our assumptions or estimates such as ( i ) a material decline in general economic conditions ; ( ii ) competitive pressures on our revenue or our ability to maintain margins ; ( iii ) pricing from our vendors which can not be passed through to our customers ; and ( iv ) breakdowns in supply chain or other factors beyond our control occur , an impairment charge against our intangible assets may be required . income taxes we account for income taxes using the asset and liability approach . this approach requires the recognition of current tax assets or liabilities for the amounts refundable or payable on tax returns for the current year , as well as the recognition of deferred tax assets or liabilities for the expected future tax consequences of temporary differences that can arise between ( a ) the amount of taxable income and pretax financial income for a year , such as from net operating loss carryforwards and other tax credits , and ( b ) the tax bases of assets or liabilities and their reported amounts in the consolidated financial statements . deferred tax assets and liabilities are measured using enacted tax rates . the impact on deferred tax assets and liabilities of changes in tax rates and laws , if any , is reflected in the consolidated financial statements in the period enacted . further , we evaluate the likelihood of realizing benefit from our deferred tax assets by estimating future sources of taxable income and the impact of tax planning strategies . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion , or all , of the deferred tax assets will not be realized . we file a consolidated federal tax return . p & f and certain of its subsidiaries file combined tax returns in new york and texas . all subsidiaries file other state and local tax returns on a stand-alone basis . when tax returns are filed , it is highly certain that some positions taken would be sustained upon examination by the taxing authorities , while other positions are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained . the benefit of a tax position is recognized in the financial statements in the period during which , based on all available evidence , management believes it is more likely than not that the position will be sustained upon examination , including the resolution of appeals or litigation processes , if any . tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination . interest and penalties associated with unrecognized tax benefits are classified as income taxes in the consolidated statement of income . consolidation of variable interest entities on january 1 , 2010 , we adopted an accounting standard , which replaced the quantitative-based risks and rewards calculation for determining which enterprise , if any , has a controlling financial interest in a variable interest entity . story_separator_special_tag the new approach focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impacts the variable interest entity 's economic performance and ( 1 ) the obligation to absorb losses of the variable interest entity or ( 2 ) the right to receive benefits from the variable interest entity . as a result of adopting this new accounting standard , we determined that , as the result of the facts and circumstances relating to wmc , including the foreclosure , and subsequent disposal and sale of all of its tangible and intangible assets by pnc , we were no longer the primary beneficiary of wmc and we no longer had a controlling financial interest in wmc . as such , we deconsolidate wmc 's financial position and results of operations . 11 story_separator_special_tag management 's decision to assign additional labor and overhead to the manufacturing for , and servicing of , its major customer . hardware an analysis of nationwide 's revenue for the three and twelve-month periods ended december 31 , 2012 and 2011 is as follows : replace_table_token_9_th replace_table_token_10_th fence and gate hardware continues to be the strength behind nationwide 's revenue growth , with fourth quarter of 2012 exceeding the same period in 2011 by 52.0 % . this improvement is due primarily to the expanded customer base and new product releases . the increase in patio revenue is due primarily to increased activity in the sale of foreclosed houses occurring in florida . when comparing the fourth quarter of 2012 to the same period in 2011 , revenue increased at its oem product line primarily due to of certain orders being delayed by its customers from the fourth quarter 2011 to the first quarter of 2012. during the fourth quarter of 2012 , kitchen and bath encountered a softening of the market . when comparing the full-year 2012 to 2011 nationwide was able to increase revenue throughout its suite of product lines . however , nearly 87 % of nationwide 's revenue growth was generated from its fence and gate hardware product line , which was due primarily to the introduction of new products , as well as to expanded marketing efforts and increased customer base . nationwide 's kitchen and bath product line revenue improved slightly . despite significant pricing pressure along with a dwindling market and other factors , oem product line revenue for the full year 2012 recorded a minimal increase . as a result , it is likely we will continue to place less emphasis on this product line . patio revenue during the full-year 2012 increased when compared to the same period in 2011 , due primarily to an increase in the sale of foreclosed housing , which tend to require repair/ replacement of patio enclosures . as fence and gate hardware continue to be the primary contributor to nationwide 's revenue growth , we intend to continue our current strategy , which is to develop new , innovative fence and gate hardware products and accessories , as well as to continue to expand our national market campaign . 14 gross margin consolidated replace_table_token_11_th replace_table_token_12_th tools replace_table_token_13_th replace_table_token_14_th tools when comparing the fourth quarters of 2012 and 2011 , gross margins generated by our tools segment increased 2.0 percentage points . combined with improved revenue , gross profit increased $ 181,000. specifically , gross margins at florida pneumatic increased due primarily to : ( 1 ) improved absorption of warehouse and manufacturing overhead during the fourth quarter of 2012 , compared to the same period in 2011 due to the increase in inventory for thd , and ( 2 ) product mix . when comparing the three-month periods ended december 31 , 2012 and 2011 , hy-tech 's gross margin declined slightly , mostly due to product mix , however , as revenue increased over last year , its gross profit improved slightly . when comparing the full-years of 2012 and 2011 , gross margins generated by our tools segment decreased 0.1 percentage points , however gross profit increased $ 785,000. florida pneumatic 's gross margin decreased when compared to the same period in 2011 , primarily due to the impact of the increase in the lower gross margin retail sales on its overall gross margin . however , as the result of the increase in revenue , florida pneumatic 's gross profit improved by $ 607,000 , compared to the same period a year ago . hy-tech increased its gross margin and gross profit primarily through product mix , as well as through improved cost of manufacturing . 15 hardware nationwide 's gross margin for the fourth quarter of 2012 increased 2.6 percentage points , compared to the same period in 2011. this increase is due primarily to a change in product mix and to a lesser extent , improved burden absorption due to increased volume through the warehouse . however , nationwide continues to incur increases in overseas raw material costs , such as aluminum , copper and magnets , as well as increased overseas labor costs . with improved revenue in the fourth quarter of 2012 , along with stronger gross margins , nationwide increased its gross profit by $ 363,000 when compared to the same period in 2011. despite a year over year decline of 0.3 percentage points in its gross margin , nationwide 's gross profit improved nearly 20 % . the most significant factor contributing to the slight decline in its gross margin were increases in overseas raw material costs , such as aluminum , copper and magnets , as well as increased overseas labor costs . additionally , during 2012 , nationwide elected to secure certain higher volume , slightly lower priced fence and gate hardware customers . gross margins on its oem and kitchen and bath product lines declined in 2012 compared to 2011 due primarily to significant pricing pressures along with dwindling markets and other factors .
| however , revenue from its other retail customer , sears holdings corporation ( “ sears ” ) , declined when compared to the same three month period in 2011. the decline in sears ' revenue is partially due to the timing of seasonal orders delivered in the third quarter of 2012 compared to the fourth quarter of 2011. florida pneumatic continued its growth strategy into the higher gross margin industrial/catalog sector . fourth quarter of 2012 automotive product revenue and other revenue , which includes revenue from its berkley , air filters and oem lines , declined when compared to the same period in 2011 , due primarily to florida pneumatic 's decision to place greater emphasis on expanding its retail and industrial/catalog lines . with respect to the full-year 2012 , florida pneumatic continued to expand its presence in the higher gross margin , industrial/catalog sector . we intend to continue to expand our marketing efforts in this sector of the pneumatic air tool market . as florida pneumatic commenced shipments to thd during the latter half of 2012 , revenue from its retail customers , in the aggregate , improved 10.9 % when comparing 2012 to 2011. this increase was due primarily to the thd revenue , offset by a reduction in sears ' revenue of certain specialty , promotional and basic items . decreases in florida pneumatic 's other revenue and automotive revenue were due in large part to management 's decision to focus their efforts on expansion of the retail and industrial/catalog product lines . hy-tech focuses primarily on the industrial/heavy-duty sector of the pneumatic tools market . hy-tech creates quality replacement parts for pneumatic tools , markets its own value-added line of air tools and distributes a complementary line of sockets ( “ atp ” ) . hy-tech manufactures and markets a line of products that primarily focus on power generation , mining , construction and general industrial manufacturing markets ( “ hy-tech machine ” ) . an analysis of hy-tech 's revenue for the three and twelve-month periods ended december 31 , 2012 and 2011 is as follows : replace_table_token_7_th replace_table_token_8_th 13 hy-tech revenue for the fourth quarter of 2012 grew 4.5 % when compared to the same period in 2011. specifically , when comparing the fourth quarter of 2012 to the same period in the prior year , revenue from its major
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an allowance is also estimated for non-adversely classified loans using a historical loss percentage based on losses arising specifically from non-adversely classified loans , adjusted for various economic and environmental factors related to the underlying loans . each month the company 's senior loan committee reviews each business unit 's allowance , and the aggregate allowance for the company and , on a quarterly basis , adjusts and approves the adequacy of the allowance . in addition , annually or more frequently as needed , the senior loan committee evaluates and establishes the loss percentages used in the estimates of the allowance based on historical loss data , and giving consideration to their assessment of current economic and environmental conditions . to facilitate the senior loan committee 's evaluation , the company 's asset quality department performs periodic reviews of each of the company 's business units and reports on the adequacy of management 's identification of impaired and adversely classified loans , and their adherence to the company 's loan policies and procedures . the process of evaluating the adequacy of the allowance for loan losses necessarily involves the exercise of judgment and consideration of numerous subjective factors and , accordingly , there can be no assurance that the estimate of incurred losses will not change in light of future developments and economic conditions . different assumptions and conditions could result in a materially different amount for the allowance for loan losses . income taxes the company files a consolidated income tax return . deferred taxes are recognized under the liability method based upon the future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities , using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized . the amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future . changes in these accruals are reported as tax expense , and involve estimates of the various components included in determining taxable income , tax credits , other taxes and temporary differences . changes periodically occur in the estimates due to changes in tax rates , tax laws and regulations , and implementation of new tax planning strategies . the process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors . management performs an analysis of the company 's tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years . intangible assets and goodwill core deposit intangibles are amortized on a straight-line basis over the estimated useful lives of seven to ten years and customer relationship intangibles are amortized on a straight-line basis over the estimated useful life of eight to eighteen years . mortgage servicing rights are amortized based on current prepayment assumptions . goodwill is not amortized . at least annually in the fourth quarter , intangible assets , excluding mortgage servicing rights , and goodwill are evaluated for possible impairment . impairment losses are measured by comparing the fair values of the intangible assets with their recorded amounts . any impairment losses are reported in the statement of comprehensive income . mortgage servicing rights are revalued quarterly . the evaluation of remaining original core deposit intangibles for possible impairment involves reassessing the useful lives and the recoverability of the intangible assets . the evaluation of the useful lives is performed by reviewing the levels of core deposits of the respective branches acquired . the actual life of a core deposit base 30 may be longer than originally estimated due to more successful retention of customers , or may be shorter due to more rapid runoff . amortization of core deposit intangibles would be adjusted , if necessary , to amortize the remaining net book values over the remaining lives of the core deposits . the evaluation for recoverability is only performed if events or changes in circumstances indicate that the carrying amount of the intangibles may not be recoverable . the evaluation of goodwill for possible impairment is performed by comparing the fair values of the related reporting units with their carrying amounts including goodwill . the fair values of the related business units are estimated using market data for prices of recent acquisitions of banks and branches . the evaluation of intangible assets and goodwill for the years ended december 31 , 2011 , 2010 and 2009 resulted in no material impairments . fair value of financial instruments securities that are being held for indefinite periods of time , or that may be sold as part of the company 's asset/liability management strategy , to provide liquidity or for other reasons , are classified as available for sale and are stated at estimated market value . unrealized gains or losses on securities available for sale are reported as a component of stockholders ' equity , net of income tax . securities that are determined to be impaired , and for which such impairment is determined to be other than temporary , are adjusted to fair value and a corresponding loss is recognized . the estimates of fair values of securities and other financial instruments are based on a variety of factors . in some cases , fair values represent quoted market prices for identical or comparable instruments . in other cases , fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk . accordingly , the fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future . story_separator_special_tag future application of accounting standards see note ( 1 ) of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements and their expected impact on the company 's financial statements . segment information see note ( 22 ) of the notes to consolidated financial statements for disclosures regarding the company 's operating business segments . results of operations net interest income in 2011 , net interest income , which is the company 's principal source of operating revenue , increased $ 14.1 million to $ 156.9 million compared to an increase of $ 11.4 million in 2010 , and a decrease of $ 7.8 million in 2009. in 2011 , $ 12.0 million of the increase in net interest income was related to the company 's acquisitions made in the later part of 2010 and the acquisition made during 2011. the net interest margin on a taxable equivalent basis for 2011 was 3.20 % , compared to 3.37 % for 2010 and 3.42 % for 2009. changes in the volume of earning assets and interest-bearing liabilities , and changes in interest rates determine the changes in net interest income . the following volume/rate analysis summarizes the relative contribution of each of these components to the changes in net interest income in 2011 and 2010. for 2011 , the decrease in net interest margin was due to continued low interest rates and an increase in earning assets at relatively low rates . for 2010 , lower deposit rates resulted in a positive rate variance partially offset by higher deposit volumes . for 2009 , declining 31 loan rates resulted in a significant decrease in net interest income . if interest rates and or loan volume do not increase , management expects continued compression of its net interest margin in 2012 as higher yielding loans and securities mature and are replaced at current market rates . volume/rate analysis taxable equivalent basis replace_table_token_5_th ( 1 ) changes in the mix of earning assets and interest-bearing liabilities have been combined with the changes due to volume . the following interest rate sensitivity analysis measures the sensitivity of the company 's net interest margin to changes in interest rates by analyzing the repricing relationship between its earning assets and interest-bearing liabilities . this analysis is limited by the fact that it presents a static position as of a single day and is not necessarily indicative of the company 's position at any other point in time , and does not take into account the sensitivity of rates of specific assets and liabilities to changes in market rates . the company 's approach to managing the interest sensitivity gap limits risk while taking advantage of the company 's stable core deposit base and the historical existence of a positively sloped yield curve . the analysis of interest rate sensitivity presents the company 's earning assets and interest-bearing liabilities based on maturity and repricing frequency at december 31 , 2011. the company 's cumulative negative gap position in the one year interval decreased to $ 193 million at december 31 , 2011 from $ 621 million at december 31 , 2010 , and decreased as a percentage of total earning assets to 3.7 % from 13.2 % for the years ended december 31 , 2011 and 2010 , respectively . this negative gap position assumes that the company 's core savings and transaction deposits are immediately rate sensitive . in a falling rate or sustained low rate environment , the benefit of the company 's noninterest-bearing funds is decreased , resulting in a decrease in the company 's net interest margin over time . in the first quarter of 2011 with rates remaining at historically low levels , the company , through its asset and liability committee ( alco ) and senior loan committee decided to offer a seven to fifteen year , fixed 32 rate , amortizing loan product primarily for commercial real estate loans . during 2011 , the company added approximately $ 160 million of this fixed rate product with maturities between seven and fifteen years and amortizations ranging primarily from ten to twenty years . to offset this fixed rate exposure , the company purchased approximately $ 254 million of floating rate securities from securities maturing during 2011. the company believes this will help stabilize its net interest margin if rates remain low for the next several years . analysis of interest rate sensitivity december 31 , 2011 replace_table_token_6_th ( 1 ) represents the amount of demand deposits required to support earning assets in excess of interest-bearing liabilities and stockholders ' equity . provision for loan losses the provision for loan losses was $ 4.5 million for 2011 , compared to $ 3.0 million for 2010 and $ 10.4 million for 2009. during 2011 , $ 1.7 million of the increase in the provision for loan losses was related to the company 's acquisitions made in the later part of 2010 and the acquisition made during 2011. during 2010 , credit quality generally stabilized as previously identified problem loans were moved to other real estate owned while potential problem loans decreased . in 2009 , credit quality deteriorated with higher levels of potential problem loans and nonperforming loans resulting in an additional provision for loan losses . the company establishes an allowance as an estimate of the probable inherent losses in the loan portfolio at the balance sheet date . net loan charge-offs were $ 2.6 million for 2011 , compared to $ 3.6 million for 2010 and $ 8.3 million for 2009. the net charge-offs equated to 0.09 % , 0.13 % and 0.30 % of average loans for 2011 , 2010 and 2009 , respectively . a more detailed discussion of the allowance for loan losses is provided under loans ( including acquired loans ) . 33 noninterest income noninterest income was $ 77.0 million in 2011 versus $ 69.9 million in 2010 and $ 66.9 million in 2009. total noninterest income increased $ 7.1 million in 2011 , an increase of 10.0 % .
| % at december 31 , 2011 , compared to 9.74 % at december 31 , 2010 and 10.15 % at december 31 , 2009. asset quality improved in 2011 as measured by a ratio of nonperforming and restructured assets to total assets of 0.71 % for the year ended december 31 , 2011 , compared to 1.01 % at december 31 , 2010 and 1.13 % at december 31 , 2009. the company sold a commercial property held in other real estate owned valued at $ 6.0 million in the first quarter of 2011. the allowance for loan losses equaled 163.5 % of nonperforming and restructured loans at december 31 , 2011 , versus 127.2 % at the end of 2010 and 91.1 % at the end of 2009. net charge-offs to average loans for 2011 decreased to 0.09 % , compared to 0.13 % for 2010 and 0.30 % for 2009. the allowance for loan losses as a percentage of total loans was 1.25 % in 2011 compared to 1.27 % in 2010 and 1.33 % in 2009. on january 19 , 2012 , council oak investment corporation , a wholly-owned subsidiary of bancfirst completed the sale of one of its investments that resulted in a pretax gain of approximately $ 4.5 million . after related expenses and income taxes , the increase in net income approximated $ 2.6 million or $ 0.17 per share on a fully diluted basis . the gain will be included in first quarter 2012 earnings . 27 on july 12 , 2011 , the company completed the acquisition of fbc financial corporation and its subsidiary bank , 1st bank oklahoma with banking locations in claremore , verdigris , and inola , oklahoma . the company paid a premium of $ 1.5 million above the equity capital of fbc financial corporation . at acquisition , 1st bank oklahoma had approximately $ 217 million in total assets , $ 116 million in loans , $ 178 million in deposits and
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for 2014 , 2015 , 2016 and 2017 , our net loss was $ 38.9 million , $ 40.6 million , $ 75.7 million and $ 19.6 million , respectively . our historical losses have been driven by our substantial investments in our platform and infrastructure , which we believe will enable us to expand the use of our platform by both fis and marketers . in 2016 , our net loss included a $ 25.9 million one-time non-cash charge related to the termination of our u.k. agreement with aimia emea limited , or aimia , and a $ 10.9 million non-cash charge related to the issuance and change in fair value of convertible promissory notes . our net loss in 2017 includes a $ 5.0 million non-cash gain related to the change in fair value of convertible promissory notes . in both 2015 and 2016 , we derived 11 % of our revenue outside the u.s. in the year ended december 31 , 2017 , 13 % of our revenue was derived outside the u.s. our business model substantially all of our revenue is derived from our proprietary native banking channel , cardlytics direct . we also generate revenue from the sale of our other platform solutions . cardlytics direct our cardlytics direct solution is our proprietary native bank advertising channel that enables marketers to reach consumers through their trusted and frequently visited online and mobile banking channels . working with a marketer , we design a campaign that targets customers based on their purchase history . the consumer is offered an incentive to make a purchase from the marketer within a specified period . we use a portion of the fees that we collect from marketers to provide these consumer incentives to our fis ' customers after they make qualifying purchases , which we refer to as consumer incentives . leveraging our powerful predictive analytics , we are able to create compelling consumer incentives that have the potential to increase return on advertising spend for marketers . we also pay our fi partners an fi share . we have generated substantially all of our revenue from sales of cardlytics direct since inception . we price cardlytics direct marketing in two primary ways : ( 1 ) cost per served sale , or cps , and ( 2 ) cost per redemption , or cpr . in 2015 , 2016 and 2017 , cps represented 67 % , 69 % and 66 % of our revenue from cardlytics direct , respectively . we developed our pricing models with the needs of marketers in mind . given our ability to measure the actual performance of cardlytics direct in driving sales , we are able to offer marketers performance-based pricing models where they only pay us based on actual sales influenced by marketing through our native bank channel . these pricing models are designed to ensure that marketers realize an actual return on their advertising spend with us . 43 cps . our primary and fastest growing pricing model is cps , which we created to meet the media buying preferences of marketers . we generate revenue by charging a percentage , which we refer to as the cps rate , of all purchases from the marketer by consumers ( 1 ) who are served marketing and ( 2 ) subsequently make a purchase from the marketer during the campaign period , regardless of whether consumers select the marketing and thereby become eligible to earn the applicable consumer incentive . we set cps rates for marketers based on our expectation of the marketer 's return on spend for the relevant campaign . additionally , we set the amount of the consumer incentives payable for each campaign based on our estimation of our ability to drive incremental sales for the marketer . we seek to optimize the level of consumer incentives to retain a greater portion of billings . however , if the amount of consumer incentives exceeds the amount of billings that we are paid by the applicable marketer we are still responsible for paying the total consumer incentive . this has occurred infrequently and has been immaterial in amount for each of the periods presented . cpr . our initial pricing model is cpr , where marketers specify and fund the consumer incentive and pay us a separate negotiated , fixed marketing fee , or the cpr fee , for each purchase that we generate . we generate revenue if the consumer ( 1 ) is served marketing , ( 2 ) selects the marketing and thereby becomes eligible to earn the applicable consumer incentive and ( 3 ) makes a qualifying purchase from the marketer during the campaign period . we set the cpr fee for marketers based on our estimation of the marketers ' return on spend for the relevant campaign . the cpr fee is either a percentage of qualifying purchases or a flat amount . other platform solutions we also generate revenue from our other platform solutions offerings . our other platform solutions enable marketers and marketing service providers to leverage the power of purchase intelligence outside the bank channel . for example , we use purchase intelligence to help marketers measure the impact of marketing campaigns outside of the cardlytics direct channel on in-store and online sales . to the extent that we use purchase intelligence derived from a specific fi customer 's anonymized purchase data in the delivery of our other platform solutions , we pay the applicable fi an fi share calculated based on the relative contribution of the data provided by the fi to the overall delivery of the solutions . revenue from our other platform solutions was $ 13.2 million , $ 15.0 million and $ 8.0 million in 2015 , 2016 and 2017 , respectively . in order to test the efficacy of our other platform solutions , we historically used programmatic vendors to run marketing campaigns outside of the cardlytics direct channel , and thereby delivered our other platform solutions primarily as a managed service . story_separator_special_tag this allowed us to gain valuable expertise in leveraging our purchase intelligence outside the banking channel . with regard to delivery of our other platform solutions as a managed service , we charged marketers a fee based on the number of impressions that we delivered for their marketing campaign , calculated on a cost per thousand impressions , or cpm , basis . revenue from other platform solutions delivered as a managed service represented a significant majority of our total other platform solutions revenue in 2015 , 2016 and 2017 until it was discontinued on july 31 , 2017. given that we are now focusing our efforts on more nascent other platform solutions , we do not expect to generate substantial revenue from other platform solutions for the foreseeable future , and we expect our overall other platforms solutions revenue to decline in future periods compared to prior periods . accordingly , our total revenue may decline in future periods if we are unable to generate sufficient offsetting revenue from sales of cardlytics direct . 44 our revenue recognition policies for cardlytics direct and other platform solutions are discussed in more detail under critical accounting policies. key factors affecting our performance our historical financial performance has been , and we expect our financial performance in the future will be , primarily driven by the following factors : ability to drive additional revenue from cardlytics direct . the revenue that we generate through our proprietary native bank advertising channels from each of our fi partners varies . this variance is typically a result of how long the program has been active , the user interface for the program and the fi 's efforts to promote the program . we continually work with fis to improve their customers ' user experience , increase customer awareness , and leverage additional customer outreach channels like email . however , in certain cases , we may have little control over the design of the user interface that our fi partners choose to use or the extent to which they promote our solution to their customers . to the extent that our fi partners fail to increase engagement with our solutions within their customer bases , we may be unable to attract and retain marketers or their agencies and our revenue would suffer . ability to increase spend from existing marketers and acquire new marketers . our performance depends on our ability to continue to increase adoption of our solutions within our existing marketer base and attract new marketers that invest meaningfully in marketing through our solutions . our ability to increase adoption among existing marketers is particularly important in light of our land-and-expand business model . we believe that we have the opportunity to expand our marketer base with a focus on attracting new brands , retailers , service providers and new categories of marketers that will invest significantly in the use of purchase intelligence . we believe that we also have the opportunity to increase adoption of our solutions across our existing marketers . in order to expand and further penetrate our marketer base , we have made , and plan to continue to make , investments in expanding our direct sales teams and indirect sales channels , and increasing our brand awareness . however , our ability to continue to grow our marketer base is dependent upon our ability to compete within the evolving markets in which we participate . ability to expand our fi partner network . our ability to maintain and grow our revenue is contingent upon maintaining and expanding our relationships with our fi partners . given our substantial investments to date in our intelligence platform and infrastructure , we believe that we will be able to add fis to our network with modest incremental investment . each new fi partner increases the size of our data asset , increasing the value of our solutions to both marketers and fis that are already part of our network . accordingly , we are focused on the continued expansion of our fi network to ensure that we have robust purchase data to support a broad array of incentive programs with respect to our cardlytics direct solution and to enrich our other platform solutions . however , our sales and integration cycle with respect to our fi partners can be costly and long , and it is difficult to predict if or when we will be successful in generating revenue from a new fi relationship . ability to integrate our platform with partners . we believe that we can improve the value proposition for marketers through the use of purchase intelligence . we intend to continue to partner with other media platforms , marketing technology providers , and marketing agencies that can utilize our platform to serve a broad array of customers . to facilitate these partnerships , we intend to focus on continued technological integration of our platform with those of complementary market participants . to the extent that we are unable to significantly expand our relationships with key market participants that can drive adoption of our other platform solutions , we may be unable to grow our revenue from our other platform solutions . ability to innovate and evolve our platform . as we continue to grow our data asset and enhance our platform , we are developing new solutions and increasingly sophisticated analytical capabilities . our future performance is significantly dependent on the investments that we make in our research and development efforts and in our ability to continue to innovate , improve functionality , and introduce new features and solutions that are compelling to our marketers and fis . we intend to continue to invest in our platform , including by hiring top technical talent and focusing on core technology innovation .
| we do not expect to generate substantial revenue from other platform solutions delivered as a managed service in future periods as we discontinued sales of other platform solutions delivered as a managed service as of july 31 , 2017. costs and expenses fi share and other third-party costs replace_table_token_11_th fi share and other third-party costs increased by $ 7.0 million in 2017 compared to 2016 , primary due to an increase in revenue from sales of cardlytics direct , partially offset by a $ 2.6 million decrease in fi share revenue commitments in excess of the fi share otherwise earned by the applicable fi partners and a $ 1.2 million decrease as a result of us no longer allocating revenue and fi share and other third-party costs to aimia following termination of our cooperation agreement in june 2016. other platform solutions fi share and other third-party costs decreased $ 3.8 million in 2017 compared to 2016 , primarily due to a decline in media and data costs as we discontinued delivering other platform solutions as a managed service as of july 31 , 2017. delivery costs replace_table_token_12_th delivery costs increased by $ 0.9 million in 2017 compared to 2016 , primarily to support enhancements for existing fi partners and implementation for new fi partners . these costs include a $ 0.7 million increase in personnel-related costs for our campaign , data operations and production support teams and a $ 0.1 million increase in stock-based compensation expense . sales and marketing expense replace_table_token_13_th sales and marketing expense increased by $ 0.7 million in 2017 compared to 2016 , primarily due to a $ 0.3 million increase in personnel costs associated with our additional sales and marketing headcount and a $ 0.8 million increase in incentive compensation as a result of incremental sales and a $ 0.7 million increase in stock-based compensation expense offset by a $ 0.5 decrease in travel and entertainment related expense , a $ 0.3 million decrease in professional fees and a $ 0.2 million decrease in marketing related expenses related to reductions in advertising and public relations expenses , reduced sponsorships and consumer testing expenses . 52 research and development expense replace_table_token_14_th research and development expense decreased by $ 1.8 million in 2017 compared to 2016 , primarily due to a $ 1.6 million decrease in personnel costs associated with our research and development headcount , a $ 0.4 million decrease in professional services and a $ 0.4 million decrease in outsourcing costs , offset by a
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this system-wide scrutiny has heightened the focus on flow instrumentation in industrial process , manufacturing , commercial fluid , building automation and precision engineering applications where flow measurement and control are critical . a leader in both mechanical and static ( ultrasonic ) flow metering technologies for industrial markets , the company offers one of the broadest flow measurement , control and communication portfolios in the market . this portfolio carries respected brand names including recordall® , hedland® , dynasonics® , blancett® , and research control® , and includes eight of the ten major flow meter technologies . customers rely on the company for application-specific solutions that deliver accurate , timely and dependable flow data and control essential for product quality , cost control , safer operations , regulatory compliance and more sustainable operations . the company 's products are sold throughout the world through employees , resellers and representatives . depending on the customer mix , there can be a moderate seasonal impact on sales , primarily relating to higher sales of certain municipal water products during the spring and summer months . no single customer accounts for more than 10 % of the company 's sales . business trends across the globe , increasing regulations and a focus on sustainability are driving companies and utilities to better manage critical resources like water , monitor their use of hazardous materials and reduce exhaust gases . some customers measure fluids to identify leaks and or misappropriation for cost control or add measurement points to help automate manufacturing . other customers employ measurement to comply with government mandates and laws . the company provides flow measurement technology to measure water , hydrocarbon-based fluids , chemicals , gases and steams . this technology is critical to provide baseline usage data and to quantify reductions as customers ' attempt to reduce consumption . for example , once water usage metrics are better understood , a strategy for water-use reduction can be developed with specific water-reduction initiatives targeted to those areas where it is most viable . with the company 's technology , customers have found costly leaks , pinpointed equipment in need of repair , and identified areas for process improvements . increasingly , customers in the water utility market are interested in more frequent and diverse data collection . specifically , ami technology enables water utilities to capture readings from each meter at more frequent and variable intervals . there are approximately 52,000 water utilities in the united states and the company estimates that approximately 60 % of them have converted to a radio solution . the company believes it is well positioned to meet this continuing conversion trend with its comprehensive radio and software solutions . in addition , the water utility industry is beginning the conversion from mechanical to static ( ultrasonic ) meters . ultrasonic water metering maintains measurement accuracy over the life of the meter , reducing a utility 's non-revenue water . the company has nearly a decade of proven reliability in the market with its ultrasonic meters and will be launching its next generation of ultrasonic metering with its d-flow technology in 2019 , which the company believes will increase its competitive differentiation . while ultrasonic technology migration in north america could affect the competitive landscape , it also opens up further geographic penetration opportunities for the company as previously described . finally , the concept of “ smart cities ” is beginning to take hold as one avenue to affect efficient city operations , conserve resources and improve service and delivery . smart water solutions ( “ smart water ” ) are those that provide actionable information through data analytics from an interconnected and interoperable network of sensors and devices that help people and organizations efficiently use and conserve one of the world 's most precious resources . badger meter is well positioned to benefit from the advancement of smart water applications within the smart cities framework . cities have a keen interest in smart water as it provides both a revenue base and conservation outcome . badger meter is one of approximately a dozen firms , and the only water metering company , that participates in the at & t smart city alliance . by leveraging this alliance , the company expects to be able to gain access and sell its broad smart water solutions to higher level decision makers within a city such as the mayor 's office . in addition , it allows badger meter to keep abreast of emerging cellular technology changes which the company believes is the premier ami solution . 18 acquisitions on april 2 , 2018 , the company acquired 100 % of the outstanding stock of innovative metering solutions , inc. ( “ ims ” ) of odessa , florida , which was one of the company 's distributors serving florida . the total purchase consideration was approximately $ 12.0 million , which included $ 7.7 million in cash , a $ 0.3 million working capital adjustment , a balance sheet holdback of $ 0.7 million and a $ 3.3 million settlement of pre-existing company receivables . the working capital adjustment was settled in the second quarter of 2018 and the balance sheet holdback is recorded in payables and other current liabilities on the company 's consolidated balance sheet as it is anticipated to be paid in the next twelve months . as of december 31 , 2018 , the company had not completed its analysis for estimating the fair value of the assets acquired . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . on november 1 , 2017 , the company acquired certain assets of utility metering services , inc. 's business carolina meter & supply ( “ carolina meter ” ) of wilmington , north carolina , which was one of the company 's distributors serving north carolina , south carolina and virginia . story_separator_special_tag the total purchase consideration for the carolina meter assets was $ 6.3 million , which included $ 2.1 million in cash and settlement of $ 4.2 million of pre-existing company receivables . the company 's preliminary allocation of the purchase price included $ 0.6 million of receivables , $ 0.2 million of inventory , $ 3.3 million of intangibles and $ 2.2 million of goodwill . as of december 31 , 2018 , the company completed its analysis for estimating the fair value of the assets acquired with no additional adjustments . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . on may 1 , 2017 , the company acquired 100 % of the outstanding common stock of d-flow technology ab ( “ d-flow ” ) of luleå , sweden . the d-flow acquisition facilitates the continued advancement of the existing e-series® ultrasonic product line while also adding a technology center for the company . the purchase price was approximately $ 23.2 million in cash , plus a small working capital adjustment . the purchase price included $ 2.0 million in payments that were made in 2018 and $ 3.0 million in payments that are anticipated to be made in 2019 which are recorded in payables and other accrued liabilities on the consolidated balance sheets at december 31 , 2018. as of march 31 , 2018 , the company completed its analysis for estimating the fair value of the assets acquired and liabilities assumed with no additional adjustments . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . on october 20 , 2016 , the company acquired certain assets of precision flow measurement , inc. , doing business as nice instrumentation , of manalapan township , new jersey . the acquisition added a new technology for the measurement of steam to the company 's hvac line of products . the total purchase consideration for the nice instrumentation assets was $ 2.0 million . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . revenue and product mix as the industry continues to evolve , the company has been at the forefront of innovation across metering , radio and software technologies in order to meet its customers ' increasing expectations for accurate and actionable data . as technologies such as orion cellular and beacon ama managed solutions have become more readily adopted , the company 's revenue from software as a service ( saas ) has increased significantly , albeit from a small base , and is margin accretive . the company also seeks opportunities for additional revenue enhancement . for instance , the company has made inroads into the middle east market with its ultrasonic meter technology and is pursuing other geographic expansion opportunities . it is periodically asked to oversee and perform field installation of its products for certain customers . the company assumes the role of general contractor and either performs the installation or hires installation subcontractors and supervises their work . 19 story_separator_special_tag addition , depending on market conditions , the company may access the capital markets to strengthen its capital position and to provide additional liquidity for general corporate purposes . primary working capital we use primary working capital ( pwc ) as a percentage of sales as a key metric for working capital efficiency . we define this metric as the sum of receivables and inventories less payables and other current liabilities , divided by annual net sales . the following table shows the components of our pwc ( in millions ) : replace_table_token_3_th overall pwc increased $ 9.9 million due primarily to the higher sales volumes and increased mix of international sales activity . receivables at december 31 , 2018 were $ 66.3 million compared to $ 58.2 million at the end of 2017. the increase was due to the higher sales activity and increased days sales outstanding associated with international receivables due to their regionally higher payment terms . the company believes its receivables balance is fully collectible . inventories at december 31 , 2018 were $ 80.8 million , a decline from $ 85.2 million at december 31 , 2017 , primarily due to the higher sales volumes , improved inventory management and lower brass costs . payables and other current liabilities at december 31 , 2018 were $ 22.5 million , down from $ 28.6 million at the end of 2017. cash provided by operations cash provided by operations in 2018 was $ 60.4 million compared to $ 49.8 million in 2017. the increase from 2017 was driven primarily by higher operating earnings ( excluding the non-cash pension termination settlement charges ) , partially offset by higher primary working capital . the cash flow was more than adequate to fund capital expenditures of $ 8.6 million along with dividends of $ 16.3 million and $ 10.0 million of acquisitions . the remaining cash flow was used to reduce short term borrowings . cash provided by operations in 2017 was $ 49.8 million compared to $ 56.2 in 2016. higher working capital usage offset an increase in net earnings . the cash flow was more than adequate to fund $ 15.1 million of capital expenditures , $ 14.2 million in dividends and $ 20.4 million in acquisitions with only a modest increase in short term borrowings . capital expenditures were $ 8.6 million , $ 15.1 million and $ 10.6 million in fiscal 2018 , 2017 and 2016 , respectively . capital expenditures for fiscal 2019 are expected to be in the $ 10-15 million range , but could vary depending on timing of r & d projects , growth opportunities and the amount of assets purchased . short-term debt decreased to $ 18.1 million at december 31 , 2018 from $ 44.6 million at december 31 , 2017 due to the strong cash flow from operations , partially offset by the payment of dividends and the 2018 acquisition of ims .
| overall , residential sales were essentially flat while commercial sales increased 3 % , the latter due to slightly higher unit volumes . flow instrumentation sales increased $ 6.2 million , or 7 % , to $ 95.5 million from $ 89.3 million in 2016. the increase was primarily due to a rebound in the oil and gas market as well as strengthening of industrial markets in general as the company continued to broaden its distribution channels . operating earnings operating earnings in 2018 were $ 56.9 million , or 13.1 % of sales , compared to $ 56.6 million , or 14.1 % of sales , in 2017. gross profit increased $ 6.6 million on higher sales volumes , but declined as a percent of sales from 38.7 % in 2017 to 37.4 % in 2018. this was largely the result of the higher sales and improved utility sales mix , partially offset by higher commodity cost increases in the first half of the year that were not fully offset by pricing until the latter half . selling , engineering and administration ( “ sea ” ) expenses increased $ 6.3 million year-over-year , which included the $ 2.6 million of executive retirement charges incurred for the vesting of certain equity and cash awards for the retiring chief executive officer , chief financial officer and chief accounting officer . the remaining increase in sea was associated with normal inflation for employee salaries and benefits , duplicative executive expenses associated with the ceo and cfo transitions , as well as higher engineering expenses to support product innovation and development . operating earnings in 2017 were $ 56.6 million , or 14.1 % of sales , compared to $ 52.7 million , or 13.4 % , in 2016. the increase was the result of higher sales and gross margin , offset slightly by higher sea expenses . gross profit increased $ 5.2 million and margins improved 50 basis points year-over-year due primarily to higher sales , the benefit
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interest expense and fees on our revolving credit facility was $ 0.8 million , for both the years ended december 31 , 2019 and 2018. amortization of deferred financing costs was $ 2.1 million and $ 1.8 million , respectively , for the years ended december 31 , 2019 and 2018. for additional information on the company 's debt instruments , see “ liquidity and financial condition ” below . realized gain on sale , net realized gain on sale , net decreased by approximately $ 15.3 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the company did not sell any assets during the year ended december 31 , 2019. during the year ended december 31 , 2018 , the company sold two properties leased to darden for total consideration of $ 21.7 million exclusive of $ 0.6 million costs to sell . the sales were the result of unsolicited offers and resulted in net gains of $ 15.3 million after costs to sell . these sales qualified as 1031 exchanges , and the consideration received was used to purchase other properties during 2018. income taxes during the years ended december 31 , 2019 and 2018 , our income tax expense on real estate operations was $ 152 thousand and a benefit of $ 156 thousand , respectively . i ncome tax expense on real estate operations consists of state and local income taxes incurred by fcpt on its lease portfolio . as fcpt acquires additional properties in states subject to state income taxes , income tax expense will continue to increase . 34 restaurant operations the following table sets forth our restaurant operating segment revenues and expenses data for the periods indicated . replace_table_token_8_th ( 1 ) other restaurant expenses include $ 410 thousand and $ 401 thousand , respectively , of intercompany rent paid to fcpt for the years ended december 31 , 2019 and 2018 , which is eliminated for financial reporting purposes . restaurant revenues increased approximately $ 0.6 million in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , driven primarily by an increase in the average meal check and an increase in average guest counts . total restaurant expenses increased approximately $ 0.6 million in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to increased administrative overhead . food and beverage costs increased approximately $ 0.2 million in the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to increased sales year over year . critical accounting policies and estimates the preparation of fcpt 's consolidated financial statements in conformance with accounting principles generally accepted in the united states of america requires management to make estimates on assumptions that affect the reported amounts of assets , liabilities , revenues and expenses as well as other disclosures in the financial statements . on an ongoing basis , management evaluates its estimates and assumptions ; however , actual results may differ from these estimates and assumptions , which in turn could have a material impact on our financial statements . estimates and assumptions include , among other things , subjective judgments regarding the fair values and useful lives of our properties for depreciation and lease classification purposes , and asset impairment analysis . a summary of fcpt 's accounting policies and procedures are included in note 2 of our consolidated financial statements , included in part ii , item 8 of this annual report on form 10-k. management believes the following critical accounting policies , among others , affect its more significant estimates and assumptions used in the preparation of our consolidated financial statements . real estate investments , net real estate investments , net are recorded at cost less accumulated depreciation . building components are depreciated over estimated useful lives using the straight-line method . leasehold improvements , which are reflected on our consolidated balance sheets as a component of buildings , within land , buildings and equipment , net , are amortized over the lesser of the non-cancelable lease term or the estimated useful lives of the related assets using the straight-line method . equipment is depreciated over estimated useful lives also using the straight-line method . real estate development and construction costs for newly constructed restaurants are capitalized in the period in which they are incurred . gains and losses on the disposal of land , buildings and equipment are included in our accompanying consolidated statements of income ( “ income statement ” ) . our accounting policies regarding land , buildings and equipment , including leasehold improvements , include our judgments regarding the estimated useful lives of these assets , the residual values to which the assets are depreciated or amortized , the determination of what constitutes a reasonably assured lease term , and the determination as to what constitutes enhancing the 35 value of or increasing the life of existing assets . these judgments and estimates may produce materially different amounts of reported depreciation and amortization expense if different assumptions were used . as discussed further below , these judgments may also impact our need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized , or as our expectations of estimated future cash flows change . acquisition of real estate the company evaluates acquisitions to determine whether transactions should be accounted for as asset acquisitions or business combinations in accordance with financial accounting standards board ( “ fasb ” ) accounting standards update ( “ asu ” ) 2017-01. the company has determined the land , building , site improvements , and in-places leases ( if any ) of assets acquired were each single assets as the building and property improvements are attached to the land and can not be physically removed and used separately from the land without incurring significant costs or reducing their fair value . story_separator_special_tag additionally , the company has not acquired a substantive process used to generate outputs . as substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset and there were no processes acquired , the acquisitions do not qualify as businesses and are accounted for as asset acquisitions . related transaction costs are generally capitalized and amortized over the useful lives of the acquired assets . the company allocates the purchase price ( including acquisition and closing costs ) of real estate acquisitions to land , building , and improvements based on their relative fair values , as-if-vacant , and lease intangibles ( if any ) . in making estimates of fair values for this purpose , the company uses a third-party specialist that obtains various information about each property , as well as the pre-acquisition due diligence of the company and prior leasing activities at the site . lease intangibles lease intangibles , if any , acquired in conjunction with the purchase of real estate represent the value of in-place leases and above- or below-market leases . for real estate acquired subject to existing lease agreements , acquired lease intangibles are valued based on the company 's estimates of costs related to tenant acquisition and the asset carrying costs , including lost revenue , that would be incurred during the time it would take to locate a tenant if the property were vacant , considering current market conditions and costs to execute similar leases at the time of the acquisition . above-market and below-market lease intangibles are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the leases at the time of acquisition of the real estate and the company 's estimate of current market lease rates for the property , measured over a period equal to the remaining initial term of the lease . in-place lease intangibles are amortized on a straight-line basis over the remaining initial term of the related lease and included in depreciation and amortization expense . above-market lease intangibles are amortized over the remaining initial terms of the respective leases as a decrease in rental revenue . below-market lease intangibles are generally amortized as an increase to rental revenue over the remaining initial term of the respective leases , but may be amortized over the renewal periods if the company believes it is likely the tenant will exercise the renewal option . should a lease terminate early , the unamortized portion of any related lease intangible is immediately recognized as an impairment loss included in depreciation and amortization expense . to date , the company has not had significant early terminations . impairment of long-lived assets land , buildings and equipment and certain other assets , including definite-lived intangible assets , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable . events or changes in circumstances may include , but are not limited to , changes in market conditions including factors impacting tenant credit quality and changes in estimated time we expect to own the long-lived asset . recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets . identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities , generally at the restaurant level . if these assets are determined to be impaired , the amount of impairment recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value . fair value is generally determined by appraisals or sales prices of comparable assets . the judgments we make related to the estimated period of time we expect to own the long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of these assets identified as potentially not recoverable are 36 affected by factors such as the ongoing maintenance and improvements of the assets , changes in economic conditions , changes in usage or operating performance , desirability of the restaurant sites and other factors , such as our ability or intent to sell our assets . as we assess the ongoing expected cash flows and carrying amounts of our long-lived assets , significant adverse changes in these factors could cause us to realize a material impairment loss . exit or disposal activities include the cost of disposing of the assets and are generally expensed as incurred . upon disposal of the assets , any gain or loss is recorded in the same caption within our income statements as the original impairment . provisions for impairment are included in depreciation and amortization expense in the accompanying income statements . revenue recognition effective january 1 , 2018 , the company adopted fasb asu no . 2014-09 , “ revenue from contracts with customers ” using the modified retrospective method . the standard outlines a single comprehensive revenue recognition model for entities to follow in accounting for revenue from contracts with customers and supersedes most current revenue recognition guidance , including industry-specific guidance . the core principle of the revenue model is that an entity should recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive for those goods or services . effective january 1 , 2018 , the company also adopted fasb asu no . 2017-05 , “ clarifying the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. ” through the evaluation and implementation process , we have determined fcpt 's key revenue stream that could be impacted by fasb asu no . 2014-09 , as amended by fasb asu no . 2017-05 , is the gain on disposition of real estate reported on the income statements and comprehensive income statement .
| general and administrative expense increased $ 0.7 million in the year ended december 33 31 , 2019 compared to the year ended december 31 , 2018 , primarily as a result of a $ 1.1 million increase in compensation and employee benefits due to increased headcount , offset by a $ 0.4 million decrease in non-cash stock compensation expense . depreciation and amortization expense depreciation and amortization expense represents the depreciation on real estate investments and equipment that have estimated lives ranging from 2 to 55 years . depreciation and amortization expense increased by approximately $ 2.4 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to impairment expense of $ 1.5 million recorded in the year ended december 31 , 2018 as well as the acquisition of 97 properties acquired in 2018 that incurred a full year of depreciation and the depreciation on 90 properties acquired in 2019. property expense upon adoption of asc 842 , we record all tenant expenses , both reimbursed and non-reimbursed , to property expense . we also record initial direct costs ( lease negotiation and other previously capitalizable transaction expenses ) as property expenses . other property expenses consist of expenses incurred on vacant properties , abandoned deal costs , and franchise taxes . franchise tax and other non-reimbursable property and transaction costs were previously recognized in general and administrative . during the year ended december 31 , 2019 , we recorded property expenses of $ 1.6 million , of which $ 0.9 million was reimbursed by tenants . during the year ended december 31 , 2018 , we recorded property expenses of $ 433 thousand , none of which was reimbursed by tenants . the increase in non-reimbursed property expenses relates to an increase in franchise taxes and the recognition of previously capitalizable lease expenses . interest expense we incur interest expense on our $ 400 million of term loans , any outstanding borrowings on our revolving credit facility , interest rate swaps , and our
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the total variable compensation is discretionary and is based on company-wide financial targets approved by the human resources and compensation committee of the board of directors . a portion of our consultants ' and management cash bonuses are deferred and paid over a three-year vesting period . the compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period . this service period begins on january 1 of the respective fiscal year and continues through the deferral date , which coincides with our bonus payments in the first quarter of the following year , and for an additional three year vesting period . the deferrals are recorded in accrued salaries and employee benefits and other non-current liabilities in the consolidated balance sheets . 2012 overview consolidated net revenue of $ 443.8 million decreased 15.9 % or $ 84.0 million in 2012 , compared to 2011. net revenue decreased 11.2 % in the americas , 25.4 % in europe , and 16.8 % in asia pacific . consultant productivity measured by net revenue per consultant was $ 1.3 million for the year ended december 31 , 2012 , compared to $ 1.4 million for the year ended december 31 , 2011. average revenue per executive search was $ 113,700 for the year ended december 31 , 2012 compared to $ 112,900 for the year ended december 31 , 2011. operating income as a percentage of net revenue was 4.4 % in 2012 compared to an operating loss as a percentage of net revenue of 2.1 % in 2011. the operating income was driven by decreases in salaries and employee benefits expense of $ 62.9 million , impairment charges of $ 26.4 million , restructuring charges of $ 15.5 million , and general and administrative expenses of $ 9.8 million . these decreases in operating expenses were offset by a decrease in net revenue of $ 84.0 million . salaries and employee benefits expense as a percentage of net revenue decreased from 70.6 % in 2011 to 69.7 % in 2012. general and administrative expenses as a percentage of net revenue increased from 23.4 % in 2011 to 25.6 % in 2012 . 19 we ended the year with combined cash and cash equivalents balance of $ 117.6 million , a decrease of $ 67.8 million compared to a combined cash and cash equivalents balance of $ 185.4 million at december 31 , 2011. this decrease is primarily due to cash payments in the fourth quarter of 2012 of $ 60 million related to the acquisition of senn-delaney leadership consulting group , llc ( senn delaney ) , including the purchase price of $ 53.5 million and $ 6.5 million for a retention escrow . we pay the majority of bonuses in the first quarter following the year in which they were earned . employee bonuses are accrued throughout the year and are based on the company 's performance and the performance of the individual employee . we expect to pay approximately $ 77 million in bonuses related to 2012 performance in march and april 2013. in february 2013 , we paid approximately $ 10 million in cash bonuses deferred in prior years . 2013 outlook we are currently forecasting 2013 first quarter net revenue of between $ 100 million and $ 110 million . our 2013 first quarter guidance is based upon management 's assumptions for the anticipated volume of new executive search confirmations and leadership consulting assignments , the current backlog , consultant productivity , consultant retention , the seasonality of our business , the uncertainty in the global economic climate , and no change in future currency rates . as a result of purchase accounting adjustments related to the senn delaney acquisition , $ 4.5 million of revenue that had been previously deferred and was expected to be recognized by senn delaney in 2013 will not be recognized . as a result , the senn delaney acquisition will be dilutive to our consolidated results of operations for 2013. this adjustment has no impact on cash flow or the expected economic benefits of the transaction . our 2013 first quarter guidance is subject to a number of risks and uncertainties , including those disclosed under risk factors and management 's discussion and analysis of financial condition and results of operations included in this form 10-k ( see item 1a . risk factors ) . as such , actual results could vary from these projections . 20 story_separator_special_tag style= '' margin-top:0px ; margin-bottom:0px ; text-indent:4 % '' > as a percentage of net revenue , salaries and employee benefits expense was 69.7 % in 2012 , compared to 70.6 % in 2011. general and administrative expenses . consolidated general and administrative expenses decreased $ 9.8 million , or 7.9 % , to $ 113.8 million in 2012 from $ 123.6 million in 2011. general and administrative expense includes $ 2.5 million of costs associated with a worldwide partners meeting held in july 2012 and $ 1.7 million of costs associated with the purchase of senn delaney in 2012 that were not present in 2011. despite these increases in 2012 , general and administrative expenses decreased due to declines of $ 4.6 million in rent expense , $ 2.7 million in travel and entertainment expenses , $ 1.8 million in professional services and temporary staffing fees , $ 0.7 million in advertising expenses , $ 0.6 million in communication costs , $ 0.3 million in bad debt expense and $ 0.4 million of other general and administrative expenses . these decreases were partially offset by a $ 0.7 million increase in other infrastructure costs and $ 0.6 million of additional depreciation and amortization in 2012 due primarily to the new proprietary search system that was launched in 2012. the decrease in general and administrative expenses of 7.9 % includes a positive impact of $ 2.0 million or 1.6 % due to exchange rate fluctuations . story_separator_special_tag as a percentage of net revenue , general and administrative expenses was 25.6 % in 2012 , compared to 23.4 % in 2011. restructuring charges . in 2012 , we recorded restructuring charges of $ 0.8 million in europe , related to adjustments associated with our 2011 restructuring plan . these charges consisted of $ 1.1 million of employee-related costs associated with severance arrangements , partially offset by $ 0.3 million of adjustments to premise-related costs . in 2011 , we recorded restructuring charges of $ 16.3 million in connection with initiatives to reduce overall costs and improve operational efficiencies . these charges consist of employee-related costs , including severance associated with reductions in our workforce of 139 employees globally , and expenses associated with consolidating and closing 11 of our smaller office locations , predominantly in europe . by segment , the restructuring charges recorded in 2011 were $ 8.3 million in europe , $ 5.1 million in the americas , $ 0.7 million in asia pacific and $ 2.2 million in global operations support . impairment charges . in 2011 , we recorded impairment charges of $ 26.4 million . as a result of the restructuring initiatives announced on october 5 , 2011 , which were primarily related to europe , and the volatility 24 associated with the economic outlook for europe , including political and economic uncertainty in the region during 2011 , we performed a goodwill and intangible asset impairment evaluation as of september 30 , 2011. based on this evaluation , we recorded a goodwill and intangible asset impairment charge in europe of $ 26.0 million , resulting in a write-off of all the goodwill and intangible assets within europe , and an intangible asset impairment of $ 0.4 million in the americas . operating income ( loss ) . our consolidated operating income was $ 19.6 million in 2012 compared to an operating loss of $ 10.9 million in 2011. the increase in operating income is primarily due to decreases in salaries and employee benefits expense of $ 62.9 million , impairment charges of $ 26.4 million , restructuring charges of $ 15.5 million , and general and administrative expenses of $ 9.8 million , offset by a decrease in net revenue of $ 84.0 million . for segment purposes , restructuring charges and impairment charges are not included in operating income ( loss ) by geographic region . we believe that analyzing trends in operating income ( loss ) excluding restructuring charges and impairment charges more appropriately reflects our core operations . the americas reported operating income of $ 61.6 million in 2012 , compared to $ 60.6 million in 2011. the increase in operating income of $ 1.0 million is due to decreases in salaries and employee benefits expense of $ 25.9 million and general and administrative expense of $ 7.2 million , partially offset by a decline in net revenue of $ 32.1 million . the decrease in salaries and employee benefits expense is due to a $ 13.4 million reduction in fixed compensation and a $ 12.5 million decrease in performance-related compensation . fixed compensation decreased primarily due to lower headcount as a result of our 2011 restructuring , as well as consultant turnover that exceeded new hires . the performance-related compensation decrease reflects a decrease in accruals for variable compensation associated with lower net revenue , a decrease in worldwide headcount as a result of the 2011 restructuring , and consultant turnover that exceeded new hires and promotions . the number of consultants was 331 as of december 31 , 2012 , compared to 347 as of december 31 , 2011. the decrease in general and administrative costs is primarily due to decreases in technology related costs of $ 3.0 million , premise and other infrastructure costs of $ 1.2 million , fees for professional services and temporary staffing of $ 0.7 million , travel and entertainment expenses of $ 0.5 million , and other operating costs of $ 2.6 million , partially offset by a $ 0.8 million increase in bad debt expense . europe reported operating income of $ 3.0 million in 2012 , compared to $ 1.2 million in 2011. the increase in operating income of $ 1.8 million is due to decreases in salaries and employee benefits expense of $ 29.0 million and general and administrative expense of $ 6.5 million , partially offset by a decrease in net revenue of $ 33.7 million . the decrease in salaries and employee benefits expense is due to a $ 20.5 million reduction in fixed compensation and an $ 8.5 million decrease in performance-related compensation . fixed compensation decreased primarily due to lower headcount as a result of our 2011 restructuring , as well as consultant turnover that exceeded new hires and a decrease in costs associated with hiring new consultants . the performance-related compensation decrease reflects a decrease in accruals for variable compensation associated with lower net revenue , a decrease in worldwide headcount as a result of the 2011 restructuring , and consultant turnover that exceeded new hires and promotions . the number of consultants was 93 as of december 31 , 2012 compared to 104 as of december 31 , 2011. the decrease in general and administrative costs is due to a $ 2.3 million decrease in travel and entertainment expenses , a $ 2.0 million decrease in premise and other infrastructure related costs , a $ 0.5 million decrease in bad debt expense and a $ 1.7 million decrease in other operating costs . asia pacific reported operating income of $ 3.8 million in 2012 , compared to $ 13.0 million in 2011. the decrease in operating income of $ 9.2 million is due to a decrease in net revenue of $ 18.2 million , partially offset by decreases in salaries and employee benefits expense of $ 9.1 million .
| 22 the following table sets forth , for the periods indicated , our revenue and operating income ( loss ) by segment ( in thousands ) : replace_table_token_9_th 2012 compared to 2011 total revenue . consolidated total revenue decreased $ 88.9 million , or 16.0 % , to $ 465.1 million in 2012 from $ 554.0 million in 2011. the decrease in total revenue was primarily due to the decrease in revenue before reimbursements ( net revenue ) . revenue before reimbursements ( net revenue ) . consolidated net revenue decreased $ 84.0 million , or 15.9 % , to $ 443.8 million in 2012 from $ 527.8 million in 2011. the negative impact of exchange rate fluctuations resulted in approximately two percentage points of the decrease in 2012. net revenue deceased in all regions and across all industry groups , except education and social enterprise . in 2012 , the number of confirmed executive searches decreased 16.1 % to 3,585 from 4,274 in 2011. the average number of consultants was 342 in 2012 compared to 376 in 2011 and there were 331 consultants as of december 31 , 2012 compared to 347 as of december 31 , 2011. productivity , as measured by annualized net revenue per average consultants , was $ 1.3 million for the year ended december 31 , 2012 compared to $ 1.4 million for the year ended december 31 , 2011 , and average revenue per executive search was $ 113,700 for the year ended december 31 , 2012 compared to $ 112,900 for the year ended december 31 , 2011. net revenue in the americas was $ 254.4 million in 2012 , a decrease of $ 32.1 million , or 11.2 % from $ 286.5 million in 2011. the negative impact of exchange rate fluctuations in canada and latin america resulted in less than 1 percentage point of the decrease in 2012. net revenue in europe was $ 99.0 million in 2012 , a decrease of $ 33.7 million , or 25.4 % from $ 132.7 million in 2011. the negative impact of exchange rate fluctuations resulted in approximately 4 percentage points of the
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these critical accounting policies are impacted significantly by 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 . our accounting policies are more fully described in note 2 of our accompanying notes to consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data '' of this annual report on form 10-k. revenue recognition we recognize revenue when it is realized or realizable and earned . we consider revenue realized or realizable and earned when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collectibility is reasonably assured . in instances where final acceptance of the product is specified by the customer or is uncertain , revenue is deferred until all acceptance criteria have been met . contracts and or customer purchase orders are used to determine the existence of an arrangement . shipping documents and customer acceptance , when applicable , are used to verify delivery . we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . we assess collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analyses , as well as the customer 's payment history . revenue for orders is not recognized until the product is shipped and title has transferred to the buyer . we bear all costs and risks of loss or damage to the goods up to that point . our shipment terms for u.s. orders and international orders fulfilled from our european distribution center typically provide that title passes to the buyer upon delivery of the goods to the carrier named by the buyer at the named place or point . if no precise point is indicated by the buyer , delivery is deemed to occur when the carrier takes the goods into its charge from the place determined by us . other shipment terms may provide that title passes to the buyer upon delivery of the goods to the buyer . shipping and handling costs are included in cost of sales . revenue from sales to distributors and dealers is recognized upon shipment , assuming all other criteria for revenue recognition have been met . distributors and dealers do not have a right of return . revenue from purchased extended warranty and post contract support ( pcs ) agreements is deferred and recognized ratably over the term of the warranty or support period . revenue from our subscription services related to our hardware and applications is recognized ratably over the term of the subscription service period beginning on the date that service is made available to the customer , assuming all revenue recognition criteria have been met . we present revenue net of sales taxes and any similar assessments . our software arrangements generally consist of a perpetual license fee and pcs . we generally have established vendor-specific objective evidence ( vsoe ) of fair value for our pcs contracts based on the renewal rate . the remaining value of the software arrangement is allocated to the license fee using the residual method . license revenue is primarily recognized when the software has been delivered and fair value has been established for all remaining undelivered elements . in cases where vsoe of fair value for pcs is not established , revenue is recognized ratably over the pcs period after all software deliverables have been made and the only the undelivered element is pcs . for services performed on a fixed-fee basis , revenue is recognized using the proportional performance method , with performance measured based on hours of work performed . for contracts that involve significant customization and implementation or consulting services that are essential to the functionality of the software , the license and services revenues are recognized using the percentage-of-completion method or , if we are unable to reliably estimate the costs to complete the services , we use the completed-contract method of accounting . a contract is considered complete when all significant costs have been incurred or when acceptance from the customer has been received . some of our subscription product offerings include hardware , subscription services and extended warranty . under these hosted arrangements , the customer typically does not have the contractual right to take possession of the software at any time during the 31 hosting period without incurring a significant penalty and it is not feasible for the customer to run the software either on its own hardware or on a third-party 's hardware . our multiple deliverable product offerings include hardware with embedded firmware , extended warranty , software , pcs services and subscription services , which are considered separate units of accounting . for certain of our products , software and non-software components function together to deliver the tangible product 's essential functionality . in evaluating the revenue recognition for our hardware or subscription agreements which contain multiple deliverables , we determined that in certain instances we were not able to establish vsoe for some or all deliverables in an arrangement as we infrequently sold each element on a standalone basis , did not price products within a narrow range , or had a limited sales history . when vsoe can not be established , we attempt to establish the selling price of each element based on relevant third-party evidence ( tpe ) . tpe is determined based on competitor prices for similar deliverables when sold separately . our offerings may contain a significant level of proprietary technology , customization or differentiation such that the comparable pricing of products with similar functionality can not be obtained . furthermore , we are unable to reliably determine what similar competitor products ' selling prices are on a stand-alone basis . therefore , we typically are not able to establish the selling price of an element based on tpe . story_separator_special_tag when we are unable to establish selling price using vsoe or tpe , we use our best estimate of selling price ( besp ) in our allocation of arrangement consideration . the objective of besp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . besp is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings . we determine besp for a product or service by considering multiple factors including , but not limited to , pricing practices , market conditions , competitive landscape , internal costs , geographies and gross margin . the determination of besp is made through consultation with and formal approval by our management , taking into consideration our go-to-market strategy . income taxes we are a united states-based multinational company operating in multiple u.s. and foreign jurisdictions . significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes . we consider many factors when evaluating and estimating our tax positions and tax benefits , which may require periodic adjustments and may not accurately forecast actual tax audit outcomes . determining whether an uncertain tax position is effectively settled requires judgment . changes in recognition or measurement of our uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision . we are subject to the periodic examination of our domestic and foreign tax returns by the irs , state , local and foreign tax authorities who may challenge our tax positions . we regularly assess the likelihood of adverse outcomes from these examinations in determining the adequacy of our provision for income taxes . our income tax expense has differed from the tax computed at the u.s. federal statutory income tax rate primarily due to the changes in nondeductible expenses , changes in the geographic mix of pretax income , and changes related to acquisitions and divestitures . unanticipated changes in our tax rates could affect our future results of operations . our future effective tax rates could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned , by unanticipated decreases in the amount of earnings in countries with low statutory tax rates , or by changes in the valuation of our deferred tax assets and liabilities . the united states and foreign countries where we do business may change tax laws , regulations , and interpretations and these potential changes could adversely affect our effective tax rates . business combinations and valuation of goodwill and purchased intangible assets we allocate the fair value of purchase consideration to the assets acquired , liabilities assumed , and non-controlling interests in the acquiree based on their fair values at the acquisition date . the excess of the fair value of purchase consideration over the fair value of these assets acquired , liabilities assumed and non-controlling interests in the acquiree is recorded as goodwill . when determining the fair values of assets acquired , liabilities assumed , and non-controlling interests in the acquiree , management makes significant estimates and assumptions , especially with respect to intangible assets . critical estimates in valuing intangible assets include , but are not limited to , expected future cash flows , which includes consideration of future growth rates and margins , customer attrition rates , future changes in technology and brand awareness , loyalty and position , and discount rates . fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability . identifiable intangible assets are comprised of distribution channels and distribution rights , patents , licenses , technology , acquired backlog , trademarks , and in-process research and development . amounts recorded in a business combination may change during the measurement period , which is a period not to exceed one year from the date of acquisition , as additional information about conditions existing at the acquisition date becomes available . 32 we evaluate goodwill , at a minimum , on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable . the annual goodwill impairment testing is performed in the fourth fiscal quarter of each year based on the values on the first day of that quarter . goodwill was reviewed for impairment utilizing a quantitative two-step process . when we perform a quantitative assessment of goodwill impairment , the determination of fair value of a reporting unit involves the use of significant estimates and assumptions . the discounted cash flows are based upon , among other things , assumptions about expected future operating performance using risk-adjusted discount rates . actual future results may differ from those estimates . identifiable intangible assets are being amortized over the period of estimated benefit using the straight-line method , approximates the pattern of economic benefits associated with these assets . changes in circumstances such as technological advances , changes to our business model , or changes in the capital strategy could result in the actual useful lives of intangible assets differing from initial estimates . in cases where we determine that the useful life of an asset should be revised , the net book value in excess of the estimated residual value will be depreciated over its revised remaining useful life . these assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable based on their future cash flows . the estimated future cash flows are based upon , among other things , assumptions about expected future operating performance and these estimates may differ from actual future cash flows . the assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities .
| by revenue category , overall product revenue increased $ 28.5 million , or 2 % , service revenue increased $ 10.3 million , or 2 % , and subscription revenue increased $ 33.0 million , or 10 % . the product revenue increase was primarily within engineering and construction and mobile solutions , to a lesser extent advanced devices , partially offset by declines in field solutions . service and subscription increases were primarily due to organic growth within engineering and construction and mobile solutions as we continue to expand software and services , including implementation , maintenance and subscription services , as a portion of our revenue . although to a lesser extent , acquisition growth within field solutions also contributed . in fiscal 2015 , total revenue decreased by $ 105.1 million , or 4 % , to $ 2.29 billion from $ 2.40 billion in fiscal 2014 . overall revenue was primarily impacted by negative foreign currency effects , and to a lesser extent declines due to oil and gas and agricultural market conditions , partially offset by acquisitions and improved growth in building construction and transportation and logistics . on a segment basis , the decrease in fiscal 2015 was primarily due to engineering and construction and field solutions , partially offset by the increase in mobile solutions . engineering and construction revenue decreased $ 64.8 million , or 5 % , field solutions revenue decreased $ 66.8 million , or 16 % , and advanced devices decreased $ 7.0 million , or 5 % , partially offset by an increase in mobile solutions of $ 33.5 million , or 7 % , as compared to fiscal 2014 . the decline in engineering and construction was primarily driven by the impact of foreign currency effects due to the weaker euro and to a lesser extent , oil price declines on regional economies , primarily in geospatial . the decline was partially offset by building construction which was up due
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replace_table_token_6_th h & r block , inc. | 2014 form 10-k 27 fiscal year 2014 compared to fiscal year 2013 – interest expense declined $ 20.0 million , or 27.2 % , due to lower interest rates on our long-term debt , coupled with lower principal balances outstanding . other expenses decreased $ 9.7 million , or 22.2 % , primarily due to a gain of $ 18.3 million recognized on the sale of residual interests in mortgage securitizations . fiscal year 2013 compared to fiscal year 2012 – interest expense declined $ 10.0 million , or 12.0 % , due to lower interest rates on our senior notes , coupled with lower principal balances outstanding . other expenses decreased $ 8.3 million , or 15.9 % , primarily due to a $ 10.8 million decline in our provision for loan losses , partially offset by the $ 5.8 million loss on extinguishment of debt we incurred on the redemption of our $ 600.0 million senior notes . discontinued operations discontinued operations include our previously reported business services segment and discontinued mortgage operations . fiscal year 2014 compared to fiscal year 2013 – the net loss from our discontinued operations totaled $ 24.9 million for the current year , compared to a net loss of $ 31.2 million in the prior year . pretax losses of mortgage operations totaled $ 38.5 million , compared to $ 52.1 million in the prior year , and resulted primarily from incremental loss provisions related to scc 's estimated contingent losses for representation and warranty claims of $ 25.0 million and $ 40.0 million for fiscal years 2014 and 2013 , respectively . fiscal year 2013 compared to fiscal year 2012 – the net loss from our discontinued operations totaled $ 31.2 million for fiscal year 2013 , compared to a net loss of $ 80.0 million in fiscal year 2012 . fiscal year 2012 losses included a $ 99.7 million pretax goodwill impairment related to the sales of rsm mcgladrey , inc. ( rsm ) and mcgladrey capital markets llc ( mcm ) , as well as operating income of $ 14.4 million earned by those businesses prior to the sale . pretax losses of mortgage operations totaled $ 52.1 million for fiscal year 2013 and resulted primarily from incremental loss provisions of $ 40.0 million related to scc 's estimated contingent losses for representation and warranty claims . pretax losses of mortgage operations totaled $ 59.7 million in fiscal year 2012 and resulted primarily from loss provisions relating to representation and warranty claims totaling $ 20.0 million and settlement charges totaling $ 28.0 million . contingent losses – scc has accrued a liability as of april 30 , 2014 for estimated contingent losses arising from representation and warranty claims of $ 183.8 million . the estimate of accrued loss is based on the best information currently available , significant management judgment , and a number of factors that are subject to change , including developments in case law and the factors , mentioned in `` critical accounting estimates '' below . changes in any one of these factors could significantly impact the estimate . losses may also be incurred with respect to various indemnification claims by underwriters and depositors in securitization transactions in which scc participated . scc has not concluded that a loss is probable or reasonably estimable related to these indemnification claims , therefore there is no accrued liability for these contingent losses as of april 30 , 2014 . see additional discussion in item 1a , `` risk factors , '' `` critical accounting estimates '' below and in item 8 , note 18 to the consolidated financial statements . critical accounting estimates we consider the estimates discussed below to be critical to understanding our financial statements , as they require the use of significant judgment and estimation in order to measure , at a specific point in time , matters that are inherently uncertain . specific methods and assumptions for these critical accounting estimates are described in the following paragraphs . we have reviewed and discussed each of these estimates with the audit committee of our board of directors . for all of these estimates , we caution that future events rarely develop precisely as forecasted and estimates routinely require adjustment and may require material adjustment . see item 8 , note 1 to the consolidated financial statements , which discusses accounting policies we have selected when there are acceptable alternatives and new or proposed accounting standards that may affect our financial reporting in the future . 28 2014 form 10-k | h & r block , inc. losses arising from representations and warranties – nature of estimates required . scc accrues a liability for losses related to representation and warranty claims when those losses are believed to be both probable and reasonably estimable . development of loss estimates is subject to significant management judgment , and estimates may vary significantly period to period . assumptions and approach used . scc has entered into tolling agreements with the counterparties that initiated the majority of claims received by scc . beginning in the fourth quarter of fiscal year 2013 and continuing in fiscal year 2014 , scc has been engaged in discussions with these counterparties regarding the bulk settlement of previously denied and potential future claims . based on settlement discussions with these counterparties , scc believes a bulk settlement approach , rather than the loan-by-loan resolution process , will be needed to resolve all of the representation and warranty and other claims that are the subject of these discussions . in the event that current efforts to settle are not successful , scc believes claim volumes may increase or litigation may result . scc will continue to vigorously contest any request for repurchase when it has concluded that a valid basis for repurchase does not exist . story_separator_special_tag scc 's decision whether to engage in bulk settlement discussions is based on factors that vary by counterparty or type of counterparty and include the considerations used by scc in determining its loss estimate . scc 's loss estimate for representation and warranty claims is based on the best information currently available , significant management judgment , and a number of factors that are subject to change , including developments in case law and the factors mentioned below . these factors include the terms of prior bulk settlements , the terms expected to result from ongoing bulk settlement discussions , and an assessment of , among other things , historical claim results , threatened claims , terms and provisions of related agreements , counterparty willingness to pursue a settlement , legal standing of counterparties to provide a comprehensive settlement , the potential pro-rata realization of the claims as compared to all claims and other relevant facts and circumstances when developing its estimate of probable loss . scc believes that the most significant of these factors are the terms of prior bulk settlements and the terms expected to result from ongoing bulk settlement discussions , which have been primarily influenced by the anticipated pro-rata realization of the claims of particular counterparties as compared to the anticipated realization if all claims and litigation were resolved together with payment of scc 's related administration and legal expense . changes in any one of the factors mentioned above could significantly impact the estimate . sensitivity of estimate to change . it is reasonably possible that future representation and warranty losses may vary from the amounts accrued for these exposures . scc currently estimates that the range of reasonably possible loss could be up to approximately $ 16 million in excess of amounts accrued . this estimated range is based on the best information currently available , significant management judgment and a number of factors that are subject to change , including developments in case law and the factors listed above in this item 7. the actual loss that may be incurred could differ materially from our accrual or the estimate of reasonably possible losses . scc has accrued a liability as of april 30 , 2014 for estimated contingent losses arising from representation and warranty claims of $ 183.8 million . scc accrued incremental loss provisions of $ 25 million in fiscal year 2014 and $ 40 million in fiscal year 2013. if future losses are in excess of scc 's accrued liability , those losses could have a material adverse effect on our business and our consolidated financial position , results of operations and cash flows , as scc 's financial condition , operating results and cash flows are included in our consolidated financial statements . the accrued liability does not include potential losses related to litigation matters discussed in item 1a , `` risk factors '' and in item 8 , note 17 to the consolidated financial statements . also see item 8 , note 18 to the consolidated financial statements . litigation and related contingencies – nature of estimates required . we have accrued liabilities related to certain legal matters for which we believe it is probable that a loss will be incurred and the range of such loss can be reasonably estimated . assessing the likely outcome of pending or threatened litigation , including the amount of potential loss , if any , is highly subjective . assumptions and approach used . we are subject to pending or threatened litigation claims and indemnification claims , which are described in item 8 , note 17 to the consolidated financial statements . it is our policy to routinely assess the likelihood of any adverse judgments or outcomes related to legal matters , as well as ranges of probable losses . a determination of the amount of the liability required to be accrued , if any , for these contingencies is made h & r block , inc. | 2014 form 10-k 29 after analysis of each known issue and an analysis of historical experience . in cases where we have concluded that a loss is only reasonably possible or remote , or is not reasonably estimable , no liability is accrued . sensitivity of estimate to change . it is reasonably possible that future litigation and related contingent losses may vary from the amounts accrued . for some matters where a liability has not been accrued , we are able to estimate a reasonably possible range of loss . those matters for which an estimate is not reasonably possible are not included within this estimated range . therefore , this estimated range of reasonably possible loss represents what we believe to be an estimate of reasonably possible loss only for certain matters meeting these criteria . it does not represent our maximum loss exposure . for those matters , and for matters where a liability has been accrued , as of april 30 , 2014 , we believe the aggregate range of reasonably possible losses in excess of amounts accrued is not material . however , our judgments on whether a loss is probable , reasonably possible or remote and our estimates of probable loss amounts may differ from actual results due to difficulties in predicting the outcome of jury trials , arbitration hearings , settlement discussions and related activity , predicting the outcome of class certification actions and numerous other uncertainties . due to the number of claims which are periodically asserted against us , and the magnitude of damages sought in those claims , actual losses in the future may significantly differ from our current estimates . income taxes – uncertain tax positions – nature of estimates required . the income tax laws of jurisdictions in which we operate are complex and subject to different interpretations by the taxpayer and applicable government taxing authorities . income tax returns filed by us are based on our interpretation of these rules .
| % decline in returns prepared driven primarily by our decision to discontinue the free 1040ez offer . international tax preparation fees decreased $ 20.7 million , or 9.4 % , due primarily to unfavorable exchange rates and extension of the canadian tax season to may 5th . fees earned on racs increased $ 23.2 million , or 14.7 % , primarily due to elimination of certain price discounts and higher volumes for our online clients . revenue from fees for our pom guarantees is initially deferred , and recognized over the term of the guarantee based on actual claims paid in relation to projected claims . revenue increased in fiscal year 2014 primarily due to improving claim experience and lower estimates of projected claims . other revenue increased $ 19.1 million , or 8.0 % , primarily due to an increase in online tax preparation revenues . total expenses increased $ 76.3 million , or 3.7 % , from the prior year primarily due to increases in compensation and benefits , depreciation and amortization , and partially offset by a planned reduction in marketing and advertising spend of $ 33.0 million . 26 2014 form 10-k | h & r block , inc. total compensation and benefits increased $ 76.5 million primarily due to higher variable field wages resulting from increased revenues and increases to in-office customer service support staff . occupancy and equipment expenses increased $ 9.2 million , or 2.6 % , primarily due to a 4.8 % increase in company-owned offices . marketing and advertising expensed declined $ 33.0 million due to a planned reduction in national advertising spend . depreciation and amortization expense increased $ 23.5 million , or 25.5 % , primarily due to office upgrades and competitor acquisitions . other expenses increased $ 12.8 million , or 4.8 % , primarily due to foreign currency losses in the current year . pretax income for fiscal year 2014 increased $ 45.2 million
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; and adjusted ebitda , which is a non-u.s. gaap financial measure , increased from $ 41.6 million for 2013 to $ 105.4 million for 2014 and $ 143.4 million for 2015 . please see footnotes 3 and 5 to the other financial and operating data table in “ item 6—selected financial data ” of this form 10-k for a reconciliation of revenue ex-tac to revenue and adjusted ebitda to net income , the most directly comparable financial measures calculated and presented in accordance with u.s. gaap . we are focused on maximizing revenue ex-tac . we believe this focus builds sustainable long-term value for our business and fortifies a number of our competitive strengths , including a highly liquid marketplace for display advertising . as part of this focus , we seek to maximize our percentage of overall marketing spend in the internet display advertising market over the long-term . in addition , this focus enriches liquidity for both advertisers and publishers resulting in more effective advertising for the advertiser , better monetization for the publisher and more relevant advertisements for the user . we believe our results of operations reflect this focus . acquisitions in february 2015 , we acquired datapop , a los angeles-based company specializing in the optimization of shopping campaigns on large search engines . with the addition of datapop , we intend to continue to broaden our channels enabling marketers to convert customers across a wider spectrum of marketing channels and deliver multi-channel performance marketing across all devices and screens . please refer to note 2 to our audited consolidated financial statements included elsewhere in this form 10-k for further details . in april 2014 , we completed the acquisition of adquantic , a bidding technology company headquartered in paris . through the acquisition of adquantic , we added a team of seven experts in bidding technology , reinforcing our focus on research and development . in february 2014 , we acquired tedemis , a provider of real-time personalized e-mail marketing solutions that help advertisers turn web visitors into customers . with the addition of tedemis , we extended our digital performance marketing solution to a new marketing channel . in july 2013 , as part of our strategy to build upon our market and technology leadership , we acquired ad-x , a mobile analytics and attribution technology company . ad-x provides a solution for businesses to track and optimize mobile display advertising campaigns delivered to smartphones and tablets through mobile advertising networks and other marketing solutions . the acquisition of ad-x enabled us to leverage ad-x 's complementary technology , personnel and client relationships to accelerate our mobile strategy . 66 transition to u.s. gaap and change in reporting currency as of june 30 , 2015 , we no longer met the requirements to qualify as a foreign private issuer under the exchange act . as a result , we began reporting as a domestic registrant as of january 1 , 2016 and we are now required under current sec rules to prepare our financial statements in accordance with u.s. gaap , rather than ifrs , and to present our financial information in u.s. dollars instead of euros . the transition from consolidated financial statements under ifrs to u.s. gaap has only impacted the presentation of our consolidated statement of financial position ( order of liquidity ) and of our consolidated statement of cash flows ( effect of exchange rate changes on cash and cash equivalents ) . the functional currency of the company still remains the euro , while our reporting currency has changed from the euro to the u.s dollar . consequently , since we incur portions of our expenses and derive revenues in currencies other than the euro , we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates . foreign exchange risk exposure also arises from intra-company transactions and financing with subsidiaries that have a functional currency different than the euro . the statements of financial position of consolidated entities having a functional currency different from the u.s. dollar are translated into u.s. dollars at the closing exchange rate ( spot exchange rate at the statement of financial position date ) and the statements of income , statements of comprehensive income and statements of cash flow of such consolidated entities are translated at the average period to date exchange rate . the resulting translation adjustments are included in equity under the caption “ accumulated other comprehensive income ” in the consolidated statements of changes in equity . a. operating results . basis of presentation the key elements of our results of operations include : revenue we sell internet display advertisements featuring product-level recommendations either directly to clients or to advertising agencies , which we collectively refer to as our clients , and generate revenue when a user clicks on a banner advertisement of one of our advertiser clients . publishers are a source of inventory for us , and we account for the cost of such inventory , which is purchased on a cost per thousand impressions basis , in our cost of revenue . while accessing publishers ' supply of inventory in sufficient quantity and quality is a critical requirement for us to successfully conduct our business , we do not generate any revenue directly from our relationship with publishers . we price our advertising campaigns on a cpc model based on the number of clicks generated by users on each advertising campaign . the actual number of clicks generated by users is highly dependent on our ability to maximize click through rate , or ctr , by displaying customized individual banners to individual users and purchasing in real time the most relevant impression for that particular individual user . for any given advertising campaign , the client has the ability to adjust its cpc above a determined floor price in real time , at any time during the life of the campaign , by product category and by user intent segment . story_separator_special_tag this enables clients to adjust the estimated marketing spend attributable to the particular campaign . essentially all of our revenue in each of 2013 , 2014 and 2015 was derived from advertising campaigns sold on a cpc basis . we sell performance-based campaigns to clients generally through insertion orders that are cancellable upon short notice and without penalty . we generally bill our clients on a monthly basis for each campaign run during the prior month . the monthly fee is based on the campaign 's various real-time cpcs for that month multiplied by the number of clicks generated by users for that month for such cpcs . 67 as we further expand our geographic footprint , develop new clients and grow our business with existing clients , and expand our business into new marketing channels , we expect our revenue to continue to increase . cost of revenue our cost of revenue primarily includes traffic acquisition costs and other cost of revenue . traffic acquisition cost s. traffic acquisition costs consist primarily of purchases of impressions from publishers on a cpm basis . we purchase impressions directly from publishers or third-party intermediaries , such as advertising exchanges . we recognize cost of revenue on a publisher by publisher basis as incurred . costs owed to publishers but not yet paid are recorded in our consolidated statements of financial position as accounts payable and accrued expenses . we purchase inventory from our direct publishers generally through insertion orders consistent with industry standard terms and conditions for the purchase of internet advertising inventory . pursuant to such arrangements , we purchase impressions on a cpm-basis for users that criteo recognizes on the publishers ' network . such arrangements are cancellable upon short notice and without penalty . as a general rule our agreements with publishers do not contain spend commitments . we may only enter in commitments to purchase a defined volume of impressions if such commitments are specifically subject to corresponding performance commitments from the publisher . we intend to expand our direct relationships with publishers to secure our access to qualified inventory including on native inventory on the web and in mobile applications . we may require our publishers to deliver higher volumes of impressions , with our commitment to buy being linked to specified performance commitments from the publisher . we may also require our publishers to first call us for the advertising serving , thereby granting us privileged access to qualified digital display advertising inventory , and we may sign more exclusive deals with publishers . in recent years , real-time automated buying platforms and bidding exchanges have gained significant traction in the internet display advertising market , resulting in a significant increase in the supply of inventory . as part of this expansion , we have integrated our solution with the leading advertising exchanges and developed our own comprehensive inventory management platform , which we refer to as pump . we believe the combination of our extensive direct publisher relationships and access to leading advertising exchanges enhances the breadth and depth of our accessible advertising inventory resulting in deep liquidity for us . we believe that this contributes to increasing the strength our solution with our clients . for a discussion of the trends we expect to experience in traffic acquisition costs , see the section titled “ —highlights and trends—revenue ex-tac ” in item 7.d—trend information ” below . other cost of revenue . other cost of revenue includes expenses related to third-party hosting fees , depreciation of data center equipment and data purchased from third parties that we leverage in our solution . we intend to continue to invest additional resources in the capacity of our hosting services infrastructure , and as we enter new markets , we may make additional investments in the acquisition of relevant third-party data . operating expenses operating expenses consist of research and development , sales and operations , and general and administrative expenses . salaries , bonuses , share-based compensation , pension benefits and other personnel-related costs are the most significant components of each of these expense categories . we grew from 629 employees at january 1 , 2013 to 1,841 employees at december 31 , 2015 , and we expect to continue to hire a significant number of new employees in order to support our anticipated revenue growth . we include share-based compensation expense in connection with the grant of share options , warrants , and restricted share units in the applicable operating expense category based on the respective equity award recipient 's function . research and development expense . research and development expense consists primarily of personnel-related costs for our employees working in the engine , platform , product and infrastructure teams , including salaries , bonuses , share-based compensation and other personnel related costs . our research and development function was supplemented in january 2013 to include a dedicated product organization following the appointment of our chief product officer . also included are non-personnel costs such as subcontracting , consulting and professional fees to third-party development resources , allocated overhead and depreciation and amortization costs . these expenses are partially offset by the french research tax credit that is conditional upon the level of our expenditures in research and development . for additional discussion of the french research tax credit , see the discussion below titled “ —provision for income taxes. ” 68 our research and development efforts are focused on enhancing the performance of our solution and improving the efficiency of the services we deliver to our clients and publisher partners . all development costs , principally headcount-related costs , are expensed as management determines that technological feasibility is reached shortly before the release of products or features developed and as a result , the development costs incurred after the establishment of technological feasibility and before the release of those products or features are not material and accordingly , are expensed as incurred .
| our revenue in the asia-pacific region increased 39.0 % ( or 55.7 % on a constant currency basis ) to $ 276.4 million for 2015 compared to 2014 , as we continued to expand our business with existing clients , in particular in japan , and saw very fast growth in south-east asia throughout the year . additionally , our $ 1,323.2 million of revenue for 2015 was negatively impacted by $ 152.1 million of currency fluctuations , particularly as a result of the strengthening of the u.s. dollar compared to the japanese yen , the brazilian real , and the euro . over 100 % of this year-over-year growth in revenue on a constant revenue basis was attributable to an increased volume of clicks delivered on the advertising banners displayed by us . 75 2014 compared to 2013 revenue for 2014 increased $ 398.8 million , or 67.7 % ( or 70.3 % on a constant currency basis ) , compared to 2013 . revenue from new clients contributed 34.3 % to the global year-over-year revenue growth while revenue from existing clients contributed 65.7 % to the global year-over-year revenue growth . this increase in revenue was due in part to our technology improvements and our ability to engage seamlessly with end-customers across desktop and mobile screens , which helped generate more revenue per client , in particular from our existing clients . our ability to convert a large portion of our clients to uncapped budgets was also a key driver of the increase in revenue per client . the year-over-year increase was the result of our rapid growth across all geographies . our revenue in the americas region increased 85.8 % to $ 303.4 million for 2014 compared to 2013 , as our solution continued to gain significant traction among large clients in the united states and as mid-market clients continued to ramp-up . our revenue in the emea region increased 53.9 % to $ 486.0 million for 2014 compared 2013 , primarily driven by increased penetration in our western european core markets , including mid-market clients . our revenue in the asia-pacific region increased 80.1 % to $ 198.8 million for 2014 compared to 2013
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we continue to explore ways to maximize the value of our existing insured financial guaranty portfolio , including the possibility of partnering with third-parties to utilize all or a portion of the portfolio as a platform for writing new public finance and infrastructure business , as well as other possible ways to leverage the portfolio . on february 1 , 2011 , radian asset assurance signed an agreement to purchase municipal and infrastructure 101 assurance corporation ( the fg insurance shell ) , a new york domiciled financial guaranty insurance company that has not written any business , but has obtained licenses to do so in 36 states and the district of columbia . the acquisition , which remains subject to regulatory approval , provides radian asset assurance with the flexibility to consider using the fg insurance shell to pursue strategic alternatives in the public finance market , including possibly partnering with third-party investors to write new public finance insurance and or reinsuring all or a portion of radian asset assurance 's existing public finance business . we are in the early stages of exploring these potential uses , and expect that any new initiative for the fg insurance shell would be consistent with our ultimate goal of reducing our financial guaranty exposure . the expected purchase price of approximately $ 82 million is $ 7 million above the value of the statutory capital base of the fg insurance shell , consisting of approximately $ 75 million of cash , cash equivalents and treasury securities . financial guaranty exposure subject to recapture or termination . as a result of multiple ratings downgrades of radian asset assurance , approximately $ 57.9 billion of our total net par outstanding as of december 31 , 2010 ( representing 73.5 % of financial guaranty 's total net par outstanding ) , remains subject to recapture or termination at the option of our primary reinsurance customers and credit derivative counterparties . if all of our direct insurance that is subject to termination was terminated as of december 31 , 2010 , our net par outstanding would have been reduced by $ 34.3 billion , with a corresponding decrease in unearned premium reserves of $ 8.7 million and a decrease in the present value of expected future installment premiums of $ 114.2 million . net unrealized losses on derivatives and vies of $ 729.3 million would also have been reversed had these transactions been terminated as of december 31 , 2010. if any of our derivative transactions were terminated by our credit derivative counterparties , such terminations would not have resulted in a payment by either party . if all of our reinsurance that is subject to recapture was recaptured as of december 31 , 2010 , our net par outstanding would have been reduced by $ 23.6 billion and the pre-tax impact on our financial statements would have been as follows : statement of operations ( in millions ) decrease in assumed premiums written $ ( 248.5 ) decrease in net premiums earned $ ( 34.8 ) increase in change in fair value of derivative instrumentsgain 26.3 decrease in policy acquisition costs 4.1 decrease in provision for losses 7.5 increase in pre-tax income $ 3.1 balance sheet ( in millions ) decrease in : cash $ 176.5 deferred policy acquisition costs 71.4 accounts and notes receivable 32.3 derivative assets 1.5 unearned premiums 213.7 reserve for losses and loss adjustment expenses ( lae ) 43.4 derivative liabilities 27.7 assuming all of this reinsurance business was recaptured as of december 31 , 2010 , radian asset assurance 's statutory surplus would have increased by approximately $ 164.4 million , primarily as a result of the release of contingency reserves . the net present value of installment premiums on derivative contracts would have decreased by $ 4.9 million . 102 while our treaties with our primary reinsurance customers do not permit our reinsurance customers to selectively recapture business previously ceded to us under their treaties , because we have entered into multiple treaties with each customer , it is possible that a customer may choose to recapture business only under those treaties that it perceives as covering less risky portions of our reinsurance portfolio . this selective recapture , if it occurs , could potentially leave us with risk that is more concentrated in troubled asset classes . financial services at december 31 , 2010 , our financial services segment consisted solely of our 46 % interest in credit-based asset servicing and securitization llc ( c-bass ) , a mortgage investment company that we wrote off completely in 2007 , and that filed for chapter 11 bankruptcy protection on november 12 , 2010. historically , c-bass operated as a mortgage investment and servicing company specializing in the credit risk of subprime single-family residential mortgages . as a result of the disruption in the subprime mortgage market during 2007 , c-bass ceased purchasing mortgages and mortgage securities and its securitization activities in the third quarter of 2007 and sold its loan-servicing platform in the fourth quarter of 2007. we recorded a full write off of our equity interest in c-bass in the third quarter of 2007 and wrote off a $ 50 million credit facility with c-bass in the fourth quarter of 2007. as a consequence of the complete write-off of our investment in c-bass in 2007 , we have no continuing interest of value in c-bass . the effect of c-bass on our financial position and results of operations as of and for the years ended december 31 , 2010 , 2009 and 2008 , was negligible . we have no contractual obligations to c-bass or its creditors to fund c-bass 's shareholders ' deficit or any other of its obligations . story_separator_special_tag the likelihood that we will recover any of our investment is extremely remote . accordingly , we believe it is extremely unlikely that our investment in c-bass will have anything more than a negligible impact on our financial position , results of operation or cash flows at any time in the future . on may 3 , 2010 , radian guaranty sold to sherman financial group llc ( sherman ) , a consumer asset and servicing firm specializing in charged-off and bankruptcy plan consumer assets , all of its remaining 28.7 % equity interest in sherman for approximately $ 172 million in cash , pursuant to a securities purchase agreement ( the sherman purchase agreement ) dated as of may 3 , 2010 , between radian guaranty and sherman . as a result of the sale , in the second quarter of 2010 , we recorded a pre-tax gain of approximately $ 34.8 million , net of transaction related expenses of $ 1.3 million , and a pre-tax decrease in accumulated comprehensive income of $ 29.7 million . in addition , under the sherman purchase agreement , we agreed to terminate certain rights , including our right to a future contingent payment from a previous sale of our interest in sherman . overview of business results as a seller of credit protection , our results are subject to macroeconomic conditions and specific events that impact the production environment and credit performance of our underlying insured assets . while the improved credit quality of new mortgage insurance business writings continued in 2010 , the ongoing downturn in the housing and related credit markets , characterized by a decrease in mortgage originations , decline in home prices in certain markets , deteriorating credit performance of mortgage and other assets and reduced liquidity for many participants in the mortgage and financial services industries , has had , and we believe will continue to have , a significant negative impact on the operating environment and results of operations for each of our businesses . there is a great deal of uncertainty regarding our ultimate loss performance . the possibility that the united states ( u.s. ) economy may not recover from the most recent recession or may reenter a recessionary period following a brief period of stabilization or growth , the lack of meaningful liquidity in some sectors of the capital and credit markets , the potential for continued high unemployment and limited home price appreciation or further depreciation may add further stress on the performance of our insured assets . 103 mortgage insurance defaults . our first-lien primary default rate at december 31 , 2010 was 16.46 % , compared to 17.99 % at december 31 , 2009. our primary default inventory decreased by 17.5 % during 2010. despite this positive trend , which is primarily the result of a decrease in new defaults , an increase in the curing of defaults ( cures ) and an increase in claims paid , our overall primary default rates continue to remain elevated due to high unemployment and continued weakness in the u.s. housing and mortgage credit markets . defaults have remained at elevated levels across all our mortgage insurance product lines , including our insured portfolio of prime , first-lien mortgages . in addition , a slowdown in mortgage foreclosures , and consequently a slowdown in claims submitted to us , has contributed to the sustained high level of our default inventory , mainly due to the foreclosure moratoriums imposed by various government entities and lenders , and due to prolonged modification programs for certain delinquent loans . this has resulted in more defaults remaining unresolved for a longer period than has historically been the case . this slowdown in claims is further exacerbated by foreclosure moratoriums imposed by certain servicers that are related to allegations that servicers and other third parties acted improperly in foreclosure proceedings . see risk factors foreclosure moratoriums may extend the period of time that a loan remains in our delinquent loan inventory and increase the severity of claims we are required to pay once the moratoriums expire. overall , the underlying trend of high defaults continues to be primarily driven by the poor performance of our 2005 through 2008 books of business . we believe that a return to sustained profitability in our mortgage insurance business is largely dependent upon a significant further reduction in the number of new primary , first-lien defaults . while we expect new primary , first-lien defaults to continue to decrease throughout 2011 and in future years , based on the current pace of this decrease , we do not expect our mortgage insurance business to be profitable in 2011. provision for losses . our mortgage insurance provision for losses was $ 1,730.8 million for 2010. our loss provision for 2010 was positively impacted by a decrease in new default notices received during 2010 compared to 2009. this impact was offset , however , by an increase in the rate at which defaults move to claim ( default to claim rate ) , an increase in the expected payment amount ( severity ) of expected pool insurance claims and the breach of subordination levels for certain pool insurance structured transactions in which we are in a second loss position . the severity of pool insurance claims has increased significantly in 2010 , and is reflected by first-lien reserves per pool default increasing to $ 24,911 per pool loan at december 31 , 2010 , from $ 16,118 at december 31 , 2009. see risk factors a large portion of our mortgage insurance risk in force consists of higher risk loans , such as high-ltv and non-prime loans , as well as pool mortgage insurance. while there has been
| other factors that may cause a difference between the fair value of these obligations and our estimated credit loss payments include the effects of our non-performance risk and differing assumptions regarding discount rate and future performance . in the absence of credit losses , unrealized losses related to changes in fair value will reverse before or at the maturity of these obligations . however , we may agree to settle some or all of these obligations prior to maturity at amounts that are greater or less than their fair values at the time of settlement , which could result in the realization of gains or losses and the reversal of unrealized gains or losses . the following table summarizes the fair value amounts reflected on our consolidated balance sheet at december 31 , 2010 , related to these instruments and the present value of our estimated credit loss payments on these instruments . replace_table_token_42_th 107 ( 1 ) represents the present value of our estimated credit loss payments ( net of estimated recoveries ) for those transactions where we currently anticipate paying net losses , calculated using a discount rate ranging from 2.4 % to 3.0 % , which represents our current investment yield . at a discount rate of 5 % , our estimated credit loss payments would decrease by approximately $ 136.8 million to $ 371.8 million , with most of this decrease related to financial guaranty derivatives and vies . results of operationsconsolidated the following table summarizes our consolidated results of operations for the years ended december 31 , 2010 , 2009 and 2008 ( $ in millions ) : replace_table_token_43_th n/mnot meaningful year ended december 31 , 2010 compared to year ended december 31 , 2009 net loss . the increase in our net loss for 2010 , compared to 2009 , mainly resulted from the establishment of a valuation allowance against our dta , an increase in the provision for losses , unrealized losses in the change in fair value of derivative instruments and net losses on other
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on march 4 , 2019 , we entered into separate equity distribution agreements with each of citigroup global markets inc. , bmo capital markets corp. , btig , llc , capital one securities , inc. , jefferies llc , raymond james & associates , inc. , rbc capital markets , llc , suntrust robinson humphrey , inc. and wells fargo securities , llc ( collectively , the “ sales agents ” ) pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 200.0 million from time to time ( the “ march 2019 atm program ” ) in negotiated transactions or transactions that are deemed to be “ at the market ” offerings as defined in rule 415 under the securities act . under the march 2019 atm program , we may also enter into one or more forward transactions ( each , a “ forward sale transaction ” ) under separate master forward sale confirmations and related supplemental confirmations with each of citibank , n.a. , bank of montreal , jefferies llc , raymond james & associates , inc. , royal bank of canada and wells fargo bank , national association ( collectively , the “ forward counterparties ” ) for the sale of shares of our common stock on a forward basis . on december 20 , 2019 , we entered into separate new equity distribution agreements with each of the sales agents pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 300.0 million from time to time ( the “ december 2019 atm program ” ) in negotiated transactions or transactions that are deemed to be “ at the market ” offerings as defined in rule 415 under the securities act . under the december 2019 atm program , we may also enter into one or more forward sale transactions under separate master forward sale confirmations and related supplemental confirmations with the forward 38 counterparties for the sale of shares of our common stock on a forward basis . no sale of shares of our common stock was made under the december 2019 atm program during the year ended december 31 , 2019. the following table sets forth certain information with respect to sales made under the 2017 atm program and the march 2019 atm program as of december 31 , 2019 ( amounts in thousands except share amounts ) : replace_table_token_9_th ( 1 ) during the year ended december 31 , 2019 , we entered into and fully settled forward sale transactions under the march 2019 atm program by selling and issuing an aggregate of 1,825,712 shares of our common stock in exchange for net proceeds to us of approximately $ 35.2 million , after deducting offering costs . as of december 31 , 2019 , we had entered into forward sales transactions under the march 2019 atm program for the sale of an additional 2,878,703 shares of our common stock that had not yet been settled . subject to our right to elect net share settlement , we expect to physically settle the forward sales transactions no later than december 9 , 2020. assuming the forward sales transactions are physically settled in full utilizing a weighted average initial forward sales price of $ 22.56 per share , we expect to receive net proceeds of approximately $ 64.9 million , after deducting offering costs , subject to adjustments in accordance with the applicable forward sale transactions . we accounted for the forward sale agreements as equity . we have used the proceeds from such sales for general corporate purposes . as of december 31 , 2019 , we had approximately $ 103.9 million and $ 300.0 million of gross sales of our common stock available under the march 2019 atm program and the december 2019 atm program , respectively . debt amended and restated credit facility we had a $ 400.0 million senior unsecured credit facility , which we amended and restated in 2018 , which we refer to as our senior unsecured credit facility . our senior unsecured credit facility includes a total borrowing capacity of $ 600.0 million , consisting of two components : ( i ) a $ 450.0 million revolving credit facility , which we refer to as the revolving credit facility , and ( ii ) a $ 150.0 million term loan facility , which we refer to as the 2018 term loan facility . the revolving credit facility also includes an accordion feature that will provide us with additional capacity , subject to the satisfaction of customary terms and conditions , of up to $ 250.0 million . as of december 31 , 2019 , we had full capacity available under the revolving credit facility . we also have a $ 100.0 million senior unsecured term loan facility , which we refer to as the 2016 term loan facility . private placement of senior unsecured notes on september 12 , 2019 , the operating partnership issued an aggregate of $ 275.0 million of fixed rate , senior unsecured notes ( the “ 2019 senior unsecured notes ” ) in a private placement pursuant to a purchase agreement among us , the operating partnership and the purchasers of the 2019 senior unsecured notes dated july 30 , 2019 ( the “ purchase agreement ” ) . the 2019 senior unsecured notes consist of ( i ) 3.73 % series a senior notes due september 12 , 2029 in an aggregate principal amount of $ 85.0 million , ( ii ) 3.83 % series b senior notes due september 12 , 2031 in an aggregate principal amount of $ 100.0 million , and ( iii ) 3.98 % series c senior notes due september 12 , 2034 in an aggregate principal amount of $ 90.0 million . the 2019 senior unsecured notes are unconditionally guaranteed by us and various subsidiaries of the operating partnership ( the “ subsidiary guarantors ” ) . story_separator_special_tag subject to the terms of the purchase agreement and the 2019 senior unsecured notes , upon certain events of default , including , but not limited to , ( i ) a default in the payment of any principal , “ make-whole ” amount or interest under the 2019 senior unsecured notes , and ( ii ) a default in the payment of certain other indebtedness of us or the operating partnership or of the subsidiary guarantors , the principal and accrued and unpaid interest and the make-whole amount on the outstanding 2019 senior unsecured notes will become due and payable at the option of the holders . the purchase agreement and the 2019 senior unsecured notes also contain various covenants ( including , among others , financial covenants with respect to debt service coverage , consolidated net worth , fixed charges and consolidated leverage and covenants relating to liens ) and if we or the operating partnership breaches any of these covenants , the principal and accrued and 39 unpaid interest and the make-whole amount on the outstanding 2019 senior unsecured notes will become due and payable at the option of the holders . indebtedness outstanding the following table sets forth certain information with respect to the indebtedness outstanding as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_10_th ( 1 ) current interest rates as of december 31 , 2019. at december 31 , 2019 the one-month libor ( “ l ” ) was 1.76 % . the current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums . the spread over the applicable rate for each of our revolving credit facility , our 2018 term loan facility and our 2016 term loan facility is based on our consolidated leverage ratio , as defined in the respective loan agreements . ( 2 ) available capacity of $ 450.0 million at december 31 , 2019 , with an accordion feature that provides additional capacity of up to $ 250.0 million . ( 3 ) our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee . 40 ( 4 ) entered into two interest rate swaps with an effective date of march 29 , 2017 with an aggregate notional value of $ 100.0 million to effectively fix the interest rate at 2.6 7 % annually , based on our consolidated leverage ratio , as defined in the 2016 term loan facility agreement . ( 5 ) entered into four interest rate swaps with an effective date of december 13 , 2018 with an aggregate notional value of $ 150.0 million to effectively fix the interest rate at 3.96 % annually , based on the company 's consolidated leverage ratio , as defined in the 2018 term loan facility agreement . ( 6 ) effective interest rates are as follows : dea – pleasanton 1.8 % , va – golden 5.03 % , mepcom – jacksonville 3.89 % , usfs ii – albuquerque 3.92 % , ice – charleston 3.93 % , va – loma linda 3.78 % , cbp – savannah 4.12 % . our revolving credit facility , term loan facilities , unsecured notes , and mortgage notes payable are subject to ongoing compliance with a number of financial and other covenants . as of december 31 , 2019 , we were in compliance with the applicable financial covenants . the chart below details our debt capital structure as of december 31 , 2019 ( dollars in thousands ) : replace_table_token_11_th ( 1 ) our 2016 term loan facility and 2018 term loan facility are swapped to be fixed and as such are included as fixed rate debt in the table above . contractual obligations the following table summarizes our contractual obligations as of december 31 , 2019 ( amounts in thousands ) : replace_table_token_12_th ( 1 ) due to the long-term nature of certain construction and development contracts included in this line , the amounts reported in the table represent our estimate of the timing for the related obligations being paid . dividend policy in order to qualify as a reit , we are required to distribute to our stockholders , on an annual basis , at least 90 % of our reit taxable income , determined without regard to the deduction for dividends paid and excluding net capital gains . we anticipate distributing all of our taxable income . we expect to make quarterly distributions to our stockholders in a manner intended to satisfy this requirement . prior to making any distributions for u.s. federal tax purposes or otherwise , we must first satisfy our operating and debt service obligations . it is possible that it would be necessary to utilize cash reserves , liquidate assets at unfavorable prices or incur additional indebtedness in order to make required distributions . it is also possible that the board of directors could decide to make required distributions in part by using shares of our common stock . 41 a summary of dividends declared by the board of directors per share of common stock and per common unit of our operating partnership at the date of record is as follows : replace_table_token_13_th we use long-term investment partnership units in our operating partnership , which we refer to as ltip units , as a form of performance-based award and service-based award for annual long-term incentive equity compensation . ltip units are convertible into common units upon the satisfaction of certain conditions . prior to the end of the performance period as set forth in the applicable ltip unit award , holders of performance-based ltip units are entitled to receive dividends per ltip unit equal to 10 % of the dividend paid per common unit of our operating partnership .
| expenses total expenses increased by $ 55.3 million to $ 186.3 million for the year ended december 31 , 2019 compared to $ 131.0 million for the year ended december 31 , 2018. the increase is primarily attributable to a $ 49.1 million increase in property operating expenses , real estate taxes , and depreciation and amortization associated with the eight operating properties acquired and one development property placed in service since december 31 , 2018 and a full period of operations from the 15 operating properties acquired and one development property placed in service during the year ended december 31 , 2018 , offset by one property disposed of in the second quarter of 2019. additionally , there was a $ 5.2 million increase in expenses associated with tenant project reimbursements and a $ 0.9 million increase in employee costs , offset by a $ 6.1 million decrease in depreciation related to the timing of above and below market lease intangibles amortization . acquisition costs and corporate and general administrative costs also increased by an aggregate of $ 5.5 million primarily due to an increase in employee costs . interest expense interest expense increased $ 10.6 million to $ 33.5 million for the year ended december 31 , 2019 compared to $ 22.9 million for the year ended december 31 , 2018. the increase is primarily due to additional interest expense of $ 4.0 million related to the 2018 term loan facility , which was entered into during the year ended december 31 , 2018. interest expense also increased due to an additional $ 3.7 million of interest on our revolving credit facility due to an increase in the weighted average interest rate from 3.36 % and weighted average borrowings of $ 74.4 million during the year ended december 31 , 2018 to weighted average interest rate of 3.71 % and weighted average borrowings of $ 175.6 million during the year ended december 31 , 2019. additionally , interest expense increased $ 3.2 million due to interest attributable to the $ 275.0 million of fixed rate , senior unsecured notes issued in the third quarter of 2019. these increases were partially offset by an increase in capitalized interest associated with properties under development , resulting in a $ 0.6 million decrease in interest expense . gain on the sale of operating property on may 8 , 2019 , we sold cbp – chula vista to a third party . net proceeds from the sale of the operating
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as of december 31 , 2015 , approximately $ 7.449 billion , or 66.7 % , of our mbs portfolio was in its contractual fixed-rate period or were fixed-rate mbs and approximately $ 3.723 billion , or 33.3 % , was in its contractual adjustable-rate period , or were floating rate mbs with interest rates that reset monthly . our arm-mbs in their contractual adjustable-rate period primarily include mbs collateralized by hybrids for which the initial fixed-rate period has elapsed , such that the interest rate will typically adjust on an annual or semiannual basis . premiums arise when we acquire mbs at a price in excess of the principal balance of the mortgages securing such mbs ( i.e. , par value ) . conversely , discounts arise when we acquire mbs at a price below the principal balance of the mortgages securing such mbs or acquire residential whole loans at a price below the principal balance of the mortgage . premiums paid on our mbs are amortized against interest income and accretable purchase discounts on these investments are accreted to interest income . purchase premiums on our mbs , which are primarily carried on our agency mbs , are amortized against interest income over the life of each security using the effective yield method , adjusted for actual prepayment activity . an increase in the prepayment rate , as measured by the cpr , will typically accelerate the amortization of purchase premiums , thereby reducing the internal rate of return ( or irr ) /interest income earned on such assets . cpr levels are impacted by , among other things , conditions in the housing market , new regulations , government and private sector initiatives , interest rates , availability of credit to home borrowers , underwriting standards and the economy in general . in particular , cpr reflects the conditional repayment rate ( or crr ) , which measures voluntary prepayments of mortgages collateralizing a particular mbs , and the conditional default rate ( or cdr ) , which measures involuntary prepayments resulting from defaults . cprs on agency mbs and legacy non-agency mbs may differ significantly . for the year ended december 31 , 2015 , our agency mbs portfolio experienced a weighted average cpr of 13.2 % , and our legacy non-agency mbs portfolio experienced a cpr of 14.1 % . for the year ended december 31 , 2014 , our agency mbs portfolio experienced a weighted average cpr of 13.0 % , and our legacy non-agency mbs portfolio ( including legacy non-agency mbs underlying our linked transactions ) experienced a cpr of 12.3 % . over the last consecutive eight quarters , ending with december 31 , 2015 , the monthly fair value weighted average cpr on our agency and legacy non-agency mbs portfolios ranged from a high of 16.7 % experienced during the month ended july 31 , 2015 to a low of 10.4 % , experienced during each of the months ended march 31 , 2015 and march 31 , 2014 , with an average cpr over such quarters of 13.1 % . our method of accounting for non-agency mbs purchased at significant discounts to par value , requires us to make assumptions with respect to each security . these assumptions include , but are not limited to , future interest rates , voluntary prepayment rates , default rates , mortgage modifications and loss severities . as part of our non-agency mbs surveillance process , we track and compare each security 's actual performance over time to the performance expected at the time of purchase or , if we have modified our original purchase assumptions , to our revised performance expectations . to the extent that actual performance or our expectation of future performance of our non-agency mbs deviates materially from our expected performance parameters , we may revise our performance expectations , such that the amount of purchase discount designated as credit discount may be increased or decreased over time . nevertheless , credit losses greater than those anticipated or in excess of the recorded purchase discount could occur , which could materially adversely impact our operating results . 35 it is our business strategy to hold our mbs as long-term investments . on at least a quarterly basis , we assess our ability and intent to continue to hold each security and , as part of this process , we monitor our securities for other-than-temporary impairment . a change in our ability and or intent to continue to hold any of our securities that are in an unrealized loss position , or a deterioration in the underlying characteristics of these securities , could result in our recognizing future impairment charges or a loss upon the sale of any such security . at december 31 , 2015 , we had net unrealized gains of $ 28.8 million on our agency mbs , comprised of gross unrealized gains of $ 69.2 million and gross unrealized losses of $ 40.4 million , and net unrealized gains on our non-agency mbs of $ 559.0 million , comprised of gross unrealized gains of $ 587.3 million and gross unrealized losses of $ 28.4 million . at december 31 , 2015 , we did not intend to sell any of our mbs that were in an unrealized loss position , and we believe it is more likely than not that we will not be required to sell those securities before recovery of their amortized cost basis , which may be at their maturity . we rely primarily on borrowings under repurchase agreements to finance our agency mbs and non-agency mbs . our mbs have longer-term contractual maturities than our borrowings under repurchase agreements . even though the majority of our mbs have interest rates that adjust over time based on short-term changes in corresponding interest rate indices ( typically following an initial fixed-rate period for our hybrids ) , the interest rates we pay on our borrowings will typically change at a faster pace than the interest rates we earn on our mbs . story_separator_special_tag in order to reduce this interest rate risk exposure , we may enter into derivative instruments , which at december 31 , 2015 were comprised of swaps . our swap derivative instruments are designated as cash-flow hedges against a portion of our current and forecasted libor-based repurchase agreements . our swaps do not extend the maturities of our repurchase agreements ; they do , however , lock in a fixed rate of interest over their term for the notional amount of the swap corresponding to the hedged item . during 2015 , we did not enter into any new swaps and had swaps with an aggregate notional amount of $ 710.2 million and a weighted average fixed-pay rate of 1.96 % amortize and or expire . at december 31 , 2015 , we had swaps designated in hedging relationships with an aggregate notional amount of $ 3.050 billion with a weighted average fixed-pay rate of 1.82 % and a weighted average variable interest rate received of 0.34 % . recent market conditions and our strategy during 2015 , we continued to invest in residential mortgage assets , including both mbs and , through consolidated trusts , residential whole loans . at december 31 , 2015 , our mbs portfolio was approximately $ 11.173 billion compared to $ 12.573 billion ( including $ 1.913 billion mbs reported as components of linked transactions ) at december 31 , 2014 . at december 31 , 2015 , $ 6.421 billion , or 57.5 % of our mbs portfolios was invested in non-agency mbs . during the year ended december 31 , 2015 , the fair value of our non-agency mbs holdings increased by $ 1.665 billion . the primary components of the change during the year in these non-agency mbs include the reclassification of $ 1.913 billion of non-agency mbs that were previously reported as a component of linked transactions and $ 1.734 billion of purchases ( at a weighted average purchase price of 99.9 % ) . partially offsetting these increases were $ 1.845 billion of principal repayments and other principal reductions , a decrease reflecting non-agency mbs price changes of $ 66.3 million and the sale of non-agency mbs with a fair value of $ 70.8 million . at december 31 , 2015 , $ 4.752 billion , or 42.5 % of our mbs portfolio was invested in agency mbs . during the year ended 2015 , the fair value of our agency mbs decreased by $ 1.152 billion . this was due to $ 1.059 billion of principal repayments , $ 41.2 million of premium amortization and a $ 51.3 million decrease in net unrealized gains . in this low interest rate environment , we continue to transition to more credit sensitive , less interest sensitive residential mortgage assets . during the year ended december 31 , 2015 , we purchased through consolidated trusts residential whole loans of approximately $ 608.3 million , with an unpaid principal balance of approximately $ 770.5 million . at december 31 , 2015 , our total recorded investment in residential whole loans was $ 895.1 million . of this amount , $ 271.8 million is presented as residential whole loans at carrying value and $ 623.3 million as residential whole loans at fair value in our consolidated balance sheets . for the year ended december 31 , 2015 , we recognized approximately $ 16.0 million of income on residential whole loans held at carrying value in interest income on our consolidated statement of operations , representing an effective yield of 6.63 % ( excluding servicing costs ) . in addition , we recorded net gains on residential whole loans held at fair value of $ 17.7 million in other income , net in our consolidated statement of operations for the year ended december 31 , 2015 . we currently expect to continue to seek more credit sensitive , less interest rate sensitive residential mortgage assets during 2016 , particularly residential whole loans and non-agency mbs ( including rpl/npl mbs ) . in order to achieve our current investment strategy , we may continue to permit more interest rate sensitive agency mbs to pay down . 36 in addition to our investments in agency mbs , non-agency mbs and residential whole loans , we invest in crt securities , which are debt obligations issued by fannie mae and freddie mac . at december 31 , 2015 , our investments in these securities totaled $ 183.6 million . new accounting guidance that was effective at the beginning of the year prospectively eliminated the use of linked transaction accounting . accordingly , on adoption of the new standard on january 1 , 2015 , we reclassified $ 1.913 billion of non-agency mbs and $ 4.6 million of crt securities that were previously reported as a component of linked transactions to non-agency mbs and crt securities respectively on the consolidated balance sheets . in addition , liabilities of $ 1.520 billion that were previously presented as a component of linked transactions were reclassified to repurchase agreements on the consolidated balance sheets . furthermore , an amount of $ 4.5 million representing net unrealized gains on securities previously reported as a component of linked transactions as of december 31 , 2014 was reclassified from accumulated deficit to aoci ( see notes 2 ( t ) and 6 to the consolidated financial statements , included under item 8 of this annual report on form 10-k ) . our book value per common share was $ 7.47 as of december 31 , 2015 . book value per common share decreased from $ 8.12 as of december 31 , 2014 due primarily to the impact of realized gains on sales and discount accretion income on legacy non-agency mbs that was recognized and paid as dividends during the year , the change in the value of our swaps , and lower unrealized gains on our agency mbs and legacy non-agency mbs , resulting from lower asset values .
| for 2015 , net interest income on rpl/npl mbs and crt securities increased by approximately 48 $ 60.3 million . prior to january 1 , 2015 , the majority of these assets and associated repurchase agreement financings were reported as components of linked transactions with net income reported in other income , net in our consolidated statement of operations . this increase was partially offset by the $ 58.9 million decline in net interest income from agency and legacy non-agency mbs compared to 2014 , primarily due to lower average balances of these mbs and associated agency repurchase financings . in addition , net interest income for 2015 compared to 2014 was approximately $ 6.2 million higher due to higher investments in residential whole loans at carrying value and lower outstanding balances of securitized debt . the net interest spread on our agency mbs portfolio declined to 0.88 % for 2015 compared to 1.08 % for 2014 . the net interest spread on our legacy non-agency mbs portfolio increased to 4.80 % for 2015 compared to 4.73 % for 2014 . the net interest spread on our rpl/npl mbs portfolio was 2.01 % for 2015 compared to 2.10 % for 2014 . in the comparable prior period , the majority of our rpl/npl mbs were reported as linked transactions with net interest income reported in other income , net . 49 analysis of net interest income the following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the years ended december 31 , 2015 , 2014 and 2013 . average yields are derived by dividing interest income by the average amortized cost of the related assets , and average costs are derived by dividing interest expense by the daily average balance of the related liabilities , for the periods shown . the yields and costs include premium amortization and purchase discount accretion which are considered adjustments to interest rates . replace_table_token_20_th ( 1 ) yields presented throughout
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maintaining a continuing , reliable and economic supply of products we currently obtain from third parties is critical to our success in this area . virtually all of our sales and marketing expenses occur in the cca segment . the majority of our research and development spending is dedicated to this segment as well . all of our cca products are ultimately sold primarily to or through veterinarians . in many cases , veterinarians will mark up their costs to their customer . the acceptance of our products by veterinarians is critical to our success . cca products are sold directly to end users by us as well as through distribution relationships , such as our agreement with intervet inc. , d/b/a merck animal health ( `` merck animal health '' ) , the sale of kits to conduct blood testing to third-party veterinary diagnostic laboratories and independent third-party distributors . revenue from direct sales and distribution relationships represented approximately 61 % and 39 % , respectively , of cca 2016 revenue . the ovp segment includes our 168,000 square foot usda- and fda-licensed production facility in des moines , iowa . we view this facility as an asset which could allow us to control our cost of goods on any pharmaceuticals and vaccines that we may commercialize in the future . we have increased integration of this facility with our operations elsewhere . for example , virtually all our u.s. inventory , excluding our imaging products , is now stored at this facility and related fulfillment logistics are managed there . cca segment products manufactured at this facility are transferred at cost and are not recorded as revenue for our ovp segment . we view ovp reported revenue as revenue primarily to cover the overhead costs of the facility and to generate incremental cash flow to fund our cca segment . our ovp segment includes private label vaccine and pharmaceutical production , primarily for cattle but also for other species including equine , porcine , avian , feline and canine . all ovp products are sold by third parties under third-party labels . historically , a significant portion of our ovp segment 's revenue has been generated from the sale of certain bovine vaccines , which have been sold primarily under the titanium® and masterguard® brands . we have an agreement with eli lilly and company ( `` eli lilly '' ) and its affiliates operating through elanco for the production of these vaccines . our ovp segment also produces vaccines and pharmaceuticals for other third parties . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon the consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . the preparation of financial statements in conformity with gaap requires - 32 - management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenue and expense during the periods . these estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances . we have identified those critical accounting policies used in reporting our financial position and results of operations based upon a consideration of those accounting policies that involve the most complex or subjective decisions or assessment . we consider the following to be our critical accounting policies . revenue recognition we generate our revenue through the sale of products , as well as through licensing of technology product rights , royalties and sponsored research and development . our policy is to recognize revenue when the applicable revenue recognition criteria have been met , which generally include the following : persuasive evidence of an arrangement exists ; delivery has occurred or services rendered ; price is fixed or determinable ; and collectability is reasonably assured . revenue from the sale of products is recognized after both the goods are shipped to the customer and acceptance has been received , if required , with an appropriate provision for estimated returns and allowances . we do not permit general returns of products sold . certain of our products have expiration dates . our policy is to exchange certain outdated , expired product with the same product . we record an accrual for the estimated cost of replacing the expired product expected to be returned in the future , based on our historical experience , adjusted for any known factors that reasonably could be expected to change historical patterns , such as regulatory actions which allow us to extend the shelf lives of our products . revenue from both direct sales to veterinarians and sales to independent third-party distributors are generally recognized when goods are shipped . our products are shipped complete and ready to use by the customer . the terms of the customer arrangements generally pass title and risk of ownership to the customer at the time of shipment . certain customer arrangements provide for acceptance provisions . revenue for these arrangements is not recognized until the acceptance has been received or the acceptance period has lapsed . we reduce our revenue by the estimated cost of any rebates , allowances or similar programs , which are used as promotional programs . recording revenue from the sale of products involves the use of estimates and management judgment . we must make a determination at the time of sale whether the customer has the ability to make payments in accordance with arrangements . while we do utilize past payment history , and , to the extent available for new customers , public credit information in making our assessment , the determination of whether collectability is reasonably assured is ultimately a judgment decision that must be made by management . we must also make estimates regarding our future obligation relating to returns , rebates , allowances and similar other programs . story_separator_special_tag license revenue under arrangements to sell or license product rights or technology rights is recognized as obligations under the agreement are satisfied , which generally occurs over a period of time . generally , licensing revenue is deferred and recognized over the estimated life of the related agreements , products , patents or technology . nonrefundable licensing fees , marketing rights and milestone payments received under contractual arrangements are deferred and recognized over the remaining contractual term using the straight-line method . - 33 - recording revenue from license arrangements involves the use of estimates . the primary estimate made by management is determining the useful life of the related agreement , product , patent or technology . we evaluate all of our licensing arrangements by estimating the useful life of either the product or the technology , the length of the agreement or the legal patent life and defer the revenue for recognition over the appropriate period . we may enter into arrangements that include multiple elements . such arrangements may include agreements allowing for the usage of an instrument and a given level of consumables for one monthly payment . in these situations , we must determine whether the various elements meet the criteria to be accounted for as separate elements . if the elements can not be separated , revenue is recognized once revenue recognition criteria for the entire arrangement have been met or over the period that the company 's obligations to the customer are fulfilled , as appropriate . if the elements are determined to be separable , the revenue is allocated to the separate elements based on relative fair value and recognized separately for each element when the applicable revenue recognition criteria have been met . in accounting for these multiple element arrangements , we must make determinations about whether elements can be accounted for separately and make estimates regarding their relative fair values . allowance for doubtful accounts we maintain an allowance for doubtful accounts receivable based on client-specific allowances , as well as a general allowance . specific allowances are maintained for clients which are determined to have a high degree of collectability risk based on such factors , among others , as : ( i ) the aging of the accounts receivable balance ; ( ii ) the client 's past payment history ; ( iii ) a deterioration in the client 's financial condition , evidenced by weak financial condition and or continued poor operating results , reduced credit ratings , and or a bankruptcy filing . in addition to the specific allowance , the company maintains a general allowance for credit risk in its accounts receivable which is not covered by a specific allowance . the general allowance is established based on such factors , among others , as : ( i ) the total balance of the outstanding accounts receivable , including considerations of the aging categories of those accounts receivable ; ( ii ) past history of uncollectable accounts receivable write-offs ; and ( iii ) the overall creditworthiness of the client base . a considerable amount of judgment is required in assessing the realizability of accounts receivable . should any of the factors considered in determining the adequacy of the overall allowance change , an adjustment to the provision for doubtful accounts receivable may be necessary . inventories inventories are stated at the lower of cost or net realizable value , cost being determined on the first-in , first-out method . inventories are written down if the estimated net realizable value of an inventory item is less than its recorded value . we review the carrying cost of our inventories by product each quarter to determine the adequacy of our reserves for excess/obsolete inventory . in accounting for inventories we must make estimates regarding the estimated net realizable value of our inventory . this estimate is based , in part , on our forecasts of future sales and shelf life of products . - 34 - deferred tax assets – valuation allowance a portion of our deferred tax assets , specifically our domestic federal net operating loss carryforwards ( `` nol '' ) , are reduced by a valuation allowance based on an assessment of available evidence if we are unable to conclude that it is more likely than not that some or all of the related deferred tax assets will be realized . if we are able to conclude it is more likely than not that we will realize a future benefit from a deferred tax asset against which we previously recorded a valuation allowance , we will reduce the related valuation allowance by an amount equal to the estimated quantity of income taxes we would pay in cash if we were not to utilize the deferred tax asset in the future . the first time this occurs in a given jurisdiction , it will result in an increase in the net deferred tax asset on our consolidated balance sheets and an income tax benefit of equal magnitude in our statement of operations in the period we make the determination . in future periods , we will then recognize as income tax expense the estimated amount of income taxes we would have paid in cash had we not utilized the related deferred tax asset . the corresponding journal entry will be a reduction of our deferred tax asset . story_separator_special_tag style= '' font-family : inherit ; font-size:11pt ; '' > in 2014 . the decrease in expense in 2016 as compared to 2015 was driven primarily by income received from the sale of an equity investment during the first quarter of 2016. this income was offset by minimum interest payments made on our line of credit and greater foreign currency losses . the increase in expense from 2014 to 2015 was driven primarily by greater foreign currency losses .
| ovp segment revenue increased 11 % to $ 22.7 million in 2016 compared to $ 20.3 million in 2015 and increased 16 % to $ 20.3 million in 2015 compared to $ 17.5 million in 2014 . the increase in both periods presented was driven primarily by greater revenue from our contract with elanco . gross profit gross profit increased 22 % to $ 53.9 million in 2016 compared to $ 44.2 million in 2015 . gross margin percent , which we derive by dividing gross profit by total revenue , decreased to 41.4 % in 2016 compared to 42.3 % in 2015 . this lower gross margin percentage was driven primarily by unfavorable product mix in our ovp segment as well as incremental sales from international imaging , which contributes slightly lower gross margins than our domestic imaging products . gross profit increased 24 % to $ 44.2 million in 2015 compared to $ 35.7 million in 2014 . gross margin percent increased to 42.3 % in 2015 compared to 39.8 % in 2014 . the lower gross margin percentage was driven primarily by unfavorable product mix in our ovp segment . - 36 - operating expenses selling and marketing expenses increased 4 % to $ 22.1 million in 2016 compared to $ 21.3 million in 2015 and increased 11 % to $ 21.3 million in 2015 compared to $ 19.2 million in 2014 . the increase in both periods was driven primarily by commissions paid on higher sales levels , particularly on our digital radiography sales and instrument placements . research and development expenses increased 29 % to $ 2.1 million in 2016 , compared to $ 1.7 million in 2015 and increased 17 % to $ 1.7 million in 2015 , as compared to $ 1.4 million in 2014 . the increase in both periods was driven primarily by spending on product development for digital radiography solutions . general and administrative expenses increased 4 % to $ 13.1 million in 2016 , compared to $ 12.7 million in
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display revenue consists of graphical mobile and web advertising sold on a cost per impression or cost per click basis to advertisers promoting their brands on our mobile applications and websites . in our mortgages segment , we generate revenue through mortgage originations and the related sale of mortgages on the secondary market through zillow home loans , and from advertising sold to mortgage lenders and other mortgage professionals on a cost per lead basis , including our custom quote and connect services . we also generate revenue from mortech , which provides subscription-based mortgage software solutions , including a product and pricing engine and lead management platform . for additional information regarding our revenue recognition policies see note 2 of our notes to consolidated financial statements in part ii , item 8 of this annual report on form 10-k. story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > to preserve our liquidity in response to the covid-19 pandemic , we temporarily paused hiring for non-critical roles , paused the majority of our advertising spending and reduced other discretionary spending . during the second half of 2020 , we began to increase our hiring and marketing and advertising activities and expect to continue to increase these activities in 2021. in may of 2020 , we strengthened our financial position through our issuance of $ 565.0 million aggregate principal amount of convertible senior notes due in 2025 ( “ 2025 notes ” ) for net proceeds of $ 553.3 million , of which we used $ 194.7 million to repurchase certain of our convertible senior notes due in 2021 ( “ 2021 notes ” ) , and we issued 8,800,000 shares of class c capital stock for net proceeds of $ 411.5 million . our liquidity has been positively impacted by certain provisions included in the coronavirus aid , relief , and economic security act ( the “ cares act ” ) that was signed into law on march 27 , 2020. the cares act provides tax provisions and other stimulus measures to affected companies . under the cares act , we expect to defer certain employer payroll tax payments until 2021 and 2022. we deferred a total of $ 23.8 million of such payments as of december 31 , 2020. the impact of the cares act was otherwise immaterial to our results of operations for the year ended december 31 , 2020. we have also taken action to promote the health and safety of our employees during the covid-19 pandemic , and we quickly transitioned the majority of our employees to work remotely in march 2020. we subsequently announced that most employees will have flexibility to work from home indefinitely . we started re-opening our offices to employees on an as-needed basis in september 2020. we expect office re-openings to be a gradual process and believe our offices will continue to provide our distributed workforce with a place to work , learn and collaborate in the future . as reflected in the discussion below , the impact of the pandemic and actions taken in response to it had varying effects on our key metrics during the year ended december 31 , 2020 and results of operations for the year ended december 31 , 2020. the effect of the covid-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods as the extent of the impact of covid-19 on our business continues to be uncertain and difficult to predict . while we have seen recovery in our business and the business of our customers and real estate partners from the initial economic effects of the pandemic , we expect the impact of the covid-19 pandemic to continue to affect our financial results in 2021. the extent to which covid-19 continues to impact our results and financial position will depend on future developments , which are uncertain and difficult to predict , including new information that may emerge concerning the severity of the covid-19 pandemic , actions taken to contain it or address its impact and the availability and widespread distribution and use of effective vaccines . 42 ta ble of c o ntent s key metrics management has identified visits , unique users and the number of homes sold through zillow offers as relevant to investors ' and others ' assessment of our financial condition and results of operations . although there was an increase in visits for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 and unique users for the three months ended december 31 , 2020 as compared to the three months ended december 31 , 2019 , both metrics were adversely impacted by the covid-19 pandemic in the first half of 2020. while visits and unique users stabilized during the second half of 2020 , covid-19 may continue to adversely impact the number of visits and unique users to our mobile applications and websites in the future . visits the number of visits is an important metric because it is an indicator of consumers ' level of engagement with our mobile applications , websites and other services . we believe highly engaged consumers are more likely to participate in our zillow offers program , use zillow homes loans or be transaction-ready real estate market participants and therefore are more sought-after by our premier agent and premier broker real estate partners . we define a visit as a group of interactions by users with the zillow , trulia and streeteasy mobile applications and websites . a single visit can contain multiple page views and actions , and a single user can open multiple visits across domains , web browsers , desktop or mobile devices . visits can occur on the same day , or over several days , weeks or months . zillow and streeteasy measure visits with google analytics , and trulia measures visits with adobe analytics . visits to trulia end after thirty minutes of user inactivity . story_separator_special_tag visits to zillow and streeteasy end either : ( i ) after thirty minutes of user inactivity or at midnight ; or ( ii ) through a campaign change . a visit ends through a campaign change if a visitor arrives via one campaign or source ( for example , via a search engine or referring link on a third-party website ) , leaves the mobile application or website , and then returns via another campaign or source . the following table presents the number of visits to our mobile applications and websites for the periods presented ( in millions ) : replace_table_token_1_th unique users measuring unique users is important to us because much of our revenue depends in part on our ability to connect home buyers and sellers , renters and individuals with or looking for a mortgage to real estate , rental and mortgage professionals , products and services . growth in consumer traffic to our mobile applications and websites increases the number of impressions , clicks , connections , leads and other events we can monetize to generate revenue . for example , our homes segment revenue depends in part on users accessing our mobile applications and websites to engage in the sale and purchase of homes with zillow offers , and premier agent revenue and display revenue depend on advertisements being served to users of our mobile applications and websites . we count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month . if an individual accesses our mobile applications using different mobile devices within a given month , the first instance of access by each such mobile device is counted as a separate unique user . if an individual accesses more than one of our mobile applications within a given month , the first access to each mobile application is counted as a separate unique user . if an individual accesses our websites using different web browsers within a given month , the first access by each such web browser is counted as a separate unique user . if an individual accesses more than one of our websites in a single month , the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain . zillow , streeteasy and hotpads measure unique users with google analytics , and trulia measures unique users with adobe analytics . due to third-party technological limitations , user software settings , or user behavior , google analytics may assign a unique cookie to different instances of access by the same individual to our mobile applications and websites . in such instances , google analytics would count different instances of access by the same individual as separate unique users . accordingly , reliance on the number of unique users counted by google analytics may overstate the actual number of unique users who access our mobile applications and websites during the period . 43 ta ble of c o ntent s the following table presents our average monthly unique users for the periods presented ( in millions ) : replace_table_token_2_th homes sold the number of homes sold through zillow offers is an important metric as it is an indicator of customers ' adoption of the zillow offers service as well as our ability to generate revenue through the service . growth in the number of homes sold through zillow offers suggests increased adoption of the service by home buyers and generally results in growth in homes segment revenue . the following table presents the number of homes sold through zillow offers for the periods presented : replace_table_token_3_th results of operations given the uncertainty surrounding covid-19 , including the associated economic disruption and unknown overall impact on customer demand and the unknown duration and severity of the pandemic , including availability and widespread distribution and use of effective vaccines , it is difficult to forecast the full impact on our business . as a result , financial performance for prior and current periods may not be indicative of future performance . revenue replace_table_token_4_th 44 ta ble of c o ntent s total revenue increased $ 597.0 million , or 22 % , to $ 3.3 billion : homes segment revenue increased 26 % to $ 1.7 billion , primarily due to an increase in zillow offers revenue of $ 345.3 million , or 25 % . zillow offers revenue increased to $ 1.7 billion due to the sale of 5,337 homes at an average selling price of $ 320.5 thousand per home as compared to the sale of 4,313 homes at an average selling price of $ 316.5 thousand per home for the year ended december 31 , 2019. although zillow offers revenue increased for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 , revenue was negatively impacted by the covid-19 pandemic due to the pause in home buying activities by our zillow offers business beginning in march of 2020 , as discussed above . while we resumed home buying in all zillow offers markets in early august 2020 , the pause in home buying activities in our zillow offers business in the first half of 2020 resulted in lower inventory available for resale during the second half of 2020. we expect zillow offers revenue to increase in future periods as we expect to continue to increase our home buying and home selling activities across all markets . however , given the unknown duration and severity of the covid-19 pandemic and related economic disruption , we do not know whether we will have to make further adjustments to our operations or how quickly the business will re-accelerate now that we have resumed home buying activities .
| visits for the years ended december 31 , 2020 and 2019 were 9,627.2 million and 8,065.5 million , respectively , representing year-over-year growth of 19 % . the increase in visits increased the number of events we monetized across our revenue categories . average monthly unique users of our mobile applications and websites for the three months ended december 31 , 2020 and 2019 were 200.7 million and 172.6 million , respectively , representing year-over-year growth of 16 % . covid-19 impact in december 2019 , covid-19 was reported and subsequently spread worldwide . on march 11 , 2020 , the world health organization declared covid-19 a pandemic . the covid-19 pandemic and resulting global and economic disruptions have affected our business , as well as those of our customers and real estate partners . in response to the covid-19 pandemic , we have taken certain measures intended to serve the needs of our customers and real estate partners , while also protecting our business and the safety of our employees , our customers and the communities in which we operate . 41 ta ble of c o ntent s we have taken meaningful actions to support our customers and partners throughout the pandemic , including implementing a variety of relief initiatives to help them navigate their financial challenges . effective march 23 , 2020 , we began offering premier agent advertisers who participate in our market-based pricing program a 50 % discount on their subsequent monthly bill . this discount also applied to any new bookings through april 22 , 2020. additionally , we provided additional targeted market-based discounts and temporary discounts on certain of our other imt and mortgage marketplace products throughout the second quarter , and in limited cases during the third quarter . we experienced year-over-year growth in imt segment revenue for the year ended december 31 , 2020 , including premier agent revenue and other imt segment revenue , driven primarily by faster-than-expected residential real estate industry recovery during
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account servicing revenue increased $ 6.3 million for 2012 , as compared to 2011. the increase in number of vehicles serviced in 2012 as compared to 2011 , resulted in additional revenue in north america and australia , combined , of approximately $ 2.3 million . approximately $ 2.0 million of the increase is due to the monthly fees received from our wexsmart units , which have increased , as compared to 2011. the remaining increase is primarily due to the operations of fleet one , acquired in the beginning of the fourth quarter of 2012. our finance fees increased $ 3.9 million for 2012 , as compared to 2011. with the acquisitions of fleet one during the fourth quarter of 2012 , their factoring revenue has been included in finance fee revenue as well as the late fee revenue historically reported by the company . factoring revenue at fleet one for the fourth quarter of 2012 was approximately $ 1.4 million . payments for customer receivables are due within thirty days or less . late fee revenue is earned when a customer 's receivable balance becomes delinquent . the late fee is calculated using a stated late fee rate based on the outstanding balance . the absolute amount of such outstanding balances can be attributed to ( i ) changes in fuel prices ; ( ii ) customer specific transaction volume ; and ( iii ) customer specific delinquencies . late fee revenue can also be impacted by changes in ( i ) late fee rates and ( ii ) increases or decreases in the number of customers with overdue balances . the change in 2012 is primarily due the addition of ( i ) factoring revenue and ( ii ) higher accounts receivable balances , as a result of higher fuel prices and transaction volumes , resulting in an increase of approximately $ 2.0 million over 2011. expenses the following table compares selected expense line items within our fleet payment solutions segment : replace_table_token_5_th salary and other personnel expenses increased $ 12.7 million for 2012 , as compared to 2011. approximately $ 10.9 million of this increase is due to additional employees from ongoing operations and from our acquisition of fleet one , at the beginning of the fourth quarter of 2012. the remaining increase is due to a decrease in capitalized payroll of approximately $ 2.6 million in 2012 as compared to 2011 , resulting in higher salary expense . we expect salaries to increase in 2013 as a full year of operations of fleet one will be included in our operations . service fees increased $ 10.7 million during 2012 , as compared to 2011. the increase is primarily due to expenses related to the 2012 acquisitions . service fees associated with the wexsmart product line increased $ 1.3 million for 2012 , as compared to 2011. provision for credit loss decreased $ 6.4 million for 2012 , as compared to 2011. domestic credit loss decreased by approximately $ 6.8 million as compared to 2011. we use a roll rate methodology to calculate the amount necessary for our ending receivable reserve balance . this methodology takes into account total receivable balances , recent charge off experience , recoveries on previously charged off accounts , and the dollars that are delinquent to calculate the total reserve . in addition , management undertakes a detailed evaluation of the receivable balances to help ensure further overall reserve adequacy . we generally measure our credit loss performance by calculating credit losses as a percentage of total fuel expenditures on payment processing transactions . our credit losses as a percentage of customers spend decreased to 10.0 basis points as compared to 14.9 basis points for 2011. this decrease is primarily associated with lower charge offs as compared to 2011 . 30 depreciation and amortization expenses increased $ 12.6 million for 2012 , as compared to 2011. we incurred an $ 8.9 million write-off of the internally developed software for our over-the-road product during 2012. the write-off was a consequence of our decision to utilize the software acquired with the acquisition of fleet one , during the fourth quarter of 2012 , as the processing platform for our over-the-road product . approximately $ 2.1 million of this increase is due to additional amortization associated with the intangible assets related to the acquisition of fleet one , acquired at the beginning of the fourth quarter of 2012. financing interest expense is related to our 2011 credit agreement as well as our 2007 credit facility and 2010 term loan . interest expense for 2012 decreased $ 1.2 million from 2011 , due to lower interest rates on our financing debt , including the impacts of the interest rate swap that expired in march 2012. finance interest expense in 2011 also includes approximately $ 0.7 million in unamortized loan costs that was expensed at the time the 2007 credit facility was replaced . as a consequence of the issuance of the 10 year , fixed rate of 4.750 percent , $ 400 million senior notes due 2023 in january 2013 , we expect to incur higher interest expense in 2013. our effective tax rate was 49.5 percent for 2012 and 35.9 percent for 2011. the increase in the effective tax rate compared to the prior year is primarily due to changes in australian tax consolidation laws . during the second quarter of 2012 , we recorded a charge of approximately $ 26.3 million due to the impact of this tax legislation enacted on june 29 , 2012 , in australia . we expect our effective tax rate to return to historical levels in 2013. fuel price derivatives we own fuel price sensitive derivative instruments that we purchase on a periodic basis to manage the impact of volatility in domestic fuel prices on our cash flows . our derivative instruments do not qualify for hedge accounting . accordingly , realized and unrealized gains and losses on our fuel price sensitive derivative instruments affect our net income . story_separator_special_tag during 2012 we recorded a loss of $ 12.4 million , consisting of a realized loss of $ 10.7 million and an unrealized loss of $ 1.7 million . during 2011 we recorded a loss of $ 11.8 million , consisting of a realized loss of $ 22.7 million and an unrealized gain of $ 10.9 million . the increase in losses is due to the overall increase in the price of fuel relative to our hedged fuel prices . 31 other payment solutions segment the following table reflects comparative operating results and key operating statistics within our other payment solutions segment : replace_table_token_6_th payment processing revenue increased approximately $ 23.9 million for 2012 , as compared to 2011. approximately $ 6.9 million of this increase is due to the acquisition of unik and corporate pay during 2012. the remaining increase is primarily due to additional business derived from our single use account product , partially offset with a reduction in the interchange rate in 2012 , as compared to 2011 due to contract mix , increased foreign spend , which generally has a lower interchange rate than domestic transactions , and a reduction in customer specific incentives received . our corporate purchase card volume grew by over $ 2.53 billion in 2012 compared to 2011. transaction processing revenue decreased approximately $ 0.8 million for 2012 , as compared to 2011 , primarily due to lower transaction based fees from wright express australia prepaid . account servicing revenue increased approximately $ 3.1 million for 2012 , as compared to 2011. approximately $ 1.1 million of this increase is due to the acquisition of unik and corporatepay during 2012. the remaining increase is due to primarily due to the inclusion of a full year of operation of rapid ! , which was acquired at the end of the first quarter of 2011. other revenue increased $ 8.4 million for 2012 as compared to 2011 , primarily due to the increase in the volume of cross-border fees over the prior year . this increase is partially offset by an increase in associated service fees expense . 32 on november 9 , 2012 the u.s district court granted preliminary approval to the merchant interchange settlement . under the terms of this settlement the domestic interchange rate for mastercard branded credit card transactions would be reduced by 10 basis points for a period of 8 months . currently this reduction is anticipated to begin sometime in the second half of 2013. during 2013 , approximately two-thirds of our corporate purchase and volume was domestic . expenses the following table compares selected expense line items within our other payment solutions segment : replace_table_token_7_th salary and other personnel expenses increased $ 6.1 million for 2012 , as compared to 2011. approximately $ 3.6 million of the increase is due to additional payroll costs associated with the operations of unik and corporatepay acquired during 2012. approximately $ 1.7 million of the increase is due to additional sales staff at our rapid ! paycard subsidiary . the remaining increase is due to additional staff and increased benefit expense . service fees increased by $ 22.3 million for 2012 , as compared to 2011. approximately $ 4.4 million of this increase is due to additional expense associated with the operations of unik and corporatepay , acquired during 2012. approximately $ 2.5 million of the increase is a result of the full year of operation of rapid ! , which was acquired at the end of the first quarter in 2011. the remaining increase is primarily due to higher fees associated with higher overall purchase volume in our domestic virtual card product . provision for credit loss increased $ 1.4 million for 2012 , as compared to 2011. the increase is primarily due to a bankruptcy from one customer during 2012. depreciation and amortization expenses increased $ 17.3 million for 2012 , as compared to 2011. this increase is primarily due to the $ 16.2 million impairment of goodwill associated with wright express australia prepaid , which was impaired on september 30 , 2012. during the third quarter of 2012 , the company determined that pricing pressure in the prepaid giftcard product in australia would result in lower future earnings than forecasted at the time of the purchase of wright express prepaid australia . technology leasing and support expenses increased $ 2.1 million for 2012 , as compared to 2011. this increase is primarily related to the volume increase in our corporate purchase card products . our effective tax rate was 76.1 percent for 2012 and 36.3 percent for 2011. the increase in the effective tax rate compared to the prior year is primarily due to changes in australian tax consolidation laws . during 2012 , we recorded a charge of approximately $ 5.1 million due to impact of the tax legislation enacted on june 29 , 2012 , in australia . we expect our effective tax rate to return to historical levels in 2013 . 33 year ended december 31 , 2011 , as compared to the year ended december 31 , 2010 fleet payment solutions segment the following table reflects comparative operating results and key operating statistics within our fleet payment solutions segment : replace_table_token_8_th nm not meaningful ( a ) as described in item 8 note 21 to our financial statements , financing interest expense and net realized and unrealized gains and losses on derivative instruments are allocated solely to the fleet payment solutions segment . ( b ) payment processing transaction and vehicle count data , as well as related calculated metrics associated with this data , for 2010 have been revised to reflect information provided from an improved business intelligence reporting process that was implemented in the second quarter of 2011. these changes do not impact our revenue or earnings . 2010 data has also been updated to remove non-fuel payment processing transactions from wright express australia operations .
| a significant portion of our capital expenditures are for the development of internal-use computer software , primarily to enhance product features and functionality in the united states and abroad . 2010 highlights during 2010 , we completed the acquisition of rd card holding australia pty ltd for approximately $ 340 million . the acquisition was funded through our revolving credit facility and term loan . we used $ 18.4 million during 2010 to repurchase our own common stock . during 2010 , we had approximately $ 29 million of capital expenditures . a significant portion of our capital expenditures are for the development of internal-use computer software , primarily to enhance product features and functionality in the united states and abroad . 41 management operating cash management operating cash is not a measure in accordance with generally accepted accounting principles ( gaap ) . in order to reconcile from management operating cash to the classifications of cash flow activities presented on our consolidated statement of cash flows , we have adjusted our cash flows from financing activities for the changes in brokered deposits , now deposits and borrowed federal funds . wex bank issued certificates of deposit in various maturities ranging between one month and two years and with fixed interest rates ranging from 0.26 percent to 1.15 percent as of december 31 , 2012 , as compared to fixed interest rates ranging from 0.25 percent to 1.60 percent as of december 31 , 2011 , and 0.30 percent to 1.95 percent as of december 31 , 2010. wex bank also issues interest-bearing money market deposits with variable interest rates ranging from 0.35 percent to 0.41 percent as of december 31 , 2012 , as compared to variable interest rates ranging from 0.60 percent to 0.73 percent as of december 31 , 2011 , and 0.40 percent to 0.60 percent as of december 31 , 2010. as of december 31 , 2012 , we had approximately $ 613.1 million of brokered deposits outstanding at a weighted average interest rate
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b. issuance of shares , warrants and options : ( cont . ) 2. share-based compensation to employees and to directors : ( a ) options to employees and directors : on november 25 , 2004 , the company 's stockholders approved the 2004 global stock option plan and the israeli appendix thereto ( which applies solely to participants who are residents of israel ) and on march 28 , 2005 , the company 's stockholders approved the 2005 u.s. stock option and incentive plan , and the reservation of 9,143,462 shares of common stock for issuance in the aggregate under these stock plans . each option granted under the plans is exercisable until the earlier of ten years from the date of grant of the option or story_separator_special_tag company overview we are a biotechnology company developing innovative adult stem cell therapies for highly debilitating neurodegenerative disorders such as als , ms , and pd . these devastating diseases have limited treatment options and as such represent highly unmet medical needs . nurown , our proprietary process for the propagation of msc and their differentiation into ntf secreting cells ( msc-ntf ) , and their transplantation at , or near , the site of damage , offers the hope of overcoming neurodegenerative diseases . our approach is considered safe based on our use of autologous cells , which are free of the risk of rejection and tumor formation . it is also free of the controversy associated with the use of embryonic stem cells in some countries . our core technology was developed in collaboration with prominent neurologist prof. eldad melamed , former head of neurology of the rabin medical center and member of the scientific committee of the michael j. fox foundation for parkinson 's research , and expert cell biologist prof. daniel offen of the felsenstein medical research center of tel aviv university . our israeli subsidiary holds rights to commercialize the technology , through a licensing agreement with ramot , the technology transfer company of tel aviv university , israel . on february 17 , 2010 , our israeli subsidiary entered into the clinical trial agreement with hadassah . under the clinical trial agreement , hadassah and our personnel agreed to conduct a clinical trial to evaluate the safety and tolerability of our nurown cells in patients with als , in accordance with a protocol developed jointly by us and hadassah . in february 2011 , the fda granted orphan drug designation to nurown , our autologous adult stem cell product candidate for the treatment of als . in june 2011 , we initiated a phase i/ii clinical trial for the treatment of als with nurown at humc , after receiving approval from the israeli moh . in july 2011 , we entered into a memorandum of understanding with massachusetts general hospital and the university of massachusetts medical school in anticipation of applying for fda approval to begin als human clinical trials in the united states . pending submission of an ind application to the fda and subsequent approval , we are planning to launch a phase ii clinical trial at these institutions in mid-2013 . in july 2012 , we submitted an interim safety report to the moh for the first 12 of 24 patients in the phase i/ii clinical trial . the report confirmed that our nurown therapy is safe , did not cause any adverse side effects , and some of the patients showed promising indications of clinical improvement . 31 in january 2013 , the moh approved acceleration to a phase iia combined treatment , dose-escalating trial , which we are currently conducting at humc . in this safety and preliminary efficacy trial , 12 early-stage als patients will receive both intramuscular and intrathecal injections of nurown cells in three cohorts with increasing doses . the patients will be followed for three to six months after transplantation . in january 2013 , we also announced that we had successfully completed a 12-week repeat dose toxicity study with our nurown cells in mice . these repeat doses were prepared from frozen cells , using a proprietary method recently developed by the company . our cryopreservation , or freezing , method will enable long-term storage , and production of repeat patient doses of nurown without the need for additional bone marrow aspirations . we believe that the positive data from the toxicity study in mice will support our efforts to obtain approval for a future repeat dose clinical study in als patients . the study was conducted at harlan israel 's laboratories , according to glp standards of the fda . the study protocol was approved by the israeli moh . on february 21 , 2013 , the uk subsidiary filed a request for orphan medicinal product designation by the ema for our autologous bone marrow-derived mesenchymal stem cells secreting neurotropic factors . story_separator_special_tag style= '' width : 100 % ; font-size : 10pt '' > 33 our material cash needs for the next 12 months include the payments due under an agreement with hadassah to conduct clinical trials in als patients , under which we must pay to hadassah an amount of ( i ) up to $ 32,225 per patient ( up to $ 773,400 in the aggregate ) and ( ii ) $ 65,000 per month for rent and operation of the gmp facilities in anticipation of hadassah 's clinical trials . our other material cash needs for the next 12 months will include payments of ( i ) employee salaries , ( ii ) patents , ( iii ) construction fees for facilities to be used in our research and development and ( iv ) fees to our consultants and legal advisors . the company believes it has sufficient funds to meet its obligations in the upcoming 12 months . however , future operations are very capital intensive and will require substantial capital raisings . if we are not able to story_separator_special_tag b. issuance of shares , warrants and options : ( cont . ) 2. share-based compensation to employees and to directors : ( a ) options to employees and directors : on november 25 , 2004 , the company 's stockholders approved the 2004 global stock option plan and the israeli appendix thereto ( which applies solely to participants who are residents of israel ) and on march 28 , 2005 , the company 's stockholders approved the 2005 u.s. stock option and incentive plan , and the reservation of 9,143,462 shares of common stock for issuance in the aggregate under these stock plans . each option granted under the plans is exercisable until the earlier of ten years from the date of grant of the option or story_separator_special_tag company overview we are a biotechnology company developing innovative adult stem cell therapies for highly debilitating neurodegenerative disorders such as als , ms , and pd . these devastating diseases have limited treatment options and as such represent highly unmet medical needs . nurown , our proprietary process for the propagation of msc and their differentiation into ntf secreting cells ( msc-ntf ) , and their transplantation at , or near , the site of damage , offers the hope of overcoming neurodegenerative diseases . our approach is considered safe based on our use of autologous cells , which are free of the risk of rejection and tumor formation . it is also free of the controversy associated with the use of embryonic stem cells in some countries . our core technology was developed in collaboration with prominent neurologist prof. eldad melamed , former head of neurology of the rabin medical center and member of the scientific committee of the michael j. fox foundation for parkinson 's research , and expert cell biologist prof. daniel offen of the felsenstein medical research center of tel aviv university . our israeli subsidiary holds rights to commercialize the technology , through a licensing agreement with ramot , the technology transfer company of tel aviv university , israel . on february 17 , 2010 , our israeli subsidiary entered into the clinical trial agreement with hadassah . under the clinical trial agreement , hadassah and our personnel agreed to conduct a clinical trial to evaluate the safety and tolerability of our nurown cells in patients with als , in accordance with a protocol developed jointly by us and hadassah . in february 2011 , the fda granted orphan drug designation to nurown , our autologous adult stem cell product candidate for the treatment of als . in june 2011 , we initiated a phase i/ii clinical trial for the treatment of als with nurown at humc , after receiving approval from the israeli moh . in july 2011 , we entered into a memorandum of understanding with massachusetts general hospital and the university of massachusetts medical school in anticipation of applying for fda approval to begin als human clinical trials in the united states . pending submission of an ind application to the fda and subsequent approval , we are planning to launch a phase ii clinical trial at these institutions in mid-2013 . in july 2012 , we submitted an interim safety report to the moh for the first 12 of 24 patients in the phase i/ii clinical trial . the report confirmed that our nurown therapy is safe , did not cause any adverse side effects , and some of the patients showed promising indications of clinical improvement . 31 in january 2013 , the moh approved acceleration to a phase iia combined treatment , dose-escalating trial , which we are currently conducting at humc . in this safety and preliminary efficacy trial , 12 early-stage als patients will receive both intramuscular and intrathecal injections of nurown cells in three cohorts with increasing doses . the patients will be followed for three to six months after transplantation . in january 2013 , we also announced that we had successfully completed a 12-week repeat dose toxicity study with our nurown cells in mice . these repeat doses were prepared from frozen cells , using a proprietary method recently developed by the company . our cryopreservation , or freezing , method will enable long-term storage , and production of repeat patient doses of nurown without the need for additional bone marrow aspirations . we believe that the positive data from the toxicity study in mice will support our efforts to obtain approval for a future repeat dose clinical study in als patients . the study was conducted at harlan israel 's laboratories , according to glp standards of the fda . the study protocol was approved by the israeli moh . on february 21 , 2013 , the uk subsidiary filed a request for orphan medicinal product designation by the ema for our autologous bone marrow-derived mesenchymal stem cells secreting neurotropic factors . story_separator_special_tag style= '' width : 100 % ; font-size : 10pt '' > 33 our material cash needs for the next 12 months include the payments due under an agreement with hadassah to conduct clinical trials in als patients , under which we must pay to hadassah an amount of ( i ) up to $ 32,225 per patient ( up to $ 773,400 in the aggregate ) and ( ii ) $ 65,000 per month for rent and operation of the gmp facilities in anticipation of hadassah 's clinical trials . our other material cash needs for the next 12 months will include payments of ( i ) employee salaries , ( ii ) patents , ( iii ) construction fees for facilities to be used in our research and development and ( iv ) fees to our consultants and legal advisors . the company believes it has sufficient funds to meet its obligations in the upcoming 12 months . however , future operations are very capital intensive and will require substantial capital raisings . if we are not able to
| this increase was offset by : ( i ) a decrease in stock-based compensation expenses , of $ 240,000 in the year ended december 31 , 2011 to $ 74,000 in the year ended december 31 , 2012 ; and ( ii ) an increase of $ 530,000 in cso grants from $ 388,000 in the year ended december 31 , 2011 to $ 918,000 in the year ended december 31 , 2012. general and administrative general and administrative expenses for the years ended december 31 , 2012 and 2011 were $ 1,748,000 and $ 2,205,000 , respectively . the decrease in general and administrative expenses for the year ended december 31 , 2012 , is mainly due to a decrease of $ 530,000 in stock-based compensation expenses , from $ 1,075,000 in the year ended december 31 , 2011 to $ 545,000 in the year ended december 31 , 2012 ; this decrease was partially offset by an increase of $ 74,000 in payroll costs from $ 366,000 in the year ended december 31 , 2011 to $ 440,000 in the year ended december 31 , 2012 . 32 financial expenses financial income for the year ended december 31 , 2012 was $ 93,000 compared to financial expense of $ 151,000 for the year ended december 31 , 2011. the increase in financial income for the year ended december 31 , 2012 , is primarily due to a one-time $ 192,000 financial expense included in the year ended december 31 , 2011 , from conversion of debt to a subcontractor to our common stock . the issuance of stock to the subcontractor was in an amount that was lower than the amount owed to the supplier . the value of the amount issued was based on the per share price on the date of the grant . in addition , the increase in financial income is due to ( i ) an increase in financial income of $ 33,000 from conversion exchange , compared to $ 41,000 for the year ended december 31 , 2011 ; and ( ii ) an interest receivable from a bank deposit in the amount of $ 19,000 ( no such income was received in the year ended december 31 , 2011 ) . net loss net loss for the year ended december 31 ,
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these increases were partially offset by the divestiture of our u.s. offshore properties in the second quarter of 2010. general and administrative expenses ( g & a ) replace_table_token_22_th 2012 vs. 2011 net g & a and net g & a per boe increased largely due to higher employee compensation and benefits . employee costs increased primarily from an expansion of our workforce as part of growing production operations at certain of our key areas , including jackfish , the permian basin and the cana-woodford shale . 2011 vs. 2010 net g & a increased primarily due to higher employee compensation and benefits , while net g & a per boe slightly declined as we grew production at a higher rate than g & a . 30 taxes other than income taxes replace_table_token_23_th 2012 vs. 2011 taxes other than income taxes decreased primarily due to a decrease in our u.s. onshore revenues , on which the majority of our production taxes are assessed . 2011 vs. 2010 taxes other than income taxes increased primarily due to an increase in our u.s. onshore revenues , on which the majority of our production taxes are assessed . interest expense replace_table_token_24_th 2012 vs. 2011 interest expense increased primarily due to additional debt borrowings and lower capitalized interest , partially offset by lower weighted average interest rates . borrowings were primarily used to fund capital expenditures in excess of our operating cash flow and 2012 divestiture proceeds . 2011 vs. 2010 interest expense decreased primarily due to costs associated with the early retirement of our $ 350 million notes in 2010. this was partially offset by higher interest resulting from increased debt balances in 2011. restructuring costs replace_table_token_25_th ( 1 ) restructuring costs related to our discontinued operations totaled $ ( 2 ) million and $ ( 4 ) million in 2011 and 2010 , respectively . these costs primarily consist of employee severance and are not included in the table . there were no costs related to discontinued operations in 2012 . 31 office consolidation in october 2012 , we announced plans to consolidate our u.s. personnel into a single operations group centrally located at our corporate headquarters in oklahoma city . as a result , we are in the process of closing our office in houston and transferring operational responsibilities for assets in south texas , east texas and louisiana to oklahoma city . this initiative is expected to be substantially complete by the end of the first quarter 2013. employee severance in the fourth quarter of 2012 , we recognized $ 77 million of estimated employee severance costs associated with the office consolidation . this amount was based on estimates of the number employees that would ultimately be impacted by the office consolidation and included amounts related to cash severance costs and accelerated vesting of share-based grants . lease obligations and other as of december 31 , 2012 , we incurred $ 3 million of restructuring costs related to certain office space that is subject to non-cancellable operating lease agreements and that we ceased using as a part of the office consolidation . in 2013 we expect to incur approximately $ 25 million of additional restructuring costs that represent the present value of our future obligations under the leases , net of anticipated sublease income . our estimate of lease obligations was based upon certain key estimates that could change over the term of the leases . these estimates include the estimated sublease income that we may receive over the term of the leases , as well as the amount of variable operating costs that we will be required to pay under the leases . divestiture of offshore assets in the fourth quarter of 2009 , we announced plans to divest our offshore assets . as of december 31 , 2012 , we had divested all of our u.s. offshore and international assets and incurred $ 196 million of restructuring costs associated with the divestitures . employee severance this amount was originally based on estimates of the number of employees that would ultimately be impacted by the offshore divestitures and included amounts related to cash severance costs and accelerated vesting of share-based grants . as the divestiture program progressed , we decreased our overall estimate of employee severance costs . more offshore employees than previously estimated received comparable positions with either the purchaser of the properties or in our u.s. onshore operations . lease obligations and other as a result of the divestitures , we ceased using certain office space that was subject to non-cancellable operating lease arrangements . consequently , in 2010 we recognized $ 70 million of restructuring costs that represented the present value of our future obligations under the leases , net of anticipated sublease income . our estimate of lease obligations was based upon certain key estimates that could change over the term of the leases . these estimates include the estimated sublease income that we may receive over the term of the leases , as well as the amount of variable operating costs that we will be required to pay under the leases . in addition , we recognized $ 13 million of asset impairment charges for leasehold improvements and furniture associated with the office space that we ceased using . asset impairments replace_table_token_26_th 32 oil and gas impairments under the full-cost method of accounting , capitalized costs of oil and gas properties are subject to a quarterly full cost ceiling test , which is discussed in note 1 to the financial statements under item 8. consolidated financial statements of this report . the oil and gas impairments resulted primarily from declines in the u.s. and canada full cost ceilings . story_separator_special_tag the lower ceiling values resulted primarily from decreases in the 12-month average trailing prices for oil , natural gas and ngls , which have reduced proved reserve values . if pricing conditions do not improve , we may incur full cost ceiling impairments related to our oil and gas property and equipment in 2013. midstream impairments due to declining natural gas production resulting from low natural gas and ngl prices , we determined that the carrying amounts of certain of our midstream facilities were not recoverable from estimated future cash flows . consequently , the assets were written down to their estimated fair values , which were determined using discounted cash flow models . other , net replace_table_token_27_th 2012 vs. 2011 other , net increased primarily due to $ 88 million of excess insurance recoveries received in 2011 related to certain weather and operational claims . 2011 vs. 2010 other , net decreased primarily due to excess insurance recoveries received in 2011 as discussed above . the remainder of the variance primarily relates to the net effect of interest rate derivatives due to changes in the related interest rates upon which the instruments are based . 33 income taxes the following table presents our total income tax expense ( benefit ) and a reconciliation of our effective income tax rate to the u.s. statutory income tax rate . replace_table_token_28_th in the table above , the other effect is primarily comprised of permanent tax differences for which the dollar amounts do not increase or decrease as our pre-tax earnings do . generally , such items typically have an insignificant impact on our effective income tax rate . however , these items have a more noticeable impact to our rate for the year ended december 31 , 2012 because of the relatively small pre-tax loss for that period . during 2011 and 2010 , pursuant to the completed and planned divestitures of our international assets located outside north america , a portion of our foreign earnings were no longer deemed to be indefinitely reinvested . accordingly , we recognized deferred income tax expense of $ 725 million and $ 144 million during 2011 and 2010 , respectively , related to assumed repatriations of earnings from our foreign subsidiaries . earnings ( loss ) from discontinued operations replace_table_token_29_th the earnings ( loss ) in each period were primarily driven by gains ( losses ) on the sales of our oil and gas assets in each period . the following table presents gains and losses on our divestiture transactions by year . replace_table_token_30_th 34 capital resources , uses and liquidity sources and uses of cash the following table presents the major source and use categories of our cash and cash equivalents . replace_table_token_31_th operating cash flow continuing operations net cash provided by operating activities ( operating cash flow ) continued to be a significant source of capital and liquidity in 2012. our operating cash flow decreased 21 percent during 2012 primarily due to lower commodity prices and higher expenses , partially offset by additional cash flow from our production growth and higher realized gains from our commodity derivatives . during 2012 our operating cash flow funded approximately three-fourths of our cash payments for capital expenditures , net of divestitures proceeds . leveraging our liquidity , we used debt to fund the remainder of our cash-based capital expenditures . debt activity , net during 2012 , we increased our debt borrowings by $ 1.9 billion as a result of issuing $ 2.5 billion of long-term debt and repaying approximately $ 0.6 billion of outstanding short-term debt . the additional borrowings were primarily used to fund capital expenditures in excess of our operating cash flow . during 2011 , we increased our commercial paper borrowings by $ 3.7 billion and received $ 0.5 billion from new debt issuances , net of debt maturities . proceeds were primarily used to fund capital expenditures and common stock repurchases in excess of operating cash flow . during 2010 , we repaid $ 1.4 billion of commercial paper borrowings and redeemed our $ 350 million notes , primarily with proceeds received from our u.s. offshore divestitures . divestitures of property and equipment during 2012 , we closed joint venture transactions with sinopec and sumitomo . sinopec paid approximately $ 900 million in cash and received a 33.3 percent interest in five of our new ventures exploration plays in the u.s. sinopec is also funding approximately $ 1.6 billion of our share of future exploration , development and drilling costs associated with these plays . sumitomo paid approximately $ 400 million and received a 30 percent interest in the cline and midland-wolfcamp shale plays in texas . additionally , sumitomo is funding approximately $ 1.0 billion of our share of future exploration , development and drilling costs associated with these plays . at december 31 , 2012 , sinopec 's and sumitomo 's remaining commitment to fund our share of future costs associated with these plays was approximately $ 2.3 billion . also in 2012 , we sold our west johnson county plant and gathering system in north texas for approximately $ 90 million and divested our angola operations for approximately $ 71 million . 35 in 2011 and 2010 , our divestitures primarily related to the divestitures of our offshore assets . capital expenditures the amounts in the table below reflect cash payments for capital expenditures , including cash paid for capital expenditures incurred in prior periods . replace_table_token_32_th our capital expenditures consist of amounts related to our oil and gas exploration and development operations , our midstream operations and other corporate activities . the vast majority of our capital expenditures are for the acquisition , drilling and development of oil and gas properties , which totaled $ 7.3 billion , $ 6.7 billion and $ 5.9 billion in 2012 , 2011 and 2010 , respectively . the increases in exploration and development capital spending in 2012 and 2011
| additionally , our ngl sales increased $ 137 million as a result of continued drilling in the liquids-rich gas portions of the barnett shale , cana-woodford shale and granite wash. these increases were partially offset by a slight decrease in our 2012 gas production , resulting in a $ 52 million decline in sales . 26 volumes 2011 vs. 2010 upstream sales increased $ 458 million due to a 5 percent increase in production . bitumen and ngl volume increases resulted in $ 340 million higher sales . additional volumes for both of these products were primarily due to the same reasons discussed in our 2012 vs. 2011 comparison above . additionally , we saw slight increases in our oil and gas volumes which resulted in $ 118 million higher sales . production information for our key properties is summarized below : permian basin production increased 26 percent compared to the prior year and 44 percent since 2010. oil production accounted for nearly 60 percent of our 62,000 boe per day produced in the permian basin during 2012. the 2012 increase in total production was driven by a 30 percent increase in oil production . barnett shale production increased 7 percent compared to the prior year and 18 percent since 2010. liquids production accounted for 21 percent of our 1.4 bcfe per day produced in the barnett shale during 2012. the 2012 increase in total production was driven by a 7 percent increase in liquids production . cana-woodford shale production increased 45 percent compared to the prior year and 168 percent since 2010. liquids production accounted for 30 percent of our 290 mmcfe per day produced in cana during 2012. the 2012 increase in total production was driven by a 67 percent increase in liquids production . canadian oil sands production increased 37 percent compared to the prior year and 92 percent since 2010. bitumen production accounted for all of our 48,000 boe per day produced in 2012. granite wash production increased 14 percent compared to the prior year and 68 percent since 2010. liquids production accounted for 46 percent of our 19,000 boe per day produced in granite wash during 2012. the 2012 increase in production was driven by a
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( b ) includes seven md-80 aircraft ( md-82/83/88s ) modified to a 166-seat configuration . ( c ) in december 2011 , we exercised purchase options on two md-80 aircraft and took ownership of these aircraft in january 2012. subsequent to taking ownership of these two aircraft in january 2012 , we no longer have any aircraft under operating leases . ( d ) in february 2010 , we exercised purchase options on two md-80 aircraft under operating leases . in october 2010 , we took ownership of these aircraft . ( e ) includes two md-80 aircraft subject to capital leases as of december 31 , 2009. in september 2010 , we exercised early purchase options and took ownership of these two aircraft . ( f ) used almost exclusively for fixed fee flying . md-80 aircraft not in service as of december 31 , 2011 , two of our md-80 aircraft previously in storage are being modified to a 166 seat reconfiguration and expected to enter revenue service in the first quarter of 2012. subsequent to these two md-80 aircraft being modified to 166 seats , the remaining aircraft in the seat reconfiguration program will be removed from aircraft in service . there is also one additional md-80 aircraft in storage which could be used for future growth opportunities . boeing 757-200 aircraft as of december 31 , 2011 , we owned four boeing 757-200 aircraft , of which three were leased out to third parties on a short-term basis , and one is in revenue service . the expected return dates of the leased out aircraft , under their respective leases , are through the third quarter of 2012. we expect these three aircraft to be added to revenue service through the first half of 2013. we obtained approval from the federal aviation administration ( “ faa ” ) to begin operating the boeing 757-200 aircraft type in our operating fleet and in july 2011 , initiated service with the aircraft on two of our routes to las vegas . two additional boeing 757-200 aircraft remain to be purchased under our previous contract . we expect to close on these aircraft during the first half of 2012 , with introduction of these aircraft into our fleet during the first half of 2012. we continue our efforts to gain flag carrier status and complete the etops certification process with the goal to launch service with our boeing 757-200 aircraft to hawaii in the second half of 2012 . 23 network we have increased the number of routes into our leisure destinations from 160 at december 31 , 2010 to 171 routes at december 31 , 2011. we now serve 76 cities in 39 states ( including small cities and destinations ) through our route network . the following shows the number of destinations and small cities served as of the dates indicated ( includes cities served seasonally ) : replace_table_token_7_th ( a ) from february 2010 until february 2011 , we served both orlando international airport and orlando sanford international airport . in february 2011 , we have consolidated our orlando operations back to our original operational base at orlando sanford international airport . trends and uncertainties oil prices have stabilized during the second half of 2011 , but at levels resulting in an increase of our system average cost per gallon to $ 3.07 , a 33.5 % increase from $ 2.30 in 2010. this system average cost per gallon for 2011 was higher than the $ 2.98 per gallon we experienced in 2008 when fuel reached peak levels . fuel availability is subject to periods of market surplus and shortage and is affected by demand for heating oil , gasoline and other petroleum products . the cost of fuel can not be predicted with any degree of certainty and further fuel cost volatility will most likely have a significant impact on our future results of operations . we will continue to try to offset these fuel prices through our continued focus on capacity management , driving additional ancillary revenues and the execution of our low fixed , high variable cost model . we remain pleased with the strength and flexibility of our model and believe it has proven successful to maintain profitability in a high fuel price environment . we continue to expand our route network and extend our national footprint with the focus on serving residents of small cities . our national footprint is well balanced and is not dependant on one particular market or geographic region . in january 2012 , we announced the establishment of an operational base and expansion of service at oakland international airport with seven new routes to serve the san francisco bay area starting in april 2012. we also anticipate service to hawaii in the second half of 2012 upon completion of our etops certification . in january 2012 , revisions and expansions to a variety of dot consumer-protection regulations became effective . among other changes , the new rules substantially reduce the flexibility concerning airline advertising and sales practices , including on websites . these new regulations curtail our ability to advertise , price and sell our services in the particular manner we have developed and found most advantageous , forcing a more homogenized industry approach to advertising and sales . future dot rulemaking in this regard may impose further restrictions on us . although we are taking steps to minimize the extent of any negative impact and we are challenging certain of the new rules in court , our revenues could be adversely affected in the long-term . we expect to transfer over to our new website in first quarter 2012 and continue to enhance our website offerings to our customers . we believe this will in time provide significant revenue opportunities on which we hope to capitalize . our operating revenue our operating revenue comprises of both air travel on a stand-alone basis and bundled with hotels , rental cars and other travel-related services . story_separator_special_tag we believe our diversified revenue streams distinguish us from other u.s. airlines and other travel companies . scheduled service revenue . scheduled service revenue consists of air fare for nonstop flights on our route network . ancillary revenue . our ancillary revenue is generated from air-related charges and third party products . air-related revenue is generated through charges for use of our website to purchase tickets , checked bags , advance seat assignments , priority boarding and other services provided in conjunction with our scheduled air service . we also generate revenue from third party products through the sale of hotel rooms , ground transportation ( rental cars and hotel shuttle products ) , attraction and show tickets and fees we receive from other merchants selling products through our website . we recognize our ancillary revenues net of amounts paid to wholesale providers , travel agent commissions and credit card processing fees . 24 fixed fee contract revenue . our fixed fee contract revenue is generated from fixed fee agreements and charter service on a seasonal and ad-hoc basis for other customers . the majority of our fixed fee contract revenue is under fixed fee agreements with affiliates of caesars entertainment inc. and peppermill resorts inc. other revenue . other revenue is primarily generated from aircraft and flight equipment leased to third parties . seasonality . our business is seasonal in nature with traffic demand historically being weaker in the third quarter and stronger in the first quarter . our operating revenue is largely driven by perceived product value , advertising and promotional activities and can be adversely impacted during periods with reduced leisure travel spending , such as the back-to-school season . our operating expenses a brief description of the items included in our operating expense line items follows . aircraft fuel expense . aircraft fuel expense includes the cost of aircraft fuel , fuel taxes , into plane fees and airport fuel flowage , storage or through-put fees . under the majority of our fixed fee contracts , our customer reimburses us for fuel costs . these amounts are netted against our fuel expense . salary and benefits expense . salary and benefits expense includes wages , salaries , and employee bonuses , sales commissions for in-flight personnel , as well as expenses associated with employee benefit plans and employer payroll taxes . station operations expense . station operations expense includes the fees charged by airports for the use or lease of airport facilities and fees charged by third party vendors for ground handling services , commissary expenses and other related services such as deicing of aircraft . maintenance and repairs expense . maintenance and repairs expense includes all parts , materials and spares required to maintain our aircraft . also included are fees for repairs performed by third party vendors . sales and marketing expense . sales and marketing expense includes all advertising , promotional expenses , travel agent commissions and credit card discount fees associated with the sale of scheduled service and air-related charges . aircraft lease rentals expense . aircraft lease rentals expense consists of the cost of leasing aircraft under operating leases with third parties . depreciation and amortization expense . depreciation and amortization expense includes the depreciation of all fixed assets , including aircraft that we own and amortization of aircraft that we operated under capital leases . other expense . other expense includes the cost of passenger liability insurance , aircraft hull insurance and all other insurance policies except for employee welfare insurance . additionally , this expense includes loss on disposals of aircraft and other equipment disposals , travel and training expenses for crews and ground personnel , facility lease expenses , professional fees , personal property taxes and all other administrative and operational overhead expenses not included in other line items above . story_separator_special_tag purchased options on these two aircraft under operating leases and took ownership of the aircraft in january 2012. upon taking ownership of these two aircraft in january 2012 , we no longer have any aircraft under operating leases . depreciation and amortization expense . depreciation and amortization expense increased to $ 42.0 million in 2011 from $ 35.0 million in 2010 , an increase of 20.0 % primarily driven by additional depreciation expense from boeing 757-200 and md-80 aircraft and engines . our boeing 757-200 aircraft include three aircraft leased to third parties during 2011 and one placed into revenue service in july 2011. we ended 2011 with 57 aircraft in service as compared to 52 aircraft at the end of 2010. other expense . other expense increased 6.2 % to $ 32.2 million in 2011 compared to $ 30.4 million in 2010. the increase was primarily driven by losses associated with one md-87 aircraft we permanently grounded during the second quarter of 2011 , the disposal of one engine , along with the write-down of engine values in our consignment program . in addition , we had an increase in our administrative expenses associated with our growth , such as property taxes and software support , which contributed to the overall increase in other operating expenses . other ( income ) expense other ( income ) expense increased from a net other expense of $ 1.3 million for 2010 , to a net other expense of $ 5.9 million for 2011. the increase is due to a $ 4.7 million increase in interest expense in 2011 primarily associated with our $ 125.0 million term loan borrowing in march 2011. income tax expense our effective income tax rate was 37.9 % for 2011 compared to 36.4 % for 2010. the higher effective tax rate for 2011 was largely due to the impact of apportionment factor adjustments to filed state income tax returns which contributed to an increase in our state income tax expense .
| third party products consist of revenue from the sale of hotel rooms , ground transportation ( rental cars and hotel shuttle products ) , attraction and show tickets and fees we receive from other merchants selling products through our website : replace_table_token_10_th during 2011 , we generated gross revenue of $ 106.4 million from third party products , which resulted in net revenue of $ 29.9 million . third party products increased on a per-passenger basis primarily as a result of increased hotel room bookings and margin expansion , when compared to the prior year . fixed fee contract revenue . fixed fee contract revenue increased 7.7 % to $ 43.7 million during 2011 from $ 40.6 million for 2010. the increase in fixed fee contract revenue was primarily attributable to flying under an agreement with peppermill resorts inc. ( flying began in january 2011 ) , which more than offset the reduction in fixed fee flying under the caesars entertainment inc. ( “ caesars ” ) agreement . block hours flown under our fixed fee flying agreement with caesars decreased from 6,893 block hours in 2010 to 5,605 in 2011. other revenue . we generated other revenue of $ 10.5 million for 2011 compared to $ 1.2 million for 2010 , primarily from lease revenue for aircraft and flight equipment . in the first quarter of 2011 , we leased three boeing 757-200 aircraft to third parties on a short term basis . the expected return dates of these aircraft , under their respective leases , are through the third quarter of 2012 . 26 operating expenses our operating expenses increased 24.1 % to $ 693.7 million for 2011 compared to $ 559.0 million in 2010. we primarily evaluate our expense management by comparing our costs per passenger and per asms across different periods which enable us to assess trends in each expense category . the following table presents operating expense per passenger for the indicated periods ( “ per-passenger costs ” ) . the table also presents operating expense per passenger , excluding fuel , which represents operating expenses , less aircraft fuel expense , divided by the number of passengers carried . this statistic provides management and investors the
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globalization continues to reshape not only the industries in which we operate but also our key customers and competitors . employees throughout our business operations are an integral part of our ability to compete successfully , and the stability of the management team is critical to long-term share owner value . our career development and succession planning processes help to maintain stability in management . planned spin-off on january 20 , 2014 , we announced that our board of directors unanimously approved a plan to spin off our ems segment which is expected to occur near the end of october 2014. the separation will result in two independent publicly-traded companies : kimball international , inc. , an industry leader in the sale and manufacture of quality office and hospitality furniture ; and kimball electronics , inc. , a leading global provider of electronic manufacturing services to the automotive , medical , industrial , and public safety markets . execution of the transaction requires further work on structure , management , governance and other significant matters . the completion of the spin-off is subject to certain customary conditions , including receipt of a legal opinion as to the tax-free nature of the spin-off for u.s. federal income tax purposes and regulatory approvals , as well as certain other matters . we can make no assurance that any spin-off transaction will ultimately occur , or , if one does occur , its terms or timing . 21 certain preceding statements could be considered forward-looking statements under the private securities litigation reform act of 1995 and are subject to certain risks and uncertainties including , but not limited to , the successful completion of the spin-off , adverse changes in the global economic conditions , loss of key customers or suppliers , or similar unforeseen events . additional risk factors that could have an effect on our performance are located within item 1a - risk factors . fiscal year 2014 story_separator_special_tag segment net sales : replace_table_token_16_th the nature of the electronic manufacturing services industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently . new customers and program start-ups generally cause losses early in the life of a program , which are generally recovered as the program becomes established and matures . volumes for one of our largest contracts with jci , which accounted for approximately $ 46 million in sales in fiscal year 2014 , are expected to decline in fiscal year 2015 as certain jci programs reach end-of-life . in addition , during the second quarter of our fiscal year 2014 , due to its available capacity jci decided to in-source other programs manufactured by our ems segment which accounted for approximately $ 33 million in sales in fiscal year 2014. the transition to jci 's in-sourcing will occur in stages and began in our fourth quarter of fiscal year 2014 with the transition expected to be substantially complete by january 2015. gross profit as a percent of net sales on the jci product approximates the overall segment gross margin . agreement has been reached with jci for the end-of-life production , and revenue will be impacted , but much of that volume already has been and is expected to continue to be replaced with new business . 24 risk factors within the ems segment include , but are not limited to , general economic and market conditions , customer order delays , increased globalization , foreign currency exchange rate fluctuations , rapid technological changes , component availability , supplier and customer financial stability , the contract nature of this industry , the concentration of sales to large customers , and the potential for customers to choose a dual sourcing strategy or to in-source a greater portion of their electronics manufacturing . the continuing success of this segment is dependent upon our ability to replace expiring customers/programs with new customers/programs . additional risk factors that could have an effect on our performance are located within item 1a - risk factors . furniture segment furniture segment results follow : replace_table_token_17_th the fiscal year 2014 net sales increase in the furniture segment compared to fiscal year 2013 resulted from increased net sales of both hospitality furniture and office furniture . the increase in furniture net sales during fiscal year 2014 was driven by the positive impact of increased sales volumes and price increases . sales to all vertical markets in fiscal year 2014 within the office furniture industry increased compared to fiscal year 2013 except for a decline in sales to the federal government . open orders of furniture products at june 30 , 2014 increased 2 % from the orders open as of june 30 , 2013 on higher orders of hospitality furniture which more than offset a decline in office furniture open orders . open orders at a point in time may not be indicative of future sales trends . fiscal year 2014 furniture segment gross profit as a percent of net sales increased 2.5 percentage points when compared to fiscal year 2013 . benefits realized in fiscal year 2014 from sales price increases , higher margin projects that shipped during fiscal year 2014 , our increased focus on project execution and process discipline , and operational improvements , and fixed cost leverage associated with the higher revenue were partially offset by an unfavorable shift in sales mix . story_separator_special_tag compared to fiscal year 2013 , fiscal year 2014 selling and administrative expenses as a percent of net sales decreased 0.6 of a percentage point due to the higher sales volumes but increased 7 % in absolute dollars primarily due to increased profit-based incentive compensation costs , increased salary and employee benefit expenses , and higher commissions resulting from the higher sales , which were partially offset by a $ 1.7 million pre-tax gain recognized on the sale of an idle facility during fiscal year 2014. risk factors within this segment include , but are not limited to , general economic and market conditions , increased global competition , financial stability of customers and suppliers , supply chain cost pressures , and relationships with strategic customers and product distributors . additional risk factors that could have an effect on our performance are located within item 1a - risk factors . fiscal year 2013 results of operations financial overview - consolidated fiscal year 2013 consolidated net sales were $ 1.20 billion compared to fiscal year 2012 net sales of $ 1.14 billion , a 5 % increase , resulting from a 14 % increase in the ems segment which more than offset a 5 % decrease in the furniture segment . fiscal year 2013 net income was $ 19.9 million , or $ 0.52 per class b diluted share , inclusive of $ 0.3 million , or $ 0.01 per class b diluted share , of after-tax restructuring costs . the company recorded net income for fiscal year 2012 of $ 11.6 million , or $ 0.31 per class b diluted share , inclusive of $ 2.1 million , or $ 0.06 per class b diluted share , of after-tax restructuring costs primarily related to the european consolidation plan . 25 consolidated gross profit as a percent of net sales improved to 18.6 % for fiscal year 2013 from 18.4 % in fiscal year 2012 due to margin improvement in the ems segment , which was partially offset by a decline in furniture segment margin coupled with a shift in sales mix ( as depicted in the table below ) toward the ems segment which operates at a lower gross profit percentage than the furniture segment . gross profit is discussed in more detail in the segment discussions below . replace_table_token_18_th fiscal year 2013 consolidated selling and administrative expenses as a percent of net sales increased 0.2 of a percentage point compared to fiscal year 2012 , and increased 6.5 % in absolute dollars primarily due to increased incentive compensation costs . in addition , we recorded $ 2.0 million more expense within selling and administrative expenses in fiscal year 2013 than fiscal year 2012 related to the normal revaluation to fair value of the company 's supplemental employee retirement plan ( `` serp '' ) liability . the revaluation of the serp liability recorded in selling and administrative expenses is offset by the revaluation of the serp investment recorded in other income ( expense ) , and thus there was no effect on net income . other income ( expense ) consisted of the following : replace_table_token_19_th the impairment on the privately-held investment and the loss on stock warrants listed in the table above both relate to the company 's investment in one privately-held company . see the notes to consolidated financial statements for more detailed information . our income before income taxes and effective tax rate was comprised of the following u.s. and foreign components : replace_table_token_20_th during fiscal year 2013 , we had a disproportionate mix of sales and pre-tax income between our foreign and domestic operations . our foreign operations recorded $ 20.1 million of pre-tax income on $ 353.9 million of sales and our domestic operations recorded $ 2.5 million of pre-tax income on $ 849.2 million of sales . the lower domestic pre-tax income in fiscal year 2013 was primarily caused by 1 ) the furniture segment ( all domestic operations ) which generated a small pre-tax loss for the year resulting from the loss of fixed cost leverage due to its low sales volume for the year and 2 ) the unallocated corporate loss during the year partially resulting from an impairment loss on a privately-held investment . our consolidated effective tax rate in fiscal year 2013 was 12.3 % compared to 34.3 % in fiscal year 2012. the statutory tax rates in the foreign jurisdictions in which we operate are lower than the u.s. as a result of the lower foreign tax rates , the significantly higher proportion of earnings coming from foreign locations in fiscal year 2013 had a favorable impact on the 26 consolidated effective tax rate in fiscal year 2013. in addition , the fiscal year 2013 consolidated effective tax rate was favorably impacted by u.s. tax credits . these tax credits , coupled with relatively low pre-tax income in the u.s. , caused the negative u.s. tax rate shown above . the foreign effective tax rate in fiscal year 2012 was unfavorably impacted by currency fluctuations that are not taxed in the foreign jurisdictions . see note 8 - income taxes of notes to consolidated financial statements for more information . electronic manufacturing services segment ems segment results follow : replace_table_token_21_th fiscal year 2013 ems segment net sales to customers in the automotive , medical , industrial , and public safety industries all increased compared to fiscal year 2012. sales to customers in the automotive industry were favorably impacted by the strength in the u.s. market , the uptick in the china market , and additional program awards from existing customers in the european market . sales to customers in the medical industry improved on increased demand from existing customers and new customer program awards . sales to customers in the industrial market increased primarily on additional program awards from an existing customer and the increased demand from customers that provide product and solutions to climate control applications compared to the prior fiscal year .
| 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 . employee contributions comprise approximately 90 % of the serp investment . partially offsetting the aforementioned increases was a $ 1.7 million pre-tax gain recognized on the sale of an idle facility in the furniture segment during fiscal year 2014 and a $ 1.0 million decline in bad debt expense primarily driven by a prior year allowance for uncollectible receivables related to one specific customer . fiscal year 2014 other general income included $ 5.7 million of pre-tax income resulting from settlements received related to two antitrust class action lawsuits in which kimball was a class member . the lawsuits alleged that certain ems segment suppliers conspired over a number of years to raise and fix the prices of electronic components , resulting in overcharges to purchasers of those components . we recorded no other general income during fiscal year 2013 . 22 other income ( expense ) consisted of the following : replace_table_token_13_th the impairment on the privately-held investment and the loss on stock warrants listed in the table above both relate to our investment in one privately-held company . see the notes to consolidated financial statements for more detailed information . our income before income taxes and effective tax rate was comprised of the following u.s. and foreign components : replace_table_token_14_th the fiscal year 2014 effective tax rate of 22.5 % was favorably impacted by a high mix of earnings in foreign jurisdictions which have lower statutory tax rates than the u.s. the foreign effective tax rate for fiscal year 2014 was favorably impacted by $ 1.4 million of adjustments related to decreases in foreign deferred tax asset valuation allowances . during fiscal year 2013 , we had a disproportionate mix of sales and pre-tax income between our
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” story_separator_special_tag style= '' display : inline ; '' > selling , distribution , and marketing , and general and administrative replace_table_token_7_th the increase in selling , distribution , and marketing expenses was primarily due to marketing expenses related to primatene ® mist , including the cost of a national television and radio marketing campaign which began in july 2019. the increase in general and administrative expense was primarily due to an increase in personnel cost and an increase in accounting audit fees and consultant fees associated with our compliance with public company reporting obligations . this was partially offset by a decrease in legal expenses as a result of the enoxaparin patent and antitrust litigation settlement ( see note 20 to the consolidated financial statements for more information regarding litigation matters ) . we expect that selling , distribution and marketing expenses will increase due to the increase in marketing expenditures for primatene ® mist . we expect that general and administrative expenses will increase on an annual basis due to increased costs associated with ongoing compliance with public company reporting obligations . legal fees may fluctuate due to the timing of patent challenges and other litigation matters . 77 research and development replace_table_token_8_th research and development costs consist primarily of costs associated with the research and development of our product candidates including the cost of developing apis . we expense research and development costs as incurred . salaries and personnel-related expenses as well as depreciation expense increased in 2019 primarily due to api and key component development at our anp facility . clinical trial expense increased due to external studies related to our generic product pipeline , primarily for our inhalation andas and our insulin biosimilar programs . we have made , and expect to continue to make , substantial investments in research and development to expand our product portfolio and grow our business . we expect that research and development expenses will increase on an annual basis due to increased clinical trial costs related to our biosimilar and inhalation product candidates . these expenditures will include costs of apis developed internally as well as apis purchased externally , the cost of purchasing reference listed drugs and the costs of performing the clinical trials . as we undertake new and challenging research and development projects , we anticipate that the associated costs will increase significantly over the next several quarters and years . other income ( expense ) , net year ended december 31 , change 2019 2018 dollars % ( in thousands ) other income ( expenses ) , net $ 59,389 $ ( 1,516 ) $ 60,905 nm in june 2019 , we recognized a gain of $ 59.9 million relating to our settlement of the enoxaparin patent and antitrust litigation with momenta pharmaceuticals , inc. and sandoz inc. for more information regarding the enoxaparin patent and antitrust litigation , see note 20 to the consolidated financial statements for more information regarding litigation matters . income tax provision ( benefit ) replace_table_token_9_th the difference in income tax provision ( benefit ) was primarily due to differences in pre-tax income ( loss ) positions . liquidity and capital resources cash requirements and sources we need capital resources to maintain and expand our business . we expect our cash requirements to increase significantly in the foreseeable future as we sponsor clinical trials for , seek regulatory approvals of , and develop , manufacture and market our current development‑stage product candidates and pursue strategic acquisitions of 78 businesses or assets . our future capital expenditures include projects to upgrade , expand and improve our manufacturing facilities in the united states , china , and france . our cash obligations include the principal and interest payments due on our existing loans and lease payments , as described below and throughout this annual report on form 10-k. as of december 31 , 2019 , our foreign subsidiaries collectively held $ 31.3 million in cash and cash equivalents . cash or cash equivalents held at foreign subsidiaries are not available to fund the parent company 's operations in the united states . we believe that our cash reserves , operating cash flows , and borrowing availability under our credit facilities will be sufficient to fund our operations for at least the next 12 months . we expect additional cash flows to be generated in the longer term from future product introductions , although there can be no assurance as to the receipt of regulatory approval for any product candidates that we are developing or the timing of any product introductions , which could be lengthy or ultimately unsuccessful . we maintain a shelf registration statement on form s-3 pursuant to which we may , from time to time , sell up to an aggregate of $ 250 million of our common stock , preferred stock , depositary shares , warrants , units , or debt securities . if we require or elect to seek additional capital through debt or equity financing in the future , we may not be able to raise capital on terms acceptable to us or at all . to the extent we raise additional capital through the sale of equity or convertible debt securities , the issuance of such securities will result in dilution to our stockholders . if we are required and unable to raise additional capital when desired , our business , operating results and financial condition may be adversely affected . working capital increased $ 51.7 million to $ 165.2 million at december 31 , 2019 , compared to $ 113.5 million at december 31 , 2018. cash flows from operations the following table summarizes our cash flows from operating , investing , and financing activities for the years ended december 31 , 2019 and 2018 . story_separator_special_tag replace_table_token_10_th sources and use of cash operating activities net cash provided by operating activities was $ 41.8 million for the year ended december 31 , 2019 , which included net income of $ 46.5 million , primarily as a result of the receipt of the $ 59.9 million relating to the litigation settlement with momenta pharmaceuticals , inc. and sandoz inc. non-cash items were primarily comprised of $ 18.1 million of depreciation and amortization , and $ 17.3 million of share-based compensation expense . additionally , there was a net cash outflow from changes in operating assets and liabilities of $ 51.7 million which resulted from the decrease in accounts receivable , offset by an increase in inventory , as well as a decrease in accounts payable and accrued liabilities . the decrease in accounts receivable was due to the timing of sales . the increase in inventory was primarily due to increased purchases of raw materials and the production of finished goods for enoxaparin and primatene ® mist with an impact of $ 29.2 million and $ 9.3 million , respectively . we plan to utilize deferred tax credits to offset a significant portion of the tax liability related to our 2019 u.s. federal and california state taxable income , resulting in only $ 4.6 million tax payments . accounts payable and accrued liabilities decreased primarily due to the timing of payments . 79 net cash provided by operating activities was $ 38.2 million for the year ended december 31 , 2018 , which included net loss of $ 6.7 million . non-cash items were primarily comprised of $ 16.5 million of depreciation and amortization , and $ 16.7 million of share-based compensation expense . additionally , there was a net cash inflow from changes in operating assets and liabilities of $ 12.1 million which resulted from the increase in accounts payable and accrued liabilities offset by an increase in accounts receivable and inventory . the increase in accounts receivable was due to an increase in sales . an increase in inventory , due to increased purchases of raw materials for primatene ® mist , enoxaparin and other products in the u.s. , was partially offset by a decrease in finished rhi api at afp . accounts payable and accrued liabilities increased , primarily due to the timing of payments . investing activities net cash used in investing activities was $ 50.5 million for the year ended december 31 , 2019 , primarily as a result of $ 41.6 million in purchases of property , plant , and equipment , which included $ 11.3 million incurred in the united states , $ 6.8 million in france , and $ 23.5 million in china . additionally , we purchased $ 8.8 million in short-term investments in 2019. net cash used in investing activities was $ 42.2 million for the year ended december 31 , 2018 , primarily as a result of $ 46.8 million in purchases of property , plant , and equipment , which included $ 15.7 million incurred in the united states , $ 9.3 million in france , and $ 21.8 million in china . the cash used was partially offset by the $ 4.4 million receipt of the remaining consideration of the sale of various andas in february 2017 ( see note 10 to the consolidated financial statements for more information ) . financing activities net cash used in financing activities was $ 3.8 million for the year ended december 31 , 2019 , primarily as a result of $ 22.3 million used to purchase treasury stock , which was partially offset by the receipt of $ 18.3 million for the anp private placement , and $ 3.4 million in net proceeds received from our equity plans . additionally , we received $ 3.6 million from borrowings on an equipment line of credit , and made $ 6.8 million in principal payments on our long-term debt and lines of credit . net cash provided by financing activities was $ 25.0 million for the year ended december 31 , 2018 , primarily as a result of $ 38.0 million received from the anp private placement and $ 8.9 million of proceeds received from our equity plans , which was partially offset by $ 25.0 million used to purchase treasury stock . additionally , we received proceeds of $ 8.4 million primarily from borrowings on an equipment line of credit , and made $ 5.7 million in principal payments on our long-term debt . debt and borrowing capacity our outstanding debt obligations are summarized as follows : replace_table_token_11_th as of december 31 , 2019 , we had $ 41.4 million in unused borrowing capacity under revolving lines of credit and equipment lines of credit with cathay bank and east west bank . lines of credit bear variable interest rates and are secured by inventory , accounts receivable , intangible assets , and equipment . the weighted average interest rates on lines of credit as of december 31 , 2019 and 2018 were 4.0 % and 5.6 % , respectively . we have also entered into or refinanced certain mortgage and equipment loans with cathay bank and east west bank , which bear variable or fixed interest rates and are secured by buildings and equipment . on certain loans with east west bank , we have entered into fixed interest rate swap contracts to exchange the variable interests for fixed interest rates without the exchange of underlying notional debt amounts . 80 for more information regarding our outstanding indebtedness , see “ part ii – item 8. financial statements and supplementary data – notes to consolidated financial statements – debt. ” critical accounting policies we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of consolidated financial statements in conformity with gaap requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . actual results could differ from those estimates .
| sales of api primarily depend on the timing of customer purchases . in august 2019 , we amended the supply agreement with mannkind corporation , or mannkind , whereby mannkind 's aggregate total commitment of rhi api under the supply agreement was modified and extended for an additional two years through 2026 , which timeframe would have previously lapsed after calendar year 2024. mannkind paid us an amendment fee of $ 2.75 million , which we recognized in net revenues during the year ended december 31 , 2019. we anticipate that sales of api will continue to fluctuate and may decrease due to the inherent uncertainties related to sales to mannkind . in addition , most of our api sales are denominated in euros , and the fluctuation in the value of the euro versus the u.s. dollar has had , and will continue to have , an impact on api sales revenues in the near term . a significant portion of our customer shipments in any period relate to orders received and shipped in the same period , generally resulting in low product backlog relative to total shipments at any time . we had no significant backlog as of december 31 , 2019. historically , our backlog has not been a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance . cost of revenues the launch of primatene ® mist , which is a higher margin product , as well as the higher average selling price of phytonadione , helped increase our gross margins for the year ended december 31 , 2019. gross margins for primatene ® mist were magnified by the use of api and components which were expensed to pre-launch inventory in prior years . the cost of heparin , which is the starting material for enoxaparin , has increased and is expected to increase further , putting downward pressure on our gross margins .
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bioreference performed 0.8 million serology antibody tests and 10.1 million diagnostic molecular tests for covid-19 during the year ended december 31 , 2020 , which represented 57 % of total testing volume . revenue attributable to tests for covid-19 was partially offset by the negative impacts of : a reduction in clinical test volumes and genomic test volumes at bioreference resulted in decreased revenues of $ 99.5 million and $ 15.6 million , respectively , as compared to the year ended december 31 , 2019. the decline in routine clinical and genomic testing volume reflects negative impacts from the covid-19 pandemic , principally from referring physician office closures and stay-at-home guidance throughout states in which we predominately operate . a reduction in clinical test and genomic test reimbursement at bioreference of $ 10.2 million and $ 27.6 million , respectively , as compared to the year ended december 31 , 2019. the lower reimbursement within our clinical business was primarily the result of the negative impact of the pama price reduction that went into effect january 1 , 2020 combined with an overall shift in our test mix that was partially offset by increased reimbursement of our 4kscore test . the lower reimbursement within our genomic business resulted from an increase in denial rates and changes to payor policy and procedural requirements . estimated collection amounts are subject to the complexities and ambiguities of billing , reimbursement regulations and claims processing , as well as considerations unique to medicare and medicaid programs , and require us to consider the potential for retroactive adjustments when estimating variable consideration in the recognition of revenue in the period the related services are rendered . revenue from services for the year ended december 31 , 2020 included $ 12.1 million related to the successful appeal of previously denied claims for the 4kscore test . in addition , the year ended december 31 , 2020 included positive revenue adjustments recognized due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods of $ 0.3 million , and for the year ended december 31 , 2019 , revenue reductions of $ 24.8 million were recognized due to changes in estimates of implicit price concessions for performance obligations satisfied in prior periods . the composition of revenue from services by payor for the years ended december 31 , 2020 and 2019 was as follows : replace_table_token_3_th client payers include cities , states and companies for which bioreference provides covid-19 testing services . revenue from the transfer of intellectual property and other for the year ended december 31 , 2020 are the result of grants received under the cares act totaling $ 16.2 million . cost of revenue . cost of revenue for the year ended december 31 , 2020 increased $ 313.1 million compared to the year ended december 31 , 2019. cost of revenue increased primarily due to labor and material costs for covid-19 testing and the significant volume of tests performed during the year ended december 31 , 2020 , partially offset by a decline in non-covid testing volumes and to cost reduction initiatives leading to a 12.4 % improvement in cost per patient encounter , inclusive of all volumes . selling , general and administrative expenses . selling , general and administrative expenses for the years ended december 31 , 2020 and 2019 were $ 266.5 million and $ 242.0 million , respectively . selling , general and administrative expenses in our diagnostics segment increased primarily due to higher variable billing and compensation costs of $ 23.2 million from an increase in volume and collections during the year ended december 31 , 2020 and $ 3.0 million in marketing costs and other administrative and marketing costs directly associated the covid-19 pcr testing volumes . in comparison , the december 31 , 2019 period included $ 12.6 million of expense related to the department of justice settlement . as a percentage of net revenue sg & a for the diagnostic segment decreased to 21 % from 34 % , for the years ended december 31 , 2020 and 2019 , respectively as a result of per requisition efficiencies and expense management during this recent period of rapid volume growth . selling , general and administrative expenses for the diagnostics segment for the years ended december 31 , 2020 and 2019 included equity-based compensation expense of $ 2.1 million and $ 2.2 million , respectively . 62 research and development expenses . the following table summarizes the components of our research and development expenses : replace_table_token_4_th research and development for the diagnostic segment relates to the development of testing services for our clinical and genomics testing at bioreference and the development of the claros analyzer , a diagnostic instrument system to provide rapid , high performance blood test results in the point-of-care setting . the increase in research and development expenses for the year ended december 31 , 2020 resulted primarily from an increased research and development expenses related to the development of clinical and genomics testing services . contingent consideration . contingent consideration for the years ended december 31 , 2020 and 2019 was $ ( 2.1 ) million of expense and $ 8.4 million reversal of expense , respectively . contingent consideration for the years ended december 31 , 2020 and 2019 was attributable to changes in assumptions regarding the timing of achievement of future milestones for opko diagnostics in both periods , and potential amounts payable to former stockholders of opko diagnostics in connection therewith , pursuant to our acquisition agreement in october 2011. amortization of intangible assets . amortization of intangible assets was $ 36.2 million and $ 42.4 million , respectively , for the years ended december 31 , 2020 and 2019. amortization expense reflects the amortization of acquired intangible assets with defined useful lives . asset impairment charges . story_separator_special_tag asset impairment charges were $ 38.7 million for the year ended december 31 , 2019. asset impairment charges for the year ended december 31 , 2019 is primarily related to a goodwill impairment charge of $ 18.0 million to write the carrying amount of the opko diagnostics reporting unit down to its estimated fair value , and an impairment charge of $ 20.7 million to write our intangible asset for the claros analyzer down to its estimated fair value . the asset impairment charges for the year ended december 31 , 2019 , resulted from liquidity constraints , longer than expected development timelines and changes in the competitive landscape , which resulted in changes to our estimates and assumptions of the expected future cash flows associated with the claros analyzer . we believe that our estimates and assumptions in testing goodwill and other intangible assets are consistent with assumptions that marketplace participants would use in their estimates . however , if actual results are not consistent with our estimates and assumptions , including as a result of the covid-19 global pandemic , we may be exposed to an impairment charge that could be material . 63 pharmaceuticals replace_table_token_5_th revenue . the increase in revenue from products for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 was primarily attributable to an increase in sales at opko chile and an increase in sales of rayaldee . sales of rayaldee were $ 36.8 million for the year ended december 31 , 2020 , as compared to $ 31.4 million for 2019. revenue from transfer of intellectual property for the years ended december 31 , 2020 and 2019 principally reflected $ 28.7 million and $ 66.8 million , respectively , of revenue related to the pfizer transaction . revenue from transfer of intellectual property for the year ended december 31 , 2020 also included a $ 3 million milestone payment triggered by the first marketing approval of rayaldee in europe . cost of revenue . cost of revenue for the year ended december 31 , 2020 increased $ 8.7 million compared to the year ended december 31 , 2019. cost of product revenue increased primarily due to an increase in sales at opko chile and changes in product mix during the year ended december 31 , 2020. selling , general and administrative expenses . selling , general and administrative expenses for the years ended december 31 , 2020 and 2019 were $ 50.5 million and $ 57.6 million , respectively . the decrease in selling , general and administrative expenses was primarily due to decreased expenses at our pharmaceutical subsidiaries and a decrease in equity-based compensation expense . selling , general and administrative expenses for the pharmaceutical segment for the years ended december 31 , 2020 and 2019 included equity-based compensation expense of $ 1.0 million and $ 2.0 million , respectively . research and development expenses . research and development expenses for the years ended december 31 , 2020 and 2019 were $ 61.1 million and $ 104.7 million , respectively . research and development expenses include external and internal expenses , partially offset by third-party grants and funding arising from collaboration agreements . external expenses include clinical and non-clinical activities performed by contract research organizations , lab services , purchases of drug and diagnostic product materials and manufacturing development costs . we track external research and development expenses by individual program for phase 3 clinical trials for drug approval and premarket approval for diagnostics tests , if any . internal expenses include employee-related expenses such as salaries , benefits and equity-based compensation expense . other internal research and development expenses are incurred to support overall research and development activities and include expenses related to general overhead and facilities . the following table summarizes the components of our research and development expenses : 64 replace_table_token_6_th the decrease in research and development expenses for the year ended december 31 , 2020 was primarily due to a decrease in research and development expenses related to somatrogon , a once-weekly human growth hormone injection for which we have partnered with pfizer and successfully completed a phase 3 study in august 2019. ongoing expenses for the somatrogon program support open label extension studies that will continue until the market launch of somatrogon in certain countries , as well as the preparation of applications for marketing approvals . research and development expenses for the pharmaceutical segment for the years ended december 31 , 2020 and 2019 included equity-based compensation expense of $ 1.6 million and $ 2.1 million , respectively . contingent consideration . contingent consideration for the years ended december 31 , 2020 and 2019 was $ 1.9 million and $ 6.5 million reversal of expense , respectively . contingent consideration for the years ended december 31 , 2020 and 2019 was primarily attributable to changes in assumptions regarding the timing of achievement of future milestones for opko renal , and potential amounts payable to former stockholders of opko renal in connection therewith , pursuant to our acquisition agreement in march 2013. amortization of intangible assets . amortization of intangible assets was $ 20.2 million and $ 22.4 million , respectively , for the years ended december 31 , 2020 and 2019. amortization expense reflects the amortization of acquired intangible assets with defined useful lives . our indefinite lived ipr & d assets will not be amortized until the underlying development programs are completed . upon obtaining regulatory approval by the u.s. fda , the ipr & d assets will be accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life . asset impairment charges .
| excluding covid-19 test volumes , for the year ended december 31 , 2020 , volumes in our diagnostics segment declined 17 % as compared to volumes for the year ended december 31 , 2019. additionally , sales of rayaldee have not increased in accordance with its expected growth trajectory as a result of challenges in onboarding new patients due to the covid-19 pandemic . federal , state and local governmental policies and initiatives designed to reduce the transmission of covid-19 have resulted in , among other things , a significant reduction in physician office visits , the cancellation of elective medical procedures , customers closing or severely curtailing their operations ( voluntarily or in response to government orders ) , and the adoption of work-from-home or shelter-in-place policies . as stay at home orders and other restrictions have been lifted , we have seen our routine clinical and genomic testing volumes trending towards normalization with prior periods , however should stay at home orders or other restrictions be reenacted , we could see our routine testing levels decline . we also continue to see a substantial need for covid-19 testing by our existing clients and expect new clients as infection rates for the virus continue to increase across the country . in march 2020 , in response to the covid-19 pandemic , the coronavirus aid , relief , and economic security ( cares ) act was signed into law . the cares act provides numerous tax provisions and other stimulus measures , including temporary changes regarding the prior and future utilization of net operating losses , temporary changes to the prior and future limitations on interest deductions , temporary suspension of certain payment requirements for the employer portion of social security taxes , technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property , and the creation of certain payroll tax credits associated with the retention of employees . we have received , or expect to receive a number of benefits under the cares act including , but not limited to : during the year ended december 31 , 2020 , we received approximately $ 14 million under the centers for medicare & medicaid services ( cms ) accelerated and advance payment program , which provides accelerated payments to medicare providers/suppliers working to provide treatment to
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the company story_separator_special_tag results of operations the following is management 's discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements and should be read in conjunction with those consolidated financial statements . this section of this 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-date comparisons between 2019 and 2018 that are not included in this form 10-k , can be found in ‘ management 's discussion and analysis of financial condition and results of operations ' in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 28 , 2019 . covid-19 pandemic the emergence of the coronavirus ( covid-19 ) around the world , and particularly in the united states and canada , presents significant risks to the company , not all of which the company is able to fully evaluate or even foresee at the current time . the covid-19 pandemic adversely affected the company 's financial results and business operations in the company 's fiscal year ended december 26 , 2020 , as noted below , and economic and health conditions in the united states and across most of the globe have continued to change throughout the year . notably , a substantial number of the company 's franchised store locations were temporarily closed to in-store consumer activities for a portion of 2020. such temporary store closings may reoccur and customer traffic at those locations operational may continue to be reduced and may not return to historical levels in the near term depending on the duration and severity of the covid-19 pandemic , the length of time it takes for normal economic and operating conditions to resume , additional governmental actions that may be taken and or the re-imposition of restrictions that have been imposed to date , and numerous other uncertainties . the resulting economic disruption could also affect our ability to generate leasing revenue from new and existing leasing customers through reduced equipment leases and possible increases in defaults by existing leasing customers . the covid-19 pandemic has affected the company 's operations in 2020 , and may continue to do so indefinitely thereafter . all of these factors may have far reaching impacts on the company 's business , operations , and financial results and conditions , directly and indirectly , including without limitation impacts on the health of the company 's management and employees , its franchisees and leasing customers , customer and consumer behaviors , and on the overall economy . the scope and nature of these impacts , most of which are beyond the company 's control , continue to evolve and the outcomes are uncertain . management can not predict the full impact of the covid-19 pandemic on the company 's franchisees or leasing customers nor to economic conditions generally , including the effects on consumer spending . the ultimate extent of the effects of the covid-19 pandemic on the company is highly uncertain and will depend on future developments , and such effects could exist for an extended period of time even after the pandemic might end . overview as of december 26 , 2020 , we had 1,264 franchises operating under the plato 's closet , once upon a child , play it again sports , style encore and music go round brands and had a leasing portfolio of $ 13.3 million . management closely tracks the following financial criteria to evaluate current business operations and future prospects : royalties , leasing activity , and selling , general and administrative expenses . our most significant source of franchising revenue is royalties received from our franchisees . during 2020 , our royalties decreased $ 5.1 million or 10.0 % compared to 2019 , due to reduced franchisee retail sales resulting from the covid-19 pandemic . leasing income net of leasing expense in 2020 was $ 11.9 million compared to $ 14.0 million in 2019. fluctuations in period-to-period leasing income and leasing expense can result from the manner and timing in which leasing income and leasing expense is recognized over the term of each particular lease in accordance with accounting guidance applicable to leasing . for this reason , we believe that more meaningful levels of leasing activity are the medium- to long-term trend in the purchases of equipment for lease customers and the size of the leasing portfolio . during 2020 , we purchased $ 4.1 million in equipment for lease customers compared to $ 9.0 million in 2019 and $ 23.1 million in 2018. our leasing portfolio ( net investment in leases — current and long-term ) was $ 13.3 million at december 26 , 2020 compared to $ 25.3 million at december 28 , 2019 and $ 39.0 million at december 29 , 2018. the lower equipment purchases and the 15 decrease in the size of the leasing portfolio were a direct result of a decrease in the number of our customers installing leased equipment . we continue to explore ways to grow leased assets and add new customers to our leasing portfolio ; however , continued low levels of equipment purchases for lease customers and decreases in the size of our portfolio will impact the long-term operating income of our leasing segment . management continually monitors the level and timing of selling , general and administrative expenses . story_separator_special_tag the major components of selling , general and administrative expenses include salaries , wages and benefits , advertising , travel , occupancy , legal and professional fees . during 2020 , selling , general and administrative expense decreased $ 4.5 million , or 17.6 % , compared to the same period last year . management also monitors several nonfinancial factors in evaluating the current business operations and future prospects including franchise openings and closings and franchise renewals . the following is a summary of our franchising activity for the fiscal year ended december 26 , 2020 : replace_table_token_6_th renewal activity is a key focus area for management . our franchisees sign 10-year agreements with us . the renewal of existing franchise agreements as they approach their expiration is an indicator that management monitors to determine the health of our business and the preservation of future royalties . in 2020 , we renewed 99 % of franchise agreements up for renewal . this percentage of renewal has ranged between 98 % and 100 % during the last three years . our ability to grow our operating income is dependent on our ability to : ( i ) effectively support our franchise partners so that they produce higher revenues , ( ii ) open new franchises , ( iii ) increase lease originations and minimize write-offs in our leasing portfolios , and ( iv ) control our selling , general and administrative expenses . a detailed description of the risks to our business along with other risk factors can be found in item 1a “ risk factors ” . 16 story_separator_special_tag style= '' white-space : pre-wrap ; '' > — “ commitments and contingencies ” ) . the following table summarizes our significant future contractual obligations at december 2 6 , 2020 : replace_table_token_9_th ( 1 ) includes interest payable quarterly at rates ranging from 5.10 % to 5.50 % assuming principal payments in accordance with amortizing schedules . ( 2 ) refer to part ii , item 8 in this report under note 6 — “ debt ” for additional information regarding long-term debt . 19 during 2020 , our line of credit with cibc bank usa ( formerly known as the privatebank and trust company ) and bmo harris bank n.a . was amended to , among other things : ● decrease the aggregate commitments from $ 40.0 million to $ 25.0 million ; ● remove bmo harris bank n.a . as a lender under the credit agreement ; ● extend the termination date from july 19 , 2021 to august 31 , 2024 ; ● amend the tangible net worth covenant requirement to be reset as of september 26 , 2020 ; ● permit us to issue up to $ 25.0 million in additional term notes to one or more affiliates or managed accounts of prudential ; ● provide the consent of cibc bank usa for the 2020 special dividend ; ● amend the fixed charge coverage ratio definition to remove the effect of the 2020 special dividend . the line of credit has been and will continue to be used for general corporate purposes . during 2020 and 2019 , the line of credit was used to finance in part the 2020 and 2019 tender offer . during 2020 , in response to uncertainty resulting from the covid-19 outbreak , we drew additional amount on the line of credit to increase our cash balances . all amounts drawn on the line of credit during 2020 were repaid by december 26 , 2020 . the line of credit is secured by a lien against substantially all of our assets , contains customary financial conditions and covenants , and requires maintenance of minimum levels of debt service coverage and tangible net worth and maximum levels of leverage ( all as defined within the line of credit ) . as of december 26 , 2020 , our borrowing availability under our line of credit was $ 25.0 million ( the lesser of the borrowing base or the aggregate line of credit ) . there were no borrowings outstanding under the line of credit leaving $ 25.0 million available for additional borrowings . the line of credit allows us to choose between two interest rate options in connection with our borrowings . the interest rate options are the base rate ( as defined ) and the libor rate ( as defined ) plus an applicable margin of 0 % and 2.0 % respectively . interest periods for libor borrowings can be one , two , three , six or twelve months , as selected by us . the line of credit also provides for non-utilization fees of 0.25 % per annum on the daily average of the unused commitment . we have a note agreement ( the “ note agreement ” ) with prudential investment management , inc. , its affiliates and managed accounts ( “ prudential ” ) that was entered into in may 2015. as of december 26 , 2020 , the aggregate principal outstanding under the note agreement was $ 21.9 million , consisting of $ 13.5 million from the $ 25.0 million series a notes issued in may 2015 and $ 8.4 million from the $ 12.5 million series b notes issued in august 2017 . the final maturity of the series a and series b notes is 10 years from the issuance date .
| the decrease is primarily due to a decrease in technology purchases by our franchisees . 17 cost of merchandise sold cost of merchandise sold includes in-bound freight and the cost of merchandise associated with direct franchisee sales . cost of merchandise sold decreased to $ 2.1 million in 2020 from $ 2.5 million in 2019. the decrease was due to a decrease in direct franchisee sales in 2020 discussed above . cost of merchandise sold as a percentage of direct franchisee sales for 2020 and 2019 was 95.0 % and 94.3 % , respectively . leasing expense leasing expense increased to $ 2.6 million in 2020 compared to $ 2.0 million in 2019. the increase was due to an increase in the associated cost of equipment sales to customers discussed above . provision for credit losses provision for credit losses was ( $ 79,300 ) in 2020 compared to ( $ 78,300 ) in 2019 . selling , general and administrative expenses selling , general and administrative expenses decreased 17.6 % to $ 21.2 million in 2020 from $ 25.7 million in 2019. the decrease was primarily due to a decrease in compensation related expenses inclusive of those related to organizational changes made in 2019 , as well as decreases in conference and travel expenses due to the covid-19 pandemic . interest expense interest expense of $ 1.7 million in 2020 was comparable to $ 1.7 million in 2019 . income taxes the provision for income taxes was calculated at an effective rate of 22.6 % and 22.5 % for 2020 and 2019 , respectively . segment comparison of fiscal years 2020 and 2019 we currently have two reportable business segments , franchising and leasing . the franchising segment franchises value-oriented retail store concepts that buy , sell , trade and consign merchandise . the leasing segment includes ( i ) winmark capital corporation ,
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we believe the successes we experienced in 2012 have enabled us to continue to build a financially sound business model that will allow us to continue to further expand our commercial and r & d activities and to maintain quality and compliance . as we continue to grow our business , we remain focused on profitable revenue growth and prudent expense management that we believe will enable solid execution of our operating objectives for 2013. story_separator_special_tag programs ( adap ) funding and the challenging economic environment in europe . our results are also subject to continued potential volatility in foreign currency exchange rates . the following table summarizes the period over period changes in our product sales ( in thousands ) : replace_table_token_7_th 55 antiviral products antiviral product sales increased by 15 % in 2012 compared to 2011 and 8 % in 2011 compared to 2010 . atripla in 2012 , atripla sales were driven primarily by sales volume growth in the united states . in 2011 , atripla sales were driven primarily by sales volume growth in europe and the united states . atripla sales accounted for 44 % , 46 % and 45 % of our total antiviral product sales for 2012 , 2011 and 2010 , respectively . the efavirenz component of atripla , which has a gross margin of zero , comprised $ 1.34 billion , $ 1.21 billion and $ 1.07 billion of our atripla sales in 2012 , 2011 and 2010 , respectively . truvada in 2012 , truvada sales were driven primarily by sales volume growth in the united states . in 2011 , truvada sales were driven primarily by sales volume growth in europe and the united states . truvada sales accounted for 39 % , 41 % and 41 % of our total antiviral product sales for 2012 , 2011 and 2010 , respectively . complera/eviplera in 2012 , sales of complera/eviplera increased primarily due to sales volume growth in the united states . complera was approved in the united states in august 2011 , and eviplera was approved in the european union in november 2011. stribild stribild was approved in the united states in august 2012. other product sales other products , which include letairis , ranexa and ambisome increased due primarily to sales volume growth . since the label update in march 2011 , sales of letairis have continued to grow as a result of higher enrollments , increasing by 40 % in 2012 and 22 % in 2011 . ambisome product sales in the united states and canada relate solely to our sales of ambisome to astellas pharma us , inc. which are recorded at our manufacturing cost . royalty revenues the following table summarizes the period over period changes in our royalty revenues ( in thousands ) : replace_table_token_8_th royalty revenues increased 8 % for 2012 compared to 2011 , driven primarily by higher royalty revenues from glaxosmithkline , japan tobacco and astellas partially offset by lower tamiflu royalties from roche . since the second quarter of 2010 , tamiflu royalties have been decreasing due to the decline in flu planning initiatives worldwide . in 2011 and 2010 , our most significant source of royalty revenues was sales of tamiflu by roche . royalty revenues declined 51 % for 2011 compared to 2010 , due primarily to lower tamiflu royalties from roche . tamiflu royalties from roche contributed $ 43.7 million , $ 75.5 million and $ 386.5 million to total royalty revenues in 2012 , 2011 and 2010 respectively . we recognize royalties on tamiflu sales by roche in the quarter following the quarter in which the corresponding sales occur . cost of goods sold and product gross margin the following table summarizes the period over period changes in our product sales ( in thousands ) , cost of goods sold ( in thousands ) and product gross margin : replace_table_token_9_th our product gross margin for 2012 was consistent with our product gross margin for 2011 . our product gross margin for 2011 was 74 % , a decrease of 1 % compared to 2010 , due primarily to an annual selling price adjustment for the percentage share of atripla that is paid to our partner on the efavirenz component . 56 research and development expenses replace_table_token_10_th we manage our r & d expenses by identifying the r & d activities we anticipate will be performed during a given period and then prioritizing efforts based on scientific data , probability of successful development , market potential , available human and capital resources and other considerations . we continually review our r & d pipeline and the status of development and , as necessary , reallocate resources among the r & d portfolio that we believe will best support the future growth of our business . r & d expenses summarized above consist primarily of clinical studies performed by contract research organizations ( cros ) , materials and supplies , licenses and fees , milestone payments under collaboration arrangements , personnel costs , including salaries , benefits and stock-based compensation and overhead allocations consisting of various support and facilities-related costs . the following table provides a breakout of r & d expenses by major cost type ( in thousands ) : replace_table_token_11_th compared to 2011 , in 2012 , clinical studies and outside services increased $ 258.0 million due to progression and expansion of our phase 3 studies , particularly in liver disease and oncology , and personnel expenses increased $ 273.6 million due to higher headcount to support our product pipeline and study progression . compared to 2010 , in 2011 , clinical studies and outside services increased $ 195.1 million due to study progression in liver disease and hiv , new investments in oncology and inflammation and new in-license agreements , milestones and ongoing collaborations ; personnel expenses increased $ 28.0 million due to higher headcount ; and facilities , it and other costs increased $ 42.5 million to support the ongoing growth of our business . this increase was partially offset by a $ 109.4 story_separator_special_tag million decrease in ipr & d impairment charges . during 2011 , we recorded $ 26.6 million of impairment charges related to certain ipr & d assets acquired from cgi pharmaceuticals , inc. ( cgi ) . these impairment charges were a result of changes in the anticipated market share related to the syk compound . during 2010 , we recorded $ 136.0 million of impairment charges related to certain ipr & d assets acquired from cv therapeutics , inc. the majority of the impairment charge related to our gs-9667 program , a product candidate that was in phase 1 clinical studies for the treatment of diabetes and hypertriglyceridemia , which was terminated in the fourth quarter of 2010 due to unfavorable results from pharmacokinetics and pharmacodynamics tests that demonstrated limited effectiveness of the compound in patients . in 2013 , we expect r & d expenses to increase over 2012 levels due to continued investment in our internal and collaborative r & d efforts and advancement of our product pipeline , driven primarily by the progression of our phase 3 clinical studies in the liver disease and oncology areas . selling , general and administrative expenses replace_table_token_12_th sg & a expenses relate to sales and marketing , finance , human resources , legal and other administrative activities . expenses are primarily comprised of facilities and overhead costs ; outside marketing , advertising and legal expenses and other general and administrative costs . compared to 2011 , in 2012 , sg & a expenses increased $ 219.1 million or 18 % . the increase was due primarily to a $ 100.5 million increase in costs associated with the growth of our business which include personnel and headcount-related expenses , a $ 98.0 million increase in stock-based compensation expenses primarily resulting from the acquisition of 57 pharmasset and an increase of $ 38.2 million in the pharmaceutical excise tax resulting from u.s. healthcare reform . this increase was partially offset by a reduction in bad debt provisions of $ 34.3 million , which included a gain of $ 29.9 million related to the sale of our accounts receivables balances in spain in the second quarter of 2012. compared to 2010 , in 2011 , sg & a expenses increased $ 197.6 million or 19 % , due primarily to increased contract , legal and other professional services of $ 86.8 million , pharmaceutical excise tax of $ 47.3 million , increased compensation and benefits expenses of $ 41.6 million as a result of higher headcount to support our expanding commercial activities , promotional costs of $ 20.1 million driven by our expanding sales and marketing activities and bad debt provisions of $ 14.7 million associated with slower collections in southern european countries . in 2013 , we expect sg & a expenses to increase over 2012 to support the expansion of our business including the pre-launch activities in preparation for the anticipated nda filing of sofosbuvir in the first half of 2013 and an increase in the pharmaceutical excise tax . we also expect bad debt provisions to return to historical levels as 2012 included significant collections of past due accounts receivable in spain and portugal , that we do not expect to occur in 2013. interest expense compared to 2011 , in 2012 , interest expense increased to $ 360.9 million . the increase was due primarily to the additional debt we issued in connection with our acquisition of pharmasset , which included $ 3.70 billion in senior unsecured notes issued in december 2011 and $ 2.15 billion in bank debt issued in january 2012. compared to 2010 , in 2011 , interest expense increased to $ 205.4 million . the increase in interest expense was due primarily to the issuance of our convertible senior notes for $ 2.50 billion in july 2010 , the issuance of our senior unsecured notes for $ 1.00 billion in march 2011 , and the issuance of our senior unsecured notes for $ 3.70 billion in december 2011. this increase was partially offset by the maturity of our convertible senior notes due in may 2011 , which had an aggregate principal balance of $ 650.0 million . other income ( expense ) , net for 2012 , other income ( expense ) , net was a net expense of $ ( 37.3 ) million compared to income of $ 66.6 million and $ 60.3 million in 2011 and 2010 , respectively . the decrease in other income ( expense ) , net , in 2012 compared to 2011 was due primarily to decreased interest income resulting from lower cash and marketable securities balances and yields and a $ 40.1 million loss on greek bonds related to greece 's restructuring of its sovereign debt in the first quarter of 2012. the increase in other income ( expense ) , net , in 2011 compared to 2010 was driven primarily by a favorable net foreign currency exchange impact and an increase in interest income , partially offset by an increase in costs related to our hedging activities . provision for income taxes our provision for income taxes was $ 1.04 billion , $ 861.9 million and $ 1.02 billion in 2012 , 2011 and 2010 , respectively . the 2012 effective tax rate of 28.7 % differed from the u.s. federal statutory rate of 35 % due primarily to tax credits and certain operating earnings from non-u.s. subsidiaries that are considered indefinitely reinvested , partially offset by state taxes , the stock-based compensation expense related to the pharmasset acquisition and contingent consideration expense related to certain acquisitions for which we receive no tax benefit . we do not provide for u.s. income taxes on undistributed earnings of our foreign operations that are intended to be indefinitely reinvested in our foreign subsidiaries .
| at december 31 , 2012 , cash , cash equivalents and marketable securities totaled $ 2.58 billion , a decrease from $ 9.96 billion as of december 31 , 2011 . in january 2012 , we completed the pharmasset acquisition which we financed with approximately $ 5.20 billion in cash on hand , $ 3.70 billion in senior unsecured notes issued in december 2011 and $ 2.15 billion in bank debt issued in january 2012. we generated over $ 3.19 billion in operating cash flows during 2012 , some of which we used to repay approximately $ 1.84 billion in debt financing and repurchase and retire shares of our common stock for $ 666.9 million . 54 results of operations total revenues total revenues include product sales , royalty revenues , and contract and other revenues . total revenues were $ 9.70 billion in 2012 , $ 8.39 billion in 2011 and $ 7.95 billion in 2010 . increases in total revenues were driven by growth in product sales . product sales total product sales were $ 9.40 billion in 2012 , an increase of 16 % over total product sales of $ 8.10 billion in 2011 , primarily driven by continued growth in sales of antiviral products , including atripla , truvada and complera/eviplera . the increase also reflected sales growth in other products , primarily letairis , ranexa and ambisome , which reached $ 1.13 billion in 2012 compared to $ 943.6 million in 2011 . total product sales increased by 10 % in 2011 compared to $ 7.39 billion in 2010 , primarily driven by the growth of atripla and truvada . more than 40 % of our product sales are generated outside the united states and as a result , we face exposure to adverse movements in foreign currency exchange rates , primarily in euro . we used foreign currency exchange forward contracts to hedge a percentage of our foreign currency exposure . foreign currency exchange , net of hedges , had an unfavorable impact of $ 57.1 million on our 2012 revenues compared to 2011 and a favorable impact of $ 21.4 million
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we believe our customer count is a key indicator of our market penetration and the value that our products bring to our customer base . we also believe our existing customers represent significant future revenue opportunities for us . the average spending per customer for each of the years 2015 , 2014 and 2013 was approximately $ 59,000 , $ 58,000 and $ 61,000 , respectively . we believe there is a significant growth opportunity in both domestic and foreign markets , which could include any organization that uses file shares , intranets and email for collaboration , regardless of region . for the year ended december 31 , 2015 , approximately 58 % of our revenues were derived from the united states , while europe , the middle east and africa accounted for approximately 35 % of our revenues and rest of world ( “ row ” ) accounted for approximately 7 % of our revenues . we expect both continued sales growth in the united states and international expansion to be key components of our growth strategy , and we will continue to market our products and services in international markets . we plan to continue to expand our international operations as part of our growth strategy . the expansion of our international operations depends in particular on our ability to hire , integrate and retain local sales and marketing personnel in these international markets , acquire new channel partners and implement an effective marketing strategy . in addition , the further expansion of our international operations will increase our sales and marketing and general and administrative expenses and will subject us to a variety of risks and challenges , including those related to economic and political conditions in each region , compliance with foreign laws and regulations , and compliance with domestic laws and regulations applicable to our international operations . we derive revenues from license sales of our various products , various services , including initial maintenance contracts and professional services , and renewals . substantially all of our license sales are derived from a platform of products , consisting of datadvantage , dataprivilege , idu classification framework and data transport engine . as of december 31 , 2015 , 2014 and 2013 , 92.5 % , 94.1 % and 96.7 % of our customers , respectively , had purchased datadvantage ; 17.2 % , 19.0 % and 20.5 % of our customers , respectively , had purchased dataprivilege ; 30.5 % , 26.9 % and 23.1 % of our customers , respectively , had purchased idu classification framework ; and 4.5 % , 3.2 % and 1.5 % of our customers , respectively , had purchased data transport engine . as of december 31 , 2015 , 2014 and 2013 , 47.4 % , 51.9 % and 57.8 % of our customers , respectively , made standalone purchases of datadvantage , and less than 0.5 % of our customers made standalone purchases of dataprivilege . as of december 31 , 2015 , our customers made no standalone purchases of idu classification framework or data transport engine . licenses sales accounted for 56.0 % , 57.6 % and 58.3 % of our total revenues for the years ended december 31 , 2015 , 2014 and 2013 , respectively . we have achieved significant growth and scale in recent periods utilizing our business model . for the years ended december 31 , 2015 , 2014 and 2013 , our revenues were $ 127.2 million , $ 101.3 million and $ 74.6 million , respectively , representing year-over-year growth of 26 % and 36 % . for the years ended december 31 , 2015 , 2014 and 2013 , we had operating losses of $ 19.1 million , $ 17.3 million and $ 5.8 million and net losses of $ 21.3 million , $ 19.4 million and $ 7.5 million , respectively . 28 components of operating results revenues our revenues consist of licenses and maintenance and services revenues . licenses revenues . license revenues reflect the revenues recognized from sales of software licenses to new customers and additional licenses to existing customers . substantially all of our license revenues consist of revenues from perpetual licenses , under which we generally recognize the license fee portion of the arrangement upon delivery , assuming all revenue recognition criteria are satisfied . customers may also purchase term license agreements , under which we recognize the license fee ratably , on a straight-line basis , over the term of the underlying maintenance contract , which is typically up to one year . we are focused on acquiring new customers and increasing revenues from our existing customers . maintenance and services revenues . maintenance and services revenues consist of revenues from maintenance agreements and , to a lesser extent , professional services . typically , when purchasing a perpetual license , a customer also purchases a one year maintenance contract for which we charge a percentage of the license fee . customers may renew , and generally have renewed , their maintenance agreements for a fee that is based upon a percentage of the initial license fee paid . customers with maintenance agreements are entitled to receive support and unspecified upgrades and enhancements when and if they become available during the maintenance period . we have experienced growth in maintenance revenues primarily due to increased license sales to new customers and high annual retention of existing customers . we recognize the revenues associated with maintenance ratably , on a straight-line basis , over the associated maintenance period . we measure the perpetual license maintenance renewal rate for our customers over a 12-month period , based on a dollar renewal rate for contracts expiring during that time period . our maintenance renewal rate for each of the years ended december 31 , 2015 , 2014 and 2013 has been over 90 % . we also offer professional services focused on both deployment and training our customers to fully leverage the use of our products . story_separator_special_tag we recognize the revenues associated with these professional services on a time and materials basis as we deliver the services , provide the training or when the service term has expired . the following table sets forth the percentage of our revenues that have been derived from licenses and maintenance and services revenues for the periods presented . replace_table_token_6_th our products are used by a wide range of enterprises , including fortune 500 corporations and small and medium-sized businesses . as of december 31 , 2015 , we had approximately 4,350 customers across a broad array of company sizes and industries located in over 65 countries . cost of revenues , gross profit and gross margin our cost of revenues consists of cost of maintenance and services revenues . cost of maintenance and services revenues consist primarily of salaries ( including payroll tax expense related to stock-based compensation ) , employee benefits ( including commissions and bonuses ) and stock-based compensation for our maintenance and services employees ; travel expenses ; and allocated overhead costs for facilities , it and depreciation of equipment . we recognize expenses related to maintenance and services as they are incurred . we expect that our cost of maintenance and services revenues will increase in absolute dollars as we increase our headcount to support revenue growth . gross profit is total revenues less total cost of revenues . gross margin is gross profit expressed as a percentage of total revenues . our gross margin has historically fluctuated slightly from period to period as a result of changes in licenses and maintenance and services mix . due to the seasonality of our business , the first quarter typically results in the lowest gross margin as revenues have historically been lowest and the majority of our expenses are relatively fixed quarter over quarter . 29 operating costs and expenses our operating costs and expenses are classified into three categories : research and development , sales and marketing and general and administrative . for each category , the largest component is personnel costs , which consists of salaries ( including payroll tax expense related to stock-based compensation ) , employee benefits ( including commissions and bonuses ) and stock-based compensation . operating costs and expenses also include allocated overhead costs for depreciation of equipment . allocated costs for facilities primarily consist of rent and office maintenance . operating costs and expenses are generally recognized as incurred . we expect personnel costs to continue to increase in absolute dollars as we hire new employees to continue to grow our business . research and development . research and development expenses primarily consist of personnel costs attributable to our research and development personnel , as well as allocated overhead costs . we expense research and development costs as incurred . we expect that our research and development expenses will continue to increase in absolute dollars as we increase our research and development headcount to further strengthen our technology platform and invest in the development of both existing and new products . sales and marketing . sales and marketing expenses are the largest component of our operating costs and expenses and consist primarily of personnel costs , as well as marketing and business development costs , travel expenses , training and education and allocated overhead costs . we expect that sales and marketing expenses will continue to increase in absolute dollars , as we plan to expand our sales and marketing efforts , both domestically and internationally . we expect sales and marketing expenses to be our largest category of operating costs and expenses as we continue to expand our business worldwide . general and administrativ e. general and administrative expenses mostly consist of personnel and facility-related costs for our executive , finance , legal , human resources and administrative personnel . other expenses are comprised of legal , accounting and other consultant fees and other corporate expenses and allocated overhead . we expect that general and administrative expense will increase in absolute dollars as we grow and expand our operations and operate as a public company , including higher legal , corporate insurance and accounting expenses , and the additional costs of achieving and maintaining compliance with the sarbanes-oxley act and related regulations . financial expenses , net financial expenses , net consist primarily of foreign exchange gains or losses and net interest . foreign exchange gains or losses relate to our business activities in foreign countries with different functional reporting currencies . as a result of our business activities in foreign countries , we expect that foreign exchange gains or losses will continue to occur due to fluctuations in exchange rates in the countries where we do business . net interest represents interest income received on our cash , cash equivalents and short-term deposits . income taxes we operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business . earnings from our non-u.s. activities are subject to local country income tax and may be subject to u.s. income tax . to date , on a consolidated basis , we have incurred accumulated net losses and have not recorded any u.s. federal tax provisions . because of our history of u.s. and israel net operating losses , we have established a full valuation allowance against potential future benefits for deferred tax assets including loss carryforwards . our income tax provision could be significantly impacted by estimates surrounding our uncertain tax positions and changes to our valuation allowance in future periods . we reevaluate the judgments surrounding our estimates and make adjustments as appropriate each reporting period . our israeli subsidiary currently qualifies as a “ beneficiary enterprise ” which , upon fulfillment of certain conditions , allows it to qualify for a reduced tax rate based on the beneficiary program guidelines . in addition , we are subject to the continuous examinations of our income tax returns by different tax authorities . we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes .
| cost of revenues and gross margin year ended december 31 , 2015 2014 % change ( in thousands ) cost of revenues $ 12,019 $ 9,911 21.3 % replace_table_token_11_th the increase in cost of revenues was primarily related to an increase of $ 1.5 million in salaries and benefits expense due to increased headcount for support and professional services and a $ 0.6 million increase in facilities and allocated overhead costs . the increase in cost is mainly related to our investments in infrastructure and personnel to support our increased revenues and high renewal rate . 32 operating costs and expenses replace_table_token_12_th replace_table_token_13_th the increase in research and development expenses was primarily related to an increase of $ 3.4 million in salaries and stock based compensation resulting from increased headcount and consultants as part of our focus on enhancing and developing our existing and new products . the increase in sales and marketing expenses was primarily related to a $ 12.9 million increase in salaries and benefits and stock based compensation due to increased headcount to expand our sales force , and commissions on increased customer orders . the remainder of the increase was attributable to a $ 1.9 million increase in marketing related expenses and a $ 0.9 million increase in facilities and allocated overhead costs . the increase in general and administrative expenses was primarily related to an increase of $ 3.0 million in salaries and benefits and stock based compensation due to increased headcount to support the overall growth of our business and an increase of $ 1.2 million of other expenses predominately relating to rent , insurance and it expenses . financial expenses , net year ended december 31 , 2015 2014 % change ( in thousands ) financial expenses , net $ ( 1,523 ) $ ( 1,714 ) ( 11.1 ) % for the year ended december 31 , 2015 and 2014 , financial expenses , net was primarily comprised of foreign exchange losses . income taxes replace_table_token_14_th income taxes for the years ended december 31 , 2015 and 2014 were comprised primarily of foreign income taxes and state taxes . 33 comparison of years ended december 31 ,
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our midstream energy operations currently include : natural gas gathering , treating , processing , transportation and storage ; ngl transportation , fractionation , storage , and import and export terminals ( including liquefied petroleum gas or `` lpg '' ) ; crude oil gathering , transportation , storage and terminals ; offshore production platforms ; petrochemical and refined products transportation , storage and terminals , and related services ; and a marine transportation business that operates primarily on the u.s. inland and intracoastal waterway systems and in the gulf of mexico . our assets include approximately 51,300 miles of onshore and offshore pipelines ; 225 mmbbls of storage capacity for ngls , petrochemicals , refined products and crude oil ; and 14 bcf of natural gas storage capacity . in addition , our asset portfolio includes 24 natural gas processing plants , 22 ngl and propylene fractionators , six offshore hub platforms located in the gulf of mexico , a butane isomerization complex , ngl import and lpg export terminals , a refined products export terminal and octane enhancement and high-purity isobutylene production facilities . on october 1 , 2014 , we announced our acquisition of the general partner and certain limited partner interests of oiltanking partners , l.p. ( `` oiltanking '' ) . see `` significant recent developments '' within this part ii , item 7 for information regarding this business combination . we conduct substantially all of our business through epo and are owned 100 % by our limited partners from an economic perspective . enterprise gp manages our partnership and owns a non-economic general partner interest in us . like many publicly traded partnerships , we have no employees . all of our management , administrative and operating functions are performed by employees of epco pursuant to an administrative services agreement ( `` asa '' ) or by other service providers . we have five reportable business segments : ( i ) ngl pipelines & services ; ( ii ) onshore natural gas pipelines & services ; ( iii ) onshore crude oil pipelines & services ; ( iv ) offshore pipelines & services ; and ( v ) petrochemical & refined products services . for information regarding our business segments see note 14 of the notes to consolidated financial statements included under part ii , item 8 of this annual report . significant recent developments acquisition of oiltanking partners , l.p. on october 1 , 2014 , we acquired oiltanking gp and the related incentive distribution rights , 15,899,802 common units and 38,899,802 subordinated units of oiltanking from ota . we paid total consideration of approximately $ 4.4 billion to ota comprised of $ 2.21 billion in cash and 54,807,352 enterprise common units for these ownership interests and rights . we also paid $ 228.3 million to assume the outstanding loans , including related accrued interest , owed by oiltanking or its subsidiaries to ota . collectively , these transactions are referred to as `` step 1 '' of the oiltanking acquisition . we funded the cash consideration for the step 1 transactions using borrowings under our new $ 1.5 billion 364-day credit agreement , proceeds from the sale of short-term notes under our commercial paper program and cash on hand . 71 oiltanking owns marine terminals located on the houston ship channel and at the port of beaumont with a total of 12 ship and barge docks and approximately 26 mmbbls of crude oil and petroleum products storage capacity . oiltanking 's marine terminal on the houston ship channel is connected by pipeline to our mont belvieu , texas complex and is integral to our growing lpg export , crude oil storage and octane enhancement and propylene businesses . our enterprise crude houston ( `` echo '' ) facility is also connected to oiltanking 's system . we have had a strategic relationship and enjoyed mutual growth with oiltanking and its predecessors since 1983. the combination of our legacy midstream assets and oiltanking 's access to waterborne markets and crude oil and petroleum products storage assets extends and broadens our midstream energy services business . we believe this combination benefits our producing and consuming customers by enhancing their respective access to supplies , domestic and international markets , and storage . following step 1 of the oiltanking acquisition , but not part of step 2 of the acquisition , on november 17 , 2014 , the 38,899,802 oiltanking subordinated units held by enterprise automatically converted into an equal number of oiltanking common units pursuant to the terms of the oiltanking partnership agreement . following this conversion , enterprise owned 54,799,604 oiltanking common units , or approximately 65.9 % of oiltanking 's outstanding common units . as a second step of the oiltanking acquisition ( separately negotiated by the conflicts committee of oiltanking 's general partner on behalf of oiltanking ) , we entered into an agreement and plan of merger ( the `` merger agreement '' ) with oiltanking on november 11 , 2014 that provided for the following : § the merger of a wholly owned subsidiary of enterprise with and into oiltanking , with oiltanking surviving the merger as a wholly owned subsidiary of enterprise ( the `` oiltanking merger '' ) ; and § all outstanding common units of oiltanking at the effective time of the merger held by oiltanking 's public unitholders ( which consist of oiltanking unitholders other than enterprise and its subsidiaries ) to be cancelled and converted into enterprise common units based on an exchange ratio of 1.30 enterprise common units for each oiltanking common unit . in accordance with the merger agreement and oiltanking 's partnership agreement , the merger was submitted to a vote of oiltanking 's common unitholders , with the required majority of unitholders ( including enterprise 's ownership interests representing approximately 65.9 % of oiltanking 's outstanding common units ) voting to approve the merger on february 13 , 2015. upon approval of the merger , a total of 36,827,557 enterprise common units were issued to oiltanking 's former public unitholders . story_separator_special_tag after taking into account the aggregate value of consideration issued and paid in the oiltanking acquisition , our total cost to acquire oiltanking was approximately $ 5.9 billion . in connection with step 1 of the transaction , we entered into a liquidity option agreement with ota and marquard & bahls ( `` m & b '' ) , an affiliate of ota . pursuant to the liquidity option agreement , we granted m & b the option ( the `` liquidity option '' ) to sell to enterprise 100 % of the issued and outstanding capital stock of ota ( the `` option securities '' ) at any time within a 90-day period commencing on february 1 , 2020. at that time , ota 's only significant asset would be the enterprise common units it received in step 1 , to the extent that such common units are not sold by m & b prior to the liquidity option exercise date . if this put option is exercised , the aggregate consideration to be paid by us for the option securities would equal 100 % of the then-current fair market value of the ota-owned enterprise common units at the closing of the transactions contemplated under the liquidity option agreement . the fair market value would be determined by multiplying the number of enterprise common units owned by ota at the time of exercise by the volume-weighted sales price per unit of enterprise common units as reported by the nyse ( or other national securities exchange , as applicable ) for the ten ( 10 ) consecutive trading days preceding the exercise . the consideration paid may be in the form of newly issued enterprise common units , cash or any mix thereof , as determined solely by us . the liquidity option agreement contains indemnification by m & b for certain specified liabilities of ota following the closing of any exercise of the liquidity option , and certain conditions to closing . if a defined `` trigger event '' occurs , the liquidity option may be exercised earlier within a 135-day period following notice of such event . the aggregate consideration to be paid by us for the option securities in connection 72 with an exercise of the option due to a trigger event will be solely cash , determined in the same manner as the price otherwise payable upon the exercise of the liquidity option in the absence of a trigger event . see `` recent issuance of unregistered securities '' under part ii , item 5 for information regarding a registration rights agreement we entered into in connection with the 54,807,352 common units issued as consideration in step 1 of the oiltanking acquisition . ota is wholly owned by an affiliate of oiltanking gmbh , an independent storage provider for crude oil , refined products , liquid chemicals and gases headquartered in hamburg , germany . dr. f. christian flach , managing director of oiltanking gmbh and former chairman of the board of oiltanking , was named as a director of our general partner in connection with our acquisition of oiltanking . for additional information regarding dr. flach , see part iii , item 10 of this annual report . as a result of our acquisition of oiltanking gp , we began consolidating the financial statements of oiltanking and its general partner on october 1 , 2014. this business combination was accounted for using the acquisition method of accounting . this method requires us to allocate the cost of a business combination to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date . for information regarding our accounting for this business combination , see note 10 of the notes to consolidated financial statements included under part ii , item 8 of this annual report . on february 23 , 2015 , we received a civil investigative demand and a related subpoena duces tecum from the federal trade commission requesting specified information relating to the oiltanking acquisition . we are in the process of complying with the requests and are cooperating with the investigation . based on the limited information that enterprise has at this time , we are unable to predict the outcome of the investigation . expansion of eagle ford crude oil pipeline system in november 2014 , we , along with plains all american pipeline , l.p. ( `` plains '' ) announced an expansion of our eagle ford crude oil pipeline system in south texas . the expansion project entails the construction of a new 55-mile crude oil gathering system that will connect karnes county and live oak county production areas in texas to the joint venture 's three rivers , texas terminal . the joint venture will also construct an additional 70-mile , 20-inch pipeline from three rivers to corpus christi , texas as well as expand storage and pumping capacity at three rivers . when combined with the expansion project announced in september 2013 , this project effectively loops the eagle ford crude oil pipeline system from gardendale , texas to corpus christi and increases the system 's capacity to transport light and medium grades of crude oil to over 600 mbpd . these expansions are supported by a long-term production commitment and are expected to be placed into service in the third quarter of 2015. plains and enterprise will also construct a new deep water terminal on the corpus christi ship channel to support the expected increase in crude oil volumes to be shipped via pipeline to the region . the dock is being designed to handle a variety of ocean-going vessels and is planned to be in service by 2017. plans to construct additional midstream infrastructure to serve the delaware basin in september 2014 , we announced plans to construct a new cryogenic natural gas processing plant in eddy county , new mexico and associated natural gas and ngl pipeline infrastructure to facilitate growing production of ngl-rich natural gas in the delaware basin , a prolific production area in west texas and southern new mexico .
| also , our consolidated revenues for the fourth quarter of 2014 include $ 57.5 million from oiltanking 's operations . on october 1 , 2014 , we acquired a controlling financial interest in oiltanking ; therefore , we began consolidating the financial results of oiltanking on this date . for additional information regarding the oiltanking acquisition , see `` significant recent developments '' within this part ii , item 7. operating costs and expenses . total operating costs and expenses for 2014 decreased $ 18.2 million when compared to 2013. the cost of sales associated with our marketing of natural gas increased $ 343.5 million year-to-year primarily due to higher purchase prices , which accounted for a $ 283.8 million increase . cost of sales associated with our marketing of refined products increased a net $ 400.4 million year-to-year primarily due to higher purchase prices , which accounted for a $ 469.5 million increase , partially offset by lower sales volumes , which accounted for a $ 69.1 million decrease . cost of sales associated with our marketing of crude oil decreased a net $ 405.7 million year-to-year primarily due to lower purchase costs , which accounted for a $ 4.25 billion decrease , partially offset by higher sales volumes , which accounted for a $ 3.84 billion increase . the cost of sales associated with our marketing of ngls decreased $ 383.7 million year-to-year primarily due to lower sales volumes , which accounted for a $ 255.3 million decrease , and lower purchase costs , which accounted for an additional $ 128.4 million decrease . collectively , the cost of sales associated with our marketing of octane additives and hpib decreased $ 261.7 million year-to-year primarily due to lower purchase costs , which accounted for a $ 160.9 million decrease , and lower sales volumes , which accounted for an additional $ 100.8 million decrease . other operating costs and expenses increased $ 231.4 million year-to-year . the primary driver of this increase is the ongoing expansion of our operations ,
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our reserve estimates are prepared at least annually by independent petroleum reserve engineers . the passage of time provides more quantitative and qualitative information regarding estimates of reserves , and revisions are made to prior estimates to reflect updated information . a portion of the revisions are attributable to changes in the rolling 12-month average first-day-of-the-month prices , which impact the economics of producible reserves . in the last three fiscal years , annual revisions to our reserve volume estimates have averaged 39 % of the previous year 's estimate , due in large part to the impacts of volatile oil and natural gas prices which change the economic viability of producing such reserves . there can be no assurance that more significant revisions will not be necessary in the future . if future significant revisions are necessary that reduce previously estimated reserve quantities , such revisions could result in a write-down of oil and natural gas properties . included in proved reserves at september 30 , 2018 are proved undeveloped reserves . the proved undeveloped reserves are estimated to be brought about by future capital expenditures that will be made to convert those reserves into proved developed reserves within a five-year time frame , as required by the sec . both the amount of such future capital expenditures and the amount of undeveloped reserves converted to developed reserves resulting from those capital expenditures are based on assumptions and estimates using the parameters and judgments mentioned above . our independent petroleum reserve engineers have estimated that there are sufficient cash flows from our oil and natural gas reserves to fund the estimated capital expenditures necessary to convert the proved undeveloped reserves to developed reserves . if the company 's future business results differ from the assumptions used in the current estimates of its reserves , the company may not have the ability to fund such capital expenditures , in which case some or all of the proved undeveloped reserves would remain undeveloped or possibly then excluded from proved reserves . both the calculation of depletion expense and the ceiling test include proved undeveloped reserves , in conformity with sec rules . 32 in addition , the estimated cost of the future capital expenditures necessary to convert the proved undeveloped reserves to developed reserves are included in costs subject to depletion in the calculation of depletion expense , in conformity with sec rules . if reported reserve volumes were revised downward by 5 % at the end of fiscal 2018 , the ceiling limitation would have decreased approximately $ 1,040,000 before income taxes , which would not have resulted in a reduction of the carrying value of oil and gas properties before income taxes . in addition to the impact of the estimates of proved reserves on the calculation of the ceiling , estimated proved reserves are also a significant component of the quarterly calculation of depletion expense . the lower the estimated reserves , the higher the depletion rate per unit of production . conversely , the higher the estimated reserves , the lower the depletion rate per unit of production . if reported reserve volumes were revised downward by 5 % as of the beginning of fiscal 2018 , depletion for fiscal 2018 would have increased by approximately $ 40,000. while the quantities of proved reserves require substantial judgment , the associated prices of oil , natural gas and natural gas liquids reserves are the average first-day-of-the-month prices during the 12-month period ending in the reporting period on a constant basis as prescribed by sec regulations . additionally , the applicable discount rate that is used to calculate the discounted present value of the reserves is mandated at 10 % . costs included in future net revenues are determined in a similar manner . as such , the future net revenues associated with the estimated proved reserves are not based on an assessment of future prices or costs . income taxes policy description income taxes are determined using the asset and liability method . deferred tax assets and liabilities are recognized for the estimated future tax impacts of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . deferred income tax assets are routinely assessed for realizability . a valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax asset will not be realized . barnwell recognizes the financial statement effects of tax positions when it is more likely than not that the position will be sustained by a taxing authority . judgments and assumptions we make estimates and judgments in determining our income tax expense for each reporting period . significant changes to these estimates could result in an increase or decrease in our tax provision in future periods . we are also required to make judgments about the recoverability of deferred tax assets and when it is more likely than not that all or a portion of deferred tax assets will not be realized , a valuation allowance is provided . we consider available positive and negative evidence and available tax planning strategies when assessing the realizability of deferred tax assets . accordingly , changes in our business performance and unforeseen events could require a further increase in the valuation allowance or a reversal in the valuation 33 allowance in future periods . this could result in a charge to , or an increase in , income in the period such determination is made , and the impact of these changes could be material . in addition , barnwell operates within the u.s. and canada and is subject to audit by taxing authorities in these jurisdictions . story_separator_special_tag barnwell records accruals for the estimated outcomes of these audits , and the accruals may change in the future due to new developments in each matter . tax benefits are recognized when we determine that it is more likely than not that such benefits will be realized . management evaluates its potential exposures from tax positions taken that have or could be challenged by taxing authorities . these potential exposures result because taxing authorities may take positions that differ from those taken by management in the interpretation and application of statutes , regulations and rules . management considers the possibility of alternative outcomes based upon past experience , previous actions by taxing authorities ( e.g. , actions taken in other jurisdictions ) and advice from tax experts . where uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant , we generally seek independent tax opinions to support our positions . if our evaluation of the likelihood of the realization of benefits is inaccurate , we could incur additional income tax and interest expense that would adversely impact earnings , or we could receive tax benefits greater than anticipated which would positively impact earnings , either of which could be material . overview barnwell is engaged in the following lines of business : 1 ) acquiring , developing , producing and selling oil and natural gas in canada ( oil and natural gas segment ) , 2 ) investing in land interests in hawaii ( land investment segment ) , and 3 ) drilling wells and installing and repairing water pumping systems in hawaii ( contract drilling segment ) . oil and natural gas segment barnwell is involved in the acquisition and development of oil and natural gas properties in canada where we initiate and participate in acquisition and developmental operations for oil and natural gas on properties in which we have an interest , and evaluate proposals by third parties with regard to participation in exploratory and developmental operations elsewhere . barnwell sells all of its oil and natural gas under short-term contracts with marketers based on prices indexed to market prices . the price of natural gas , oil and natural gas liquids is freely negotiated between the buyers and sellers . oil and natural gas prices are determined by many factors that are outside of our control . market prices for oil and natural gas products are dependent upon factors such as , but not limited to , changes in market supply and demand , which are impacted by overall economic activity , changes in weather , pipeline capacity constraints , inventory storage levels , and output . oil and natural gas prices are very difficult to predict and fluctuate significantly . natural gas prices tend to be higher in the winter than in the summer due to increased demand , although this trend has become less pronounced due to the increased use of natural gas to generate electricity for air conditioning in the summer and increased natural gas storage capacity in north america . oil and natural gas exploration , development and operating costs generally follow trends in product market prices , thus in times of higher product prices the cost of exploring , developing and operating the oil and natural gas properties will tend to escalate as well . capital expenditures are required to fund the exploration , development , and production of oil and natural gas . cash outlays for capital expenditures are largely discretionary , however , a minimum level of capital expenditures is required to replace depleting 34 reserves . due to the nature of oil and natural gas exploration and development , significant uncertainty exists as to the ultimate success of any drilling effort . land investment segment the land investment segment is comprised of the following components : 1 ) through barnwell 's 77.6 % interest in kaupulehu developments , a hawaii general partnership , 75 % interest in kd kona , a hawaii limited liability limited partnership , and 34.45 % non-controlling interest in kkm makai , a hawaii limited liability limited partnership , the company 's land investment interests include the following : the right to receive percentage of sales payments from kd i resulting from the sale of single-family residential lots by kd i , within increment i of the approximately 870 acres of the kaupulehu lot 4a area located in the north kona district of the island of hawaii . kaupulehu developments is entitled to receive payments from kd i based on the following percentages of the gross receipts from kd i 's sales : 10 % of such aggregate gross proceeds greater than $ 100,000,000 up to $ 300,000,000 ; and 14 % of such aggregate gross proceeds in excess of $ 300,000,000. increment i is an area zoned for approximately 80 single-family lots , of which 20 remained to be sold at september 30 , 2018 , and a beach club on the portion of the property bordering the pacific ocean , and is partially developed . the right to receive percentage of sales payments from kd ii resulting from the sale of lots and or residential units by kd ii , within increment ii of kaupulehu lot 4a . increment ii is the remaining portion of the approximately 870-acre property and is zoned for single-family and multi-family residential units and a golf course and clubhouse . kaupulehu developments was entitled to receive payments from kd ii based on a percentage of the gross receipts from kd ii 's sales ranging from 8 % to 10 % of the price of improved or unimproved lots or 2.60 % to 3.25 % of the price of units constructed on a lot , to be determined in the future depending upon a number of variables , including whether the lots are sold prior to improvement .
| the average exchange rate of the canadian dollar to the u.s. dollar increased 2 % in fiscal 2018 , as compared to fiscal 2017 , and the exchange rate of the canadian dollar to the u.s. dollar decreased 3 % at september 30 , 2018 , as compared to september 30 , 2017 . accordingly , the assets , liabilities , stockholders ' 37 equity , and revenues and expenses of barnwell 's subsidiaries operating in canada have been adjusted to reflect the change in the exchange rates . barnwell 's canadian dollar assets are greater than its canadian dollar liabilities ; therefore , increases or decreases in the value of the canadian dollar to the u.s. dollar generate other comprehensive income or loss , respectively . other comprehensive income and losses are not included in net ( loss ) earnings . other comprehensive loss due to foreign currency translation adjustments , net of taxes , for fiscal 2018 was $ 128,000 , a $ 275,000 decrease from other comprehensive income due to foreign currency translation adjustments , net of taxes , of $ 147,000 in fiscal 2017 . there were no taxes on other comprehensive ( loss ) income due to foreign currency translation adjustments in fiscal 2018 and 2017 due to a full valuation allowance on the related deferred tax assets . oil and natural gas selected operating statistics the following tables set forth barnwell 's annual average prices per unit of production and annual net production volumes for fiscal 2018 as compared to fiscal 2017 . production amounts reported are net of royalties . replace_table_token_7_th replace_table_token_8_th _ * natural gas price per unit is net of pipeline charges . the oil and natural gas segment generated a $ 247,000 operating profit in fiscal 2018 before general and administrative expenses , a decrease in operating results of $ 260,000 as compared to $ 507,000 of operating profit in fiscal 2017 . oil and natural gas revenues decreased $ 677,000 ( 15 % ) from $ 4,383,000 in fiscal
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” 2017 vs. 2016 interest expense increased to $ 118 million for the year ended december 31 , 2017 , compared with $ 101 million for the year ended december 31 , 2016 . the increase was due primarily to our issuance of $ 330 million aggregate principal amount of senior notes ( the “ 4.875 % notes ” ) due june 15 , 2025 , and $ 300 million borrowed under our credit facility in the third quarter of 2017. other expenses ( income ) , net in 2018 , we recorded other expenses of $ 17 million , primarily due to the loss on debt extinguishment resulting from our 1.125 % convertible notes repayments and the 1.625 % convertible notes exchange . these transactions are described further in notes to consolidated financial statements , note 11 , “ debt . ” in early 2017 , we received a $ 75 million fee in connection with a terminated medicare acquisition . income taxes 2018 vs. 2017 income tax expense amounted to $ 292 million in 2018 , or 29.2 % of pretax income , compared with an income tax benefit of $ 100 million in 2017 , or 16.4 % of the pretax loss . the effective tax rate for 2018 differs from 2017 mainly due to : 1 ) the reduction in the federal statutory rate from 35 % to 21 % under the tax cuts and jobs act of 2017 ( “ tcja ” ) ; and 2 ) higher non-deductible expenses in 2018 , primarily related to the non-deductible hif , as a percentage of pre-tax income ( loss ) . the hif was not applicable in 2017 due to the 2017 hif moratorium . the revaluation of deferred tax assets in connection with the tjca resulted in $ 54 million additional income tax expense in the year ended december 31 , 2017. in addition , the effective tax benefit rate for 2017 was less than the statutory tax benefit due to the relatively large amount of reported expenses that were not deductible for tax purposes , primarily relating to goodwill impairment losses and separation costs . 2017 vs. 2016 the income tax benefit amounted to $ 100 million in 2017 , or 16.4 % of the pretax loss , compared with an income tax expense of $ 153 million in 2016 , or 74.8 % of pretax income . as discussed above , the effective tax benefit rate in 2017 was impacted by a revaluation of deferred tax assets and relatively large amounts of nondeductible expenses . the effective tax rate of 74.8 % in 2016 mainly reflected the relatively large impact of the non-deductible hif expenses relative to pretax income . molina healthcare , inc. 2018 form 10-k | 43 summary of significant items the tables below summarize the impact of certain items significant to our financial performance in the periods presented . the individual items presented below increase ( decrease ) income ( loss ) before income tax expense ( benefit ) . replace_table_token_9_th replace_table_token_10_th _ ( 1 ) except for permanent differences between gaap and tax ( such as certain expenses that are not deductible for tax purposes ) , per diluted share amounts are generally calculated at the statutory income tax rate of 22 % for 2018 , and 37 % for 2017. reportable segments how we assess performance we derive our revenues primarily from health insurance premiums . our primary customers are state medicaid agencies and the federal government . one of the key metrics used to assess the performance of our health plans segment is the mcr , which represents the amount of medical care costs as a percentage of premium revenue . therefore , the underlying margin , or the amount earned by the health plans segment after medical costs are deducted from premium revenue , is the most important measure of earnings reviewed by management . margin for our health plans segment is referred to as “ medical margin , ” and for other , as “ service margin. ” management 's discussion and analysis of the changes in the individual components of medical margin and service margin follows . see notes to consolidated financial statements , note 18 , “ segments , ” for more information . molina healthcare , inc. 2018 form 10-k | 44 segment summary replace_table_token_11_th _ ( 1 ) represents premium revenue minus medical care costs . ( 2 ) represents service revenue minus cost of service revenue . health plans segment recent developments for a description of recent renewals of medicaid contracts , see item 1. business—strategy—growth opportunities . trends and uncertainties for descriptions of “ status of contract re-procurements , ” and other developments see item 1. business—our business—medicaid , medicare and marketplace . for discussions of “ pressures on medicaid funding , ” and “ aca and the marketplace , ” see item 1. business—legislative and political environment . financial performance by program the following tables summarize member months , premium revenue , medical care costs , mcr and medical margin by program for the periods indicated ( pmpm amounts are in whole dollars ; member months and other dollar amounts are in millions ) : replace_table_token_12_th molina healthcare , inc. 2018 form 10-k | 45 replace_table_token_13_th replace_table_token_14_th _ ( 1 ) a member month is defined as the aggregate of each month 's ending membership for the period presented . ( 2 ) “ mcr ” represents medical costs as a percentage of premium revenue . medicaid program 2018 vs. 2017 our medicaid medical margin improved $ 174 million , or 15 % , in 2018 when compared with 2017. this improvement was mainly due to an improvement in the mcr from 91.4 % to 90.0 % , partially offset by a slight decline in premiums . story_separator_special_tag medicaid premiums declined slightly , mainly due to a carve-out of pharmacy benefits for all medicaid membership in washington effective july 1 , 2018 , $ 81 million in retroactive california medicaid expansion risk corridor adjustments , and a decline in tanf and chip membership , partially offset by the impact of rate increases in certain markets and increased quality incentive premium revenue . excluding recognition of the retroactive california medicaid expansion risk corridor adjustments , the medicaid mcr would have been 89.4 % in 2018 , or 200 basis points lower compared with 2017. the improvement in mcr was mainly attributable to improvements in the mcr for tanf and chip , primarily at our illinois , california and texas health plans , and improvement in the mcr for abd , due to several actions , including improved network contracting and our management of high acuity members . we also benefited from net favorable prior year claims development in 2018 , compared with net unfavorable claims development in 2017. partially offsetting these improvements was an increase in the mcr for medicaid expansion . the increase was due to the retroactive california risk corridor adjustments and the premium reduction we received in california in july 2017. despite an increase in mcr in 2018 , medicaid expansion has generally performed well because rate adequacy has trended favorably , and membership is concentrated in our higher performing health plans , particularly california , michigan , and washington . molina healthcare , inc. 2018 form 10-k | 46 2017 vs. 2016 medicaid medical margin decreased $ 128 million , or 10 % , in 2017 when compared with 2016 , mainly due to an increase in the mcr from 89.9 % to 91.4 % , partially offset by an increase in premiums . medicaid premiums increased $ 818 million , or 6 % , in 2017 when compared with 2016 , mainly due to enrollment growth in medicaid expansion and abd , and higher average premium pmpm in tanf , chip and abd . the increase in the medicaid mcr was mainly attributed to a deterioration in abd medical costs most notably in michigan , new mexico and texas , and an increase in expansion mcr , principally driven by reduced premium rates in california . medicare program 2018 vs. 2017 the medicare medical margin increased $ 85 million in 2018 , or 36 % , when compared with 2017 due mainly to an improvement in the mcr . the overall mcr for the combined medicare programs decreased to 84.5 % in 2018 , from 88.4 % in 2017 . the improvement in 2018 was due to improved medical management of high-acuity members and long-term services and supports benefits , in addition to increased premium revenue tied to risk scores that is more commensurate with the acuity of our population . 2017 vs. 2016 the medicare medical margin increased slightly in 2017 when compared with 2016 , due mainly to an increase in premiums , partially offset by an increase in the mcr . mmp and medicare enrollment and premium combined grew by approximately 9 % in 2017 compared with 2016. the mcr for this membership increased 30 basis points from 2016 to 2017. marketplace program 2018 vs. 2017 the marketplace medical margin increased $ 435 million in 2018 , or 123 % , when compared to 2017 , due mainly to an improvement in the mcr , partially offset by a $ 1,053 million decrease in premiums . the lower marketplace premium revenue was driven by a nearly 60 % decrease in membership , partially offset by premium rate increases . as previously disclosed , we increased premium rates and reduced our marketplace presence effective january 1 , 2018 , as part of our overall program to improve profitability . the mcr for the marketplace program improved to 58.9 % in 2018 , from 88.1 % in 2017. excluding the combined benefit of the 2017 marketplace risk adjustment and csr benefit recognized in 2018 , the mcr in 2018 would have been 65.0 % . excluding the changes in marketplace premium deficiency reserves for 2017 dates of service , the mcr would have been 89.1 % for 2017. the year over year improvement is mainly due to the overall program to improve profitability , as discussed above , as well as increased premium revenue tied to risk scores more that is commensurate with the acuity of our population . 2017 vs. 2016 the marketplace medical margin increased by $ 224 million in 2017 , almost double that of 2016 , due to an increase in premiums and a reduction in the mcr . the increase in marketplace premium revenue was driven by a 60 % increase in membership in 2017 compared with 2016. the marketplace mcr improved to 88.1 % in 2017 compared with 91.7 % in 2016. excluding the changes in marketplace premium deficiency reserves for 2017 dates of service , the mcr would have been 89.1 % for 2017. despite a decrease in the mcr in 2017 compared with 2016 , our marketplace program still failed to meet expectations in 2017. molina healthcare , inc. 2018 form 10-k | 47 financial performance by health plan the following tables summarize member months , premium revenue , medical care costs , mcr , and medical margin by health plan for the periods indicated ( pmpm amounts are in whole dollars ; member months and other dollar amounts are in millions ) : health plans segment financial data — medicaid and medicare replace_table_token_15_th replace_table_token_16_th molina healthcare , inc. 2018 form 10-k | 48 replace_table_token_17_th _ ( 1 ) “ other ” includes the idaho , mississippi , new york , utah and wisconsin health plans , which are not individually significant to our consolidated operating results . health plans segment financial data — marketplace replace_table_token_18_th replace_table_token_19_th molina healthcare , inc. 2018 form 10-k | 49 replace_table_token_20_th _ ( 1 ) “ other ” includes the utah and wisconsin health plans , which are not individually significant to our consolidated operating results .
| premium tax revenue and expenses 2018 vs. 2017 the premium tax ratio ( premium tax expense as a percentage of premium revenue plus premium tax revenue ) remained consistent in 2018 when compared to 2017 and was 2.3 % in both years . the decrease in expense is consistent with the decline in premiums . 2017 vs. 2016 the premium tax ratio decreased to 2.3 % in 2017 from 2.8 % in 2016 , mainly due to the significant revenue growth at our florida health plan in 2017 and 2016 , which operates in a state with no premium tax , and growth in mmp revenue . the medicare portion of mmp revenue is not subject to premium tax . investment income and other revenue 2018 vs. 2017 investment income and other revenue increased to $ 125 million in 2018 , compared with $ 70 million in 2017 , primarily for two reasons . first , investment income increased due to improved annualized portfolio yields and higher average invested assets in 2018. in addition , other revenue increased in 2018 due to administrative services fees earned by our washington health plan , following that state 's decision to transition the management of medicaid pharmacy benefits to an administrative services-based arrangement in 2018 . 2017 vs. 2016 investment income and other revenue increased to $ 70 million in 2017 compared with $ 38 million in 2016 , mainly due to an increase in average invested assets . medical care ratio ( “ mcr ” ) 2018 vs. 2017 overall , the mcr improved to 85.9 % in 2018 , from 90.6 % in 2017. excluding the retroactive california medicaid expansion risk corridor adjustments , and the combined benefit of the 2017 marketplace risk adjustment and csr molina healthcare , inc. 2018 form 10-k | 41 benefit , the mcr for 2018 would have been 86.3 % . excluding several , substantial out-of-period items that are discussed further below , the mcr for 2017 would have been 89.3 % . the improvement was due to a decrease in the mcrs across our medicaid , medicare and marketplace programs . 2017 vs. 2016 the medical care ratio increased to 90.6 % in 2017 , from 89.8 % in 2016. our 2017
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due to this plant closure , we will also be exiting the hospitality business as we manufactured those products in the hudson facility . we are transitioning our warehousing and repair functions from two north wilkesboro , north carolina facilities to the hudson facility . the two north wilkesboro facilities are currently being marketed for sale , as will the wood-working equipment from our hudson plant . also in connection with the restructuring , we are marketing for sale our youth furniture business , lea industries , as it does not align with our long-term strategic objectives . as a result of our restructuring actions , we recorded pre-tax charges of $ 8.1 million ( $ 5.3 million after tax ) during fiscal 2014 , with $ 4.8 million pre-tax ( $ 3.2 million after tax ) related to continuing operations and $ 3.3 million pre-tax ( $ 2.1 million after tax ) related to discontinued operations . we expect approximately $ 2 million additional restructuring charges during fiscal 2015 as a result of these restructuring actions . the total restructuring charges for these actions are lower than our previous estimate of $ 13 to $ 15 million , primarily because the lifo basis of some of our inventory was already at a lower cost than the expected realizable value , as well as better than expected fair value appraisals on our idled assets . these items are all discussed in more detail throughout this management 's discussion and analysis . 24 results of operations fiscal year 2014 compared to fiscal year 2013 la-z-boy incorporated replace_table_token_9_th sales our consolidated sales increased by $ 83.4 million in fiscal 2014 as compared to fiscal 2013. our upholstery and retail segments both reported higher sales as compared to the prior year , driven by the combination of stronger volume , favorable changes in product mix , and selling price increases . partly offsetting these sales increases was continued weakness in sales volume in our casegoods segment . these items are further explained in the discussion of each of our operating segment 's results later in this management 's discussion and analysis . operating margin our consolidated operating margin increased by 1.3 percentage points in fiscal 2014. our retail segment 's operating margin continued to improve in fiscal 2014 as compared to the prior year and our upholstery segment 's operating margin also increased compared to the prior year . these improvements were partially offset by our casegoods segment , whose operating margin declined in fiscal 2014 as compared to fiscal 2013 . · our gross margin increased 1.5 percentage points in fiscal 2014 as compared to fiscal 2013. our consolidated gross margin increased due in part to fiscal 2014 's higher weighting of sales in our retail segment , which carry a higher gross margin than our wholesale segments . gross margin in our upholstery segment benefited from favorable absorption of fixed costs resulting from sales volume increases . our retail segment 's gross margin improved as a result of improved merchandising and a higher priced product mix . · selling , general , and administrative ( “ sg & a ” ) expenses increased in absolute dollars in fiscal 2014 as compared to fiscal 2013 , and increased as a percentage of sales by 0.2 percentage point in fiscal 2014 as compared to fiscal 2013. o advertising costs were 0.2 percentage point higher in fiscal 2014 than fiscal 2013 , due primarily to increased spending related to our live life comfortably marketing campaign , and incentive compensation costs were 0.2 percentage point higher in fiscal 2014 as compared to fiscal 2013. the main drivers of the increase in incentive compensation costs during fiscal 2014 were the improvement in our consolidated financial performance and the increase in our share price during the period . several of our share-based compensation awards are liability-based and or performance-based awards , and their cumulative expense to date is adjusted at the end of each period based on the share price on the last day of the reporting period and the ultimate amount of awards expected to vest . these items were partly offset by a reduction in the provision for doubtful accounts of 0.3 percentage point , due to the continued improvement in the financial health of our customer base , especially our independent la-z-boy furniture galleries® dealers . 25 upholstery segment replace_table_token_10_th sales our upholstery segment 's sales increased $ 69.3 million in fiscal 2014 as compared to fiscal 2013 , an increase of 6.7 % . increased volume drove 4.4 % of the increase as compared to the prior year , higher selling prices accounted for 1.8 % of the increase , with the remainder primarily attributable to favorable changes in product mix . changes in product mix most notably included a shift to more stationary sofas and occasional chairs , as well as a higher number of recliners sold in fiscal 2014 as compared to fiscal 2013. during fiscal 2014 , we sold more powered motion units as compared to fiscal 2013 , which have higher average selling prices than motion units without power , contributing to the increase in sales . we believe the increase in unit volume was a result of our live life comfortably marketing campaign , the strength of our stationary product introductions and our improved product value and styling . we also believe these factors continued to drive increased volume for our la-z-boy branded business and generated the improved performance of our retail store network , which includes both our company-owned and independent-licensed stores . operating margin our upholstery segment 's operating margin increased by 1.4 percentage points in fiscal 2014 compared to fiscal 2013 . · the segment 's gross margin increased 1.4 percentage points during fiscal 2014 compared to the fiscal 2013 due to a combination of factors . higher unit volume , selling price , product mix changes , and operational efficiencies amounted to a 2.1 percentage points benefit . story_separator_special_tag these items more than offset the impact of raw material cost increases of 0.8 percentage point . · the segment 's sg & a expense as a percentage of sales was flat in fiscal 2014 as compared to fiscal 2013. our sales increase led to improved absorption of fixed costs and we reduced the provision for doubtful accounts by $ 3.8 million , or 0.4 percentage point , due to the continued improvement in the financial condition of our customer base , especially our independent la-z-boy furniture galleries® dealers . these items , however , were offset by the impact of higher incentive compensation costs and advertising costs of 0.2 percentage point . casegoods segment replace_table_token_11_th 26 sales our casegoods segment 's sales showed continued weakness in fiscal 2014 , decreasing by $ 5.8 million compared with fiscal 2013 , due to lower sales volume of $ 5.6 million and higher discounts of $ 0.2 million . the replacement cycle is longer for casegoods furniture than for upholstered furniture , given that casegoods furniture is more durable and has a higher average ticket price , and we believe this has negatively impacted our sales in this segment . in addition , there has been a shift in consumer preference from formal and traditional product styling to more casual transitional and contemporary product . previously , our product line did not shift quickly enough in response to this change in consumer preference , but we are now addressing this change by refreshing our casegoods product line . operating margin our casegoods segment 's operating margin declined 0.1 percentage point in fiscal 2014 compared to fiscal 2013. the decline in operating income was driven by the decline in sales , as well as our inability to absorb costs . retail segment replace_table_token_12_th sales our retail segment 's sales increased $ 33.9 million in fiscal 2014 as compared to fiscal 2013. approximately $ 10.2 million of this increase resulted from our acquisition of nine stores in the southern ohio market in october 2012. stores we acquired in the las vegas market in october 2013 and in northeast ohio in november 2013 produced an additional $ 9.1 million in sales . our average sales ticket increased during the fiscal year even though our traffic was essentially flat on a same-store basis . we believe the remaining increase in our sales in fiscal 2014 resulted from our live life comfortably marketing campaign , the strength of our stationary product introductions and our improved product value and styling . operating margin our retail segment 's operating margin improved 2.2 percentage points in fiscal 2014 compared to fiscal 2013 . · the segment 's gross margin improved 1.0 percentage point in fiscal 2014 compared to fiscal 2013 , benefitting from better product merchandising . · the segment 's sg & a costs as a percent of sales improved 1.2 percentage points in fiscal 2014. o our sales increase allowed us to reduce our fixed sg & a expenses ( primarily occupancy and administrative costs ) as a percentage of sales . o we incurred additional costs during the year , however , in acquiring stores and building and opening new stores . our 4-4-5 program , through which we expect to expand the la-z-boy furniture galleries® stores network to 400 stores averaging $ 4 million in sales per store over the five year period that began with fiscal 2014 , is a key growth strategy for our company , which we expect will result in growth in our retail segment through increased company-owned store count . as we execute this strategy over the next few years , we will incur sg & a expense for items such as pre-opening rent , staffing , and technology-related expenses . during fiscal 2014 , we acquired five existing la-z-boy furniture galleries® stores , opened five new stores and remodeled one existing store to our new concept design format . the associated costs of these activities , as well as other new store construction and remodel projects that are in the pipeline for fiscal 2015 , increased our sg & a costs as a percentage of sales . 27 corporate and other replace_table_token_13_th sales eliminations increased in fiscal 2014 as compared to fiscal 2013 due to higher sales from our upholstery and casegoods segments to our retail segment as a result of the increased volume in the retail segment . operating loss our corporate and other operating loss increased $ 4.9 million in fiscal 2014 compared to fiscal 2013 due primarily to higher incentive compensation costs , as well as higher charges related to exiting owned real estate that we are not operating in the normal course of our business . the $ 4.8 million restructuring charge recorded in fiscal 2014 mainly related to fixed asset and inventory write-downs associated with the restructuring of our casegoods business to cease domestic manufacturing and transition to an all-import model for our wood furniture . the $ 2.6 million restructuring charge recorded in fiscal 2013 mainly related to fixed asset and inventory write-downs associated with the closure of the lumber processing operation in our casegoods segment . other income other income was $ 1.2 million lower in fiscal 2014 as compared to fiscal 2013 , primarily due to higher gains realized in fiscal 2013 on the sales of investments which fund our non-qualified defined benefit retirement plan . income taxes our effective tax rate for continuing operations was 34.3 % for fiscal 2014 compared with 33.3 % for fiscal 2013. our effective tax rate varies from the 35 % u.s. federal statutory rate primarily due to state income taxes and the u.s. manufacturing deduction . items impacting our effective tax rate for fiscal 2014 included a tax benefit of $ 1.2 million for the release of valuation allowances relating to certain u.s. state deferred tax assets and a net tax benefit of $ 0.5 million from other adjustments . absent discrete adjustments , the effective tax rate for continuing operations in fiscal 2014 would have been 36.1 % .
| million of additional incentive compensation expense in fiscal 2013 across all segments , or an increase of 0.6 percentage point . this increase in incentive compensation was due to our continued improvements in sales and operating results for the full fiscal year . as a result , we had three outstanding performance-based stock awards , each with three-year performance measurement periods , for which we were recognizing expense during fiscal 2013. upholstery segment replace_table_token_15_th 29 sales our upholstery segment 's sales increased $ 91.7 million in fiscal 2013 as compared to fiscal 2012 , an increase of 9.8 % . increased volume drove 6.1 % of the increase as compared to the prior year and higher selling prices accounted for 2.6 % of the increase . the remainder of the sales increase in fiscal 2013 as compared to fiscal 2012 was primarily attributable to favorable changes in product mix , which included a shift to more motion units , including sofas , as well as a higher number of stationary sofas and occasional chairs . we believe the increase in orders was a result of an effective marketing plan that led to greater customer awareness of our improved product value and styling , which drove increased volume for our la-z-boy branded business , as well as the improved performance of our network of retail stores , which includes our company-owned and independent-licensed stores . operating margin our upholstery segment 's operating margin increased by 0.7 percentage point in fiscal 2013 compared to fiscal 2012 . · the segment 's gross margin increased 0.9 percentage point during fiscal 2013 due to a combination of factors , the most significant of which were : o selling price changes as well as changes in product mix resulted in a 1.6 percentage points increase in gross margin . o raw material cost increases resulted in a 1.1 percentage points decrease in gross margin . · the segment 's sg & a as a percentage
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the acquisition was funded through a combination of cash on hand , $ 300.0 million of incremental term loans incurred in connection with an amendment to our 2013 amended credit agreement , and $ 125.0 million of borrowings under our existing revolving credit facility . kana , based in sunnyvale , california and with global operations , is a leading provider of on-premises and cloud-based solutions which create differentiated , personalized , and integrated customer experiences for large enterprises and mid-market organizations . kana will be integrated into our enterprise intelligence operating segment . on march 31 , 2014 , we completed the acquisition of all of the outstanding shares of utx , a provider of certain mobile device tracking solutions for security applications , from utx limited . utx limited was our supplier of these products to our communications intelligence operating segment prior to the transaction . the purchase price consisted of $ 82.9 million of cash paid at closing , subject to adjustment , and we agreed to make potential additional future cash payments to utx limited of up to $ 1.5 million , contingent upon the achievemen t of certain performance targets over the period from closing through june 30 , 2014. the cash paid at closing was funded with cash on hand . utx is based in the emea region . further details regarding the acquisition of kana and the associated additional long-term debt , and the acquisition of utx , appear in note 19 , `` subsequent events '' to our consolidated financial statements included under item 8 of this report . 30 our previous extended filing delay period and related matters from march 2006 through march 2010 , we did not make periodic filings with the sec . this extended filing delay arose as a result of certain internal and external investigations and reviews of accounting matters discussed in our prior public filings . in connection with the foregoing and related matters , we incurred approximately $ 137 million of professional fees and related expenses during the four years ended january 31 , 2011. critical accounting policies and estimates an appreciation of our critical accounting policies is necessary to understand our financial results . the accounting policies outlined below are considered to be critical because they can materially affect our operating results and financial condition , as these policies may require us to make difficult and subjective judgments regarding uncertainties . the accuracy of these estimates and the likelihood of future changes depend on a range of possible outcomes and a number of underlying variables , many of which are beyond our control , and there can be no assurance that our estimates are accurate . revenue recognition our revenue recognition policy is a critical component of determining our operating results and is based on a complex set of accounting rules that require us to make significant judgments and estimates . we derive and report our revenue in two categories : ( a ) product revenue , including sale of hardware products ( which include software that works together with the hardware to deliver the product 's essential functionality ) and licensing of software products , and ( b ) service and support revenue , including revenue from installation services , post-contract customer support ( `` pcs '' ) , project management , hosting services , saas , product warranties , consulting and training services . our customer arrangements may include any combination of these elements . we follow the appropriate revenue recognition rules for each of these revenue streams . for additional information , see note 1 , `` summary of significant accounting policies '' to our consolidated financial statements included under item 8 of this report . revenue recognition for a particular arrangement is dependent upon such factors as the level of customization within the solution and the contractual delivery , acceptance , payment , and support terms with the customer . significant judgment is required to conclude on each of these factors , and if we were to change any of these assumptions or judgments , it could cause a material increase or decrease in the amount of revenue that we report in a particular period . we generally consider a purchase order or executed sales quote , when combined with a master license agreement , to constitute evidence of an arrangement . delivery occurs when the product is shipped or transmitted and title and risk of loss have transferred to the customers . our typical customer arrangements do not include substantive product acceptance provisions ; however , if such provisions are provided , delivery is deemed to occur upon acceptance . we consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our standard payment terms . if the fee due from a customer is not fixed or determinable due to extended payment terms , revenue is recognized when payment becomes due or upon cash receipt , whichever is earlier . our multiple-element arrangements consist of a combination of our product and service offerings that may be delivered at various points in time . for arrangements within the scope of the multiple-deliverable guidance , a deliverable constitutes a separate unit of accounting when it has stand-alone value and there are no customer-negotiated refunds or return rights for the delivered elements . for multiple-element arrangements comprised only of tangible products containing software components and non-software components and related services , we allocate revenue to each element in an arrangement based on a selling price hierarchy . the selling price for a deliverable is based on its vendor-specific objective evidence ( “ vsoe ” ) , if available , third-party evidence ( “ tpe ” ) , if vsoe is not available , or estimated selling price ( “ esp ” ) , if neither vsoe nor tpe is available . the total transaction revenue is allocated to the multiple elements based on each element 's relative selling price compared to the total selling price . story_separator_special_tag we account for multiple-element arrangements that contain only software and software-related elements by allocating a portion of the total purchase price to the undelivered elements , primarily installation services , pcs , consulting , and training , using vsoe of fair value of the undelivered elements . the remaining portion of the total transaction value is allocated to the delivered software , referred to as the residual method . if we are unable to establish vsoe for the undelivered elements of the arrangement , revenue recognition is deferred for the entire arrangement until all elements of the arrangement are delivered . however , if the only undelivered element is pcs , we recognize the arrangement fee ratably over the pcs period . for multiple-element arrangements that are comprised of a combination of hardware and software elements , the total transaction value is bifurcated between the hardware elements and the software elements that are not essential to the functionality of the hardware , based on the relative selling prices of the hardware elements and the software elements as a group . revenue is then recognized for the hardware and hardware-related services following the hardware revenue recognition 31 methodology outlined above and revenue for the software and software-related services is recognized following the residual method or ratably over the pcs period if vsoe for pcs does not exist . our policy for establishing vsoe for installation , consulting , and training is based upon an analysis of separate sales of services . we utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish vsoe for our pcs offerings , depending upon the business segment , geographical region , or product line . the timing of revenue recognition on software licenses and other revenue could be significantly impacted if we are unable to maintain vsoe on one or more undelivered elements during any quarterly period . loss of vsoe could result in ( i ) the complete deferral of all revenue or ( ii ) ratable recognition of all revenue under a customer arrangement until such time as vsoe is re-established . if we are unable to re-establish vsoe on one or more undelivered elements for an extended period of time it would impact our ability to accurately forecast the timing of quarterly revenue , which could have a material adverse effect on our business , financial position , results of operations or cash flows . we typically are not able to determine tpe for our products or our service and support offerings . tpe of selling price is established by evaluating largely similar and interchangeable competitor products or services in stand-alone sales to similarly situated customers . if we are unable to determine the selling price because vsoe or tpe does not exist , we determine esp for the purposes of allocating the arrangement by considering several external and internal factors including , but not limited to , pricing practices , similar product offerings , margin objectives , geographies in which we offer our products and services , internal costs , competition , and product lifecycle . the determination of esp is made through consultation with and approval by our management , taking into consideration our go-to-market strategies . we have established processes to update esp for each element , when appropriate , to ensure that it reflects recent pricing experience . pcs revenue is derived from providing technical software support services and unspecified software updates and upgrades to customers on a when-and-if-available basis . pcs revenue is recognized ratably over the term of the maintenance period which , in most cases , is one year . when pcs is included within a multiple-element arrangement , we utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish vsoe of the pcs , depending upon the business operating segment , geographical region , or product line . under the substantive renewal rate approach , we believe it is necessary to evaluate whether both the support renewal rate and term are substantive , and whether the renewal rate is being consistently applied to subsequent renewals for a particular customer . we establish vsoe under this approach through analyzing the renewal rate stated in the customer agreement and determining whether that rate is above the minimum substantive vsoe renewal rate established for that particular pcs offering . the minimum substantive vsoe rate is determined based upon an analysis of renewal rates associated with historical pcs contracts . typically , renewal rates of 15 % for pcs plans that provide when-and-if-available upgrades , and 10 % for plans that do not provide for when-and-if-available upgrades , would be deemed to be minimum substantive renewal rates . for contracts that do not contain a stated renewal rate , revenue associated with the entire bundled arrangement is recognized ratably over the pcs term . contracts that have a renewal rate below the minimum substantive vsoe rate are deemed to contain a more than insignificant discount element , for which vsoe can not be established . we recognize revenue for these arrangements over the period that the customer is entitled to renew their pcs at the discounted rate , but not to exceed the estimated economic life of the product . under the bell-shaped curve approach of establishing vsoe , we perform a vsoe compliance test to ensure that a substantial majority ( 75 % or over ) of our actual pcs renewals are within a narrow range of plus or minus 15 % of the median pricing . some of our arrangements require significant customization of the product to meet the particular requirements of the customer . for these arrangements , revenue is recognized under contract accounting methods , typically using the percentage of completion ( `` poc '' ) method . under the poc method , revenue recognition is generally based upon the ratio of hours incurred to date to the total estimated hours required to complete the contract .
| revenue in the americas , emea , and apac represented approximately 56 % , 20 % , and 24 % of our total revenue , respectively , in the year ended january 31 , 2014 , compared to approximately 55 % , 24 % , and 21 % , respectively , in the year ended january 31 , 2013 . further details of changes in revenue are provided below . operating income was $ 122.3 million in the year ended january 31 , 2014 compared to $ 99.6 million in the year ended january 31 , 2013 . this increase in operating income was primarily due to a $ 43.4 million increase in gross profit from $ 557.5 million to $ 600.9 million , partially offset by an $ 20.6 million increase in operating expenses , from $ 458.0 million to $ 478.6 million . the increase in gross profit was primarily due to increased gross profit in our communications intelligence segment . the increase in operating expenses consisted of a $ 9.8 million increase in selling , general and administrative expense , a $ 10.6 million increase in net research and development expenses , and a $ 0.2 million increase in amortization of other acquired intangible assets . further details of changes in operating income are provided below . net income attributable to verint systems inc. common shares was $ 53.6 million , and diluted net income per common share was $ 0.99 , in the year ended january 31 , 2014 compared to net income attributable to verint systems inc. common shares of $ 38.5 million , and diluted net income per common share of $ 0.96 , in the year ended january 31 , 2013 . the increase in net income attributable to verint systems inc. common shares and diluted net income per common share in the year ended january 31 , 2014 was primarily due to our increased operating income , as described above , a $ 15.3 million decrease in dividends on preferred stock resulting from the cancellation of our preferred stock , and a $ 4.4 million decrease in our provision for income taxes . these increases were partially offset by a $ 27.2 million
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this enables us to generally match our liabilities to officers of bxp under the deferred compensation plan with equivalent assets and thereby limit our market risk . the performance of these investments is recorded as gains from investments in securities . during the years ended december 31 , 2017 and 2016 , we recognized gains of approximately $ 3.7 million and $ 2.3 million , respectively , on these investments . by comparison , our general and administrative expense increased by approximately $ 3.7 million and $ 2.3 million during the years ended december 31 , 2017 and 2016 , respectively , as a result of increases in our liability under our deferred compensation plan that were associated with the performance of the specific investments selected by officers of bxp participating in the plan . gains ( losses ) from early extinguishments of debt on december 17 , 2017 , bplp completed the redemption of $ 850 million in aggregate principal amount of its 3.700 % senior notes due november 15 , 2018. the redemption price was approximately $ 865.5 million , which included approximately $ 2.8 million of accrued and unpaid interest to , but not including , the redemption date . excluding the accrued and unpaid interest , the redemption price was approximately 101.49 % of the principal amount being redeemed . we recognized a loss from early extinguishment of debt totaling approximately $ 13.9 million , which amount included the payment of the redemption premium totaling approximately $ 12.7 million . on june 7 , 2017 , our consolidated entity in which we have a 60 % ownership interest and that owns 767 fifth avenue ( the general motors building ) located in new york city completed the refinancing of approximately $ 1.6 billion of indebtedness that had been secured by direct and indirect interests in 767 fifth avenue . the new mortgage financing has a principal amount of $ 2.3 billion , bears interest at a fixed interest rate of 3.43 % per annum and matures on june 9 , 2027. the loan requires monthly interest-only payments during the 10-year term of the loan , with the entire principal amount due at maturity . the extinguished debt bore interest at a weighted-average rate of approximately 5.96 % per annum , an effective gaap interest rate of approximately 3.03 % per annum and was scheduled to mature on october 7 , 2017. there was no prepayment penalty associated with the repayment of the prior indebtedness . we recognized a net gain from early extinguishment of debt totaling approximately $ 14.6 million primarily consisting of the acceleration of the remaining balance related to the historical fair value debt adjustment . on april 24 , 2017 , bplp entered into the 2017 credit facility ( see note 8 to the consolidated financial statements ) . certain lenders , under the prior credit facility , chose to not participate in the 2017 credit facility and as such we recognized a loss on early extinguishment of debt of approximately $ 0.3 million related to the acceleration of finance fees associated with the prior credit agreement . on september 1 , 2016 , we used a portion of the net proceeds from bplp 's august 2016 offering of senior unsecured notes and available cash to repay the mortgage loan collateralized by our 599 lexington avenue property located in new york city totaling $ 750.0 million . the mortgage loan bore interest at a fixed rate of 5.57 % per annum ( 5.41 % per annum including the impact of financing costs and interest rate hedges ) and was scheduled to mature on march 1 , 2017. there was no prepayment penalty . we recognized a gain from early extinguishment of debt totaling approximately $ 0.4 million consisting of the acceleration of the remaining balance related to the effective portion of a previous interest rate hedging program included within accumulated other comprehensive loss , offset by the write-off of unamortized deferred financing costs . on september 1 , 2016 , we used a portion of the net proceeds from bplp 's august 2016 offering of senior unsecured notes and available cash to repay the mortgage loan collateralized by our embarcadero center four property located in san francisco , california totaling approximately $ 344.8 million . the mortgage loan bore interest at a fixed rate of 6.10 % per annum ( 7.02 % per annum including the impact of financing costs and interest rate hedges ) and was scheduled to mature on december 1 , 2016. there was no prepayment penalty . we recognized a 86 loss from early extinguishment of debt totaling approximately $ 0.7 million consisting of the write-off of unamortized deferred financing costs and the acceleration of the remaining balance related to the effective portion of a previous interest rate hedging program included within accumulated other comprehensive loss . impairment loss on september 27 , 2016 , we executed a letter of intent for the sale of the remaining parcel of land at our washingtonian north property located in gaithersburg , maryland . the letter of intent caused us to reevaluate our strategy for the land and , based on a shorter than expected hold period , we reduced the carrying value of the land to the estimated net sales price and recognized an impairment loss of approximately $ 1.8 million during the year ended december 31 , 2016. interest expense interest expense decreased by approximately $ 38.4 million for the year ended december 31 , 2017 compared to 2016 , as detailed below . story_separator_special_tag component change in interest expense for the year ended december 31 , 2017 compared to december 31 , 2016 ( in thousands ) increases to interest expense due to : issuance of $ 1.0 billion in aggregate principal of 2.750 % senior notes due 2026 on august 17 , 2016 $ 20,801 refinancing of the debt collateralized by 767 fifth avenue ( the general motors building ) 18,998 utilization of the unsecured line of credit as well as an increase in capacity due to the execution of the 2017 credit facility ( 1 ) 2,342 issuance of $ 850 million in aggregate principal of 3.200 % senior notes due 2025 on december 4 , 2017 2,080 issuance of $ 1.0 billion in aggregate principal of 3.650 % senior notes due 2026 on january 20 , 2016 1,956 amortization of deferred financing fees for bplp 's unsecured debt and credit facility 1,313 other interest expense ( excluding senior notes ) 165 total increases to interest expense 47,655 decreases to interest expense due to : repayment of mortgage financings ( 2 ) ( 44,900 ) increase in capitalized interest ( 3 ) ( 21,833 ) decrease in the interest for the outside members ' notes payable for the 767 fifth avenue ( the general motors building ) ( 4 ) ( 18,065 ) redemption of $ 850 million in aggregate principal of 3.700 % senior notes due 2018 on december 17 , 2017 ( 1,225 ) total decreases to interest expense ( 86,023 ) total change in interest expense $ ( 38,368 ) _ ( 1 ) see note 8 to the consolidated financial statements . ( 2 ) includes the repayment of the mortgage loans collateralized by fountain square , embarcadero center four and 599 lexington avenue . ( 3 ) the increase was primarily due to the commencement and continuation of several development projects . ( 4 ) the related interest expense from the outside members ' notes payable totaled approximately $ 16.3 million and $ 34.3 million for the years ended december 31 , 2017 and 2016 , respectively . these amounts are allocated to the outside joint venture partners as an adjustment to noncontrolling interests in property partnerships in our consolidated statements of operations . on june 7 , 2017 , a portion of the outside members ' notes payable was repaid and the remaining portion was contributed as equity in the consolidated entity ( see note 10 to the consolidated financial statements ) . 87 interest expense directly related to the development of rental properties is capitalized and included in real estate assets on our consolidated balance sheets and amortized over the useful lives of the real estate or lease term . as portions of properties are placed in-service , we cease capitalizing interest on that portion and interest is then expensed . interest capitalized for the years ended december 31 , 2017 and 2016 were approximately $ 61.1 million and $ 39.2 million , respectively . these costs are not included in the interest expense referenced above . at december 31 , 2017 , our variable rate debt consisted of bplp 's $ 2.0 billion 2017 credit facility , of which $ 45.0 million was outstanding at december 31 , 2017. for a summary of our consolidated debt as of december 31 , 2017 refer to the heading “ liquidity and capital resources—capitalization—debt financing ” within “ item 7—management 's discussion and analysis of financial condition and results of operations . ” losses from interest rate contracts on august 17 , 2016 , in conjunction with bplp 's offering of senior unsecured notes , we terminated forward-starting interest rate swap contracts that fixed the 10-year swap rate at a weighted-average rate of approximately 2.423 % per annum on notional amounts aggregating $ 550.0 million . we cash-settled the contracts and made cash payments to the counterparties aggregating approximately $ 49.3 million . we recognized approximately $ 0.1 million of losses on interest rate contracts during the year ended december 31 , 2016 related to the partial ineffectiveness of the interest rate contracts . we will reclassify into earnings , as an increase to interest expense , approximately $ 49.2 million ( or approximately $ 4.9 million per year over the 10-year term of the 2.750 % senior unsecured notes due 2026 ) of the amounts recorded on our consolidated balance sheets within accumulated other comprehensive loss , which represents the effective portion of the applicable interest rate contracts . noncontrolling interests in property partnerships noncontrolling interests in property partnerships increased by approximately $ 49.9 million for the year ended december 31 , 2017 compared to 2016 , as detailed below . replace_table_token_43_th _ ( 1 ) see notes 10 and 19 to the consolidated financial statements . ( 2 ) on june 7 , 2017 , our consolidated entity in which we have a 60 % interest completed the refinancing of indebtedness that had been secured by direct and indirect interests in 767 fifth avenue . the net loss allocation was primarily due to the partners ' share of the interest expense for the outside members ' notes payable which was $ 16.3 million and $ 34.3 million for the years ended december 31 , 2017 and 2016 , respectively . on june 7 , 2017 , a portion of the outside members ' notes payable was repaid and the remaining portion was contributed as equity in the consolidated entity ( see note 10 to the consolidated financial statements ) . ( 3 ) on august 19 , 2016 , the consolidated entity in which we have a 55 % interest and that owns this property commenced the redevelopment of the six-story low-rise office and retail building component of the complex . the redeveloped portion of the low-rise building will contain approximately 195,000 net rentable square feet of class a office space and approximately 25,000 net rentable square feet of retail space . we will capitalize incremental costs during the redevelopment .
| cash used in investing activities for the year ended december 31 , 2017 consisted primarily of development projects , building and tenant improvements and capital contributions and distributions to/from unconsolidated joint ventures , as detailed below : 93 replace_table_token_46_th cash used in investing activities changed primarily due to the following : ( 1 ) on may 15 , 2017 , we acquired 103 carnegie center located in princeton , new jersey for a purchase price of approximately $ 16.0 million in cash , including transaction costs . ( 2 ) construction in progress for the year ended december 31 , 2018 includes ongoing expenditures associated with 191 spring street , salesforce tower , signature at reston and proto kendall square , which were fully placed in-service during the year ended december 31 , 2018. in addition , we incurred costs associated with our continued development/redevelopment of one five nine east 53rd street , 145 broadway , 20 citypoint , 17fifty presidents street , 6595 springfield center drive , reston gateway and macarthur station residences . construction in progress for the year ended december 31 , 2017 includes ongoing expenditures associated with reservoir place north , 888 boylston street and the prudential center retail expansion , which were fully placed in-service during the year ended december 31 , 2017. in addition , we incurred costs associated with our continued development/redevelopment of salesforce tower , one five nine east 53rd street , 191 spring street , 145 broadway , 6595 springfield center drive , 20 citypoint and macarthur station residences , proto kendall square and signature at reston residential projects . ( 3 ) on january 9 , 2018 , we completed the sale of our 500 e street , s.w . property located in washington , dc for a net contract sale price of approximately $ 118.6 million . net cash proceeds totaled approximately $ 116.1 million , resulting in a gain on sale of real estate totaling approximately $ 96.4 million for bxp and approximately $ 98.9 million for bplp . 500 e street , s.w . is an approximately 262,000 net rentable square foot class a office property . on may 24 , 2018 , we completed the sale
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note 1 to the consolidated financial statements describes the significant accounting policies used in preparation of the consolidated financial statements . the most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of conmed corporation . revenue recognition revenue is recognized when title has been transferred to the customer which is at the time of shipment . the following policies apply to our major categories of revenue transactions : sales to customers are evidenced by firm purchase orders . title and the risks and rewards of ownership are transferred to the customer when product is shipped under our stated shipping terms . payment by the customer is due under fixed payment terms . we place certain of our capital equipment with customers on a loaned basis in return for commitments to purchase related single-use products over time periods generally ranging from one to three years . in these circumstances , no revenue is recognized upon capital equipment shipment as the equipment is loaned and subject to return if certain minimum single-use purchases are not met . revenue is recognized upon the sale and shipment of the related single-use products . the cost of the equipment is amortized over its estimated useful life . service revenues earned by the company related to the sale of sports medicine allograft tissue are recorded in accordance with the contractual terms of our agreement with musculoskeletal transplant foundation ( `` mtf '' ) . these revenues are recorded net of amortization of the acquired assets . product returns are only accepted at the discretion of the company and in accordance with our “ returned goods policy ” . historically the level of product returns has not been significant . we accrue for sales returns , rebates and allowances based upon an analysis of historical customer returns and credits , rebates , discounts and current market conditions . our terms of sale to customers generally do not include any obligations to perform future services . limited warranties are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data . amounts billed to customers related to shipping and handling have been included in net sales . shipping and handling costs included in selling and administrative expense were $ 12.1 million , $ 13.0 million and $ 12.8 million for 2010 , 2011 and 2012 , respectively . 30 we sell to a diversified base of customers around the world and , therefore , believe there is no material concentration of credit risk . we assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk assessment . historically , losses on accounts receivable have not been material . management believes that the allowance for doubtful accounts of $ 1.2 million at december 31 , 2012 is adequate to provide for probable losses resulting from accounts receivable . inventory valuation we write-off excess and obsolete inventory resulting from the inability to sell our products at prices in excess of current carrying costs . the markets in which we operate are highly competitive , with new products and surgical procedures introduced on an on-going basis . such marketplace changes may result in our products becoming obsolete . we make estimates regarding the future recoverability of the costs of our products and record a provision for excess and obsolete inventories based on historical experience , expiration of sterilization dates and expected future trends . if actual product life cycles , product demand or acceptance of new product introductions are less favorable than projected by management , additional inventory write-downs may be required . goodwill and intangible assets we have a history of growth through acquisitions . assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition . goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses . other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses . we have accumulated goodwill of $ 256.8 million and other intangible assets of $ 190.8 million as of december 31 , 2012 . in accordance with fasb guidance , goodwill and intangible assets deemed to have indefinite lives are not amortized , but are subject to at least annual impairment testing . it is our policy to perform our annual impairment testing in the fourth quarter . the identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units . estimates of fair value are based on the best information available as of the date of the assessment , which primarily incorporate management assumptions about expected future cash flows and other valuation techniques . future cash flows may be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities . during 2012 , we completed our goodwill impairment testing with data as of october 1 , 2012. we adopted the step 0 qualitative impairment test in accordance with asc 350 whereby we assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . our last goodwill impairment testing , performed as of october 1 , 2011 , under the step 1 method for our conmed electrosurgery , conmed endosurgery and conmed linvatec reporting units , utilized conmed corporation 's ebitda multiple adjusted for a market-based control premium with the resultant fair values exceeding carrying values by 42 % to 107 % . based upon our qualitative assessment , we believe the fair value of these reporting units continue to exceed carrying values by a substantial margin . story_separator_special_tag during 2011 , we estimated the fair value of the conmed patient care reporting unit utilizing both a market-based approach and an income approach . under the income approach , we utilized a discounted cash flow valuation methodology and measured the goodwill impairment in accordance with asc 350 . the first step of the impairment test determined the carrying value exceeded fair value and therefore we proceeded to step 2. under step 2 , we calculated the amount of impairment loss by measuring the amount the carrying value of goodwill exceeded the implied fair value of the goodwill . we determined the goodwill of our conmed patient care reporting unit was impaired as a result of lower future earnings due to pricing pressures in a number of our product lines and consequently we recorded a goodwill impairment charge of $ 60.3 million to reduce the carrying amount of the reporting unit 's goodwill to its implied fair value . intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization . intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . the carrying amount of an intangible asset subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset . an impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value . customer relationship assets arose principally as a result of the 1997 acquisition of linvatec corporation . these assets represent the acquisition date fair value of existing customer relationships based on the after-tax income expected to be derived 31 during their estimated remaining useful life . the useful lives of these customer relationships were not and are not limited by contract or any economic , regulatory or other known factors . the estimated useful life of the linvatec customer relationship assets was determined as of the date of acquisition as a result of a study of the observed pattern of historical revenue attrition during the 5 years immediately preceding the acquisition of linvatec corporation . this observed attrition pattern was then applied to the existing customer relationships to derive the future expected retirement of the customer relationships . this analysis indicated an annual attrition rate of 2.6 % . assuming an exponential attrition pattern , this equated to an average remaining useful life of approximately 38 years for the linvatec customer relationship assets . customer relationship intangible assets arising as a result of other business acquisitions are being amortized over a weighted average life of 15 years . the weighted average life for customer relationship assets in aggregate is 33 years . we evaluate the remaining useful life of our customer relationship intangible assets each reporting period in order to determine whether events and circumstances warrant a revision to the remaining period of amortization . in order to further evaluate the remaining useful life of our customer relationship intangible assets , we perform an analysis and assessment of actual customer attrition and activity as events and circumstances warrant . this assessment includes a comparison of customer activity since the acquisition date and review of customer attrition rates . in the event that our analysis of actual customer attrition rates indicates a level of attrition that is in excess of that which was originally contemplated , we would change the estimated useful life of the related customer relationship asset with the remaining carrying amount amortized prospectively over the revised remaining useful life . we test our customer relationship assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . factors specific to our customer relationship assets which might lead to an impairment charge include a significant increase in the annual customer attrition rate or otherwise significant loss of customers , significant decreases in sales or current-period operating or cash flow losses or a projection or forecast of losses . we do not believe that there have been events or changes in circumstances which would indicate the carrying amount of our customer relationship assets might not be recoverable . for all other indefinite lived intangible assets , we perform a step 0 qualitative impairment test in accordance with asc 350. based upon this assessment , we have determined that it is unlikely that our indefinite lived intangible assets are impaired . see note 4 to the consolidated financial statements for further discussion of goodwill and other intangible assets . pension plan we sponsor a defined benefit pension plan covering substantially all our united states based employees . the pension plan was frozen during the first quarter of 2009. major assumptions used in accounting for the plan include the discount rate , expected return on plan assets , rate of increase in employee compensation levels and expected mortality . assumptions are determined based on company data and appropriate market indicators , and are evaluated annually as of the plan 's measurement date . a change in any of these assumptions would have an effect on net periodic pension costs reported in the consolidated financial statements . the weighted-average discount rate used to measure pension liabilities and costs is set by reference to the citigroup pension liability index . however , this index gives only an indication of the appropriate discount rate because the cash flows of the bonds comprising the index do not match precisely the projected benefit payment stream of the plan . for this reason , we also consider the individual characteristics of the plan , such as projected cash flow patterns and payment durations , when setting the discount rate . the rates used in determining 2012 and 2013 pension expense are 4.30 % and 3.90 % , respectively .
| arthroscopy sales increased $ 1.5 million ( 0.5 % ) in 2011 to $ 289.9 million from $ 288.4 million in 2010 due to higher procedure specific product sales offset by lower sales of our video imaging products for arthroscopy and general surgery . in local currency , excluding the effects of the hedging program , sales decreased 0.7 % . sales of capital equipment decreased $ 12.2 million ( -16.2 % ) to $ 63.0 million in 2011 from $ 75.2 million in 2010 ; sales of single-use products increased $ 13.7 million ( 6.4 % ) to $ 226.9 million in 2011 from $ 213.2 million in 2010 . in local currency , excluding the effects of the hedging program , sales of capital equipment decreased 17.0 % while single-use products increased 5.1 % . powered surgical instrument sales increased $ 2.1 million ( 1.4 % ) in 2012 to $ 150.0 million from $ 147.9 million in 2011 mainly driven by increases in our large bone burs and blades and small bone handpiece products . in local currency , excluding the effects of the hedging program , sales increased 1.3 % . sales of capital equipment decreased $ 1.8 million ( -2.6 % ) to $ 67.6 million in 2012 from $ 69.4 million in 2011 ; sales of single-use products increased $ 3.9 million ( 5.0 % ) in 2012 to $ 82.4 million compared to $ 78.5 million in 2011 . in local currency , excluding the effects of the hedging program , sales of capital equipment decreased 2.7 % while single-use products increased 4.9 % . powered surgical instrument sales increased $ 5.6 million ( 3.9 % ) in 2011 to $ 147.9 million from $ 142.3 million in 2010 mainly driven by increases in our large bone handpiece products . in local currency , excluding the effects of the hedging program sales increased 2.6 % . sales of capital equipment increased $ 5.0 million ( 7.8 % ) to $ 69.4 million in 2011 from $ 64.4 million
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28 for the year ended december 31 , 2013 , we reported net income of $ 1.96 million compared to net income of $ 1.62 million in 2012 , an increase of $ 341 thousand or 21 % . net interest income increased to $ 15.8 million in 2013 , which represented an increase of $ 2.3 million or 17 % compared to 2012. the provision for loan losses in 2013 of $ 950 thousand was $ 232 thousand or 32 % higher than the 2012 provision of $ 718 thousand . noninterest income also increased , to $ 1.3 million during 2013 compared to $ 768 thousand for 2012 , representing an increase of $ 556 thousand or 73 % . the largest contributor to the increased noninterest revenues was the initiation of a bank owned life insurance ( boli ) program in january 2013 , which generated $ 282 thousand of income during 2013. total noninterest expenses for 2013 of $ 13.2 million increased by $ 2.4 million or 22 % over total noninterest expenses of $ 10.8 million in 2012. compensation expenses grew by $ 1.3 million or 22 % during 2013 compared to 2012 due to increases in staffing as we continue to open new branch and regional office locations , and also commenced the building and staffing of our new mortgage division . also in 2013 , we recorded $ 347 thousand in expense due to a decreased valuation on one of our foreclosed properties , while this same expense for 2012 was only $ 48 thousand , representing a year over year increase of $ 299 thousand , as work towards disposal of the residual nonperforming assets on the balance sheet continued . our nonperforming assets totaled $ 8.7 million , or 1.26 % of total assets , at december 31 , 2014 , compared to $ 5.6 million , or 1.11 % of total assets , at december 31 , 2013 and $ 5.3 million , or 1.32 % of total assets , at december 31 , 2012. we had loans totaling $ 1.2 million delinquent more than 90 days and still accruing at december 31 , 2014 compared to $ 455 thousand and $ 249 thousand of such delinquencies at december 31 , 2013 and december 31 , 2012 , respectively . in addition , we provided $ 3.3 million for credit losses for the year ended december 31 , 2014 compared to $ 950 thousand for credit losses during the year ended december 31 , 2013 and $ 718 thousand during the year ended december 31 , 2012. in addition to the continual higher provisioning required due to the growth in the overall size of the loan portfolio , the 2014 provision was impacted by nearly $ 2.0 million in losses on one long term customer . critical accounting policies our accounting and financial reporting policies conform to the accounting principles generally accepted in the united states of america and general practice within the banking industry . accordingly , preparation of the financial statements require management to exercise significant judgment and discretion and make significant assumptions and estimates based on the information available that have , or could have , a material impact on the carrying value of certain assets or on income . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . in reviewing and understanding financial information for us , you are encouraged to read and understand the significant accounting policies used in preparing our financial statements . the accounting policies we view as critical are those relating to the allowance for credit losses , income taxes and share based compensation . allowance for credit losses the allowance for credit losses is established through a provision for credit losses charged against income . loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely . subsequent recoveries are added to the allowance . the allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio , based on evaluations of the collectability of loans . the evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio , historical loss experience , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , estimated losses relating to specifically identified loans , and current economic conditions . this evaluation is inherently subjective as it requires material estimates including , among others , exposure at default , the amount and timing of expected future cash flows on impaired loans , value of collateral , estimated losses on our loan portfolios as well as consideration of general loss experience . based on our estimate of the level of allowance for credit losses required , we record a provision for credit losses to maintain the allowance for credit losses at an appropriate level . we can not predict with certainty the amount of loan charge-offs that we will incur . we do not currently determine a range of loss with respect to the allowance for credit losses . in addition , our regulatory agencies , as an integral part of their examination processes , periodically review our allowance for credit losses . such agencies may require that we recognize additions to the allowance for credit losses based on their judgments about information available to them at the time of their examination . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for credit losses may be required that would adversely impact earnings in future periods . 29 income taxes we account for income taxes under the asset/liability method . story_separator_special_tag we recognize deferred tax assets for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , as well as operating loss and tax credit carry-forwards . we measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . we recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period indicated by the enactment date . we establish a valuation allowance for deferred tax assets when , in the judgment of management , it is more likely than not that such deferred tax assets will not become realizable . the judgment about the level of future taxable income is dependent to a great extent on matters that may , at least in part , be beyond our control . it is at least reasonably possible that management 's judgment about the need for a valuation allowance for deferred tax assets could change in the near term . share based compensation we follow the provisions of asc topic 718 `` compensation – stock compensation '' which requires the expense recognition over the respective service period for the fair value of share based compensation awards , such as stock options , restricted stock , and performance based shares . this standard allows management to establish modeling assumptions as to expected stock price volatility , option terms , forfeiture rates and dividend rates which directly impact estimated fair value . the accounting standard also allows for the use of alternative option pricing models which may impact fair value as determined . our practice is to utilize reasonable and supportable assumptions which are reviewed with the appropriate board committee . balance sheet analysis and comparison of financial condition a comparison between december 31 , 2014 and december 31 , 2013 balance sheets is presented below . assets total assets increased $ 191.5 million , or 38.3 % , to $ 691.4 million at december 31 , 2014 compared to $ 500.0 million at december 31 , 2013. this increase in assets was primarily due to a $ 149.0 million , or 36.9 % , increase in loans , to $ 552.9 million at december 31 , 2014 from $ 403.9 million at december 31 , 2013. the increase in loans reflects approximately $ 14.2 million and $ 84.3 million related to the acquisitions of our havre de grace branch and nbrs financial bank , respectively . complementing this acquired growth , the bank had organic growth of $ 50.5 million in loans during 2014. in addition to these increases in the loan portfolio , total assets was also bolstered by the activities in our newly formed mortgage banking group , which resulted in loans held for sale at december 31 , 2014 of $ 42.9 million compared to only $ 3.3 million in loans pending sale at the end of 2013. the primary source of funding for the asset growth was an increase in deposit levels . customer deposits increased from $ 388.9 million at december 31 , 2013 to $ 554.0 million at december 31 , 2014 , an increase of $ 165.1 million or 42.5 % . supplementing the deposit growth , borrowed funds increased by $ 6.0 million or 9.7 % during 2014. in addition , our total capital levels increased $ 11.0 million or 22.7 % year over year , given the higher levels of 2014 annual earnings . securities available for sale we currently hold both u.s. agency securities , treasury securities and mortgage backed securities in our securities portfolio , all of which are considered as available for sale . we use our securities portfolio to provide the required collateral for funding via commercial customer repurchase agreements as well as to provide sufficient liquidity to fund our loans and provide funds for withdrawals of deposited funds . at december 31 , 2014 and december 31 , 2013 we held an investment in stock of the federal home loan bank of atlanta ( “ fhlb ” ) of $ 2.6 million and $ 2.3 million , respectively . this investment , which is required for continued membership , is based partially upon the dollar amount of borrowings outstanding from the fhlb . these investments are carried at cost . we have never held stock in fannie mae or freddie mac . 30 the following tables set forth the composition of our investment securities portfolio at the dates indicated . replace_table_token_4_th we had securities available for sale of $ 41.1 million and $ 28.7 million at december 31 , 2014 and december 31 , 2013 , respectively , which were recorded at fair value . this represents an increase of $ 12.4 million , or 43.2 % , for the year ended december , 2014 from the prior year end . with respect to our portfolio of securities available for sale , the portfolio contained 14 securities with unrealized losses of $ 32 thousand and eight securities with an unrealized loss of $ 2 thousand at december 31 , 2014 and 2013 , respectively . changes in the fair value of these securities resulted primarily from interest rate fluctuations . we do not intend to sell these securities nor is it more likely than not that we would be required to sell these securities before their anticipated recovery , and we believe the collection of the investment and related interest is probable . based on this analysis , we consider all of the unrealized losses to be temporary impairment losses . portfolio maturities and yields the composition and maturities of the investment securities portfolio at december 31 , 2014 is summarized in the following table . maturities are based on the final contractual payment dates , and do not reflect the impact of prepayments or early redemptions that may occur .
| the interest expense increased primarily due to an increase in average interest bearing funds from $ 293.5 million for 2013 to $ 399.3 million for 2014 , representing an increase in the average interest bearing funds of $ 105.7 million or 36 % . mitigating the increase in interest expense due to the growth in funds was a decrease in the overall cost of funds for 2014 versus 2013 of five basis points . net interest income net interest income is our largest source of operating revenue . net interest income is affected by various factors including changes in interest rates and the composition of interest-earning assets and interest-bearing liabilities and maturities . net interest income is determined by the interest rate spread ( i.e. , the difference between the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities ) and the relative amounts of interest-earning assets and interest-bearing liabilities . net interest income increased $ 5.1 million , or 32.6 % , during the year ended december 31 , 2014 compared to the year ended december 31 , 2013. the increase in net interest income was primarily due to an increase in interest income driven by our continued balance sheet growth . as noted above , the increase in net interest income was primarily due to increased interest income of $ 5.6 million , or 31.9 % , year over year , while interest expense increased less than $ 1 million , even with the sizable growth in deposits and borrowings . provision for credit losses we establish a provision for credit losses , which is a charge to earnings , in order to maintain the allowance for credit losses at a level we consider adequate to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date . in determining the level of the allowance for credit losses , management considers past and current loss experience , evaluations of real estate collateral , current economic conditions , volume and
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we can not provide any assurance that we may be able to pass along such cost increases to our customers in the future , and if we are unable to do so , our results of operations may be adversely affected . operating expenses . our marketing , general and administrative and engineering expenses are primarily comprised of compensation and related costs for sales , marketing , pre-sales engineering and administrative personnel , as well as other sales related expenses and other costs related to research and development , insurance , professional fees , the global integrated business information system , provisions for bad debts and warranty expense . key drivers affecting our results of operations . our results of operations and financial condition are affected by numerous factors , including those described above under item 1a , `` risk factors '' and elsewhere in this annual report and those described below : timing of greenfield projects . our results of operations in recent years have been impacted by the various construction phases of large greenfield projects . on very large projects , we are typically designated as the heat tracing provider of choice by the project owner . we then engage with multiple contractors to address incorporating various heat tracing solutions throughout the overall project . our largest greenfield projects may generate revenue for several quarters . in the early stages of a greenfield project , our revenues are typically realized from the provision of engineering services . in the middle stages , or the material requirements phase , we typically experience the greatest demand for our heat tracing cable , at which point our revenues tend to accelerate . revenues tend to decrease gradually in the final stages of a project and are generally derived from installation services and demand for electrical panels and other miscellaneous electronic components used in the final installation of heat tracing cable , which we frequently outsource from third-party manufacturers . therefore , we 28 typically provide a mix of products and services during each phase of a greenfield project , and our margins fluctuate accordingly . cyclicality of end-users ' markets . demand for our products and services depends in large part upon the level of capital and maintenance expenditures of our customers and end users , in particular those in the energy , chemical processing and power generation industries , and firms that design and construct facilities for these industries . these customers ' expenditures historically have been cyclical in nature and vulnerable to economic downturns . greenfield projects , and in particular large greenfield projects ( i.e . , new facility construction projects generating in excess of $ 5 million in annual sales ) , historically have been a substantial source of revenue growth , and greenfield revenues tend to be more cyclical than mro/ue revenues . in recent years we have experienced particular cyclicality in capital spending for new facilities in canada , eastern europe and the middle east . organic revenues ( i.e. , excluding revenues from acquired businesses ) derived from europe , including the middle east , accounted for 23 % , 19 % and 21 % of our total organic revenues during fiscal 2016 , fiscal 2015 and fiscal 2014 , respectively , and organic revenues derived from the canada segment accounted for 18 % , 32 % and 34 % of our total organic revenues during fiscal 2016 , fiscal 2015 and fiscal 2014 , respectively . a sustained decrease in capital and maintenance spending or in new facility construction by our customers could have a material adverse effect on the demand for our products and services and our business , financial condition and results of operations . acquisition strategy . recently , we have begun executing on a strategy to grow the company through the acquisition of businesses that are either in the heat tracing solutions industry or provide complementary products and solutions for the markets and customers we serve . during the last 15 months we have completed three acquisitions : unitemp , sumac and ipi . our fiscal 2016 results reflect $ 26.0 million in revenue and $ 2.8 million in income from operations contributed by our acquired businesses . we are currently in the process of finalizing the purchase price accounting for the ipi acquisition , which includes the valuation of amortizing intangible assets . our fiscal 2016 results include an estimate of these amortization amounts which are subject to finalization in future periods . see note 6 . `` acquisitions , goodwill and other intangible assets '' to our consolidated financial statements and accompanying notes thereto included below in item 8. financial statements and supplementary data of this annual report for information on these acquisitions . references herein to `` organic revenue '' refer to our legacy business and exclude revenues contributed by unitemp , sumac and ipi , our acquired businesses . impact of product mix . typically , both greenfield and mro/ue customers require our products as well as our engineering and construction services . the level of service and construction needs will affect the profit margin for each type of revenue . we tend to experience lower margins from our design optimization , engineering , installation and maintenance services than we do from sales of our heating cable , tubing bundle and control system products . we also tend to experience lower margins from our outsourced products , such as electrical switch gears and transformers , than we do from our manufactured products . accordingly , our results of operations are impacted by our mix of products and services . we estimate that greenfield and mro/ue have each made the following contribution as a percentage of revenue in the periods listed : replace_table_token_4_th we believe that our analysis of greenfield and mro/ue is an important measure to explain the trends in our business to investors . greenfield revenue is an indicator of both our ability to successfully compete for new contracts as well as the economic health of the industries we serve . story_separator_special_tag furthermore , greenfield revenue is an indicator of potential mro/ue revenue in future years . for mro/ue orders , the sale of our manufactured products typically represents a higher proportion of the overall revenues associated with such order than the provision of our services . greenfield projects , on the other hand , require a higher level of our services than mro/ue orders , and often require us to purchase materials from third party vendors . therefore , we typically realize higher margins from mro/ue revenues than greenfield revenues . 29 large and growing installed base . customers typically use the incumbent heat tracing provider for mro/ue projects to avoid complications and compatibility problems associated with switching providers . therefore , with the significant greenfield activity we have experienced in recent years , our installed base has continued to grow , and we expect that such installed base will continue to generate ongoing high margin mro/ue revenues . for fiscal 2016 , mro/ue sales comprised approximately 66 % of our consolidated revenues . seasonality of mro/ue revenues . revenues realized from mro/ue orders tend to be less cyclical than greenfield projects and more consistent quarter over quarter , although mro/ue revenues are impacted by seasonal factors . mro/ue revenues are typically highest during the second and third fiscal quarters , as most of our customers perform preventative maintenance prior to the winter season . recent developments-canadian operations . during fiscal 2016 , revenue from our organic canadian operations ( excluding the sumac acquisition ) has decreased by approximately 54 % compared to revenues generated in fiscal 2015. lower crude oil prices over the last year have had a significant adverse impact on capital spending , particularly in the canadian oil sands region , which in turn resulted in the decline in our revenue in canada . we believe that the revenue decline in our canadian reporting unit is cyclical in nature and that our long term business model is sound . we can not , however , provide any assurances regarding a recovery in the financial performance of our canadian operations . during the three months ended september 30 , 2015 , we completed a restructuring of our canadian operations in which we reduced approximately 34 % of our canadian workforce and closed two sales offices . the employee severance and office closure costs totaled $ 578 . these spending reductions are intended to align the expected cost structure with future expected revenue levels . we consider the recent decline in our canadian business to be an indicator of potential asset impairments in our canadian reporting unit . the goodwill balance in the canadian reporting unit at march 31 , 2016 was $ 36.7 million and the net intangible assets are $ 25.9 million . beginning in the second quarter of fiscal 2016 , we began to perform quarterly goodwill and intangible asset impairment assessments of our organic canadian operations utilizing the income approach , based on discounted future cash flows , which were derived from internal forecasts and economic expectations , and the market approach , based on market multiples of guideline public companies . based on the results of our quarterly goodwill impairment assessment , the estimated fair value of the organic canadian reporting unit exceeded the carrying value . as such , there was no impairment of our canadian reporting unit 's goodwill or intangible assets during fiscal 2016. we will continue to monitor our canadian reporting unit 's goodwill and intangible asset valuations and test for potential impairments until the overall market conditions in such region improve . changes in estimates and assumptions used to determine whether impairment exists or future declines in actual and forecasted operating results and or market conditions in canada , especially in energy markets , could indicate a need to reevaluate the fair value of our canadian reporting unit and may ultimately result in an impairment to goodwill and or indefinite-lived intangible assets of our canadian reporting unit in future periods . recent developments-unitemp operations . during the fourth quarter of fiscal 2016 , the company received notice that a significant distribution partner for unitemp intended to end its relationship with the company . previously , unitemp had performed distribution services for its manufacturing partner in addition to product services directly to the end customer . the company also concluded that the overall financial performance of unitemp was below the forecast used at acquisition . as part of its annual assessment of goodwill and intangible assets , the carrying values of unitemp 's goodwill and other intangible assets were tested for potential impairment . the results of our step-one goodwill analysis concluded the carrying value of unitemp 's goodwill was less than its fair value . as a result , the company initiated the second step of the goodwill impairment test , which involved calculating the implied fair value of goodwill by allocating the fair value of the reporting unit to all assets and liabilities of the reporting unit other than goodwill , and comparing it to the carrying amount of goodwill . the company determined that the implied fair value of goodwill related to the unitemp reporting unit was less than the carrying value and impaired 100 % of the unitemp reporting unit 's goodwill balance during the fourth quarter of fiscal 2016. a goodwill impairment charge of $ 1.2 million was recorded within our consolidated statements of operations during the year ended march 31 , 2016. the undiscounted cash flows of the amortizing customer relationship intangible asset were determined to be less than its carrying value ; therefore , all of the remaining customer relationship assets were impaired . in addition , a portion of the trademark asset was also impaired based on the present value of relief from royalty estimations . the combined impairment charge for intangible assets for the unitemp reporting unit was $ 0.5 million for the year ended march 31 , 2016. recent developments-sumac operations and fire in fort mcmurray , alberta , canada .
| further reductions in our fiscal 2016 and fiscal 2015 interest expense were due to the difference in interest rates on our 9.5 % senior secured notes and our term loan that carried an interest rate that ranged from 2.87 % to 3.62 % after giving effect to our interest rate swaps and the interest rate reductions realized from the first and second amendments to our restated credit agreement . year ended march 31 , 2016 ( `` fiscal 2016 '' ) compared to the year ended march 31 , 2015 ( `` fiscal 2015 '' ) revenues . revenues for fiscal 2016 were $ 281.9 million , compared to $ 308.6 million for fiscal 2015 , a decrease of $ 26.7 million , or 9 % . fiscal 2016 includes $ 26.0 million of revenue contributed by our acquired unitemp , sumac and ipi businesses . revenues from our existing operations declined by $ 52.7 million or 17 % , which is almost entirely due to the $ 53.3 million decline in our organic canadian operations . our organic revenues were negatively impacted by $ 19.9 million due to the strong u.s. dollar and impact of comparative foreign currency translations in various geographies . during fiscal 2016 and fiscal 2015 , mro/ue revenue represented 66 % and 59 % of total revenues , respectively , and greenfield revenue represented 34 % and 41 % of total revenues , respectively . in fiscal 2016 , revenue grew in our unites states and europe segments and revenue declined in our canada and asia segments . revenue in the united states increased $ 10.6 million or 9 % where we continued to see strong demand within the petrochemical and power industries . ipi contributed $ 8.9 million to united states revenue in fiscal 2016. in europe , fiscal 2016 revenues increased $ 7.9 million or 14 % , which includes $ 5.5 million of revenue contributed by our unitemp business , which increase was primarily attributable to strong demand within the eastern european and russian regions . europe 's organic revenue was negatively impacted by $ 8.6 million or 15 % due to foreign currency translation . fiscal 2016 revenues in canada declined by $ 41.6 million or 42 % . our sumac business contributed $
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until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of equity offerings , debt financings , collaborations , government contracts or other strategic transactions . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . business update regarding covid-19 the current covid-19 pandemic has presented substantial public health and economic challenges around the world and is affecting our employees , patients , communities and business operations , as well as the u.s. and global economies and financial markets . the impact of this pandemic has been and will likely continue to be extensive in many aspects of society and will likely continue to result in significant disruptions to the global economy , as well as businesses and capital markets around the world . in an effort to halt the outbreak of covid-19 , a number of countries , including the united states , united kingdom and italy , have placed significant restrictions on travel . while some restrictions have been relaxed since the beginning of the pandemic , many restrictions are still in place and in many areas renewed restrictions have recently been implemented . in the u.s. and uk , our office-based employees have been primarily working from home since march 2020. in september 2020 , we opened our boston and london offices to allow for limited access to employees in accordance with local ordinances . in december 2020 , however , we closed our offices as the covid-19 pandemic continued to escalate . limitations on travel and other social distancing measures may have an effect on our preclinical and clinical activities and regulatory timelines . while our clinical sites are still treating and following up with patients in clinical trials , these centers are also devoting significant resources to patients with covid-19 , which could limit their ability to enroll additional patients in ongoing clinical studies . while we believe we have enrolled and treated enough patients to support regulatory filings for otl-200 in the u.s. , covid-19-related impacts shifted the enrollment timeline for our otl-201 trial for the treatment of mps-iiia by three months . travel and stay-at-home orders could adversely affect our contract manufacturers and third-party logistics providers . to date , our third-party contract development and manufacturing organization ( cdmo ) partners have continued to operate at or near normal levels . while we currently do not anticipate any interruptions , it is possible that the covid-19 pandemic and response efforts may have an impact in the future on our and or our third-party suppliers and cdmo partners ' ability to manufacture our products in development . the treatment site for strimvelis , our european medicines agency-approved gene therapy for the treatment of ada-scid , initially postponed scheduling and treating any non-urgent patients with the therapy for approximately three months , from march to june 2020. we have reviewed the collectability and valuation of our assets through the date of financial statement issuance and did not identify any significant recoverability concerns or impairments . any prolonged material disruptions to our employees , suppliers , cdmos , vendors , or patients could impact our operating results and could lead to impairments . to date the company has recorded impairments on long-lived assets that are due to a combination of a corporate restructuring and covid-19 market impacts ( see note 9 of consolidated financial statements included in item 15 of this annual report ) . the covid-19 pandemic continues to be dynamic , and near-term challenges across the economy remain . although we anticipate there will be vaccines distributed widely in the near future our ability to access the capital markets could be impacted if there are future disruptions to capital markets . for additional information on the various risks posed by the covid-19 pandemic , please see the section titled “ item 1a . risk factors ” included in this report . 121 components of our results of operations revenue during the year ended december 31 , 2020 , we recognized $ 2.6 million in net product sales related to strimvelis . strimvelis is currently distributed exclusively at the san raffaele hospital in milan , italy . while we expect that any future sales of strimvelis will fluctuate quarter over quarter , we paused treating new patients with strimvelis in october 2020 upon learning that a patient treated with the drug in 2016 under a compassionate use program was diagnosed with lymphoid t cell leukemia , a known risk factor for gammaretroviral vector-based gene therapy . we do not know when such treatments will resume , if at all . the ema 's committee for medicinal products for human use , or chmp , reviewed the updated risk-benefit assessment of strimvelis as part of its ongoing maa renewal procedure , concluded that the risk-benefit balance remains favorable and recommended in february 2021 that the marketing authorization for strimvelis be renewed for five years , allowing marketing of strimvelis to resume . however , net product sales of $ 2.6 million for the year ended december 31 , 2020 , may not be representative of our sales for any future period . our product candidate , libmeldy , received approval from the ec in december 2020 and , if we are able to identify patients and secure reimbursement for our treatment , we may begin to generate revenue from the sale of libmeldy in europe in 2021. cost of product sales cost of sales consists of costs to manufacture , including raw materials , distribute and administer strimvelis and royalty payments due to third parties that are tied to sales . story_separator_special_tag operating expenses research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts and the development of our product candidates , and include : expenses incurred under agreements with third parties , including contract research organizations ( cros ) that conduct research , preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations that manufacture lentiviral vectors and cell-based drug products for use in our preclinical and clinical trials ; expenses to acquire technologies to be used in research and development ; salaries , benefits and other related costs , including share-based compensation expense , for personnel engaged in research and development functions ; costs of outside consultants , including their fees , share-based compensation and related travel expenses ; the costs of laboratory supplies and acquiring , developing and manufacturing preclinical study and clinical trial materials ; costs related to compliance with regulatory requirements ; facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs ; upfront , milestone and management fees for maintaining licenses under our third-party licensing agreements ; and grant awards or other government incentives unrelated to income taxes that we earn that are recorded as an offset to the related research and development costs incurred . we expense research and development costs as incurred . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid expenses or accrued research and development expenses . united kingdom research and development tax credits are recorded as an offset to research and development expense . amortization of the strimvelis loss provision is also recorded as an offset to research and development expense ( see note 2 of our consolidated financial statements included in item 15 of this annual report ) . restructuring costs associated with the non-cash impairment of our fremont operating lease right-of-use asset , construction-in-process associated with the facility , and laboratory equipment in our california locations were recorded to research and development expense ( see note 9 of our consolidated financial statements included in item 15 of this annual report ) . 122 our direct external research and development expenses are tracked on a program-by-program basis and consist of costs , such as fees paid to consultants , contractors and contract manufacturing organizations in connection with our preclinical and clinical development activities . license fees and other costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in direct research and development expenses for that program . license fees and other costs incurred prior to designating a product candidate for development are included in unallocated costs . we do not allocate employee costs , costs associated with our early-stage discovery efforts , laboratory supplies , and facilities , including depreciation or other indirect costs , to specific product development programs because these costs are deployed across multiple product development programs and , as such , are not separately classified . 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 or the manufacturing requirements to conduct those clinical trials . we expect that our research and development expenses will remain consistent quarter over quarter for the near term as we continue to : ( i ) expedite the clinical development and continue to seek to obtain marketing approval for our lead product candidates , including otl-200 in the u.s. for mld and otl-103 for was in the u.s. and europe ; ( ii ) initiate additional clinical trials for our product candidates , which may include otl-102 for x-cgd , otl-201 for mps-iiia , and otl-203 for mps-i ; ( iii ) reduce our investment in and development expenses for otl-101 for ada-scid and otl-300 for tdt and reallocate those financial resources to other programs ; ( iv ) seek to improve the efficiency and scalability of our outsourced manufacturing processes and supply chain ; ( v ) build process development and analytical capabilities in the near term , and potential manufacturing capabilities in the longer term ; and ( vi ) continue to discover and develop additional product candidates . for example , in april 2020 , we announced that we intend to accelerate our research and development efforts for projects in less rare indications , including two new research programs in genetic subsets of frontotemporal dementia ( ftd ) and crohn 's disease . we also expect to incur additional expenses related to milestone , royalty payments and maintenance fees payable to third parties with whom we have entered into license agreements to acquire the rights related to our product candidates . during the second quarter of 2020 , we also took $ 5.7 million in non-cash charges to research and development expense associated with the impairment of construction-in-process associated with the fremont manufacturing facility , partial impairment of the operating lease right-of-use asset for the fremont facility ( as described in note 8 of our consolidated financial statements ) , and a write-down of laboratory equipment from our menlo park , ca facility . the continued commercialization of strimvelis , the success of our efforts to build a commercial infrastructure and commence sales of libmeldy , and the successful development and commercialization of our other product candidates , if approved , is highly uncertain .
| million . the decline consists of a $ 7.4 million reduction in technical development costs , a $ 3.1 million reduction in clinical trial costs , offset by $ 0.1 million in grant income , which is accounted for as an offset to research and development expense . the decline in spending on otl-101 was offset by an increase of $ 4.0 million in direct expenses for otl-103 for was as we prepare for regulatory filings in this program . technical development costs for otl-103 increased by $ 4.2 million , and clinical development costs declined by $ 0.4 million . direct expenses for strimvelis declined by $ 1.2 million due to a decrease in clinical and manufacturing-related costs as patients move into the long-term follow-up studies . direct expenses for otl-102 for x-cgd have also increased by $ 0.4 million . direct research and development expenses for our blood disorder programs declined by $ 1.7 million , as a result of incurring lower expenses for otl-300 for tdt following our reduction in investment in that product candidate in connection with our strategic reprioritization . the decrease in expenses was due to a $ 1.5 million decline in manufacturing costs and a $ 1.2 million decline in clinical costs . these declines were offset by new charges of $ 0.9 million in milestone payments related to the program . direct expenses associated with other research and preclinical programs increased by $ 2.7 million . this was primarily due to new preclinical programs in frontotemporal dementia with progranulin mutations ( grn-ftd ) and crohn 's disease with mutations in the nucleotide-binding oligomerization domain-containing protein 2 ( nod2-cd ) , for which we plan to release preclinical data in the second half of 2021. unallocated research and development costs and offsets to research and development expenses increased by $ 4.4 million primarily due to an increase in personnel related costs of $ 4.9 million and
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” our global delivery network , which includes highly trained industry and process specialists across the united states , latin america , south africa , europe and asia ( primarily india and the philippines ) , is a key asset . we have operations centers in india , the u.s. , the philippines , bulgaria , colombia , south africa , romania and the czech republic . on july 1 , 2018 , we completed the acquisition of scio pursuant to merger agreement . the acquisition of scio is included in the analytics reportable segment . scio is a health analytics solution and services company serving over 100 healthcare organizations representing over 130 million covered lives across the continuum , including providers , health plans , pharmacy benefit managers , employers , health services and global life sciences companies . on december 22 , 2017 , we acquired substantially all of the assets and assumed certain liabilities related thereto of health integrated . the acquisition of health integrated is included in the healthcare reportable segment . health integrated provides dedicated care management services on behalf of health plans . its services include case management , utilization management , disease management , special needs programs , and multichronic care management . health integrated serves lives in the medicaid , medicare , and dual eligible populations . revenues for the year ended december 31 , 2018 , we had revenues of $ 883.1 million compared to revenues of $ 762.3 million for the year ended december 31 , 2017 , an increase of $ 120.8 million , or 15.8 % . we serve clients mainly in the u.s. and the u.k. , with these two regions generating 83.0 % and 13.0 % , respectively , of our total revenues for the year ended december 31 , 2018 and approximately 82.2 % and 14.3 % , respectively , of our revenues for the year ended december 31 , 2017. for the years ended december 31 , 2018 and 2017 , our total revenues from our top ten clients accounted for 37.2 % and 38.6 % of our total revenues , respectively . our revenue concentration with our top clients remains consistent year-over-year and we continue to develop relationships with new clients to diversify our client base . we believe that the loss of any of our ten largest clients could have a material adverse effect on our financial performance . 33 our business we provide operations management and analytics services . we market our services to our existing and prospective clients through our sales and client management teams , which are aligned by key industry verticals and cross-industry domains such as finance and accounting . our sales and client management teams operate from the u.s. , europe and australia . operations management services : we provide our clients with a range of operations management services principally in the insurance , healthcare , travel , transportation and logistics , banking and financial services and utilities sectors , among others , as well as cross-industry operations management services , such as finance and accounting services . we also provide services related to operations management , through our consulting services that provides industry - specific digital transformational services . our operations management solutions typically involve the transfer to the company business operations of a client such as claims processing , clinical operations , or financial transaction processing , after which we administer and manage the operations for our client on an ongoing basis . as part of this transfer , we hire and train employees to work at our operations centers on the relevant business operations , implement a process migration to these operations centers and then provide services either to the client or directly to the client 's customers . each client contract has different terms based on the scope , deliverables and complexity of the engagement . we have been observing a shift in industry pricing models toward transaction-based pricing , outcome-based pricing and other pricing models . we believe this trend will continue and we have begun to use such alternative pricing models with some of our current clients and are seeking to move certain other clients from a billing rate model to a transaction-based or other pricing model . these pricing models place the focus on operating efficiency in order to maintain our gross margins . in addition , we have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs . we believe that the trend toward multi-vendor relationships will continue . a multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor , which can result in significantly reduced gross margins from the provision of services to such client for each vendor . to the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors , our gross margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients to meet competition . our existing agreements with original terms of three or more years provide us with a relatively predictable revenue base for a substantial portion of our operations management business , however , we have a long selling cycle for our services and the budget and approval processes of prospective clients make it difficult to predict the timing of entering into definitive agreements with new clients . similarly , new license sales and implementation projects for our technology service platforms and other software-based services have a long selling cycle , however ongoing annual maintenance and support contracts for existing arrangements provide us with a relatively predictable revenue base . analytics : our analytics services focus on driving improved business outcomes for our customers by generating data-driven insights across all parts of our customers ' business . we also provide care optimization and reimbursement optimization services , for our clients through our healthcare analytics solutions and services . story_separator_special_tag we also offer integrated solutions to help our clients in cost containment by leveraging technology platforms , customizable and configurable analytics and expertise in healthcare reimbursements to help clients enhance their claim payment accuracy . our teams deliver predictive and prescriptive analytics in the areas of customer acquisition and lifecycle management , risk underwriting and pricing , operational effectiveness , credit and operational risk monitoring and governance , regulatory reporting , payment integrity and care management and data management . we actively cross-sell and , where appropriate , integrate our analytics services with other operations management services as part of a comprehensive offering set for our clients . we anticipate that revenues from our analytics services will grow as we expand our service offerings and client base , both organically and through acquisitions . 34 expenses cost of revenues our cost of revenues primarily consists of : employee costs , which include salary , bonus and other compensation expenses ; recruitment and training costs ; employee insurance ; transport ; rewards and recognition for certain employees ; and non-cash stock compensation expense ; and costs relating to our facilities and communications network , which include telecommunication and it costs ; facilities and customer management support ; operational expenses for our operations centers ; rent expenses ; and travel and other billable costs to our clients ; and costs relating to our direct mail operations and other digital solutions . the most significant components of our cost of revenues are salaries and benefits ( including stock based compensation ) , recruitment , training , transport , meals , rewards and recognition and employee insurance . salary levels , employee turnover rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues . salary increases for most of our operations personnel are generally awarded each year effective april 1. accordingly , employee costs are generally lower in the first quarter of each year compared to the rest of the year . we make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements . although we generally have been able to reallocate our employees as client demand has fluctuated , a contract termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned employees , which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount . a significant increase in the turnover rate among our employees , particularly among the highly skilled workforce needed to execute certain services , would increase our recruiting and training costs and decrease our operating efficiency , productivity and profit margins . in addition , cost of revenues also includes non-cash amortization of stock compensation expense relating to our issuance of equity awards to employees directly involved in providing services to our clients . we expect our cost of revenues to continue to increase as we continue to add professionals in our operating centers globally to service additional business and as wages continue to increase globally . in particular , we expect training costs to continue to increase as we continue to add staff to service new clients and provide existing staff with additional skill sets . there is significant competition for professionals with skills necessary to perform the services we offer to our clients . as our existing competitors continue to grow , and as new competitors enter the market , we expect competition for skilled professionals in each of these areas to continue to increase , with corresponding increases in our cost of revenues to reflect increased compensation levels for such professionals . however , a significant portion of our client contracts include inflation-based adjustments to our billing rates year over year which partially offset such increase in cost of revenues . see item 1a- “ risk factors-employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin. ” we generally experience a higher cost of revenues as a percentage of revenues during the initial 12 months to 18 months in a long-term bpm contract due to upfront investments in infrastructure , resource hiring and training during migration . the cost of revenues as a percentage of revenues improve as we scale up , achieve operational efficiencies and complete the migration . selling , general and administrative expenses ( `` sg & a '' ) our general and administrative expenses are comprised of expenses relating to salaries and benefits ( including stock based compensation ) as well as costs related to recruitment , training and retention of senior management and other support personnel in enabling functions , telecommunications , utilities , travel and other miscellaneous administrative costs . general and administrative ( “ g & a ” ) expenses also include acquisition-related costs , legal and professional fees ( which represent the costs of third party legal , tax , accounting and other advisors ) , investment in product development , digital technology , advanced automation and robotics , bad debt allowance and non-cash amortization of stock compensation expenses related to our issuance of equity awards to members of our board of directors . we expect our g & a costs to increase as we continue to strengthen our support and enabling functions and invest in leadership development , performance management and training programs . selling and marketing expenses primarily consist of salaries and benefits ( including stock based compensation ) and other compensation expenses of sales and marketing and client management personnel , sales commission , travel and brand building , client events and conferences . we expect that sales and marketing expenses will continue to increase as we invest in our sales and client management functions to better serve our clients and in our branding . 35 depreciation and amortization depreciation and amortization pertains to depreciation of our tangible assets , including network equipment , cabling , computers , office furniture and equipment , motor vehicles and leasehold improvements and amortization of intangible assets .
| healthcare revenues were 9.6 % and 10.1 % of our total revenues in 2018 and 2017 , respectively revenue decline in travel , transportation and logistics ( `` tt & l '' ) of $ 0.8 million was mainly due to net impact of foreign exchange loss of $ 0.8 million primarily due to the depreciation of the indian rupee and the philippine peso against the u.s. dollar during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. tt & l revenues were 8.0 % and 9.3 % of our total revenues in 2018 and 2017 , respectively . revenue growth in finance and accounting ( `` f & a '' ) of $ 11.4 million was driven by net volume increases from our new and existing clients . f & a revenues were 11.1 % and 11.4 % of our total revenues in 2018 and 2017 , respectively . revenue growth in all other of $ 4.1 million was primarily driven by higher revenues of $ 9.6 million in the consulting operating segment , partially offset by lower revenues in our banking and financial services operating segment of $ 2.4 million and utilities operating segment of $ 1.8 million and a net impact of foreign exchange loss of $ 1.3 million primarily due to the depreciation of the indian rupee against the u.s. dollar during the year ended december 31 , 2018 compared to the year ended december 31 , 2017. all other revenues were 9.9 % and 10.9 % of our total revenues in 2018 and 2017 , respectively . revenue growth in analytics of $ 75.4 million was driven by our acquisition of scio in july 2018 , contributing $ 40.0 million . the remaining increase of $ 35.4 million was attributable by our recurring and project-based engagements from our new and existing clients . analytics revenues were 32.3 % and 27.5 % of our total revenues in 2018 and 2017 , respectively . 44 cost of revenues and gross margin : the following table sets forth cost of revenues and gross margin of our reportable segments . replace_table_token_3_th for the year ended december 31 , 2018 , cost of revenues was $ 584.8 million compared to $ 495.1 million for the year ended december 31 , 2017 , an increase of $ 89.7 million , or 18.1 % . our gross margin for the
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as such , we do not focus on individual cost groupings ( such as manufacturing , engineering and design labor , subcontractor , material , overhead and general and administrative ( g & a ) costs ) , as much as we do on total contract cost , which is the key driver of our sales and operating income . in evaluating our operating performance , we look primarily at changes in sales and operating income . where applicable , significant fluctuations in operating performance attributable to individual contracts or programs , or changes in a specific cost element across multiple contracts , are described in our analysis . based on this approach and the nature of our operations , the discussion of results of operations below first focuses on our four segments before distinguishing between products and services . changes in sales are generally described in terms of volume , while changes in margin rates are generally described in terms of performance and or contract mix . for purposes of this discussion , volume generally refers to increases or decreases in sales or cost from production/service activity levels and performance generally refers to non-volume related changes in profitability . contract mix generally refers to changes in the ratio of contract type and or life cycle ( e.g. , cost-type , fixed-price , development , production , and or sustainment ) . story_separator_special_tag style= '' font-family : times new roman ; font-size:10pt ; width:100 % ; border-collapse : collapse ; text-align : left ; '' > aerospace systems innovation systems mission systems technology services autonomous systems defense systems advanced capabilities global logistics and modernization manned aircraft flight systems cyber and isr global services space space systems sensors and processing effective january 1 , 2019 , the former advanced defense services and system modernization and services business areas of technology services were merged to create the global services business area . this change had no impact on the prior segment operating results of technology services as a whole . in september 2019 , the company announced changes effective january 1 , 2020 , which are intended to better align the company 's broad portfolio to serve its customers ' needs . the four new sectors are : aeronautics systems , defense systems , mission systems and space systems . this realignment is not reflected in any of the accompanying financial information . this section discusses segment sales , operating income and operating margin rates . a reconciliation of segment operating income to total operating income is provided below . - 28 - northrop grumman corporation segment operating income and margin rate segment operating income , as reconciled in the table below , and segment operating margin rate ( segment operating income divided by sales ) are non-gaap ( accounting principles generally accepted in the united states of america ) measures that reflect total earnings from our four segments , including allocated pension expense we have recognized under far and cas , and excluding fas pension expense and unallocated corporate items ( certain corporate-level expenses , which are not considered allowable or allocable under applicable cas or far , and costs not considered part of management 's evaluation of segment operating performance ) . these non-gaap measures may be useful to investors and other users of our financial statements as supplemental measures in evaluating the financial performance and operational trends of our sectors . these measures may not be defined and calculated by other companies in the same manner and should not be considered in isolation or as alternatives to operating results presented in accordance with gaap . replace_table_token_10_th ( 1 ) represents the deferred state tax impact of mtm ( expense ) benefit , which is recorded in unallocated corporate expense consistent with other changes in deferred state taxes . segment operating income and margin rate 2019 segment operating income increased $ 462 million , or 13 percent , reflecting a full year of innovation systems operating income as well as higher operating income at the other three sectors . segment operating margin rate o f 11.6 percent was comparable to the prior year . net fas ( service ) /cas pension adjustment the decrease in our 2019 net fas ( service ) /cas pension adjustment is primarily due to lower cas expense largely as a result of changes in actuarial assumptions as of december 31 , 2018 , partially offset by increased cas expense due to the addition of innovation systems . unallocated corporate expense the increase in 2019 unallocated corporate expense is primarily due to the absence in 2019 of a $ 223 million benefit recognized for the finalization of certain prior year cost claims , as well as $ 170 million of higher intangible asset amortization and pp & e step-up depreciation . this increase was partially offset by $ 140 million of lower deferred state taxes and an $ 89 million benefit recognized in 2019 related to the favorable resolution of a cost accounting litigation matter . net estimate-at-completion ( eac ) adjustments - we record changes in estimated contract earnings at completion ( net eac adjustments ) using the cumulative catch-up method of accounting . net eac adjustments can have a significant effect on reported sales and operating income and the aggregate amounts are presented in the table below : replace_table_token_11_th - 29 - northrop grumman corporation net eac adjustments by segment are presented in the table below : replace_table_token_12_th ( 1 ) amounts reflect eac adjustments after the percent complete on innovation systems contracts was reset to zero as of the merger date . for purposes of the discussion in the remainder of this segment operating results section , references to operating income and operating margin rate reflect segment operating income and segment operating margin rate , respectively . aerospace systems replace_table_token_13_th sales 2019 sales increased $ 766 million , or 6 percent , due in large part to higher volume on restricted programs . in addition , manned aircraft sales reflect a higher rate of f-35 production activity and higher volume on the e-2 program . story_separator_special_tag space sales reflect higher volume on next generation overhead persistent infrared ( next gen opir ) programs and the james webb space telescope ( jwst ) . autonomous systems sales include higher global hawk volume and lower nato ags volume as that program nears completion . operating income 2019 operating income increased $ 23 million , or 2 percent , due to higher sales . 2019 operating margin rate decreased to 10.3 percent from 10.8 percent principally due to lower net favorable eac adjustments . innovation systems replace_table_token_14_th the sales and operating income in the table above reflect the operating results of innovation systems subsequent to the merger date . in our comparative discussion below , we reference pro forma sales prepared in accordance with article 11 of regulation s-x and computed as if the merger had been completed as of january 1 , 2017. refer to note 2 to the consolidated financial statements for additional supplemental consolidated pro forma financial information . this pro forma financial information should not be considered indicative of the results that would have actually occurred if the merger had been consummated on january 1 , 2017 , nor are they indicative of future results . sales 2019 sales increased $ 541 million , or 10 percent , compared with 2018 pro forma sales of $ 5.6 billion due to higher sales in all three business areas . flight systems sales reflect higher volume on military aerospace structures and launch vehicles . space systems sales reflect higher volume on national security satellite systems . defense systems sales increased due to higher volume on tactical missiles and subsystems , including the aargm-er and guided m ultiple launch rocket system programs . - 30 - northrop grumman corporation operating income 2019 operating income totaled $ 671 million and operating margin rate was 11.0 percent . year to date results benefited from favorable negotiations on certain contracts . mission systems replace_table_token_15_th sales 2019 sales increased $ 554 million , or 5 percent , due to higher sales in all three business areas . advanced capabilities sales increased principally due to higher volume on restricted and marine systems programs . sensors and processing sales increased principally due to higher volume on airborne radar and restricted programs , partially offset by lower volume on communications programs . cyber and isr sales increased principally due to higher volume on space and restricted programs . operating income 2019 operating income increased $ 119 million , or 8 percent , due to higher sales and a higher operating margin rate . operating margin rate increased to 13.4 percent from 13.0 percent primarily due to improved performance on advanced capabilities and sensors and processing programs , partially offset by lower performance on cyber and isr programs . technology services replace_table_token_16_th sales 2019 sales decreased $ 187 million , or 4 percent , primarily due to program completions across the sector . global services sales declined principally due to the 2018 completions of a state and local services contract and the jrdc program , partially offset by higher volume on a civil program . global logistics and modernization sales declined primarily due to the 2018 completion of the kc-10 program , partially offset by higher volume on electronic systems sustainment programs . operating income 2019 operating income increased $ 14 million , or 3 percent , and operating margin rate increased to 11.1 percent from 10.3 percent primarily due to improved performance in both business areas , including a favorable adjustment on a global logistics and modernization sustainment program . - 31 - northrop grumman corporation product and service analysis the following table presents product and service sales and operating costs and expenses by segment : replace_table_token_17_th ( 1 ) a reconciliation of segment operating income to total operating income is included in “ segment operating results. ” product sales and costs 2019 product sales increased $ 3.7 billion , or 17 percent , primarily due to a full year of product sales from innovation systems and higher volume on restricted , f-35 and next gen opir programs at aerospace systems . 2019 product costs increased $ 3.4 billion , or 17 percent , consistent with the higher product sales described above . service sales and costs 2019 service sales increased $ 261 million , or 2 percent . the increase was primarily driven by a full year of service sales from innovation systems and higher service sales at mission systems , partially offset by lower service sales at technology services principally due to program completions . 2019 service costs increased $ 127 million , or 1 percent , consistent with the higher service sales described above and reflects improved margin rates on service contracts at each sector . backlog backlog represents the future sales we expect to recognize on firm orders received by the company and is equivalent to the company 's remaining performance obligations at the end of each period . it comprises both funded backlog ( firm orders for which funding is authorized and appropriated ) and unfunded backlog . unexercised contract options and indefinite delivery indefinite quantity ( idiq ) contracts are not included in backlog until the time the option or idiq task order is exercised or awarded . backlog is converted into sales as costs are incurred or deliveries are made . - 32 - northrop grumman corporation backlog consisted of the following at december 31 , 2019 and 2018 : replace_table_token_18_th liquidity and capital resources we endeavor to ensure the most efficient conversion of operating income into cash for deployment in our business and to maximize shareholder value through cash deployment activities . in addition to our cash position , we use various financial measures to assist in capital deployment decision-making , including cash provided by operating activities and free cash flow , a non-gaap measure described in more detail below . as of december 31 , 2019 , we had cash and cash equivalents of $ 2.2 billion ; approximately $ 269 million was held outside of the u.s. by foreign subsidiaries .
| operating income and margin rate 2019 operating income increased $ 189 million , or 5 percent , primarily due to a $ 462 million increase in segment operating income , which includes a full year of operating income from innovation systems . this was partially offset by a $ 148 million decrease in the net fas ( service ) /cas pension adjustment and a $ 125 million increase in unallocated corporate expense , all of which are further discussed in “ segment operating results. ” operating margin rate declined to 11.7 percent from 12.6 percent due to the pension and unallocated corporate expense items noted above , partially offset by a higher segment operating margin rate , as described in “ segment operating results. ” 2019 g & a costs as a percentage of sales decreased to 9.7 percent from 10.0 percent , primarily due to higher sales as well as cost management , including cost synergies realized in connection with the 2018 acquisition of orbital atk . for further information regarding product and service operating costs and expenses , see “ product and service analysis ” below . mark-to-market pension and opb ( expense ) benefit the primary components of pre-tax mtm ( expense ) benefit are presented in the table below : replace_table_token_7_th 2019 mtm expense of $ 1.8 billion was primarily driven by a 92 basis point decrease in the discount rate from year end 2018 as well as a change in our mortality assumptions , partially offset by actual net plan asset returns of approximately 19.1 percent compared to our 8.0 percent asset return assumption . federal and foreign income taxes the 2019 effective tax rate decreased to 11.8 percent from 13.7 percent in 2018 . mtm expense reduced the 2019 effective tax rate by 3.7 percentage points and the 2018 effective tax rate by 1.1 percentage points . see note 7 to the consolidated financial statements for additional information . net earnings the table below reconciles net earnings to mtm-adjusted net earnings : replace_table_token_8_th ( 1 ) deferred
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in november 2020 , we issued our convertible senior notes with an aggregate principal amount of $ 1.15 billion . as of december 31 , 2020 , we had cash , cash equivalents and marketable securities of approximately $ 2.0 billion . factors affecting our performance we believe there are several important factors that have impacted and that we expect will impact our operating performance and results of operations , including : testing volume , pricing and customer mix . our revenue and costs are affected by the volume of testing and mix of customers from period to period . we evaluate both the volume of tests that we perform for patients on behalf of clinicians and the number of tests we perform for biopharmaceutical companies . our performance depends on our ability to retain and broaden adoption with existing customers , as well as attract new customers . we believe that the test volume we receive from clinicians and biopharmaceutical companies are indicators of growth in each of these customer verticals . customer mix for our tests has the potential to significantly affect our results of operations , as the average selling price for biopharmaceutical sample testing is currently higher than our average reimbursement for clinical tests because we are not a contracted provider for , or our tests are not covered by clinical patients ' insurance for , the majority of the tests that we perform for patients on behalf of clinicians . approximately 37 % , 38 % and 38 % of our u.s. clinical tests for the years ended december 31 , 2020 , 2019 and 2018 were for medicare beneficiaries . payer coverage and reimbursement . our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payers , including both commercial and government payers . precision oncology revenue from tests for clinical customers is calculated based on our expected cash collections , using the estimated variable consideration . the variable consideration is estimated based on historical collection patterns as well as the potential for changes in future reimbursement behavior by one or more payers . estimation of the impact of the potential for changes in reimbursement requires significant judgment and considers payer ' past patterns of changes in reimbursement as well as any stated plans to implement changes . any cash collections over the expected reimbursement period exceeding the estimated variable consideration is recorded in future periods based on actual cash received . payment from commercial payers can vary depending on whether we have entered into a contract with the payers as a “ participating provider ” or do not have a contract and are considered a “ non-participating provider ” . payers often reimburse non-participating providers , if at all , at a lower amount than participating providers . because we are not contracted with these payers , they determine the amount that they are willing to reimburse us for any of our tests and they can prospectively and retrospectively adjust the amount of reimbursement , adding to the complexity in estimating the variable consideration . when we contract with a payer to serve as a participating provider , reimbursements by the payer are generally made pursuant to a negotiated fee schedule and are limited to only covered indications or where prior approval has been obtained . becoming a participating provider can result in higher reimbursement amounts for covered uses of our test and , potentially , no reimbursement for non-covered uses identified under the payer 's policies or the contract . as a result , the potential for more favorable reimbursement associated with becoming a participating provider may be offset by a potential loss of reimbursement for non-covered uses of our tests . current procedural terminology , or cpt , coding plays a significant role in how our guardant360 test is reimbursed both from commercial and governmental payers . in addition , z-code identifiers are used by certain payers , including under medicare 's molecular diagnostic services program , or moldx , to supplement cpt codes for molecular diagnostics tests such as our guardant360 test . changes to the codes used to report the guardant360 test to payers may result in significant changes in its reimbursement . if a coding change were to occur , including as a result of the fda approval of our guardant360 test , payments for certain uses of the guardant360 test could be reduced , put on hold , or eliminated by such payers . cigna , priority health , multiple blue cross blue shield plans as well as the health plans associated with evicore adopted policies that cover our guardant360 test for the majority of nsclc patients we test . if their policies were to change in the future to cover additional cancer indications , we anticipate that our total reimbursement would increase . for the years ended december 31 , 2020 , 2019 and 2018 , approximately 43 % , 44 % and 46 % of our u.s. clinical tests were for 74 patients tested for nsclc . in september 2018 , we began to receive reimbursements from medicare for claims submitted with respect to guardant360 clinical tests performed for nsclc patients . in march 2020 , we began to receive reimbursement from medicare for claims submitted , with respect to guardant360 clinical tests performed for qualifying patients diagnosed with solid tumor cancers of non-central nervous system origin other than nsclc . following the fda approval of our guardant360 cdx test , a new z-code identifier is expected to be issued , and a new pricing is expected to be established under moldx for the guardant360 cdx test . while we expect to continue to submit claims to medicare for guardant360 ldt clinical tests performed for such qualifying patients using the existing z-code identifier , medicare has instructed us to not submit claims to medicare for guardant360 cdx clinical tests until the new code is issued for the guardant360 cdx test and the corresponding pricing is established . story_separator_special_tag this new pricing for guardant360 cdx clinical tests could be different from the current pricing for guardant360 ldt clinical tests which could affect our future revenue . a proprietary laboratory analyses , or pla code was issued for our guardant360 cdx in january 2021 with an effective date in april 2021. once the code is effective , all guardant360 cdx services will be billed with this new code . additionally , based on this new pla code , we applied to cms for our guardant360 cdx test to become an advanced diagnostic laboratory test , or adlt . if cms grants adlt status to the guardant360 cdx test , for the first three quarters thereafter , we can only bill medicare at the lowest available commercial rate at the launch of the test . after the initial three quarters , we can bill medicare for guardant360 cdx services at the median rate of claims paid by commercial payers . changes to the codes used to bill a test to payers may result in significant changes in its reimbursement , which could negatively impact our revenue . as a result of implementing this new coding change for our guardant360 cdx test , payments for guardant360 cdx services could be reduced , put on hold , or eliminated by such payers . due to the inherent variability and unpredictability of the reimbursement landscape , including related to the amount that payers reimburse us for any of our tests , previously recorded revenue adjustments are not indicative of future revenue adjustments from actual cash collections , which may fluctuate significantly . this variability and unpredictability could increase the risk of future revenue reversal and result in our failing to meet any previously publicly stated guidance we may provide . biopharmaceutical customers . our revenue also depends on our ability to attract , maintain and expand relationships with biopharmaceutical customers . as we continue to develop these relationships , we expect to support a growing number of clinical trials globally and continue to have opportunities to offer our platform to such customers for development services , including companion diagnostic development , novel target discovery and validation , as well as clinical trial enrollment . for example , our guardant360 , guardant360 cdx and guardantomni tests are being developed as companion diagnostics under collaborations with biopharmaceutical companies , including astrazeneca , amgen , janssen biotech and radius health . research and development . a significant aspect of our business is our investment in research and development , including the development of new products . in particular , we have invested heavily in clinical studies as we believe these studies are critical to gaining physician adoption and driving favorable coverage decisions by payers . with respect to our lunar program , we initiated a prospective screening study , which we refer to as the eclipse trial , aiming to recruit approximately 10,000 patients and evaluate the performance of our lunar-2 assay in detecting colorectal cancer in average-risk adults . in addition , we are investing very heavily in establishing clinical utility of our guardant reveal test in adjuvant treatment settings . in 2020 , we launched three trials in collaboration with key cancer researchers : cobra , a randomized controlled study , comprising over 1,400 low-risk stage-ii colon cancer patients , act-3 , comprising over 500 stage 3 colorectal cancer patients , and pegasus for the de-escalation of therapy , encompassing over 140 high-risk stage-ii and stage-iii colon cancer patients . we have expended considerable resources , and expect to increase such expenditures over the next few years , to support our research and development programs with the goal of fueling further innovation . international expansion . a component of our long-term growth strategy is to expand our commercial footprint internationally , and we expect to increase our sales and marketing expense to execute on this strategy . we currently offer our tests in countries outside the united states primarily through distributor relationships , direct contracts with hospitals or partnerships with research organizations . in may 2018 , we formed and capitalized a joint venture , guardant health amea , inc. , which we refer to as the joint venture , with softbank , relating to the sale , marketing and distribution of our tests generally outside the americas and europe . we expect to rely on the joint venture to accelerate commercialization of our products in asia , the middle east and africa . sales and marketing expense . our financial results have historically , and will likely continue to , fluctuate significantly based upon the impact of our sales and marketing expense , and in particular , our various marketing programs around existing and new product introductions . 75 general and administrative expense . our financial results have historically , and will likely continue to , fluctuate significantly based upon the impact of our general and administrative expense , and in particular , our stock-based compensation expense . our equity awards , including market-based restricted stock units and performance-based restricted stock units , are intended to retain and incentivize employees to lead us to sustained , long-term superior financial and operational performance . covid-19 global pandemic . the global outbreak of coronavirus 2019 , or covid-19 , has disrupted , and we expect will continue to disrupt , our operations . to protect the health and well-being of our workforce , partners , vendors and customers , we have provided free covid-19 testing for employees working on-site , implemented social distance and building entry policies at work , restricted travel and facility visits , and followed california 's “ shelter in place ” public health orders and the guidance from the centers for disease control and prevention . the covid-19 global pandemic also has started to negatively affect , and we expect will continue to negatively affect , our revenue and our clinical studies . for example , our biopharmaceutical customers are facing challenges in recruiting patients and in conducting clinical trials to advance their pipelines , for which our tests could be utilized .
| in march 2020 , we began to receive reimbursement from medicare for claims submitted with respect to guardant360 clinical tests performed for qualifying patients diagnosed with solid tumor cancers of non-central nervous system origin other than nsclc . precision oncology revenue from tests for biopharmaceutical customers was $ 64.5 million for the year ended december 31 , 2020 and $ 79.5 million for the year ended december 31 , 2019. tests for biopharmaceutical customers decreased to 15,983 for the year ended december 31 , 2020 from 20,643 for the year ended december 31 , 2019 primarily due to the timing and progression of clinical trials and studies which resulted in fluctuation in the number of samples received for testing . the average selling price of biopharmaceutical tests was $ 4,037 for the year ended december 31 , 2020 , up from $ 3,850 for the year ended december 31 , 2019 due to a greater number of such tests being the guardantomni test , which has a higher selling price than the guardant360 test . as a result of the covid-19 pandemic , beginning in the latter half of march 2020 , we began receiving fewer samples for testing on a daily average basis from our clinical and biopharmaceutical customers than before the outbreak of the covid-19 pandemic . our future sample volumes and precision oncology revenue may be adversely impacted by the covid-19 pandemic for the affected periods . development services and other revenue increased to $ 50.4 million for the year ended december 31 , 2020 from $ 33.9 million for the year ended december 31 , 2019 , an increase of $ 16.5 million , or 49 % . this increase in development services and other revenue was primarily due to new collaboration agreements entered in the year ended december 31 , 2020 as well as progression of existing collaboration projects from biopharmaceutical customers for companion diagnostic development and regulatory approval services completed during the year ended december 31 , 2020. our development services arrangements with biopharmaceutical customers and development services revenue may continue
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as a result , our revenues from digital banking platform customers grow as our customers buy more solutions from us and increase the number of registered users utilizing our solutions and as those users increase their number of transactions on our solutions . the structure and terms of the arrangements for our newer lending and leasing and baas solutions are varied , but we generally sell these solutions on a subscription basis through our direct sales organization , and the related revenues are recognized over the terms of the customer agreements . we have achieved significant growth since our inception . during each of the past eight years , our average number of registered users per installed customer on our digital banking platform , or installed customer , has grown , and in many instances we have been able to sell additional solutions to existing customers . our revenues per installed customer and per registered user vary period-to-period based on the length and timing of customer implementations , changes in the average number of registered users per customer , sales of additional solutions to existing customers , changes in the number of transactions on our solutions by registered users and variations among existing customers and new customers with respect to the mix of purchased solutions and related pricing . please see `` management 's discussion and analysis of financial condition and results of operations—key operating measures '' for additional detail on how we define `` installed customers '' and `` registered users . '' the covid-19 pandemic creates significant risks and uncertainties for our customers , their end users , our partners and suppliers , our employees and our business generally . however , we believe that these events could accelerate the transition to digital financial solutions and that our portfolio of digital financial services solutions and our position and reputation in the market provide us with an opportunity to continue to serve customers and grow our business . we considered the uncertainties and risks posed by the continuing covid-19 pandemic when preparing our 2021 budget and hiring plans and though hiring may be somewhat lower than the growth rates experienced in 2019 and prior , we expect our hiring plans to accelerate during 2021 based on our expectations that buying environments and cross sale opportunities continue to improve in 2021. in the long term , and subject to more certainty regarding the covid-19 pandemic , we remain committed to continuing to strategically invest across our organization to position us to increase revenues and to improve operating efficiencies . we are also considering how our physical facilities requirements might change when we eventually return to increased onsite operations , including the costs associated with ensuring a safe work environment and the likely increased prevalence of working from home for employees . the timing and amount of these investments will vary based on the rate at which we expect to add new customers or sell additional solutions to existing customers , our customer retention rates , the implementation and support needs of our customers , our software development plans , our technology and physical infrastructure requirements , and changes thereto resulting from the covid-19 pandemic , and other needs of our organization ( including needs resulting from the covid-19 pandemic ) . many of these investments will occur in advance of our realizing any resultant benefit which may make it difficult to determine if we are effectively allocating our resources . if we are successful in growing our revenues by increasing the number and scope of our customer relationships , we anticipate that greater economies of scale and increased operating leverage will improve our margins over the long term . we also anticipate that increases in the number of registered users for existing digital banking platform customers in the longer term will improve our margins . however , we do not have any control or influence over whether end users of our digital banking platform elect to become registered users of our customers ' digital banking services . we sell our solutions primarily through our professional sales organization . while the financial institutions market is well-defined due to the regulatory classifications of those financial institutions , the alt-fi and fintech markets are broader and more difficult to define due to the changing number of providers in each market . over the long term , we intend to continue to invest in additional sales representatives to identify and address the financial institution , alt-fi and fintech markets across the u.s. and internationally and to increase our number of sales support and marketing personnel , as well as our investment in marketing initiatives designed to increase awareness of our solutions and generate new customer opportunities . we have continuously invested in expanding and improving our digital banking platform since its introduction in 2005 , and we currently intend to continue investing both organically and inorganically through acquisitions to expand our portfolio . over the past five years we have acquired or developed new solutions and additional functions that serve a broader range of needs of financial institutions as well as the needs of alt-fis and fintechs . our solutions now include a broad range of services and experiences including commercial banking , regulatory and compliance , digital lending and leasing , baas , digital account opening and data-driven sales enablement and portfolio management solutions both in the u.s. and internationally . we believe that financial services providers are best served by a broad , integrated portfolio of digital solutions that provide rapid , flexible and comprehensive integration with internal and third-party systems allowing them to provide modern , intuitive digital financial services in a secure , regulatory-compliant manner . story_separator_special_tag we also believe that the breadth and depth of our solution offerings across the financial institution , alt-fi and fintech markets , our open and flexible platform approach , our position as a leading provider of digital banking solutions to a large network of rcfis , and our expertise in delivering new , innovative , secure and regulatory-compliant digital solutions uniquely position us in the market for digital financial services 55 solutions . we currently intend to increase investments in technology innovation and software development as we enhance our solutions and platforms and increase or expand the number of solutions that we offer . we believe that delivery of consistent , high-quality customer support is a significant driver of purchasing and renewal decisions of our prospects and customers . to develop and maintain a reputation for high-quality service , we seek to build deep relationships with our customers through our customer service organization , which we staff with personnel who are motivated by our common mission of using technology to help our customers succeed and who are knowledgeable with respect to the regulated and complex nature of the financial services industry . as our business grows , we currently intend to continue to invest in and grow our services and delivery organization to support our customers ' needs and maintain our reputation . covid-19 pandemic global health concerns with respect to the covid-19 pandemic and related government actions taken to reduce the spread of the virus have caused significant disruption to the macroeconomic environment , and the pandemic has significantly increased economic uncertainty and reduced economic activity , including consumer and business spending . the extent of the impact of the covid-19 pandemic on our operational and financial performance will depend on future developments unknown and unpredictable at this time , including the duration , severity and spread of the pandemic , related restrictions on travel and transportation and other actions that may be taken by governmental authorities , the impact to our customers , their end users , our suppliers and partners , and other items identified under `` risk factors '' above . there are no comparable recent events that provide guidance as to the impacts that the spread of covid-19 may have , and , as a result , the ultimate impacts of the pandemic are highly uncertain and subject to change . we have for many years maintained a business continuity plan and a pandemic plan , which we regularly test and update as needed . based on the information available to us to date , we believe we have taken an informed , proactive and effective approach to addressing the direct known effects of the covid-19 pandemic on us , our customers and other third parties on which we rely . in late february 2020 , we implemented enhanced sanitation efforts at our locations , including more strict cleaning protocols for common surfaces and additional hand sanitization stations across our locations . in early march 2020 , we indefinitely suspended all non-essential , work-related domestic and international travel , instituted two-week self-quarantines for any employees who had recently traveled prior to the suspension , and implemented protocols for employees to report personal health situations which resemble covid-19 . by early march 2020 , over 90 % of our employees had transitioned to working remotely from home and by mid-march 2020 virtually every one of our employees had transitioned to working remotely from home . we have now implemented strict protocols for any employee to enter any of our facilities , including the approval of senior management , advance health screening for covid-19 symptoms and strict social distancing requirements while onsite , including mask-wearing , physical-spacing and indoor foot-traffic requirements . as of the filing date of this annual report on form 10-k , we continue to operate with nearly every employee working remotely , except for minimal essential functions requiring facility access from time to time , only if required , in compliance with such protocols . we currently have no firm plans to begin having employees return to onsite work . we also modified our 2020 annual customer conference to be a virtual event , which we hosted in multiple segments from april to june 2020. we have similarly cancelled all in-person aspects of our contemplated spring 2021 customer conference and are currently evaluating to what extent and in what format we may hold the conference in the future . in addition , we have performed additional due diligence with critical vendors and other third parties on which we rely to assess their responses to the covid-19 pandemic and impacts on their operations and services . to date , we have not experienced any material adverse impacts from any of our vendors or other third parties on which we rely . we intend to continue to conduct enhanced due diligence on such vendors and third parties for the foreseeable future as the uncertainty caused by the covid-19 pandemic continues to persist . we believe that to date our business continuity and pandemic plans are operating effectively and that we have been able to effectively deliver and support our solutions for our customers utilizing numerous remote capabilities and channels . we do not yet have firm plans on when or how we will transition back to onsite operations across our facilities , but we continue to monitor the situation closely and to plan accordingly . to date , we believe our corporate culture , business model , customer relations , and technology and information technology infrastructure have effectively allowed our employees to substantially perform their roles while working remotely . we are also considering how our physical facilities requirements might change when we eventually return to increased onsite operations , including the costs associated with ensuring a safe work environment and the likely increased prevalence of working from home for many employees .
| in 2020 the charges related to facilities in california , north carolina and texas . in 2019 the charges related to facilities in georgia . in 2018 the charges related to facilities in texas . ( 5 ) the year ended december 31 , 2020 includes a 2.2 % reduction related to the loss on the early extinguishment of a portion of our 2023 notes . due to rounding , totals may not equal the sum of the line items in the tables above . 73 comparison of year ended december 31 , 2020 and 2019 , and the year ended december 31 , 2019 and 2018 revenues the following table presents our revenues for each of the periods indicated ( dollars in thousands ) : replace_table_token_14_th year ended december 31 , 2020 compared to the year ended december 31 , 2019. revenues increased by $ 87.3 million , or 27.7 % , from $ 315.5 million for the year ended december 31 , 2019 to $ 402.8 million for the year ended december 31 , 2020. this increase was primarily attributable to a $ 59.4 million increase from the sale of additional solutions to new and existing customers and growth in registered users from new and existing customers . in addition , $ 21.5 million of the increase was generated from the business acquired in the fourth quarter of 2019 , $ 7.2 million of the increase was generated from increases in the number of transactions processed using our solutions and $ 2.0 million of the increase was generated from our `` paycheck protection program '' solutions as a result of successfully funded applications during the year ended december 31 , 2020. these increases were partially offset by a $ 2.8 million decrease for a contract asset impairment related to the restructuring of a contract with one of our fintech customers . the number of registered users on our online banking platform increased from 14.6 million on december 31 , 2019 to 17.8 million on december 31 , 2020. year ended december 31 , 2019 compared to the year ended december 31 , 2018. revenues increased
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in determining the level of the allowance for loan losses , we consider past and current loss experience , evaluations of real estate collateral , current economic conditions , volume and type of lending , adverse situations that may affect a borrower 's ability to repay a loan and the levels of nonperforming and other classified loans . the amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or events change . we assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance . we recorded net recoveries of loan losses of $ 736,000 and $ 687,000 , respectively , for the years ended december 31 , 2014 and 2013 , and a provision for loan losses of $ 31.5 million for the year ended december 31 , 2012 . the provision for loan losses is a function of the allowance for loan loss methodology we use to determine the appropriate level of the allowance for inherent loan losses after net charge-offs have been deducted . the portion of the allowance for loan losses attributable to loans collectively evaluated for impairment decreased $ 2.3 million , or 16.4 % , to $ 11.5 million at december 31 , 2014 , compared to $ 13.8 million at december 31 , 2013 . this decrease occurred primarily because the growth in our loan portfolio focused on loan types with lower loss ratios based on our historical loss experience , and improvements in the historical loan loss factors that occurred as the losses incurred in earlier periods aged and thus were either eliminated from the calculation or assigned a lower weight . net charge-offs were $ 1.4 million in 2014 , compared to $ 3.2 million in 2013 and $ 45.2 million in 2012 . net charge-offs for 2012 included a $ 10.8 million charge-off relating to compliance with the occ 's regulatory transition guidance concerning the elimination of special valuation allowances , as well as a $ 17.4 million charge relating to the consummation of two bulk loan sales and the transfer of loans to the held-for-sale portfolio in preparation for a bulk sale . for further analysis and information on how we determine the appropriate level for the allowance for loan losses and analysis of credit quality , see “ critical accounting policies ” and “ risk classification of loans and allowance for loan losses. ” noninterest income replace_table_token_6_th comparison of year 2014 to 2013 . our noninterest income decreased by $ 1.4 million to $ 6.7 million for the year ended december 31 , 2014 , from $ 8.1 million for the year ended december 31 , 2013 , primarily due to a decrease in gain on sale of loans . noninterest income for the year ended december 31 , 2014 included a $ 158,000 gain on sale of loans , compared to a $ 1.5 million gain on sale of loans for the year ended december 31 , 2013 , which included recurring loan sale activity combined with the completion of the sale of the owner-occupied and investor-owned one-to four family residential loans that we designated as held-for-sale at december 31 , 2012. the completion of this sale represented approximately $ 1.3 million of the $ 1.5 million gain on sale of loans that we recorded for the year ended december 31 , 2013. we recorded an impairment of servicing assets of $ 8,000 for the year ended december 31 , 2014 , compared to a recovery of servicing assets of $ 65,000 in 2013 . bank-owned life insurance produced earnings of $ 235,000 for 2014 , a decrease of $ 78,000 , or 24.9 % , compared to $ 313,000 for 2013 due to decreased annualized policy returns . 26 comparison of year 2013 to 2012 . our noninterest income increased by $ 411,000 to $ 8.1 million for the year ended december 31 , 2013 , from $ 7.7 million for the year ended december 31 , 2012 . noninterest income for the year ended december 31 , 2013 included a $ 1.5 million gain on sale of loans , which included recurring loan sale activity combined with the completion of the sale of the owner-occupied and investor-owned one-to four family residential loans that we designated as held-for-sale at december 31 , 2012. the completion of this sale represented approximately $ 1.3 million of the $ 1.5 million gain on sale of loans that we recorded for the year ended december 31 , 2013. we recorded a recovery of an impairment of servicing assets of $ 65,000 for the year ended december 31 , 2013 , compared to an impairment of $ 55,000 in 2012. bank-owned life insurance produced earnings of $ 313,000 for 2013 , a decrease of $ 125,000 , or 28.5 % , compared to earnings of $ 438,000 for 2012 due to decreased annualized policy returns . noninterest expense replace_table_token_7_th comparison of year 2014 to 2013 . for the year ended december 31 , 2014 , noninterest expense decreased by $ 6.8 million , or 13.3 % , to $ 44.5 million , compared to $ 51.3 million for the year ended december 31 , 2013 . compensation and benefits expense decreased $ 3.3 million , or 12.7 % , to $ 22.9 million for the year ended december 31 , 2014 , compared to $ 26.2 million in 2013 . the decrease was due in substantial part to the reduction in full time equivalent employees to 269 at december 31 , 2014 from 301 at december 31 , 2013 . severance expense was $ 130,000 for the year ended december 31 , 2014 , compared to $ 175,000 for 2013 . stock-based compensation for the year ended december 31 , 2014 was $ 1.1 million , compared to $ 933,000 for 2013 . story_separator_special_tag this increase was attributable to an increase in esop expense resulting from the $ 2.70 increase in the company 's stock price that occurred between december 31 , 2013 and december 31 , 2014 . noninterest expense for 2014 included $ 2.2 million of nonperforming asset management and oreo expenses , compared to $ 4.3 million for 2013 . nonperforming asset management expenses decreased $ 1.8 million , or 68.2 % , to $ 838,000 for the year ended december 31 , 2014 , compared to $ 2.6 million in 2013 . the decrease was primarily due to a decline in nonperforming assets and a corresponding decline in expenses relating to resolutions and accelerated dispositions of nonperforming assets . the most significant decreases in nonperforming asset management expense related to legal expenses , receiver fees , and real estate taxes , which totaled $ 665,000 for the year ended december 31 , 2014 , compared to $ 2.5 million for 2013 . oreo expenses for the year ended december 31 , 2014 totaled $ 1.4 million , and included a $ 438,000 valuation adjustment to oreo properties , compared to a $ 550,000 valuation adjustment in 2013 . noninterest expense for the for the year ended december 31 , 2014 included a provision of $ 73,000 for mortgage representation and warranty reserve for mortgage loans sold , compared to a $ 118,000 provision for 2013 , and $ 53,000 in compensatory fees and final settlements of loans serviced for others . noninterest expense for the year ended december 31 , 2013 included the payment of $ 203,000 of settlements concerning two sold mortgage loans . comparison of year 2013 to 2012 . for the year ended december 31 , 2013 , noninterest expense decreased by $ 8.3 million , or 14.0 % , to $ 51.3 million from $ 59.6 million for 2012 . compensation and benefits expense included $ 175,000 in severance expense for the year ended december 31 , 2013 , compared to $ 147,000 for 2012. loan-related incentive compensation was $ 500,000 for the year ended december 31 , 2013 , compared to $ 187,000 for the year ended december 31 , 2012. stock-based compensation for the year ended december 31 , 2013 was $ 933,000 , an increase of $ 206,000 , or 28.3 % , compared to $ 727,000 for the year ended december 31 , 2012. this increase is a result of 2013 restricted stock grants combined with increased esop expense as a result 27 of a higher stock price at year end . noninterest expense for 2013 included $ 4.3 million of nonperforming asset management and oreo expenses , compared to $ 12.7 million for 2012. nonperforming asset management expenses decreased $ 2.6 million to $ 2.6 million for the year ended december 31 , 2013 , compared to $ 5.2 million in 2012. oreo expenses for the year ended december 31 , 2013 included a $ 550,000 valuation adjustment to oreo properties compared to a $ 5.6 million valuation adjustment in 2012. other noninterest expense for the year ended december 31 , 2013 included the payment of $ 203,000 of settlements concerning two sold mortgage loans . other noninterest expense for the year ended december 31 , 2013 also included a provision of $ 118,000 for the establishment of a mortgage representation and warranty reserve for mortgage loans sold . the amount of the representation and warranty reserve was calculated by applying published fannie mae data relating to the percentage of loans that it required to be repurchased due to breaches of representations and warranties to the bank 's outstanding sold loans . income taxes comparison of year 2014 to 2013 . for the year ended december 31 , 2014 we recorded an income tax benefit $ 31.3 million , which included the full recovery of the valuation allowance of $ 35.1 million we established for deferred tax assets in 2011. we reversed the valuation allowance for deferred tax assets as of december 31 , 2014 based on management 's determination that it was more likely than not that the company would realize the tax attributes underlying the deferred tax assets before they expired . in making this determination , management considered all available negative and positive evidence . for the year ended december 31 , 2013 , we recorded no income tax expense or benefit due to the existence of a full valuation allowance for deferred tax assets . see note 10 of the `` notes to consolidated financial statements '' in item 8 of this form 10-k for further information . excluding the full recovery of the valuation allowance , the effective tax rate for the year ended december 31 , 2014 was 39.13 % . comparison of year 2013 to 2012 . for the years ended december 31 , 2013 and 2012 , we recorded no income tax expense or benefit due to the existence of a full valuation allowance for deferred tax assets . comparison of financial condition at december 31 , 2014 and december 31 , 2013 total assets increased $ 11.8 million , or 0.8 % , to $ 1.465 billion at december 31 , 2014 , from $ 1.454 billion at december 31 , 2013 . the increase in total assets was primarily due to an increase in loans receivable and deferred tax assets , which was partially offset by a decrease in cash and cash equivalents . net loans increased $ 74.3 million , or 6.8 % , to $ 1.172 billion at december 31 , 2014 , from $ 1.098 billion at december 31 , 2013 . net cash and cash equivalents decreased by $ 101.4 million , or 63.0 % , to $ 59.6 million at december 31 , 2014 , from $ 161.0 million at december 31 , 2013 .
| our earnings per share of common stock was $ 0.16 for the year ended december 31 , 2013 , compared to a loss of $ 1.36 per share of common stock for the year ended december 31 , 2012. net interest income net interest income is our primary source of revenue . net interest income equals the excess of interest income ( including discount accretion on purchased impaired loans ) plus fees earned on interest earning assets over interest expense incurred on interest-bearing liabilities . the level of interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income . interest rate spread and net interest margin are utilized to measure and explain changes in net interest income . interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities that fund those assets . the net interest margin is expressed as the percentage of net interest income to average interest-earning assets . the net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds , principally noninterest-bearing demand deposits and stockholders ' equity , also support interest-earning assets . the accounting policies underlying the recognition of interest income on loans , securities , and other interest-earning assets are included in note 1 of “ notes to consolidated financial statements ” in item 8 of this form 10-k. 23 average balance sheets the following table sets forth average balance sheets , average yields and costs , and certain other information . no tax-equivalent yield adjustments were made , as the effect of these adjustments would not be material . average balances are daily average balances . nonaccrual loans are included in the computation of average balances , but have been reflected in the table as loans carrying a zero yield . the yields set forth below include the effect of deferred fees and expenses , discounts and premiums , purchase
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the development costs of export capabilities are currently being paid by ciner enterprises , who is evaluating how these costs might be allocated to the partnership , which could include ownership by us and repayment for the development costs and related assets or a service agreement model for logistics services which includes reimbursements for development costs . since a decision to allocate costs to the partnership has not been made yet and the partnership is not currently using any ciner enterprises export services , none of these development costs have been recorded by the partnership through december 31 , 2019. energy costs one of the primary impacts to our profitability is our energy costs . because we depend upon natural gas and electricity to power our trona ore mining and soda ash processing operations , our net sales , earnings and cash flow from operations are sensitive to changes in the prices we pay for these energy sources . our cost of energy , particularly natural gas , has been relatively low in recent years , and , despite the historic volatility of natural gas prices , we believe that we will continue to benefit from relatively low prices in the near future . however , we expect to continue to hedge a portion of our forecasted natural gas purchases to mitigate volatility . during 2019 we continued construction on a new natural gas-fired turbine co-generation facility that is expected to provide roughly one-third of our electricity and steam demands . we are planning for the facility to be operational by the end of the first quarter of 2020 and provide us with an improvement of approximately $ 3 million per year in energy costs once fully operational , improving to $ 4 million per year once the green river expansion project is online . how we evaluate our business productivity of operations our soda ash production volume is primarily dependent on the following three factors : ( 1 ) operating rate , ( 2 ) quality of our mined trona ore and ( 3 ) recovery rates . operating rate is a measure of utilization of the effective production capacity of our facility and is determined in large part by productivity rates and mechanical on-stream times , which is the percentage of actual run times over the total time scheduled . we implement two planned outages of our mining and surface operations each year , typically in the second and third quarters . during these outages , which are scheduled to last approximately one week each , we repair and replace equipment and parts . periodically , we may experience minor unplanned outages or unplanned extensions to planned outages caused by various factors , including equipment failures , power outages or service interruptions . the quality of our mine ore , which we refer to as our “ ore grade ” , is determined by measuring the trona ore recovered as a percentage of the deposit , which includes both trona ore and insolubles . our ore grade for the years ended december 31 , 2019 and 2018 was 86.6 % and 85.8 % , respectively . plant recovery rates are generally determined by calculating the soda ash produced divided by the sum of the soda ash produced plus soda ash that is not recovered from the process . all of these factors determine the amount of trona ore we require to produce one short ton of soda ash and liquor , which we refer to as our “ ore to ash ratio. ” our ore to ash ratio for the years ended december 31 , 2019 and 2018 was 1.51 : 1.0 and 1.54 : 1.0 , respectively . freight and logistics the soda ash industry is logistics intensive and involves careful management of freight and logistics costs . these freight costs make up a large portion of the total delivered cost to the customer . delivered costs to most domestic customers and ansac primarily relates to rail freight services . some domestic customers may elect to arrange their own freight and logistic services . delivered costs to non-ansac international customers primarily consists of both rail freight services to the port of embarkation and the additional ocean freight to the port of disembarkation . union pacific railroad company ( “ union pacific ” ) is our largest provider of domestic rail freight services . for the year ended december 31 , 2019 , we shipped approximately 96.9 % of our soda ash to our customers initially via a single rail line owned and controlled by union pacific . our plant receives rail service exclusively from union pacific and shipments by rail accounted for 86.4 % and 78.6 % of our total freight costs for the years ended december 31 , 2019 and 2018 , respectively . the increase in the percentage of freight that is related to union pacific is due primarily to our increased usage of union pacific to accommodate changes in sales mix between domestic and international and their respective delivery locations . our agreement with union pacific expires on 51 december 31 , 2021 and there can be no assurance that it will be renewed on terms favorable to us or at all . if we do not ship at least a significant portion of our soda ash production on the union pacific rail line during a twelve-month period , we must pay union pacific a shortfall payment under the terms of our transportation agreement . for the year ended december 31 , 2019 , we assisted the majority of our domestic customers in arranging their freight services . during 2019 , we had no shortfall payments and do not expect to make any such payments in the future . story_separator_special_tag net sales net sales include the amounts we earn on sales of soda ash . we recognize revenue from our sales when control of goods transfers to the customer . control typically transfers when goods are delivered to the carrier for shipment , which is the point at which the customer has the ability to direct the use of and obtain substantially all remaining benefits from the asset . the time at which delivery and transfer of title occurs , for the majority of our contracts with customers , is the point when the product leaves our facility , thereby rendering our performance obligation fulfilled . substantially all of our sales are derived from sales of soda ash , which we sell through our exclusive sales agent , ciner corp. a small amount of our sales is derived from sales of production purge , which is a by-product liquor solution containing soda ash that is produced during the processing of trona ore. for the purposes of our discussion below , we include these transactions in domestic sales of soda ash and in the volume of domestic soda ash sold . sales prices for sales through ansac include the cost of freight to the ports of embarkation for overseas export or to laredo , texas for sales to mexico . sales prices for other international sales may include the cost of rail freight to the port of embarkation , the cost of ocean freight to the port of disembarkation for import by the customer and the cost of inland freight required for delivery to the customer . cost of products sold expenses relating to employee compensation , energy , including natural gas and electricity , royalties and maintenance materials constitute the greatest components of cost of products sold . these costs generally increase in line with increases in sales volume . energy . a major item in our cost of products sold is energy , comprised primarily of natural gas and electricity . we primarily use natural gas to fuel our above-ground processing operations , including the heating of calciners , and we use electricity to power our underground mining operations , including our continuous mining machines , or continuous miners , and shuttle cars . the monthly northwest pipeline rocky mountain index natural gas settlement prices , over the past five years , have ranged between $ 1.30 and $ 4.22 . the average monthly northwest pipeline rocky mountain index natural gas settlement prices for the years ended december 31 , 2019 and 2018 , were $ 2.05 and $ 2.44 per mmbtu , respectively . in order to mitigate the risk of gas price fluctuations , we hedge a portion of our forecasted natural gas purchases by entering into physical or financial gas hedges generally ranging between 20 % and 80 % of our expected monthly gas requirements , on a sliding scale , for approximately the next four years . see item 7a , “ quantitative and qualitative disclosures about market risk - commodity price risks , ” for additional information . employee compensation . see item 8 , financial statements and supplementary data—note 11 , “ employee compensation , ” for information on the various benefit plans offered and administered by ciner corp. royalties . we pay royalties to the state of wyoming , the u.s. bureau of land management and rsrc , an affiliate of occidental petroleum corporation ( formerly an affiliate of anadarko petroleum corporation ) , which are calculated based upon a percentage of the value of soda ash and related products sold at a certain stage in the mining process . these royalty payments may be subject to a minimum domestic production volume from our green river basin facility . we are also obligated to pay annual rentals to our lessors and licensor regardless of actual sales . in addition , we pay a production tax to sweetwater county , and trona severance tax to the state of wyoming that is calculated based on a formula that utilizes the volume of trona ore mined and the value of the soda ash produced . the royalty rates we pay to our lessors and licensor may change upon our renewal or renegotiation of such leases and license . on june 28 , 2018 , ciner wyoming amended its license agreement , dated july 18 , 1961 ( the “ license agreement ” ) , with rsrc , llc , to , among other things , ( i ) extend the term of the license agreement to july 18 , 2061 and for so long thereafter as ciner wyoming continuously conducts operations to mine and remove sodium minerals from the licensed premises in commercial quantities ; and ( ii ) set the production royalty rate for each sale of sodium mineral products produced from ore extracted from the licensed premises at eight percent ( 8 % ) of the net sales of such sodium mineral products . any increase in the royalty rates we are required to pay to our lessors and licensor through renewal or renegotiation of leases or license , or any failure by us to renew any of our leases and license , could have a material adverse impact on our results of operations , financial condition or liquidity , and , therefore , may affect our ability to distribute cash to unitholders . selling , general and administrative expenses selling , general and administrative expenses incurred by our affiliates on our behalf are allocated to us based on the time the employees of those companies spend on our business and the actual direct costs they incur on our behalf . selling , general and administrative expenses incurred by ansac on our behalf are allocated to us based on the proportion of ansac 's total volumes sold 52 for a given period attributable to the soda ash sold by us to ansac . on october 23 , 2015 , the partnership has a
| during the twelve months ended december 31 , 2018 , we recognized $ 27.5 million related to the settlement of an action filed against rsrc related to royalty overpayment under ciner wyoming 's mineral exploration license with rsrc . the case was settled on june 28 , 2018. the recognition of this gain lowered our overall operating costs and expenses in the second quarter of 2018 , which positively impacted our operating results for the twelve months ended december 31 , 2018. selling , general and administrative expenses . our selling , general and administrative expenses decreased 2.9 % to $ 23.8 million for the twelve months ended december 31 , 2019 , compared to $ 24.5 million for the twelve months ended december 31 , 2018 . the decrease was primarily due to decreases in equity-based compensation expense and professional fees incurred during the twelve months ended december 31 , 2019 , partially offset by higher selling and administrative fees relating to our affiliate , ansac , as a result of our increased sales volumes for the twelve months ended december 31 , 2019 compared to the same period in 2018 . 55 operating income . as a result of the foregoing , and primarily as a result of higher net sales that was led by higher production volumes and higher average net price , operating income increased by 0.8 % to $ 107.1 million for the twelve months ended december 31 , 2019 , compared to $ 106.3 million for the twelve months ended december 31 , 2018 , which included the recognition of a $ 27.5 million gain related to a positive litigation settlement . net income . as a result of the foregoing plus $ 2.3 million higher net interest expense , net income decreased by 1.4 % to $ 101.6 million for the twelve months ended december 31 , 2019 , compared to $ 103.0 million for the twelve months ended december 31 , 2018 . liquidity and capital resources sources of liquidity include cash generated from operations and borrowings under credit facilities and capital
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4. improve operating efficiency we have largely completed the installations of best-in-breed back-office solutions that consolidate and standardize our business operations utilizing scalable tools and systems . our focus is now shifting towards optimizing those systems , as well as operational excellence and quality initiatives focused on streamlining processes to gain efficiency and scalability . in 2014 , we implemented a 3-year operating margin improvement plan designed to increase our operating effectiveness and efficiency and improve non-gaap operating margins 300 to 600 basis points on a constant currency basis from our 2014 baseline of 17.5 % , by the time we exit 2017. we have included the results of operations of acquired companies in our consolidated results of operations from the date of their respective acquisition , which impacts the comparability of our results of operations when comparing 2016 , 2015 and 2014 . we have noted in the discussion below , to the extent meaningful , the impact on the comparability of our consolidated results of operations to prior year results due to the inclusion of acquired companies . we completed our acquisition of attentive.ly in july 2016. we have included the results of operations of attentive.ly in our consolidated results of operations from the date of acquisition ; however , attentive.ly 's results are insignificant and are not discussed since they do not have a significant impact on the comparability of our results for any period presented . replace_table_token_34_th ( 1 ) included in total revenue for 2016 and 2015 was $ 39.8 million and $ 8.5 million , respectively , attributable to the inclusion of smart tuition . excluding the impact of smart tuition noted above , total revenue increased by $ 61.6 million during 2016 , which was primarily driven by growth in subscriptions revenue as our business model continues to shift towards providing predominantly cloud-based subscription solutions . subscriptions revenue also grew as a result of increases in the number of customers and the volume of transactions for which we process payments . services revenue contributed modestly to the increase in total revenue during 2016 primarily due to increases in consulting and training revenue . maintenance revenue , as well as license fees and other revenue declined during 2016 from the continued migration of our business model toward subscription-based solutions , including our nxt solutions . in the near-term , the transition to subscription-based solutions negatively impacts total revenue growth , as time-based license revenue from subscription arrangements is deferred and recognized ratably over the subscription period , whereas on-premise license revenue from arrangements that include perpetual licenses is recognized up-front . in addition , the fluctuation in foreign currency exchange rates negatively impacted replace_table_token_35_th blackbaud , inc. our total revenue during 2016 by approximately $ 4.2 million . further explanation of this impact is included below under the caption `` foreign currency exchange rates '' . replace_table_token_36_th the increase in income from operations during 2016 was primarily driven by growth in subscriptions revenue discussed above , improvements in the utilization of consulting services personnel and a reduction in non-billable implementation service hours . in 2015 , we also recorded charges for acquisition related expenses of $ 3.7 million related to our acquisition of smart tuition , which did not recur in 2016. partially offsetting these favorable impacts to income from operations were increases in amortization of intangible assets from business combinations and stock-based compensation of $ 10.2 million and $ 7.4 million , respectively , as well as investments we are making in our sales and marketing organizations and customer success program . in addition , the fluctuation in foreign currency exchange rates negatively impacted our income from operations during 2016 by approximately $ 1.0 million . further explanation of this impact is included below under the caption `` foreign currency exchange rates '' . customer retention subscription contracts are typically for a term of three years at contract inception with one year renewals thereafter . over time , we anticipate a decrease in maintenance contract renewals as we transition our solution portfolio and maintenance customers from a perpetual license-based model to a cloud-based subscription delivery model . we also anticipate an increase in subscription contract renewals as we continue focusing on innovation , quality and the integration of our subscription solutions which we believe will provide value-adding capabilities to better address our customers ' needs . due primarily to these factors , we believe a recurring revenue customer retention measure that combines subscription and maintenance customer contracts provides a better representation of our customers ' overall behavior . during 2016 and 2015 , approximately 93 % and 94 % , respectively , of our customers with recurring subscription or maintenance contracts were retained . the decrease in our customer retention rates between 2015 and 2016 was primarily driven by our ongoing efforts to rationalize our portfolio of solutions and migrate customers from legacy on-premise solutions towards our next generation cloud-based solutions . we expect this transition to continue during 2017. as discussed above , we are investing in our customer success program , which we believe will drive increased customer retention over the long-term . balance sheet and cash flow at december 31 , 2016 , our cash and cash equivalents were $ 16.9 million and outstanding borrowings under the 2014 credit facility were $ 343.9 million . during 2016 , we generated $ 153.6 million in cash flow from operations , decreased our borrowings by $ 66.4 million , returned $ 22.8 million to stockholders by way of dividends and had cash outlays of $ 44.1 million for purchases of property and equipment and capitalized software development costs . lease for new headquarters facility in may 2016 , we entered into a lease agreement for a new headquarters facility to be built in charleston , south carolina . for a detailed discussion of the new headquarters facility , see note 11 of our consolidated financial statements in this report . story_separator_special_tag replace_table_token_37_th blackbaud , inc. story_separator_special_tag style= '' line-height:120 % ; text-align : center ; font-size:8pt ; '' > replace_table_token_43_th blackbaud , inc. replace_table_token_44_th 2016 vs. 2015 ibu revenue remained relatively unchanged during 2016 when compared to 2015 , as an increase in subscriptions revenue was largely offset by reductions in maintenance and consulting services revenue , as well as changes in exchange rates between foreign currencies and the u.s. dollar , which affect the translation of its revenues into u.s. dollars for purposes of reporting consolidated financial results . the increase in ibu subscriptions revenue during 2016 was driven primarily by increased demand for our cloud-based solutions and , to a lesser extent , increases in the number of customers and volume of transactions for which we process payments . in the near term , we expect ibu revenue to remain relatively unchanged as our on-premise raiser 's edge customers transition to our raiser 's edge nxt solution , which , in general , requires less implementation services . the fluctuation in foreign currency exchange rates negatively impacted ibu revenue during 2016 by approximately $ 2.9 million . further explanation of this impact is included below under the caption `` foreign currency exchange rates '' . 2015 vs. 2014 the decrease in ibu revenue during 2015 , when compared to 2014 , was primarily related to a reduction in perpetual license sales of our raiser 's edge solution , which also caused ibu consulting services revenue and maintenance revenue to decrease . also contributing to the decrease in ibu revenue during 2015 was the sale of rlc in may 2015 as well as changes in exchange rates between foreign currencies and the u.s. dollar , which affect the translation of its revenues into u.s. dollars for purposes of reporting consolidated financial results . the fluctuation in foreign currency exchange rates negatively impacted ibu revenue during 2015 by approximately $ 5.5 million . further explanation of this impact is included below under the caption `` foreign currency exchange rates '' . replace_table_token_45_th blackbaud , inc. operating results replace_table_token_46_th ( 1 ) included in subscriptions revenue for 2016 was $ 39.3 million attributable to the inclusion of smart tuition . included in subscriptions revenue for 2015 was $ 18.2 million and $ 8.3 million attributable to the inclusion of microedge and smart tuition , respectively . whipplehill also positively impacted subscriptions revenue for 2015 when compared to 2014. included in subscriptions revenue for 2014 was $ 3.0 million and $ 2.7 million attributable to the inclusion of microedge and whipplehill , respectively . subscriptions revenue is comprised of revenue from charging for the use of our subscription-based software solutions , which includes providing access to cloud-based solutions and hosting services , access to certain data services and our online subscription training offerings , revenue from payment processing services as well as variable transaction revenue associated with the use of our solutions . we continue to experience growth in sales of our hosted applications and hosting services as we meet the demand of our customers that increasingly prefer cloud-based subscription offerings , including existing customers that are migrating from on-premise solutions to our cloud-based solutions . in addition , we have experienced growth in our payment processing services from the continued shift to online giving , further integration of these services to our existing solution portfolio and the sale of these services to new and existing customers . recurring subscription contracts are typically for a term of three years at contract inception with one year annual renewals thereafter . we intend to continue focusing on innovation , quality and the integration of our subscription solutions which we believe will drive subscriptions revenue growth . we are also investing in our customer success organization to drive customer loyalty , retention , and referrals . cost of subscriptions is primarily comprised of compensation costs , third-party contractor expenses , third-party royalty and data expenses , hosting expenses , allocated depreciation , facilities and it support costs , amortization of intangible assets from business combinations , amortization of software development costs , transaction-based costs related to payments services including remittances of amounts due to third-parties and other costs incurred in providing support and services to our customers . 2016 vs. 2015 excluding the incremental subscriptions revenue from smart tuition as discussed above , subscriptions revenue increased by $ 66.2 million during 2016 when compared 2015. the increase was primarily due to strong demand across our cloud-based solution portfolio and , to a lesser extent , increases in the number of customers and the volume of transactions for which we process payments . the increase in cost of subscriptions during 2016 when compared to 2015 was slightly lower than the increase in revenue . the increase in cost of subscriptions was driven primarily by increases in transaction-based costs related to our payments services and those of smart tuition of $ 21.8 million , amortization of intangible assets from business combinations of $ 8.2 million , third-party contractor expenses $ 4.4 million , costs of third-party technology embedded in certain of our subscription solutions of $ 4.4 million , and increases in amortization of software development costs of $ 3.0 million . the increase in amortization of intangible assets from business combinations was primarily due the incremental amortization of intangible assets arising from the acquisition of smart tuition in october 2015. the increases in third-party contract costs and amortization of software development costs were from investments made on innovation , quality and the integration of our cloud-based solutions . the increase in subscriptions gross margin when comparing 2016 to 2015 was primarily the result of disciplined management of headcount and compensation costs as the growth in subscriptions revenue outpaced the growth in related costs .
| replace_table_token_38_th ( 1 ) included in gmbu revenue for 2014 was $ 4.5 million attributable to the inclusion of whipplehill . whipplehill also positively impacted gmbu revenue for 2015. included in gmbu revenue for 2015 and 2016 was $ 8.5 million and $ 39.8 million , respectively , attributable to the inclusion of smart tuition . ( 2 ) included in ecbu revenue and total revenue for 2015 and 2014 was $ 31.9 million and $ 5.8 million , respectively , attributable to the inclusion of microedge . ( 3 ) the individual amounts for each year may not sum to total revenue due to rounding . replace_table_token_39_th blackbaud , inc. replace_table_token_40_th ( 1 ) included in gmbu revenue for 2014 was $ 4.5 million attributable to the inclusion of whipplehill . whipplehill also positively impacted gmbu revenue for 2015. included in gmbu revenue for 2015 and 2016 was $ 8.5 million and $ 39.8 million , respectively , attributable to the inclusion of smart tuition . 2016 vs. 2015 excluding the impact of smart tuition as discussed above , gmbu revenue increased by $ 38.1 million during 2016 when compared to 2015. the increase in gmbu revenue was primarily due to growth in subscriptions revenue and , to a lesser extent , services revenue . the growth in subscriptions revenue was primarily due to increases in demand across our portfolio of cloud-based solutions . to a lesser extent , gmbu subscriptions revenue growth was also driven by increases in the number of customers and the volume of transactions for which we process payments . gmbu services revenue increased during 2016 when compared to 2015 due to increases in consulting and training services related to our cloud-based solutions . the growth in subscriptions and services revenue was partially offset by declines in maintenance and license fee revenue from the continued migration of our business to subscription-based solutions . 2015 vs. 2014 after removing the impact attributable to smart tuition as discussed above , the remaining $ 34.8 million increase in gmbu revenue during 2015 when compared to 2014 was primarily attributable to growth in
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in addition , in connection with the sale of wmi , we recorded a goodwill impairment charge of $ 3,417,000 and an impairment of intangible asset write-down of $ 1,085,000 , which amounts are included in the loss from discontinued operations . operating expense consolidated operating expenses for the year ended december 31 , 2018 totaled $ 8,839,000 and decreased by $ 2,591,000 or 22.7 % compared to $ 11,430,000 for the year ended december 31 , 2017. the decrease in operating expenses is primarily due to staff reduction measures and cost reduction initiatives . net loss net loss for the year ended december 31 , 2018 was $ 10,992,000 , an improvement of $ 11,559,000 , compared to a net loss $ 22,551,000 for the year ended december 31 , 2017 , for the reasons discussed above . our net losses for 2018 and 2017 included net losses from the discontinued operations of wmi of $ 1,042,000 and $ 6,678,000 , respectively . in addition , our net losses for 2018 and 2017 included impairment charge related to ongoing operations of approximately $ 495,000 and $ 6,195,000 , respectively . impact of inflation inflation has not had a material effect on our results of operations . 18 liquidity and capital resources we are highly leveraged and rely upon our ability to continue to borrow under our loan facility with pnc or to raise debt and equity from our principal stockholders and third parties to support operations . substantially all of our assets are pledged as collateral under our loan facility . we are required to maintain a lockbox account with pnc , into which substantially all of our cash receipts are paid . if pnc were to cease providing revolving loans to us under the loan facility , we would lack funds to continue our operations . over the past two years we have also relied upon our ability to borrow money from certain stockholders and raise debt and equity capital to support our operations . should we continue to need to borrow funds from our principal stockholders or raise debt or equity , there is no assurance that we will be able to do so or that the terms on which we borrow funds or raise equity will be favorable to us or our existing stockholders . the loan facility provides for a $ 15,000,000 revolving loan and a term loan with a balance of $ 1,572,000 at december 31 , 2018 ( the “ term loan ” ) . the repayment terms of the term loan provide for monthly principal installments in the amount of $ 123,133 , payable on the first business day of each month , with a final payment of any unpaid balance of principal and interest payable on the scheduled maturity date . the terms of the loan facility require that , among other things , we maintain a specified fixed charge coverage ratio and maintain a minimum ebitda ( as defined in the loan facility ) for specified periods . in addition , we are limited in the amount of capital expenditures we can make . the loan facility also restricts the amount of dividends we may pay to our stockholders . the loan facility has been amended many times during its term , most recently on may 30 , 2018 ( the “ sixteenth amendment ” ) , january 2 , 2019 ( the “ seventeenth amendment ” ) , and february 8 , 2019 ( the “ eighteenth amendment ” ) . the sixteenth amendment waived fixed charge coverage ratio covenant violations for the periods ending september 30 , 2017 , december 31 , 2017 and march 31 , 2018. the sixteenth amendment imposes minimum ebitda ( as defined in the loan agreement ) covenants of not less than ( i ) $ 75,000 for the three-month period ending march 31 , 2018 , ( ii ) $ 485,000 for the six month period ending june 30 , 2018 , and ( iii ) $ 1,200,000 for the nine-month period ending september 30 , 2018. we were in compliance with these new covenants for the three-months ended march 31 , 2018 , the six-month period ended june 30 , 2018 and the nine-month period ended september 30 , 2018. in addition , the amendment prohibits us from paying dividends to our stockholders and limits capital expenditures . under the terms of the seventeenth amendment , the revolving loan and the term loan bear interest at a rate equal to the sum of the alternate base rate ( as defined in the loan agreement ) plus four percent ( 4 % ) . in addition to the amounts available as revolving loans secured by inventory and receivables pursuant to the formula set forth in the loan agreement , pnc has agreed to permit the revolving advances to exceed the formula amount by $ 1,000,000 as of december 31 , 2018 , provided that we reduce the “ out-of-formula loan ” by $ 25,000 per week commencing april 1 , 2019 , with the unpaid balance payable in full on december 31 , 2019. the indebtedness under the revolving loan and the term loan are classified with the current portion of notes and capital lease obligations . both the revolving loan , inclusive of the out-of formula loan , and the term loan mature on december 31 , 2019. as a condition to its agreement to extend the maturity of the obligations due under the loan agreement ( the “ obligations ” ) , we are obligated to pay pnc an extension fee of ( i ) $ 250,000 on the earlier of ( a ) the date the obligations are indefeasibly paid in full or ( b ) june 30 , 2019 , ( ii ) $ 125,000 on the earlier of ( a ) the date the obligations are indefeasibly paid in full or ( b ) december 31 , 2019 , which amount is deemed earned in full if the obligations have not been satisfied as of july 1 , 2019 , ( iii ) $ 125,000 on story_separator_special_tag the earlier of ( a ) the date the obligations are indefeasibly paid in full or ( b ) december 31 , 2019 , which amount is deemed earned in full if the obligations have not been satisfied as of october 1 , 2019 ( iv ) $ 500,000 on december 31 , 2019 , which amount is deemed earned in full if the obligations have not been satisfied as of december 31 , 2019. as a further condition to pnc 's agreement to extend the maturity of the obligations , michael and robert taglich purchased $ 2,000,000 principal amount of our senior subordinated convertible notes and arranged a financing giving purchasers a right to receive a pro rata portion of the amk revenue stream payments resulting in gross proceeds of $ 800,000 , including $ 275,000 from michael and robert taglich . the eighteenth amendment requires us to maintain a minimum ebitda of not less than ( i ) $ 1,500,000 for the twelve-month period ending december 31 , 2018 , ( ii ) $ 655,000 for the three-month period ending march 31 , 2019 , ( iii ) $ 1,860,000 for the six-month period ending june 30 , 2019 and ( iv ) $ 3,110,000 for the nine-month period ending september 30 , 2019. at december 31 , 2018 we were in compliance with the minimum ebida covenant . as of december 31 , 2018 , our debt to pnc in the amount of $ 15,615,000 consisted of the revolving credit loan in the amount of $ 14,043,000 and the term loan in the amount of $ 1,572,000. the revolver balance included the company 's negative general ledger balances in its controlled disbursement cash accounts . as of december 31 , 2017 , our debt to pnc in the amount of $ 19,926,000 consisted of the revolving credit note due to pnc in the amount of $ 16,455,000 and the term loan due to pnc in the amount of $ 3,471,000. in addition , as of december 31 , 2018 we had capitalized lease obligations to third parties of $ 1,787,000 , as compared to capitalized lease obligations to third parties of $ 3,073,000 as of december 31 , 2017 . 19 significant transactions since january 1 , 2018 which have impacted our liquidity dispositions on december 20 , 2018 , we completed the sale of our wmi group to cpi for a purchase price of $ 9,000,000 , net of a working capital adjustment of $ ( 1,093,000 ) , pursuant to a stock purchase agreement dated as of march 21 , 2018. of the net purchase price for wmi , $ 2,000,000 is held in escrow to secure any obligation we may have under the purchase agreement as a result of the working capital adjustment and as a result of our breach of the representations and warranties we made in the purchase agreement . the amount of the working capital deficit has been contested by cpi and the discrepancy will likely be resolved through arbitration in accordance with the terms of the stock purchase agreement . financings – related parties due to net losses and negative cash flow in recent years , we have financed our operations in part through private placements of our debt and equity securities . each of michael and robert taglich , two of our directors , have invested substantial amounts in our company in various debt and equity financings , including the financings in 2018 described below and in other financings discussed in note 11 to our consolidated financial statements for the years ended december 31 , 2018 and 2017 appearing elsewhere in this report . taglich brothers , inc. ( “ taglich brothers ” ) , a corporation founded by michael and robert taglich , and in which a third director of our company is a vice president of investment banking , has acted as placement agent for our debt and equity financing transactions and has received cash and equity compensation for its services . for additional information , see note 11 to our consolidated financial statements for the years ended december 31 , 2018 and 2017 appearing elsewhere in this report . debt financings on march 29 , 2018 and april 4 , 2018 michael taglich and robert taglich , advanced $ 1,000,000 and $ 100,000 , respectively , to our company for use as working capital . we subsequently issued our subordinated notes due may 31 , 2019 to michael and robert taglich , together with shares of our common stock , in the financing described below , to evidence our obligation to repay the foregoing advances . in may 2018 , we issued $ 1,200,000 principal amount of subordinated notes due may 31 , 2019 ( the “ 2019 notes ” ) , together with a total of 214,762 shares of common stock ( the “ shares ” ) , to michael taglich , robert taglich and another accredited investor . as part of the financing , we issued to michael taglich $ 1,000,000 principal amount of 2019 notes and 178,571 shares of common stock for a purchase price of $ 1,000,000 and we issued to robert taglich $ 100,000 principal amount of 2019 notes and 17,857 shares of common stock . we issued and sold a 2019 note in the principal amount of $ 100,000 , plus 18,334 shares of common stock , to the other accredited investor for a purchase price of $ 100,000. seventy percent ( 70 % ) of the total purchase price for the 2019 notes and shares purchased by each investor has been allocated to the 2019 notes with the remaining thirty percent ( 30 % ) allocated to the shares purchased with the 2019 notes . the number of shares purchased by michael taglich and robert taglich was calculated based upon $ 1.68 , the closing price of the common stock on may 18 , 2018 , the trading day immediately preceding the date they purchased the 2019 notes and shares of common stock .
| in addition : 1 ) in january 2017 we sold amk welding , inc. , for $ 4,500,000 , net of a working capital adjustment of ( $ 163,000 ) plus additional payments based onnet revenue not to exceed $ 1,500,000 million ( the “ amk revenue stream payments ” ) . in january 2019 weassigned our rightto $ 1,136,710 of these payments to a group of accredited investors for gross proceeds of $ 800,000 . 2 ) on december 20 , 2018 , we completed the sale of all of the outstanding shares of our wmi group to cpi for a purchase price of $ 9,000,000 , net of a working capital adjustment of $ ( 1,093,000 ) , pursuant to a stock purchase agreement dated as of march 21 , 2018.the amount of the working capital deficit has been contested by cpi and the discrepancy will likely be resolved through arbitration in accordance with the terms of the stock purchase agreement . in addition to repositioning our business to obtain profitability and positive cash flow , we remain resolute on meeting customers ' needs and continue to align production schedules to meet the needs of customers . we believe that an unyielding focus on our customers will allow us to execute on our existing backlog in a timely fashion and take on additional commitments . we are pleased with our progress and the positive responses received from our customers . the aerospace market is highly competitive in both the defense and commercial sectors and we face intense competition in all areas of our business . nearly all of our revenues are derived by producing products to customer specifications after being awarded a contract through a competitive bidding process . as the commercial aerospace and defense industries continue to consolidate and major contractors seek to streamline supply chains by buying more complete sub-assemblies from fewer suppliers , we have sought to remain competitive not only by providing cost-effective world class service but also by increasing our ability to produce more complex and complete assemblies for our customers . our ability to operate profitably is determined by our ability to win new contracts and renewals of existing contracts , and
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observations on current market opportunities we believe there is currently a significant market opportunity to acquire single-family rental properties through the distressed loan channel and expect the supply of non-performing loans , sub-performing loans , properties in foreclosure and reo to remain steady over the next two years as gses , hud , banks and other mortgage lenders seek to dispose of their distressed inventories . we continue to see substantial volumes of distressed residential mortgage loan portfolios offered for sale by banks , hud , gses and private equity funds , among others . we believe that the distressed loan channel gives residential a cost advantage over other acquisition channels such as foreclosure auctions and reo acquisitions , involves less competition and positions residential to be selected as the buyer of diverse portfolios of such loans since residential is not geographically constrained . residential 's preferred resolution methodology is to modify the sub-performing and non-performing loans . we believe modification followed by refinancing generates near-term cash flows , provides the highest possible economic outcome for residential and is a socially responsible business strategy because it keeps more families in their homes . metrics affecting our consolidated results as described above , our operating results depend heavily on residential 's operating results . residential 's results are affected by various factors , some of which are beyond our control , including the following : revenues residential 's revenues primarily consist of the following : i. net realized gain on mortgage loans . residential records net realized gains , including the reclassification of previously accumulated net unrealized gains , upon the liquidation of a loan which may consist of short sale , third party sale of the underlying property , refinancing or full debt pay-off of the loan . we expect the timeline to liquidate loans will vary significantly by loan , which could result in fluctuations in revenue recognition and operating performance from period 43 ( ) to period . additionally , the proceeds from loan liquidations may vary significantly depending on the resolution methodology . residential generally expects to collect proceeds of loan liquidations in cash and , thereafter , have no continuing involvement with the asset . ii . net unrealized gains from the conversion of loans to reo . upon conversion of loans to reo , residential marks the properties to the most recent market value . the difference between the carrying value of the asset at the time of conversion and the most recent market value , based on bpos , is recorded in residential 's statement of operations as net unrealized gain on mortgage loans . we expect the timeline to convert acquired loans into reo will vary significantly by loan , which could result in fluctuations in residential 's revenue recognition and its operating performance from period to period . the factors that may affect the timelines to foreclose upon a residential mortgage loan include , without limitation , state foreclosure timelines and deferrals associated therewith ; unauthorized parties occupying the property ; federal , state or local legislative action or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures and continued declines in real estate values and or sustained high levels of unemployment that increase the number of foreclosures and which place additional pressure and or delays on the already overburdened judicial and administrative proceedings . iii . net unrealized gains from the change in fair value of loans . after residential 's sub-performing and non-performing mortgage loans are acquired , the fair value of each loan is adjusted in each subsequent reporting period as the loan proceeds to a particular resolution ( i.e. , modification , or conversion to real estate owned ) . as a loan approaches resolution , the resolution timeline for that loan decreases and costs embedded in the discounted cash flow model for loan servicing , foreclosure costs and property insurance are incurred and removed from future expenses . the shorter resolution timelines and reduced future expenses each increase the fair value of the loan . the increase in the value of the loan is recognized in net unrealized gain on mortgage loans in our consolidated statements of operations . the exact nature of resolution will be dependent on a number of factors that are beyond our control , including borrower willingness to pay , property value , availability of refinancing , interest rates , conditions in the financial markets , the regulatory environment and other factors . iv . net realized gain on real estate . reo properties that do not meet residential 's investment criteria are sold out of its taxable reit subsidiary . the realized gain or loss recognized in financial statements reflects the net amount of realized and unrealized gains on sold reos from the time of acquisition to sale completion . as a greater number of residential 's reo properties are renovated and deemed suitable for rental , we expect a greater portion of its revenues will be rental revenues . we believe the key variables that will affect residential 's rental revenues over the long term will be average occupancy and rental rates . we anticipate that a majority of residential 's leases of single-family rental properties to tenants will be for a term of two years or less . as these leases permit the residents to leave at the end of the lease term without penalty , we anticipate residential 's rental revenues will be affected by declines in market rents more quickly than if its leases were for longer terms . short-term leases may result in high turnover , which involves expenses such as renovation costs and leasing expenses , or reduced rental revenues . although residential seeks to lease the majority of reo properties it acquires on foreclosure , it may also sell the properties that do not meet its rental investment criteria . the real estate market and home prices will determine proceeds from any sale of real estate . story_separator_special_tag in addition , while we seek to track real estate price trends and estimate the effects of those trends on the valuations of residential 's portfolios of residential mortgage loans , future real estate values are subject to influences beyond our control . expenses residential 's expenses primarily consist of rental property operating expenses , depreciation and amortization , real estate selling cost and impairment , mortgage loan servicing , interest expense , general and administrative expenses , expense reimbursement , incentive management fees . rental property operating expenses are expenses associated with residential 's ownership and operation of rental properties including expenses such as altisource 's property management fees , expenses towards repairs , utility expenses on vacant properties , turnover costs , property taxes , insurance and hoa dues . depreciation and amortization is a non-cash expense associated with the ownership of real estate and generally remains relatively consistent each year in relation to residential 's asset levels since these properties are depreciated on a straight-line basis over a fixed life . real estate selling cost and impairment represents residential 's estimate for the costs to be incurred to sell a property and an amount that represents the carrying amount over the estimated fair value less costs to sell . mortgage loan servicing costs are primarily for servicing fees , foreclosure fees and advances of residential property insurance . interest expense consists of the costs to borrow money in connection with residential 's debt financing of its portfolios . general and administrative expenses consist of the costs related to the general operation and overall administration of residential 's and our business . expense reimbursement consists 44 ( ) primarily of our employee salaries in direct correlation to the services they provide on residential 's behalf and other personnel costs and corporate overhead . we are not reimbursed by residential for certain general and administrative expenses pertaining to stock-based compensation and our expenditures that are not for the benefit of residential . the incentive management fees consist of compensation due to us , based on the amount of cash available for distribution to residential 's stockholders for each period . the expense reimbursement and incentive management fee are eliminated in consolidation but increase our net income by reducing the amount of net income attributable to noncontrolling interest . other factors affecting our consolidated results we expect residential 's results of operations to be affected by various additional factors , many of which are beyond our control , including the following : acquisitions residential 's operating results will depend on our ability to source sub-performing and non-performing loans , as well as other residential mortgage loans and reo property assets . we believe that there is currently a large supply of sub-performing and non-performing mortgage loans available to residential for acquisition . we believe the available supply provides for a steady acquisition pipeline of assets since we plan on targeting just a small percentage of the population . generally , we expect that residential 's mortgage loan portfolio may grow at an uneven pace , as opportunities to acquire distressed residential mortgage loans may be irregularly timed and may at times involve large portfolios of loans , and the timing and extent of residential 's success in acquiring such loans can not be predicted . in addition , for any given portfolio of loans that we agree to acquire , we typically acquire fewer loans than originally expected , as certain loans may be resolved prior to the closing date or may fail to meet our diligence standards . although the number of unacquired loans typically constitutes a relatively small portion of a particular portfolio , in certain cases , the number of loans we do not acquire could be a significant portion of a particular portfolio . in any case where we do not acquire the full portfolio , appropriate adjustments are made to the applicable purchase price . financing our ability to grow residential 's business is dependent on the availability of adequate financing including additional equity financing , debt financing or both in order to meet residential 's objectives . we intend to leverage residential 's investments with debt , the level of which may vary based upon the particular characteristics of its portfolio and on market conditions . to the extent available at the relevant time , residential 's financing sources may include bank credit facilities , warehouse lines of credit , structured financing arrangements and repurchase agreements , among others . we may also seek to raise additional capital for residential through public or private offerings of debt or equity securities , depending upon market conditions . to qualify as a reit under the code , residential will need to distribute at least 90 % of its taxable income each year to its stockholders . this distribution requirement limits its ability to retain earnings and thereby replenish or increase capital to support its activities . residential 's taxable income is triggered primarily by material changes in the economic status of loans , such as a sale of the loan , modification of the loan from a non-performing status to a performing status or conversion of the loan to reo . we expect residential to convert its taxable gains on reo dispositions and loan modifications to cash gains , which can be used to fund the distribution requirements from the corresponding taxable gains . distribution requirements from the taxable gains on residential 's remaining loans that it expects to convert to rental properties can be funded through a higher advance rate on the increased value when a property becomes rented . 45 ( ) resolution activities replace_table_token_9_th _ ( 1 ) excludes mortgage loans held for sale . ( 2 ) subsequent to the foreclosure sale , we may be notified that the foreclosure sale was invalidated for certain reasons . in addition , as of december 31 , 2014 , 207 of residential 's mortgage loans were on trial modification plans , compared to 197 mortgage loans on trial modification plans as of september 30 , 2014.
| net unrealized gain on mortgage loans residential 's net unrealized gains on mortgage loans increased to $ 350.8 million for the year ended december 31 , 2014 from $ 61.1 million for the year ended december 31 , 2013 . these increases were primarily related to an increase in the number of loans for which unrealized gains were estimated and the continued discounts at which residential has been able to acquire non-performing loans into its portfolio . the net unrealized gains for the year ended december 31 , 2014 and 2013 can be broken down into the following two components : first , residential recognized unrealized gains driven by a material change in loan status of $ 124.9 million for the year ended december 31 , 2014 compared to $ 8.3 million for the year ended december 31 , 2013 . during the year ended december 31 , 2014 and 2013 , residential converted 3,682 and 226 mortgage loans to reo status , respectively . upon conversion of these mortgage loans to reo , residential marked these properties to the most recent market value , less estimated selling costs in the case of reo held for sale ; and second , residential recognized $ 225.9 million in unrealized gains for the year ended december 31 , 2014 from the net increase in the fair value of loans during the period compared to $ 52.8 million for the year ended december 31 , 2013 . adjustments to the fair value of loans after acquisition represent , among other factors , a reduction in the time remaining to complete the foreclosure process due to the passage of time since acquisition and a reduction in future foreclosure expenses to the extent residential has already incurred them . the reduction in time remaining to complete the foreclosure is driven by the completion of activities in the foreclosure process after residential acquired the loans . this reduction in timeline results in reduced carrying costs and reduced future expenses for the loans , each of which increases
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as required by u.s. gaap , we have applied these changes in presentation retrospectively to our consolidated statements of income for all periods presented in this annual report . see note 3 , “ significant accounting policies ” to our consolidated financial statements for more information . net sales we recognize sales revenue at the point of sale , with discounts provided to customers reflected as a reduction in sales revenue . proceeds from sales of gift cards are recorded as a liability at the time of sale and recognized as sales when they are redeemed by the customer . in 2015 , we determined that we had sufficient data to estimate gift card breakage . we do not include sales taxes in net sales . we monitor our comparable store sales growth to evaluate and identify trends in our sales performance . our practice is to include sales from a store in comparable store sales beginning on the first day of the 61st week following the store 's opening and to exclude sales from a closed store from comparable store sales on the day of closure . this practice may differ from the methods that other retailers use to calculate similar measures . we use comparable store sales to calculate pro forma comparable store sales growth , when applicable . 39 our net sales have increased as a result of new store op enings and comparable store sales growth . factors that influence comparable store sales growth and other sales trends include : general economic conditions and trends , including levels of disposable income and consumer confidence ; product price inflation or deflation ; our competition , including competitive store openings in the vicinity of our stores and competitor pricing and merchandising strategies ; consumer preferences and buying trends ; our ability to identify market trends , and to source and provide product offerings that promote customer traffic and growth in average ticket ; the number of customer transactions and average ticket ; the prices of our products , including the effects of inflation and deflation ; opening new stores in the vicinity of our existing stores ; and advertising , in-store merchandising and other marketing activities . cost of sales and gross profit cost of sales includes the cost of inventory sold during the period , including direct costs of purchased merchandise ( net of discounts and allowances ) , distribution and supply chain costs and supplies . cost of sales also includes depreciation and amortization expense for distribution centers and supply chain-related assets . merchandise incentives received from vendors , which are reflected in the carrying value of inventory when earned or as progress is made toward earning the rebate or allowance , and are reflected as a component of cost of sales as the inventory is sold . inflation and deflation in the prices of food and other products we sell may periodically affect our gross profit and gross margin . the short-term impact of inflation and deflation is largely dependent on whether or not we pass the effects through to our customers , which will depend upon competitive market conditions . our cost of sales and gross profit are correlated to sales volumes . as sales increase , gross margin is affected by the relative mix of products sold , pricing strategies , inventory shrinkage and improved leverage of fixed costs of sales . selling , general and administrative expenses selling , general and administrative expenses ( “ sg & a ” ) primarily consist of salaries , wages and benefits costs , share-based compensation , store occupancy costs ( including rent , property taxes , utilities , common area maintenance and insurance ) , advertising costs , buying cost , pre-opening and other administrative costs . depreciation and amortization depreciation and amortization ( exclusive of depreciation included in cost of sales ) primarily consists of depreciation and amortization for buildings , store leasehold improvements , and equipment . 40 store closure and other costs we recognize a reserve for future operating lease payments associated with facilities that are no longer being utilized in our current operations . the reserve is recorded based on the present value of the remaining non-cancelable lease payments after the cease use date less an estimate of subtenant income . if subtenant income is expected to be higher than the lease payments , no accrual is recorded . lease payments included in the closed store reserve are expected to be paid over the remaining terms of the respective leases . our assumptions about subtenant income are based on our experience and knowledge of the area in which the closed property is located , guidance received from local brokers and agents and existing economic conditions . adjustments to the closed store reserve relate primarily to changes in actual or estimated subtenant income and changes in actual lease payments from original estimates . adjustments are made for changes in estimates in the period in which the change becomes known , considering timing of new information regarding market , subleases or other lease updates . changes in closed store reserve estimates are classified as store closure and other costs in the consolidated statements of operations . see note 16 , “ closed store reserves and other costs ” for additional information . factors affecting comparability of results of operations march 2018 refinancing in march 2018 , we completed a transaction in which we refinanced our debt ( referred to as the “ march 2018 refinancing ” ) , as further discussed in “ —liquidity and capital resources ” below . the march 2018 refinancing resulted in increase in borrowings , a reduction in interest rate and the recording of a loss on early extinguishment of debt ( see note 12 , “ long-term debt ” ) . adoption of asu no . story_separator_special_tag 2016-09 , “ compensation – stock compensation ( topic 718 ) ” as a result of the adoption , we recognized excess tax benefits related to the exercise of stock options in our income tax provision during fiscal 2017 ( see note 17 , “ income taxes ” ) . prior to the adoption , these items were recorded in additional paid-in capital . during 2017 , excess tax benefits were classified as an operating activity in the consolidated statement of cash flows , along with other income tax cash flows . prior to adoption , excess tax benefits were classified as a financing activity . we have made a policy election to account for forfeitures as they occur . this election was adopted using a modified retrospective approach resulting in no cumulative effect on retained earnings at the beginning of the period . prior to the adoption , forfeitures were accounted for using an estimated forfeiture rate . 2017 tax cuts and jobs act on december 22 , 2017 , the legislation commonly referred to as the tax cuts and jobs act ( “ tax act ” ) was enacted into law , which changes various corporate income tax provisions within the existing internal revenue code . substantially all the provisions of the tax act are effective for taxable years beginning after december 31 , 2017. the most significant changes that impact our company are the reduction in the corporate federal income tax rate from 35 % to 21 % and 100 % bonus depreciation for qualified property acquired and placed in service after september 27 , 2017 and before january 1 , 2023. in a manner consistent with accounting standards codification ( “ asc ” ) 740-10-25-47 , the effect of a change in tax law or rates shall be recognized at the date of enactment , accordingly , we accounted for the corporate federal income tax rate reduction in the fourth quarter of 2017 ( see note 17 , “ income taxes ” ) . 41 story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:0pt ; text-indent:5.24 % ; font-family : arial ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > gross profit increased during 2017 compared to 2016 by $ 203.6 million , to $ 1.6 billion , primarily driven by increased sales volume . gross margin decreased slightly due to the competitive environment in the first half of 2017. selling , general and administrative expenses replace_table_token_17_th selling , general and administrative expenses increased $ 173.6 million , or 16 % as compared to 2017. this is primarily related to 32 new stores which opened during 2017 , as well as costs associated with a full year of operations for our 2016 store openings . selling , general and administrative expenses increased slightly to 26.7 % of net sales , reflecting higher compensation , advertising and other corporate expenses commensurate with store growth and improved company performance . these increases were partially offset by $ 3.0 million in one-time costs associated with the executive chairman of the board 's retirement in the prior year . depreciation and amortization replace_table_token_18_th depreciation and amortization expense ( exclusive of depreciation included in cost of sales ) increased $ 15.9 million due primarily to new store growth with the opening of 32 new stores in 2017 . 46 store closure and other costs store closure and other costs were $ 1.1 million for 2017 and $ 0.2 million for 2016. during the third quarter of 2017 , 14 of our stores were affected by hurricanes in three states . although physical damage was minimal , the stores experienced loss of business due to temporary closures , inventory loss and additional expenses to clean up and power the stores . these costs , net of insurance recovery , totaled $ 0.7 million . interest expense , net replace_table_token_19_th the increase in interest expense , net is due to higher principal balances on the former credit facility and additional capital and financing leases recorded during 2017. income tax provision replace_table_token_20_th income tax provision decreased to $ 47.1 million for 2017 from $ 74.3 million for 2016 and our effective income tax rate decreased to 22.9 % in 2017 from 37.4 % in 2016. the decrease in the income tax provision and effective income tax rate are primarily related to a one-time tax benefit of $ 18.7 million associated with the reduction in the corporate federal income tax rate from 35 % to 21 % as a result of the enactment of the tax act , combined with the recognition of $ 9.9 million excess tax benefits related to the exercise or vesting of share-based awards in the income tax provision resulting from the adoption of asu 2016-09. see note 3 , “ significant accounting policies ” and note 17 , “ income taxes. ” net income replace_table_token_21_th net income increased $ 34.1 million as a result of higher sales and gross profit , combined with a lower income tax provision discussed above , partially offset by higher selling , general and administrative expense and depreciation expense commensurate with store growth . net income as a percentage of net sales increased due to the lower effective tax rate , partially offset by lower gross margin and higher compensation and benefits costs . 47 diluted earnings per share replace_table_token_22_th earnings per share for 2017 included a benefit of $ 0.14 per share for the 2017 effect of the tax act . earnings per share included a benefit of $ 0.04 per share for 2017 and $ 0.03 per share for 2016 related to the share repurchase program . quarterly financial data the following table sets forth certain of our unaudited consolidated statements of operations data for each of the fiscal quarters in 2018 and 2017. replace_table_token_23_th ( 1 ) effective in the fourth quarter of fiscal 2018 , we made a change in accounting principle to change the classification of certain expenses on our consolidated statements of income . the change is applied retrospectively to all periods presented .
| as a percentage of net sales , selling , general and administrative expenses increased slightly reflecting our planned investments in team member wages , benefits and training as well as higher store occupancy costs , which was partially offset by a reduction in workers compensation and general liability insurance costs due to improved claims experience and lower payroll taxes as a result of the state of california repaying its federal unemployment insurance loan . depreciation and amortization replace_table_token_9_th 43 depreciation and amortization expenses ( exclusive of depreciation included in cost of sales ) increased $ 13.9 million primarily related to new store growth as well as remodel initiatives in older vintages . store closure and other costs replace_table_token_10_th store closure and other costs in 2018 of $ 12.1 million includes non-cash charges of $ 8.0 million primarily related to lease termination obligations and asset disposals associated with the closure of two underperforming stores during the fourth quarter of 2018 , as well as one-time severance expense of $ 3.6 million associated with the resignation of our former chief executive officer . see note 16 , “ closed store reserves and other costs. ” interest expense , net replace_table_token_11_th the increase in interest expense is primarily related to the higher average balance outstanding under the amended and restated credit agreement primarily related to the company 's share repurchase program . see note 12 , “ long-term debt ” and note 20 , “ capital stock. ” income tax provision replace_table_token_12_th the effective tax rate declined to 19.0 % in 2018 primarily reflecting the reduction in the corporate federal income tax rate from 35 % to 21 % as a result of the enactment of the tax act , as well as $ 12.4 million in excess tax benefits primarily associated with the exercise of expiring pre-ipo options and a $ 2.6 million discrete benefit associated with a tax method change in conjunction with the tax act . 44 the effective tax rate in 2017 of 22.9 % reflects a one-time tax benefit of $ 18.7 million related to the remeasurement of our net deferred tax liabilities as a result of the enactment of the tax act , combined with the $ 9.9 million in excess tax benefits rel ated to the exercise or
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million , after underwriting discounts , commissions and offering expenses . immediately prior to the consummation of the ipo , all of our outstanding shares of convertible preferred stock were converted into 14.3 million shares of our common stock . in march 2018 , in a follow-on offering , we sold 8,117,647 shares of our common stock at a price of $ 8.50 per share , which included 1,058,823 shares issued pursuant to the underwriters ' exercise of their option to purchase additional shares of common stock . we received aggregate net proceeds of approximately $ 64.9 million , after underwriting discounts , commissions and offering expenses in september 2017 , we entered into a sales agreement ( the “ sales agreement ” ) with cowen and company , llc ( “ cowen ” ) to sell shares of the company 's common stock , from time to time , with aggregate gross sales proceeds of up to $ 125,000,000 , through an at‑the‑market equity offering program under which cowen acted as our sales agent . cowen was entitled to compensation for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold through cowen under the sales agreement . as of december 31 , 2019 , we had sold 52,569 shares of our common stock for gross proceed of approximately $ 894,000 pursuant to the sales agreement . we terminated the sales agreement in february 2020. as of december 31 , 2019 , we had capital resources consisting of cash , cash equivalents and marketable securities of approximately $ 78.0 million . we do not expect our existing capital resources to be sufficient to enable us to fund the completion of our clinical trials and remaining development program of any of ciforadenant , cpi-006 or cpi-818 through commercialization . in addition , our operating plan may change as a result of many factors , including those described in the section of this report entitled “ risk factors ” and others currently unknown to us , and we may need to seek additional funds sooner than planned , through public or private equity , debt financings or other sources , such as strategic collaborations . such financing would result in dilution to stockholders , imposition of debt covenants and repayment obligations or other restrictions that may affect our business . if we raise additional capital through strategic collaboration agreements , we may have to relinquish valuable rights to our product candidates , including possible future revenue streams . in addition , additional funding may not be available to us on acceptable terms or at all and any additional fundraising efforts may divert our management from its day-to-day activities , which may adversely affect our ability to develop and commercialize our product candidates . furthermore , even if we believe we have sufficient funds for our current or future operating plans , we may seek additional capital due to favorable market conditions or strategic considerations . we currently have no manufacturing capabilities and do not intend to establish any such capabilities . we have no commercial manufacturing facilities for our product candidates . as such , we are dependent on third parties to supply our product candidates according to our specifications , in sufficient quantities , on time , in compliance with appropriate regulatory standards and at competitive prices . components of results of operations revenue to date , we have not generated any revenues . we do not expect to receive any revenues from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into revenue‑generating collaboration agreements with third parties . 82 research and development expenses our research and development expenses consist primarily of costs incurred to conduct research and development of our product candidates . we record research and development expenses as incurred . research and development expenses include : · employee-related expenses , including salaries , benefits , travel and non-cash stock-based compensation expense ; · external research and development expenses incurred under arrangements with third parties , such as contract research organizations , preclinical testing organizations , contract manufacturing organizations , academic and non-profit institutions and consultants ; · costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use ; · license fees ; and · other expenses , which include direct and allocated expenses for laboratory , facilities and other costs . we plan to increase our research and development expenses substantially as we continue the development and potential commercialization of our product candidates . our current planned research and development activities include the following : · enrollment and completion of our phase 1/1b clinical trial and amended phase 1b/2 clinical trial of ciforadenant ; · enrollment of our ongoing phase 1/1b clinical trial of cpi-006 ; · enrollment of our ongoing phase 1/1b clinical trial of cpi-818 ; · process development and manufacturing of drug supply of ciforadenant , cpi-006 and cpi-818 ; and · preclinical studies under our other programs in order to select development product candidates . in addition to our product candidates that are in clinical development , we believe it is important to continue substantial investment in potential new product candidates to build the value of our product candidate pipeline and our business . our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties related to timing and cost to completion . the duration , costs and timing of clinical trials and development of product candidates will depend on a variety of factors , including many of which are beyond our control . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming , and the successful development of our product candidates is uncertain . the risks and uncertainties associated with our research and development projects are discussed more fully in “ part 1 , item 1a—risk factors. story_separator_special_tag ” as a result of these risks and uncertainties , we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects or if , when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . 83 general and administrative expenses general and administrative expenses include personnel costs , expenses for outside professional services and allocated expenses . personnel costs consist of salaries , benefits and stock‑based compensation . outside professional services consist of legal , accounting and audit services and other consulting fees . allocated expenses consist of rent expense related to our office and research and development facility . we expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of one or more of our product candidates . story_separator_special_tag style= '' margin-left:10.2941176470588 % ; margin-right:10.2941176470588 % ; '' > 85 liquidity and capital resources sources of liquidity as of december 31 , 2019 , we had cash , cash equivalents and marketable securities of $ 78.0 million and an accumulated deficit of $ 217.1 million , compared to cash , cash equivalents and marketable securities of $ 114.6 million and an accumulated deficit of $ 170.5 million as of december 31 , 2018. we have financed our operations primarily through sales of our common stock and convertible preferred stock . in march 2016 , we consummated our ipo and sold 4,700,000 shares of our common stock at a price of $ 15.00 per share , and in april 2016 , sold 502,618 shares at a price of $ 15.00 per share pursuant to the partial exercise of the underwriters ' option to purchase additional shares of common stock . we received net proceeds of approximately $ 70.6 million , after deducting underwriting discounts , commissions and offering expenses . immediately prior to the consummation of our ipo , all outstanding shares of the convertible preferred stock were converted into common stock on a one‑for‑one basis . in march 2018 , in a follow-on offering , we sold 8,117,647 shares of our common stock at a price of $ 8.50 per share , which included 1,058,823 shares issued pursuant to the underwriters ' exercise of their option to purchase additional shares of common stock . we received aggregate net proceeds of approximately $ 64.9 million , after underwriting discounts , commissions and offering expenses . we believe our current cash , cash equivalents and marketable securities will be sufficient to fund our planned expenditures and meet our obligations through at least the next twelve months from the issuance of our financial statements as of and for year ended december 31 , 2019. the amounts and timing of our actual expenditures depend on numerous factors , including : · the progress , timing , costs and results of clinical trials for ciforadenant , cpi-006 and cpi-818 ; · the timing , progress , costs and results of preclinical and clinical development activities for our other product candidates ; · the number and scope of preclinical and clinical programs we decide to pursue ; · the costs involved in prosecuting , maintaining and enforcing patent and other intellectual property rights ; · the cost and timing of regulatory approvals ; · our efforts to enhance operational systems and hire additional personnel , including personnel to support development of our product candidates and satisfy our obligations as a public company ; and · other factors described in the section of this report entitled “ risk factors. ” we expect to increase our spending in connection with the development and commercialization of our product candidates . until such time , if ever , as we can generate substantial revenue from product sales , we expect to fund our operations and capital funding needs through equity and or debt financings . we may also enter into additional collaboration arrangements or selectively partner for clinical development and commercialization . the sale of additional equity would result in dilution to our stockholders . the incurrence of debt financing would result in debt service obligations and the governing documents would likely include operating and financing covenants that would restrict our operations . in addition , sufficient additional funding may not be available on acceptable terms , or at all . if we are not able to secure adequate additional funding , we may be forced to make reductions in spending , extend payment terms with suppliers , liquidate assets where possible and or suspend or curtail planned programs . any of these actions could have a material effect on our business , financial condition and results of operations . 86 summary of statement of cash flows the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_7_th cash flows from operating activities cash used in operating activities during the year ended december 31 , 2019 was $ 37.3 million , which primarily consisted of a net loss of $ 46.7 million , adjusted by non‑cash charges of $ 7.4 million , primarily consisting of $ 7.3 million of stock compensation expense , an increase of $ 2.5 million in accounts payable and accrued and other liabilities and an increase of $ 0.4 million in prepaid and other current assets , primarily associated with the timing of payments to vendors .
| for the year ended december 31 , 2019 , the increase in unallocated costs of $ 1.4 million as compared to the year ended december 31 , 2018 , primarily consisted of an increase in personnel and related costs . for the year ended december 31 , 2018 , the decrease in ciforadenant costs of $ 12.8 million as compared to the year ended december 31 , 2017 , primarily consisted of a $ 3.0 million milestone payment to vernalis in 2017 , a decrease of $ 7.4 million in clinical trial expenses associated with lower enrollment in accordance with our protocol amendment focusing on rcc patients , a decrease of $ 1.8 million in contracted research costs , and a decrease of $ 0.6 million in drug manufacturing costs . for the year ended december 31 , 2018 , the increase in cpi-006 costs of $ 0.1 million as compared to the year ended december 31 , 2017 , primarily consisted of a $ 2.5 million increase in clinical trial expenses , partially offset by a $ 1.6 million decrease in drug manufacturing costs and a $ 0.8 million decrease in ind-enabling study costs . for the year ended december 31 , 2018 , the increase in cpi-818 costs of $ 2.9 million as compared to the year ended december 31 , 2017 , primarily consisted of a $ 1.9 million increase in drug manufacturing costs and a $ 1.0 million increase in ind-enabling study costs . for the year ended december 31 , 2018 , the increase in costs related to other programs of $ 0.3 million as compared to the year ended december 31 , 2017 , primarily consisted of outside chemical synthesis and testing of research compounds . for the year ended december 31 , 2018 , the increase in unallocated costs of $ 1.7 million as compared to the year ended december 31 , 2017 , primarily consisted of an increase of $ 1.2 million in personnel and related costs ( including an increase
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the diversification of deposits among bank partners and varied contract terms substantially reduces our exposure to short-term fluctuations in prevailing interest rates and mitigates the short-term impact of a sustained increase or decline in prevailing interest rates on our custodial revenue . a sustained decline in prevailing interest rates may negatively affect our business by reducing the size of the interest rate yield , or yield , available to us and thus the amount of the custodial revenue we can realize . conversely , a sustained increase in prevailing interest rates can increase our yield over time . an increase in our yield would increase our custodial revenue as a percentage of total revenue . in addition , as our yield increases , we expect the spread to grow between the interest offered to us by our custodial depository bank partners and the interest retained by our members , thus increasing our profitability . however , we may be required to increase the interest retained by our members in a rising prevailing interest rate environment . changes in prevailing interest rates are driven by macroeconomic trends and government policies over which we have no control . our competition and industry our direct competitors are hsa custodians . many of these are state or federally chartered banks and other financial institutions for which we believe technology-based healthcare services are not a core business . certain of our direct competitors have chosen to exit the market despite increased demand for these services . this has created , and we believe will continue to create , opportunities for us to leverage our technology platform and capabilities to increase our market share . however , some of our direct competitors are in a position , should they choose , to devote more resources to the development , sale and support of their products and services than we have at our disposal . in addition , numerous indirect competitors , including benefits administration technology and service providers , partner with banks and other hsa custodians to compete with us . our health plan and administrator partners may also choose to offer technology-based healthcare services directly , as some health plans have done . our success depends on our ability to predict and react quickly to these and other industry and competitive dynamics . regulatory environment federal law and regulations , including the affordable care act , the internal revenue code and irs regulations , the employee retirement income security act and department of labor regulations , and public health regulations that govern the provision of health insurance , play a pivotal role in determining our market opportunity . privacy and data - 30 - security-related laws such as the health insurance portability and accountability act , or hipaa , and the gramm-leach-bliley act , laws governing the provision of investment advice to consumers , such as the investment advisers act of 1940 , or the advisers act , the usa patriot act , anti-money laundry laws , and the federal deposit insurance act , all play a similar role in determining our competitive landscape . in addition , state-level regulations also have significant implications for our business in some cases . for example , our subsidiary healthequity trust company is regulated by the wyoming division of banking , and several states are considering , or have already passed , new fiduciary rules that can affect our business . our ability to predict and react quickly to relevant legal and regulatory trends and to correctly interpret their market and competitive implications is important to our success . our acquisition strategy we have a successful history of acquiring complementary assets and businesses that strengthen our platform . we seek to continue this growth strategy and are regularly engaged in evaluating different opportunities . we have developed an internal capability to source , evaluate and integrate acquisitions that have created value for shareholders . we believe the nature of our competitive landscape provides a significant acquisition opportunity . many of our competitors view their hsa businesses as non-core functions . we believe more of them will look to divest these assets and , in certain cases , be limited from making acquisitions due to depository capital requirements . we intend to continue to pursue acquisitions of complementary assets and businesses that we believe will strengthen our platform . key financial and operating metrics our management regularly reviews a number of key operating and financial metrics to evaluate our business , determine the allocation of our resources , make decisions regarding corporate strategies and evaluate forward-looking projections and trends affecting our business . we discuss certain of these key financial metrics , including revenue , below in the section entitled “ key components of our results of operations. ” in addition , we utilize other key metrics as described below . hsa members the following table sets forth our hsa members for the periods indicated : replace_table_token_4_th hsa members is critical because our service revenue is driven by the amount we charge per hsa member . the number of our hsa members increased by approximately 657,000 , or 24 % , from january 31 , 2017 to january 31 , 2018 , and by approximately 606,000 , or 28 % , from january 31 , 2016 to january 31 , 2017 . the increase in the number of our hsa members in these periods was primarily driven by the addition of new network partners and further penetration into existing network partners . in addition , during the year ended january 31 , 2018 , we acquired the rights to be custodian of first interstate bancsystem and alliant credit union portfolios consisting of approximately 14,000 and 40,000 hsa members , respectively . during the year ended january 31 , 2016 , we acquired the rights to be the custodian of the bancorp bank and m & t bank hsa portfolios consisting of approximately 160,000 and 35,000 hsa members , respectively , the latter of which transitioned to our platform during the year ended january 31 , 2017 . story_separator_special_tag - 31 - custodial assets the following table sets forth our custodial assets for the periods indicated : replace_table_token_5_th our custodial assets , which are our hsa members ' assets for which we are the custodian , consist of the following components : ( 1 ) custodial cash deposits , which are deposits with our fdic-insured custodial depository bank partners , ( 2 ) custodial cash deposits invested in an annuity contract with our insurance company partner and ( 3 ) members ' investments in mutual funds through our custodial investment fund partner . measuring our custodial assets is important because our custodial revenue is directly affected by average daily custodial balances . our total custodial assets increased by $ 1.7 billion , or 35 % , from january 31 , 2017 to january 31 , 2018 . our total custodial assets increased by $ 1.4 billion , or 37 % , from january 31 , 2016 to january 31 , 2017 . the increase in total custodial assets in these periods was driven by additional custodial assets from our existing hsa members and new custodial assets from new hsa members added during the fiscal year . in addition , during the year ended january 31 , 2018 , we acquired the rights to be custodian of first interstate bancsystem and alliant credit union portfolios consisting of approximately $ 55.0 million and $ 109.0 million of custodial assets , respectively . during the year ended january 31 , 2016 , we acquired the rights to be the custodian of the bancorp bank and m & t bank hsa portfolios consisting of approximately $ 390.0 million and $ 63.0 million of custodial assets , respectively , the latter of which transitioned to our platform during the year ended january 31 , 2017 . adjusted ebitda we define adjusted ebitda , which is a non-gaap financial metric , as adjusted earnings before interest , taxes , depreciation and amortization , stock-based compensation expense , and certain other non-cash statement of operations items . we believe that adjusted ebitda provides useful information to investors and analysts in understanding and evaluating our operating results in the same manner as our management and our board of directors because it reflects operating profitability before consideration of non-operating expenses and non-cash expenses , and serves as a basis for comparison against other companies in our industry . the following table presents a reconciliation of net income , the most comparable gaap financial measure , to adjusted ebitda for each of the periods indicated : replace_table_token_6_th ( 1 ) for the years ended january 31 , 2018 , 2017 and 2016 , other consisted of non-income based taxes of $ 439 , $ 358 and $ 334 , acquisition-related costs of $ 2,197 , $ 631 and $ 471 , and other costs of $ 53 , $ 359 and $ 105 , respectively . the following table sets forth our adjusted ebitda : replace_table_token_7_th - 32 - our adjusted ebitda increased by $ 21.9 million , or 35 % , from $ 62.8 million for the year ended january 31 , 2017 to $ 84.7 million for the year ended january 31 , 2018 . the increase in adjusted ebitda was driven by the overall growth of our business , including a $ 13.2 million , or 32 % , increase in income from operations . our adjusted ebitda increased by $ 22.2 million , or 55 % , from $ 40.6 million for the year ended january 31 , 2016 to $ 62.8 million for the year ended january 31 , 2017 . the increase in adjusted ebitda was driven by the overall growth of our business , including a $ 15.1 million , or 58 % , increase in income from operations . our use of adjusted ebitda has limitations as an analytical tool , and it should not be considered in isolation or as a substitute for analysis of our results as reported under gaap . key components of our results of operations revenue the following table sets forth our revenue for the periods indicated : replace_table_token_8_th we earn revenue from three primary sources : service revenue , custodial revenue and interchange revenue . service revenue . we earn service revenue from the fees we charge our network partners , employer clients and individual members for the administration services we provide in connection with the hsas and ras we offer . with respect to our network partners , our fees are generally based on a fixed tiered structure for the duration of our agreement with the relevant network partner and are paid to us on a monthly basis . we recognize revenue on a monthly basis as services are rendered under our written service agreements . custodial revenue . we earn custodial revenue from our custodial cash assets deposited with our fdic-insured custodial depository bank partners and with our insurance company partner , and recordkeeping fees we earn in respect of mutual funds in which our members invest . as a non-bank custodian , we deposit our custodial cash with our various bank partners pursuant to contracts that ( i ) have terms up to five years , ( ii ) provide for a fixed or variable interest rate payable on the average daily cash balances deposited with the relevant bank partner , and ( iii ) have minimum and maximum required deposit balances . we earn custodial revenue on our custodial cash that is based on the interest rates offered to us by these bank partners . in addition , once a member 's hsa cash balance reaches a certain threshold , the member is able to invest his or her hsa assets in mutual funds through our custodial investment partner . we receive a recordkeeping fee related to such custodial investments . interchange revenue . we earn interchange revenue each time one of our members uses one of our payment cards to make a qualified purchase .
| custodial revenue the $ 27.6 million , or 46 % , increase in custodial revenue from the year ended january 31 , 2017 to the year ended january 31 , 2018 was primarily due to an increase in average daily custodial cash of $ 910.3 million , or 25 % , and an increase in the yield on average custodial cash from 1.58 % in the year ended january 31 , 2017 to 1.83 % in the year ended january 31 , 2018 . the $ 21.8 million , or 58 % , increase in custodial revenue from the year ended january 31 , 2016 to the year ended january 31 , 2017 was primarily due to an increase in average daily custodial cash of $ 1.3 billion , or 57 % , as well as a slight increase in the yield on average custodial cash from 1.57 % in the year ended january 31 , 2016 to 1.58 % in the year ended january 31 , 2017 . custodial revenue as a percentage of our total revenue continues to increase primarily due to our entry into new custodial depository agreements with higher interest rates payable on average cash balances deposited thereunder , and also due to average daily custodial cash assets growing at a faster rate than the number of hsa members , which is evidenced by an increase in custodial cash per hsa , which was $ 1,613 , $ 1,595 , and $ 1,532 as of january 31 , 2018 , 2017 and 2016 , respectively . custodial revenue per hsa member increased by approximately 16 % from the year ended january 31 , 2017 to the year ended january 31 , 2018 , and approximately 8 % from the year ended january 31 , 2016 to the year ended january 31 , 2017 , primarily due to the higher yield and higher average custodial cash balances . interchange revenue the $ 9.2 million , or 22 % , increase in interchange revenue from the year ended january 31 , 2017 to the year ended january 31 , 2018 was due to an overall increase in the number of our hsa members and payment activity , partially offset by the lower interchange revenue per hsa member described below . in addition , we continued to see a trend toward more hsa spending through payment card transaction
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the original agreement , signed in 2010 , provided us with the exclusive worldwide license rights to create , produce and distribute fragrances and fragrance related products under the montblanc brand through december 31 , 2020. the new 10-year agreement , which went into effect on january 1 , 2016 , extends the partnership through december 31 , 2025 without any material changes in operating conditions from the prior license . the license agreement is subject to certain minimum sales , advertising expenditures and royalty payments as are customary in our industry . 37 french connection in september 2015 , we entered into a 12-year license agreement to create , produce and distribute fragrances and fragrance related products under the french connection brand names . the agreement is subject to certain minimum advertising expenditures and royalty payments as are customary in our industry . the license agreement was subject to certain conditions precedent , which have now been satisfied , and we took over distribution of selected fragrances within the brand 's existing fragrance portfolio in 2016. rochas in may 2015 , we acquired the rochas brand from the procter & gamble company . this transaction includes all brand names and registered trademarks for rochas ( femme , madame , eau de rochas , etc . ) , mainly for class 3 ( cosmetics ) and class 25 ( fashion ) . substantially the entire 106 million purchase price for the assets acquired ( approximately $ 118 million ) , including approximately $ 5.4 million in acquisition related expenses , was allocated to trademarks with indefinite lives including approximately $ 21 million of which was allocated to fashion trademarks . an additional $ 4.4 million was paid for related inventory . coach in april 2015 , we entered into an 11-year exclusive worldwide license with coach , inc. to create , produce and distribute new men 's and women 's fragrances and fragrance related products under the coach brand name . we will distribute these fragrances globally to department stores , specialty stores and duty free shops , as well as in coach retail stores beginning in 2016. the agreement is subject to certain minimum sales , advertising expenditures and royalty payments as are customary in our industry . discussion of critical accounting policies we make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the united states of america . actual results could differ significantly from those estimates under different assumptions and conditions . we believe the following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations . these accounting policies generally require our management 's most difficult and subjective judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . management of the company has discussed the selection of significant accounting policies and the effect of estimates with the audit committee of the board of directors . revenue recognition we sell our products to department stores , perfumeries , specialty stores , mass market retailers , supermarkets and domestic and international wholesalers and distributors . sales of such products by our domestic subsidiaries are denominated in u.s. dollars and sales of such products by our foreign subsidiaries are primarily denominated in either euro or u.s. dollars . we recognize revenues when merchandise is shipped and the risk of loss passes to the customer . net sales are comprised of gross revenues less returns , trade discounts and allowances . 38 accounts receivable accounts receivable represent payments due to the company for previously recognized net sales , reduced by allowances for sales returns and doubtful accounts . accounts receivable balances are written-off against the allowance for doubtful accounts when they become uncollectible . recoveries of accounts receivable previously recorded against the allowance are recorded in the consolidated statement of income when received . we generally grant credit based upon our analysis of the customer 's financial position as well as previously established buying patterns . sales returns generally , we do not permit customers to return their unsold products . however , for u.s. distribution of our prestige products , we allow returns if properly requested , authorized and approved . we regularly review and revise , as deemed necessary , our estimate of reserves for future sales returns based primarily upon historic trends and relevant current data , including information provided by retailers regarding their inventory levels . in addition , as necessary , specific accruals may be established for significant future known or anticipated events . the types of known or anticipated events that we have considered , and will continue to consider , include , but are not limited to , the financial condition of our customers , store closings by retailers , changes in the retail environment and our decision to continue to support new and existing products . we record estimated reserves for sales returns as a reduction of sales , cost of sales and accounts receivable . returned products are recorded as inventories and are valued based upon estimated realizable value . the physical condition and marketability of returned products are the major factors we consider in estimating realizable value . actual returns , as well as estimated realizable values of returned products , may differ significantly , either favorably or unfavorably , from our estimates , if factors such as economic conditions , inventory levels or competitive conditions differ from our expectations . inventories inventories are stated at the lower of cost or market value . cost is principally determined by the first-in , first-out method . we record adjustments to the cost of inventories based upon our sales forecast and the physical condition of the inventories . these adjustments are estimates , which could vary significantly , either favorably or unfavorably , from actual requirements if future economic conditions or competitive conditions differ from our expectations . story_separator_special_tag equipment and other long-lived assets equipment , which includes tools and molds , is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets . changes in circumstances such as technological advances , changes to our business model or changes in our capital spending strategy can result in the actual useful lives differing from our estimates . in those cases where we determine that the useful life of equipment should be shortened , we would depreciate the net book value in excess of the salvage value , over its revised remaining useful life , thereby increasing depreciation expense . factors such as changes in the planned use of equipment , or market acceptance of products , could result in shortened useful lives . 39 we evaluate indefinite-lived intangible assets for impairment at least annually during the fourth quarter , or more frequently when events occur or circumstances change , such as an unexpected decline in sales , that would more likely than not indicate that the carrying value of an indefinite-lived intangible asset may not be recoverable . when testing indefinite-lived intangible assets for impairment , the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset . the fair values used in our evaluations are estimated based upon discounted future cash flow projections using a weighted average cost of capital of 8.02 % . the cash flow projections are based upon a number of assumptions , including , future sales levels and future cost of goods and operating expense levels , as well as economic conditions , changes to our business model or changes in consumer acceptance of our products which are more subjective in nature . if the carrying value of an indefinite-lived intangible asset exceeds its fair value , an impairment charge is recorded . we believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable and currently no impairment indicators exist for our indefinite-lived intangible assets . however , if future actual results do not meet our expectations , we may be required to record an impairment charge , the amount of which could be material to our results of operations . at december 31 , 2015 indefinite-lived intangible asset aggregated $ 119.5 million . the following table presents the impact a change in the following significant assumptions would have had on the calculated fair value in 2015 assuming all other assumptions remained constant : replace_table_token_8_th intangible assets subject to amortization are evaluated for impairment testing whenever events or changes in circumstances indicate that the carrying amount of an amortizable intangible asset may not be recoverable . if impairment indicators exist for an amortizable intangible asset , the undiscounted future cash flows associated with the expected service potential of the asset are compared to the carrying value of the asset . if our projection of undiscounted future cash flows is in excess of the carrying value of the intangible asset , no impairment charge is recorded . if our projection of undiscounted future cash flows is less than the carrying value of the intangible asset , an impairment charge would be recorded to reduce the intangible asset to its fair value . the cash flow projections are based upon a number of assumptions , including future sales levels and future cost of goods and operating expense levels , as well as economic conditions , changes to our business model or changes in consumer acceptance of our products which are more subjective in nature . we believe that the assumptions we have made in projecting future cash flows for the evaluations described above are reasonable and currently no impairment indicators exist for our intangible assets subject to amortization . in those cases where we determine that the useful life of long-lived assets should be shortened , we would depreciate the net book value in excess of the salvage value ( after testing for impairment as described above ) , over the revised remaining useful life of such asset thereby increasing amortization expense . 40 in determining the useful life of our lanvin brand names and trademarks , we applied the provisions of asc topic 350-30-35-3. the only factor that prevented us from determining that the lanvin brand names and trademarks were indefinite life intangible assets was item c. “ any legal , regulatory , or contractual provisions that may limit the useful life. ” the existence of a repurchase option in 2025 may limit the useful life of the lanvin brand names and trademarks to the company . however , this limitation would only take effect if the repurchase option were to be exercised and the repurchase price was paid . if the repurchase option is not exercised , then the lanvin brand names and trademarks are expected to continue to contribute directly to the future cash flows of our company and their useful life would be considered to be indefinite . with respect to the application of asc topic 350-30-35-8 , the lanvin brand names and trademarks would only have a finite life to our company if the repurchase option were exercised , and in applying asc topic 350-30-35-8 , we assumed that the repurchase option is exercised . when exercised , lanvin has an obligation to pay the exercise price and the company would be required to convey the lanvin brand names and trademarks back to lanvin . the exercise price to be received ( residual value ) is well in excess of the carrying value of the lanvin brand names and trademarks , therefore no amortization is required . derivatives we account for derivative financial instruments in accordance with asc topic 815 , which establishes accounting and reporting standards for derivative instruments , including certain derivative instruments embedded in other contracts , and for hedging activities . this topic also requires the recognition of all derivative instruments as either assets or liabilities on the balance sheet and that they are measured at fair value .
| with only a new line extension launched for the lanvin brand in 2015 , sales were off only 6 % in local currency , but 21 % in dollars , in 2015 as compared to 2014. montblanc brand sales increased 6 % in local currency but declined 12 % in dollars in 2015 , as compared to 2014. the brand benefitted from both established scents , such as legend and emblem along with initial sales for the lady emblem line . while the montblanc brands growth rate slowed somewhat in 2015 , it followed the exceptional 2012 through 2014 year-over-year growth rates in local currency of 51 % , 35 % and 33 % , respectively . the excellent market response to boucheron quatre enhanced that brands performance in 2015 with sales up 6 % to $ 19.7 million in 2015 as compared to $ 18.5 million in 2014. the most disappointing performance was that of the karl lagerfeld brand , which saw brand sales decline 43 % in local currency or 53 % in dollars , as its initial 2014 launch did not gain the traction originally anticipated . ongoing european based prestige product sales increased 18 % in 2014 to $ 394.0 million , as compared to 2013. new product launches were the primary catalyst for sales growth in 2014. karl lagerfeld 's signature scents for both men and women yielded $ 24.2 million in incremental sales in 2014. steady gains from legend fragrances along with the 2014 launch of emblem , enabled montblanc brand sales to continue to outperform expectations with sales reaching $ 110.8 million in 2014 , up 33 % as compared to 2013. the successful 2014 launch of jimmy choo man enabled jimmy choo brand sales in 2014 to reach $ 78.5 million , up 8 % as compared to 2013. with a strong performance by éclat d'arpège and the launch of lanvin me l'eau in 2014 brand sales increased 5 % to $ 90.3 million in 2014 as compared to 2013. it was anticipated that 2015 was going to be a very challenging year from a currency perspective . the significant strength of the u.s. dollar began early on in 2015 and its effect on currency exchange rates continued throughout the year . as mentioned above , the average u.s. dollar/euro exchange
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we procure untreated crossties , either on behalf of our customers , or for our own inventory for future treating . we also procure switch ties and various other types of lumber used for railroad bridges and crossings . untreated crossties go through a six- to nine-month air seasoning process before they are ready to be pressure treated . after the air seasoning process is complete , the crossties are pressure treated using creosote-only treatment or a combined creosote and borate treatment . during any given year , there is a seasonal effect in the winter and spring months on our crosstie business depending on weather conditions for harvesting lumber and crosstie installation . for the past several years , the major companies in the rail industry substantially reduced both operating and capital spending from peak spending levels , which had a negative impact on sales of various products and services that we provide to that industry . current year revenues and profitability reflect an increase year-over-year due to a slight rise in demand as capital budgets have now stabilized for most north american class i railroads . we currently supply all seven of the north american class i railroads and have long-standing relationships with these customers . approximately 72 percent of our north american sales are under long-term contracts and we believe that we are positioned to maintain or grow our current market position . according to the association of american railroads ( “ aar ” ) , railroads are facing multiple challenges that include fundamental long-term structural changes as a result of the continued decline of coal markets , growth in the domestic intermodal and chemical sectors , evolution of consumer purchasing practices , and disruptions stemming from trade uncertainty . in the recent past , the class i railroads were highly dependent on the oil and gas and coal mining industries . currently , the railroads are more correlated to commodity prices , interest rates and trade relations . the aar reported that rail traffic trended down for much of 2019. for the twelve months ended december 31 , 2019 , total u.s. carload traffic decreased 4.9 percent from the prior year while intermodal units were lower by 5.1 percent from the prior year , and on a combined basis , u.s. traffic for carloads and intermodal units was 5.0 percent lower than the prior year . the decline can be attributed to continuing demand weakness in coal markets as well as trade disputes and related uncertainties , which had more of a dampening effect on rail-served industries than the overall economy . although year-over-year rail traffic had been relatively positive during the past several years prior to 2019 , the amount of heavy-haul loads such as coal and fracking sands have declined significantly from historical levels . as a result , this translates into lighter-weight loads having less wear on tracks and ties . the aar reports that coal was by far the biggest source of u.s. rail carload decline in 2019 , falling by 9.2 percent compared with the prior year . in 2019 , the coal carloads were at the lowest level in decades and were 45 percent lower than the previous peak in 2006. additionally , the current demand for rail service has been softening due to lower u.s. manufacturing output , decelerating market trends in housing and tensions with trading partners overseas . over an economic cycle , the long-term prognosis for the railroad industry and the products and services that we provide to it are generally favorable . however , in the near-term , railroad customers have scaled back and are focusing on reducing their operating costs and working capital . in general , demand has shown improvements in 2019 and we anticipate that to continue , contingent on the availability of lumber for untreated crosstie production . in terms of raw material , in 2018 , there was less available inventory of untreated crossties from the sawmills and lumber prices increased dramatically due to unfavorable weather conditions affecting production . during 2019 , lumber prices declined and remained relatively stable ; however , the weather challenges in the first half of the year negatively affected the availability of logs for production at sawmill operators . the rta indicates that the industry continues to experience a shortage of lumber availability and consequently , the sawmills are reducing their tie production , which has resulted in a tightness in the supply of untreated crossties which constrains our ability to procure needed inventory . in addition , the potential effects from the current or future tariffs on trade between china and the u.s. may negatively impact the hardwood industry and the availability of lumber . the conditions for log availability improved somewhat late in the second quarter of 2019 and continued throughout the remainder of the year . to the extent that we can build our untreated tie inventory , we anticipate having higher levels of dry crosstie inventory ready for future treatment . from a long-term perspective , we believe there remains a need for sustained investment in infrastructure and capacity expansion . we believe that with our vertical integration capabilities in wood treatment and strong customer relationships , we will ultimately benefit from increased demand . 28 koppers holdings inc. 2019 annual report strategic initiatives and integration synergies as part of optimizing our business , we continue to evaluate a number of opportunities to improve efficiencies in our operational processes , people and facilities . with 17 north american rups treating facilities operating at less than full utilization , our goal is to either capture more volume through the existing facilities or consolidate our operating footprint . we are pursuing actions to achieve both goals as demonstrated by the sale of our blackstone , virginia utility pole treating facility in 2019. performance chemicals the largest geographic market for wood treating chemicals sold by our pc business is in north america , and the largest application for our products is the residential remodeling market . story_separator_special_tag we also have a market presence in europe , south america , australia , new zealand and africa . we believe that pc is the largest global manufacturer and supplier of water-based wood preservatives and wood specialty additives to treaters that supply pressure treated wood products to large retailers and independent lumber dealers . these retailers and dealers , in turn , serve the residential , agricultural and industrial pressure-treated wood market . our primary products are copper-based wood preservatives , including micronized copper azole ( “ micropro® ” ) and micronized pigments ( “ microshades® ” ) . applications for these products include decking , fencing , utility poles , construction lumber and other outdoor structures . in north america , we are vertically integrated due to our manufacturing capabilities for copper compounds for our copper-based wood preservatives . we believe our vertical integration is part of our proprietary processes and reflects an important competitive advantage . as most of the products sold by pc are copper-based products , changes in the price and availability of copper can have a significant impact on product pricing and margins . we attempt to moderate the variability in copper pricing over time by entering into hedging transactions for the majority of our copper needs , which primarily range from six months up to 36 months . these hedges typically match expected customer purchases and receive hedge accounting treatment . from time to time , we enter into forward transactions based upon long-term forecasted needs of copper . these forward positions are typically marked to market . product demand for our pc business has historically been closely associated with consumer spending on home repair and remodeling projects , and therefore , trends in existing home sales serve as a leading indicator . overall , the market for existing homes continues to show mixed signals . according to the national association of realtors® ( “ nar ” ) , total existing-home sales in december increased 3.6 percent from november . although the midwest saw sales decline , the other three major u.s. regions reported meaningful growth from the previous month . compared with prior year , overall sales grew significantly , up 10.8 percent from a year ago . on a full-year basis , total existing-home sales were neutral as sales were at the same level as in 2018. even with historically low mortgage rates , sales have not commensurately increased , in part due to a low level of new housing options . given the housing shortage , home prices are rising too rapidly , and this lack of inventory is preventing a potentially higher growth rate in existing-home sales . according to the leading indicator of remodeling activity ( “ lira ” ) reported by the joint center for housing studies of harvard university , national spending for improvements and repairs on owner-occupied homes is expected to rise only modestly in 2020. the lira projects that home remodeling expenditures will increase by just 1.5 percent in 2020 compared with annual gains of five percent to seven percent in recent years . while homebuilding and sales activity are projected to show modest growth , slowing demand in 2019 will likely continue to pull on remodeling spending growth through mid-2020 and then is expected to moderate in the second half of the year . even with a lackluster growth projection , homeowner improvement and repair expenditures are still set to expand to more than $ 330 billion in 2020. however , the current environment of low interest rates may help to counter some of these headwinds , which could boost home improvement expenditures over the next six to twelve months . the conference board consumer confidence index® decreased marginally in december , following a slight increase in november . the index now stands at 126.5 , slightly down from 126.8 in november . c onsumers ' assessment of current conditions improved ; however , their expectations declined , primarily due to a softening in their short-term outlook regarding jobs and financial prospects . although the economy is not showing signs of further weakening , consumer spending in 2020 is not expected to gain momentum in the next several months . 29 from a margin perspective , our profitability was unfavorably impacted for the past two years by rising raw material costs , primarily due to copper prices which began to trend higher in 2017 , continued into 2018 and then pulled back from highs reached in the first half of 2018. overall , copper prices in 2018 were higher , and given that we make purchasing commitments approximately 12 to 18 months in advance of the following 12-month period , we experienced higher year-over-year raw material costs throughout 2019. the market prices for copper were lower in 2019 , therefore , we anticipate lower year-over-year raw material costs throughout 2020. our strategy is to hedge a majority of our requirements over a one-to-three year time frame in order to provide short-term certainty and visibility of our cost structure by lessening the volatility that may arise in commodity markets . in a rising copper price environment , as has been the case for much of the past twenty-four months , our average hedged prices have increased from prior year . we have and will continue to implement pricing actions , where possible , to partially offset the impact of higher input costs . carbon materials and chemicals the primary products produced by cmc are creosote , which is a registered pesticide in the united states and used primarily in the pressure treatment of railroad crossties , and carbon pitch , which is sold primarily to the aluminum industry for the production of carbon anodes used in the smelting of aluminum . we have reduced capacity in our cmc plants in north america and europe over the past several years to levels required to meet creosote demand in north america for the treatment of railroad crossties .
| operating profit for the year ended december 31 , 2018 was positively affected by higher sales prices for most products and regions within the segment , primarily attributed to carbon pitch , and a more streamlined and efficient cost structure . these positive results were partially offset by lower sales volumes in north america , australasia and europe and higher raw material costs in australasia and europe . cash flow net cash provided by operating activities was $ 115.3 million for the year ended december 31 , 2019 as compared to net cash provided by operating activities of $ 78.3 million for the year ended december 31 , 2018. the net increase of $ 37.0 million in cash provided by operations was due primarily to lower working capital usage of $ 30.7 million compared to the prior year period , mainly due to favorable timing of accounts receivable collections in the current year period and prior period payment of amounts owed to a chinese customer under the operation of a long-term sales contract . in addition , the change in income and certain operating activities of $ 6.3 million from the prior year period had a favorable result on cash provided by operations in the current year period . these positive impacts were partially offset by a net unfavorable impact on cash from a reduction in outstanding payables in the current year period relative to the prior year end . net cash provided by operating activities was $ 78.3 million for the year ended december 31 , 2018 as compared to net cash provided by operating activities of $ 101.8 million for the year ended december 31 , 2017. the net decrease of $ 23.5 million in cash provided by operations was due primarily to higher working capital usage of $ 20.3 million compared to the prior year period principally as a result of an increase in inventory of $ 18.3 million as one of our class i railroad customers within rups shifted from a treatment-service only model
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's proposals regarding rate design , but does not approve certain other rate design proposals or pnm 's request for a revenue decoupling pilot program . the order also proposed changes in the methods of recovering certain costs through pnm 's fppac and renewable energy rider . the order credits retail customers with 100 % of the new mexico jurisdictional portion of revenues from refined coal ( a third-party pre-treatment process ) at sjgs . the order approves pnm 's proposals for revised depreciation rates ( with certain exceptions ) , the inclusion of cwip in rate base , and the ratemaking treatment of the prepaid pension asset . on september 30 , 2016 , pnm filed a notice of appeal with the nm supreme court regarding the order in the nm 2015 rate case . subsequently , nee , nmiec , and abcwua filed notices of cross appeal . on october 26 , 2016 , pnm filed a statement of issues related to its appeal with the nm supreme court , which states pnm is appealing the nmprc 's determination that pnm was imprudent in the actions taken to purchase the previously leased 64.1 mw of capacity in pvngs unit 2 , extending the leases for 114.6 mw of capacity of pvngs units 1 and 2 , and installing the bdt equipment on sjgs units 1 and 4. specifically , pnm 's statement indicated it is appealing the following elements of the nmprc 's order : disallowance of recovery of the full fair market value purchase price of the 64.1 mw of capacity in pvngs unit 2 purchased in january 2016 disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 mw of capacity was leased by pnm disallowance of recovery of future contributions for pvngs decommissioning attributable to 64.1 mw of purchased capacity and the 114.6 mw of capacity under the extended leases disallowance of recovery of the costs of converting sjgs units 1 and 4 to bdt the issues that are being appealed by the various cross-appellants are : the nmprc allowing pnm to recover the costs of the lease extensions for the 114.6 mw of pvngs units 1 and 2 and any of the purchase price for the 64.1 mw in pvngs unit 2 the nmprc allowing pnm to recover the costs incurred under the new coal supply contract for four corners the revised method to collect pnm 's fuel and purchased power costs under the fppac the final rate design the nmprc allowing pnm to include the pre-paid pension asset in rate base nee subsequently filed a motion for a partial stay of the order at the nm supreme court . this motion was denied . the nm supreme court stated that the court 's intent was to request that pnm reimburse ratepayers for any amount overcharged should the cross-appellants prevail on the merits . otherwise , the court has taken no action with respect to the appeals . on february 17 , 2017 , pnm filed its brief in chief , and pursuant to the court 's rules , the briefing schedule is anticipated to be completed by june 7 , 2017. although appeals of regulatory actions of the nmprc have a priority at the nm supreme court under new mexico law , there is no required time frame for the court to act on the appeals . pnm evaluated the accounting consequences of the order in the nm 2015 rate case and the likelihood of being successful on the issues it is appealing in the nm supreme court as required under gaap . the evaluation indicates it is reasonably possible that pnm will be successful on the issues it is appealing . if the nm supreme court rules in pnm 's favor on some or all of the a - 28 issues , those issues would be remanded back to the nmprc for further action . pnm estimates that it will take a minimum of 15 months , from the date pnm filed its appeal , for the nm supreme court to render a decision and for the nmprc to take action on any remanded issues . during such time , the rates specified in the order will remain in effect . accordingly , pnm recorded a pre-tax regulatory disallowance of $ 11.3 million representing 15 months of capital cost recovery on its investments that the order disallowed , as well as amounts recorded as regulatory assets and deferred charges that the order disallowed and which pnm did not challenge in its appeal . pnm continues to believe that the disallowed investments , which are the subject of pnm 's appeal , were prudently incurred and that pnm is entitled to full recovery of those investments through the ratemaking process . pnm believes it is reasonably possible that its appeals will be successful , but can not predict what decision the nm supreme court will reach or what further actions the nmprc will take on any issues remanded to it by the court . if pnm 's appeal is unsuccessful , pnm would record additional pre-tax losses related to any unsuccessful issues . the december 31 , 2016 book values of pnm 's investments that the order disallowed , after considering the loss recorded in 2016 , were $ 76.9 million for the 64.1 mw of purchased capacity in pvngs unit 2 , $ 39.9 million for the pvngs unit 2 disallowed capital improvements , and $ 50.0 million for the bdt equipment . pnm does not believe that the likelihood of the cross-appeals being successful is probable . story_separator_special_tag however , if the supreme court were to overturn all of the issues subject to the cross-appeals and , upon remand , the nmprc did not provide any recovery of those items , pnm would write-off all of the costs to acquire the assets previously leased under three leases aggregating 64.1 mw of pvngs unit 2 capacity , totaling $ 155.6 million at december 31 , 2016 ( which amount includes $ 76.9 million that is the subject of pnm 's appeal discussed above ) after considering the loss recorded in 2016. the impacts of not recovering costs for the lease extensions , new coal supply contract for four corners , and prepaid pension asset in rate base would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred . the outcomes of the cross-appeals regarding the fppac and rate design should not have financial impact to pnm . pnm is unable to predict the outcome of this matter . on december 7 , 2016 , pnm filed an application with the nmprc for a general increase in retail electric rates ( the “ nm 2016 rate case ” ) . pnm did not include any of the costs disallowed in the nm 2015 rate case that are at issue in its pending appeal to the nm supreme court . key aspects of pnm 's request in the nm 2016 rate case are : an increase in base non-fuel revenues of $ 99.2 million based on a fty beginning january 1 , 2018 roe of 10.125 % drivers of revenue deficiency ◦ implementation of the modifications in pnm 's resource portfolio , which were previously approved by the nmprc as part of the sjgs regional haze compliance plan ( see below and note 16 ) ◦ infrastructure investments ◦ declines in forecasted energy sales due to successful energy efficiency programs and other economic factors ◦ updates in the ferc/retail jurisdictional allocations proposed changes to rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation ◦ increased customer and demand charges ◦ a “ lost contribution to fixed cost ” mechanism applicable to residential and small commercial customers to address the regulatory disincentive associated with pnm 's energy efficiency programs hearings are scheduled to begin on june 5 , 2017. the nmprc also ordered that a settlement conference should be held and that any resulting stipulation should be filed by march 27 , 2017. the settlement conference has been scheduled for march 7 , 2017. pvngs unit 3 – currently , pnm 's 134 mw interest in pvngs unit 3 is excluded from nmprc jurisdictional rates . the power generated from that interest is sold into the wholesale market and any earnings or losses are realized by shareholders . as part of compliance with the requirements for bart at sjgs discussed below , the nmprc approved including pvngs unit 3 as a jurisdictional resource in the determination of rates charged to customers in new mexico beginning in 2018. pvngs unit 3 is included as a jurisdictional resource in pnm 's nm 2016 rate case . rate riders and interim rate relief – the puct has approved mechanisms that allow tnmp to recover capital invested in transmission and distribution projects without having to file a general rate case . this permits more timely recovery of investments . the puct has also approved riders that allow tnmp to recover amounts related to ams , energy efficiency , third-party transmission a - 29 costs , and the ctc . the nmprc has approved rate riders for renewable energy and energy efficiency that allow for more timely recovery of investments and improve pnm 's ability to earn its authorized return . tnmp general rate case – tnmp 's last general rate case was filed in 2010 with new rates becoming effective on february 1 , 2011. in connection with tnmp 's deployment of its ams , tnmp has committed to file a general rate case no later than september 1 , 2018. ferc regulation in 2013 , pnm completed rate proceedings for all of its ferc regulated transmission customers and for nec , its largest generation services customer , which improved pnm 's returns for providing those services . pnm has allocated a portion of its generation assets to serve ferc wholesale generation services customers for a number of years . recently , the low natural gas price environment has caused market prices for power to be substantially lower than what pnm is able to offer wholesale generation customers under the cost of service model that ferc requires pnm to use . as a result of this change in market conditions , pnm has not been earning an adequate return on the assets required to serve wholesale generation contracts . consequently , pnm has decided to stop pursuing wholesale generation contracts . navopache electric cooperative , inc. – pnm had a psa , which contained an expiration date in 2035 , to supply power to nec that was approved by ferc in april 2013. on april 8 , 2015 , nec filed a petition for a declaratory order requesting that ferc find that nec can purchase an unlimited amount of power and energy from third party supplier ( s ) under the psa . pnm intervened , requesting that ferc deny nec 's petition . on july 16 , 2015 , ferc set the matter for a public hearing concerning the parties ' intent with regard to certain provisions of the psa and held the hearing in abeyance to provide time for settlement judge procedures . on october 29 , 2015 , pnm and nec entered into , and filed with ferc , a settlement agreement that includes amendments to the psa and related contracts . ferc approved the settlement in january 2016. under the agreement , pnm served all of nec 's load through december 31 , 2015 at rates that are substantially consistent with those provided under the psa .
| million higher in 2016 compared to 2015 , including the $ 163.3 million purchase of assets underlying three of the leases for capacity in pvngs unit 2 ( note 7 ) on january 15 , 2016 and higher nuclear fuel purchases of $ 0.6 million , offset by decreases in other generation additions of $ 68.5 million and lower transmission and distribution additions of $ 54.8 million . pnm 's total utility plant additions were $ 88.0 million higher in 2015 compared to 2014 , including increased generation of $ 47.0 million , renewables of $ 34.4 million , transmission and distribution of $ 3.8 million , and nuclear fuel of $ 2.8 million . tnmp utility plant additions decreased $ 2.1 million in 2016 compared to 2015 , including decreases in distribution additions of $ 19.3 million and ams additions of $ 4.6 million offset by an increase in transmission additions of $ 21.8 million . tnmp utility plant additions decreased $ 2.6 million in 2015 compared to 2014 , including decreases in transmission additions of $ 17.6 million and ams additions of $ 4.9 million offset by an increase in distribution additions of $ 16.1 million . corporate and other plant additions were $ 2.9 million higher in 2016 compared to 2015 , including an increase in computer and hardware and software additions of $ 10.0 million , offset by a decrease in pnmr development utility plant additions of $ 7.1 million . corporate and other plant additions were $ 12.5 million higher in 2015 compared to 2014 , including pnmr development utility plant additions of $ 8.2 million and computer hardware and software additions of $ 4.3 million . construction expenditures were funded primarily through cash flows from operating activities and short-term borrowings . investing activities also include the $ 122.3 million westmoreland loan , offset by $ 30.0 million in payments received ( note 16 ) on that loan , $ 2.6 million received from the
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we and our franchisees prepared a total of approximately 1.5 million returns in our u.s. offices in fiscal 2018 , which was a decrease of 10.3 % from fiscal 2017 due to fewer offices . our new retail offices typically experience their most rapid growth during the first five years as they develop customer loyalty , operational experience and a referral base within their community . the seasoning of our u.s. offices shown in the following table highlights the relatively young age of our offices , with 771 of 3,343 offices that were in operation for five or fewer years , including the 2018 tax season . replace_table_token_5_th growth in systemwide revenue . systemwide revenue , which is an operating measure not in accordance with gaap , includes sales by both company-owned and franchised offices . we believe systemwide revenue data is useful in assessing consumer demand for our services and products , the overall success of the liberty tax brand and , ultimately , the performance of the company . our royalty revenue is computed as a percentage of sales made by our franchised offices , less certain deductions . accordingly , sales by our franchisees have a direct effect on the company 's royalty revenue and profitability . in addition , our systemwide revenue reflects the size of the liberty tax system , and because the size of our franchise system drives our management and infrastructure needs , systemwide revenue data helps us assess those needs in comparison to other companies in our industry and other franchise operators . 37 our systemwide revenue in the u.s. decreased by 4.9 % from fiscal 2017 to 2018 and decreased 7.6 % from fiscal 2016 to fiscal 2017 . we experienced a 5.9 % increase in average net fee per return filed in the u.s. from $ 233 in fiscal 2017 to $ 247 in fiscal 2018 and a decrease of 10.3 % in number of tax returns filed in the u.s. processed from 1,657,000 in fiscal 2017 to 1,487,000 in fiscal 2018 . tax settlement products obtained by u.s. customers . the total percentage of our u.s. customers obtaining a refund transfer product decreased to 46.1 % during fiscal 2018 compared to 47.6 % during fiscal 2017 . as we have demonstrated our ability to offer products through jth financial , we have been successful in obtaining more favorable terms from outside vendors . each year we analyze available tax settlement product solutions to balance risk and maximize profit per product . company-owned stores . we operate company-owned offices , substantially all of which are held for sale . if these offices remain unsold at the start of a tax season , we will operate them for the tax season with the intent of selling them to qualified franchisees the next year , and , as a result , the number of company-owned offices will vary from year to year . going forward the number of company-owned offices may increase if the company reacquires more offices from existing franchisees and does not find a suitable buyer to take over the office . during fiscal 2018 , the company closed company-owned offices as part of its restructuring initiatives . the company will be evaluating additional company-owned offices after the tax season which may result in the closing of additional offices . the company incurred approximately $ 5.0 million of expenses related to restructuring initiatives in fiscal 2018. the company expects additional charges in fiscal 2019 primarily associated with property and intangible impairments and exit costs which are estimated to range from $ 10.0 million to $ 12.0 million . story_separator_special_tag revenue of $ 1.0 million due to a reduction in the number of tax returns processed in our online “ diy ” business and less transfer fees resulting from fewer sales transactions among franchisees . operating expenses . the following table details the amounts and changes in our operating expenses in and from fiscal 2017 and fiscal 2016 . replace_table_token_10_th 40 total operating expenses increased by $ 9.7 million , or 7 % , in fiscal 2017 compared to fiscal 2016 . the increase was attributable to : a $ 14.2 million increase in selling , general , and administrative expenses in fiscal 2017 compared to fiscal 2016 , primarily due to the following : a $ 5.3 million increase in the costs associated with our refund advance product ; a $ 3.1 million increase in costs related to an increase in the number of u.s. company-owned offices operated in fiscal 2017 ; an increase of $ 2.9 million in bad debt expense ; and a $ 2.7 million charge , in fiscal 2017 , recorded which relates to an accrued judgment where the company intends to vigorously defend our position and pursue an appeal . an increase in depreciation , amortization , and impairment charges of $ 4.3 million primarily due to an impairment charge driven by a decrease in the performance of our company-owned stores ; and an increase in employee compensation and benefits of $ 1.7 million resulting from an increase in executive severance of $ 0.5 million as well as an increase in the compensation related to operating a greater number of company-owned stores . these increases were partially offset by the following : a $ 5.3 million decrease in advertising expense related to a reduction in the number of tax returns filed by our franchisees as well as better expense management ; and a decrease of $ 5.2 million in ad expense resulting from a decrease in the number of tax returns filed and the associated decline in royalty fees along with the company 's acquisition of several ad rights during fiscal 2017 , which lowered the number of offices located within an ad 's territory . income taxes . the following table sets forth certain information regarding our income taxes for the fiscal years ended april 30 , 2017 and 2016 . story_separator_special_tag replace_table_token_11_th the decrease in our income tax expense in fiscal 2017 compared to fiscal 2016 relates primarily to the decrease in our income before income taxes . net income . our net income decreased by 33 % in fiscal 2017 over fiscal 2016 , due primarily as a result of higher operating expenses as noted above . liquidity and capital resources overview of factors affecting our liquidity seasonality of cash flow . our tax return preparation business is seasonal , and most of our revenues and cash flow are generated during the period from late january through april 30. following each tax season , from may 1 through late january of the following year , we rely significantly on excess operating cash flow from the previous season , from cash payments made by franchisees and ads who purchase new territories and areas prior to the next tax season , and on the use of our credit facility to fund our operating expenses and invest in the future growth of our business . our business has historically generated a strong cash flow from operations on an annual basis . we devote a significant portion of our cash resources during the off season to finance the working capital needs of our franchisees , and expenditures for property , equipment and software . 41 credit facility . our amended credit facility consists of a $ 21.2 million term loan and a revolving credit facility that currently allows borrowing of up to $ 193.8 million , as of april 30 , 2018 , with an accordion feature that permits the company to request an increase in availability of up to an additional $ 50.0 million . outstanding borrowings accrue interest , which is paid monthly , at a rate of the one-month london interbank offered rate ( `` libor '' ) plus a margin ranging from 1.50 % to 2.25 % depending on the company 's leverage ratio . at april 30 , 2018 and 2017 , the interest rate was 3.64 % and 2.73 % , respectively , and the average interest rate paid during the fiscal year ended april 30 , 2018 was 3.11 % . a commitment fee that varies from 0.25 % to 0.50 % depending on the company 's leverage ratio on the unused portion of the credit facility is paid monthly . the indebtedness is collateralized by substantially all the assets of the company and both loans mature on april 30 , 2019 ( except as to the commitments of one lender under the revolving credit facility , which matured on september 30 , 2017 ) . under our credit facility , we are subject to a number of covenants that could potentially restrict how we carry out our business , or that require us to meet certain periodic tests in the form of financial covenants . the restrictions we consider to be material to our ongoing business include the following : we must satisfy a `` leverage ratio '' test that is based on our outstanding indebtedness at the end of each fiscal quarter . we must satisfy a `` fixed charge coverage ratio '' test at the end of each fiscal quarter . we must reduce the outstanding balance under our revolving loan to zero for a period of at least 45 consecutive days each fiscal year . we must also maintain a minimum net worth requirement , measured at april 30 of each year . our credit facility also contains customary affirmative and negative covenants , including limitations on indebtedness , limitations on liens and negative pledges , limitations on investments , loans and acquisitions , limitations on mergers , consolidations , liquidations and dissolutions , limitations on sales of assets , limitations on certain restricted payments and limitations on transactions with affiliates , among others . franchisee lending and potential exposure to credit loss . a substantial portion of our cash flow during the year is utilized to provide funding to our franchisees . at april 30 , 2018 , our total balance of loans to franchisees for working capital and equipment loans , representing cash we had advanced to the franchisees , was $ 9.4 million . in addition , at that date , our franchisees and ads together owed us an additional $ 75.5 million , net of unrecognized revenue of $ 12.5 million , representing unpaid royalties , the unpaid purchase price for franchise territories and other amounts . our actual exposure to potential credit loss associated with franchisee loans is less than the aggregate amount of those loans because a significant portion of those loans are to franchisees located within ad areas , where our ad is ultimately entitled to a substantial portion of the franchise fee and royalty revenues represented by some of these loans . for this reason , the amount of indebtedness of franchisees to us is effectively offset in part by our related payable obligation to ads in respect of franchise fees and royalties . as of april 30 , 2018 , the total indebtedness of franchisees to us where the franchisee is located in an ad area was $ 38.3 million but $ 17.9 million of that total indebtedness represents amounts ultimately payable to ads as their share of franchise fees and royalties . our franchisees make electronic return filings for their customers utilizing our systems . our franchise agreements allow us to obtain repayment of amounts due to us from our franchisees through an electronic fee intercept program before our franchisees receive the net proceeds from tax preparation and other fees they have charged to their customers on tax returns associated with tax settlement products . therefore , we are able to minimize the nonpayment risk associated with amounts outstanding from franchisees by obtaining direct electronic payment in the ordinary course throughout the tax season .
| replace_table_token_7_th total operating expenses increased $ 16.6 million , or 11 % , in fiscal 2018 compared to fiscal 2017. the increase was primarily attributable to the following : a $ 10.9 million increase in selling , general and administrative expenses primarily due to incentives to franchisees for electronic filing charges on u.s. federal returns , bad debt expense resulting from franchisee terminations and increased professional fees related to litigation and management turnover costs ; an increase in employee compensation and benefits of $ 5.4 million primarily resulting from executive severance as well as an increase in the compensation related to operating our new year-round accounting offices ; a $ 5.0 million increase in restructuring expenses primarily related to company-store exit costs and the one-time termination of a service provider contract ; and a $ 1.3 million increase in advertising expense primarily related to increased franchise sales marketing costs . these increases were partially offset by : a decrease of $ 5.9 million in ad expense resulting from acquisitions of area developers and a decrease in the number of tax returns filed . income taxes . the following table sets forth certain information regarding our income taxes for the fiscal years ended april 30 , 2018 and 2017 . replace_table_token_8_th the decrease in our income tax expense in fiscal 2018 compared to fiscal 2017 relates primarily to the decrease in our income before income taxes . the increase in the effective tax rate is driven by the impact of the one-time transition tax and adjustment of deferred tax assets and liabilities from the tax cuts and jobs act . net income . our net income decrease d by 99 % in fiscal 2018 over fiscal 2017 , due primarily as a result of higher operating expenses and a higher effective tax rate as noted above . 39 fiscal year 2017 compared to fiscal year 2016 revenues . the table below sets forth the components and changes in our revenue for the years ended april 30 , 2017 and 2016 . replace_table_token_9_th our total revenue increased by $ 0.6 million , or 0.3 % , in fiscal 2017 over fiscal 2016 . this increase was primarily due to the following : a $ 6.5 million increase
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we define adjusted ebitda attributable to the partnership as adjusted ebitda less adjusted ebitda attributable to noncontrolling interests . we define cash available for distribution as adjusted ebitda attributable to the partnership less maintenance capital expenditures attributable to the partnership , net interest paid , cash reserves and income taxes paid , plus net adjustments from volume deficiency payments attributable to the partnership and certain one-time payments received . cash available for distribution will not reflect changes in working capital balances . we believe that the presentation of these non-gaap supplemental financial measures provides useful information to management and investors in assessing our financial condition and results of operations . we present these financial measures because we believe replacing our proportionate share of our equity investments ' net income with the cash received from such equity investments more accurately reflects the cash flow from our business , which is meaningful to our investors . adjusted ebitda and cash available for distribution are non-gaap supplemental financial measures that management and external users of our consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , may use to assess : our operating performance as compared to other publicly traded partnerships in the midstream energy industry , without regard to historical cost basis or , in the case of adjusted ebitda , financing methods ; the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders ; 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 . factors affecting our business and outlook substantially all of our revenue is derived from long-term transportation service agreements with shippers , including ship-or-pay agreements and life-of-lease agreements , some of which provide a guaranteed return , and storage service agreements with marketers , pipelines and refiners . we believe the commercial terms of these long-term transportation and storage service agreements substantially mitigate volatility in our cash flows by limiting our direct exposure to reductions in volumes due to supply or demand variability . our business can , however , be negatively affected by sustained downturns or sluggishness in commodity prices or the economy in general , and is impacted by shifts in supply and demand dynamics , the mix of services requested by the customers of our pipelines , competition and changes in regulatory requirements affecting our operations . we believe key factors that impact our business are the supply of , and demand for , crude oil , natural gas and refined products in the markets in which our business operates . we also believe that our customers ' requirements , competition and government regulation of crude oil and refined products pipelines play an important role in how we manage our operations and implement our long-term strategies . these factors are discussed in more detail below . changes in crude oil sourcing and refined product demand dynamics to effectively manage our business , we monitor our market areas for both short-term and long-term shifts in crude oil and refined products supply and demand . changes in crude oil supply such as new discoveries of reserves , declining production in older fields and the introduction of new sources of crude oil supply , affect the demand for our services from both producers and 52 consumers . one of the strategic advantages of our crude oil pipeline systems is their ability to transport attractively priced crude oil from multiple supply markets to key refining centers along the gulf coast . our crude oil shippers periodically change the relative mix of crude oil grades delivered to the refineries and markets served by our pipelines . they also occasionally choose to store crude longer term when the forward price is higher than the current price ( a “ contango market ” ) . while these changes in the sourcing patterns of crude oil transported or stored are reflected in changes in the relative volumes of crude oil by type handled by our pipelines , our total crude oil transportation revenue is primarily affected by changes in overall crude oil supply and demand dynamics . similarly , our refined products pipelines have the ability to serve multiple major demand centers . our refined products shippers periodically change the relative mix of refined products shipped on our refined products pipelines , as well as the destination points , based on changes in pricing and demand dynamics . while these changes in shipping patterns are reflected in relative types of refined products handled by our various pipelines , our total product transportation revenue is primarily affected by changes in overall refined products supply and demand dynamics . demand can also be greatly affected by refinery performance in the end market , as refined products pipeline demand will increase to fill the supply gap created by refinery issues . we can also be constrained by asset integrity considerations in the volumes we ship . we may elect to reduce cycling on our systems to reduce asset integrity risk , which in turn would likely result in lower revenues . as these supply and demand dynamics shift , we anticipate that we will continue to actively pursue projects that link new sources of supply to producers and consumers . similarly , as demand dynamics change , we anticipate that we will create new services or capacity arrangements that meet customer requirements . changes in commodity prices and customers ' volumes crude oil prices declined substantially during 2015 and have fluctuated throughout 2016. the current global geopolitical and economic uncertainty may contribute to continued volatility in financial and commodity markets in the near to medium term . our direct exposure to commodity price fluctuations is limited to the pla provisions in our tariffs . we have indirect exposure to commodity price fluctuations to the extent such fluctuations affect the story_separator_special_tag we define adjusted ebitda attributable to the partnership as adjusted ebitda less adjusted ebitda attributable to noncontrolling interests . we define cash available for distribution as adjusted ebitda attributable to the partnership less maintenance capital expenditures attributable to the partnership , net interest paid , cash reserves and income taxes paid , plus net adjustments from volume deficiency payments attributable to the partnership and certain one-time payments received . cash available for distribution will not reflect changes in working capital balances . we believe that the presentation of these non-gaap supplemental financial measures provides useful information to management and investors in assessing our financial condition and results of operations . we present these financial measures because we believe replacing our proportionate share of our equity investments ' net income with the cash received from such equity investments more accurately reflects the cash flow from our business , which is meaningful to our investors . adjusted ebitda and cash available for distribution are non-gaap supplemental financial measures that management and external users of our consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , may use to assess : our operating performance as compared to other publicly traded partnerships in the midstream energy industry , without regard to historical cost basis or , in the case of adjusted ebitda , financing methods ; the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders ; 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 . factors affecting our business and outlook substantially all of our revenue is derived from long-term transportation service agreements with shippers , including ship-or-pay agreements and life-of-lease agreements , some of which provide a guaranteed return , and storage service agreements with marketers , pipelines and refiners . we believe the commercial terms of these long-term transportation and storage service agreements substantially mitigate volatility in our cash flows by limiting our direct exposure to reductions in volumes due to supply or demand variability . our business can , however , be negatively affected by sustained downturns or sluggishness in commodity prices or the economy in general , and is impacted by shifts in supply and demand dynamics , the mix of services requested by the customers of our pipelines , competition and changes in regulatory requirements affecting our operations . we believe key factors that impact our business are the supply of , and demand for , crude oil , natural gas and refined products in the markets in which our business operates . we also believe that our customers ' requirements , competition and government regulation of crude oil and refined products pipelines play an important role in how we manage our operations and implement our long-term strategies . these factors are discussed in more detail below . changes in crude oil sourcing and refined product demand dynamics to effectively manage our business , we monitor our market areas for both short-term and long-term shifts in crude oil and refined products supply and demand . changes in crude oil supply such as new discoveries of reserves , declining production in older fields and the introduction of new sources of crude oil supply , affect the demand for our services from both producers and 52 consumers . one of the strategic advantages of our crude oil pipeline systems is their ability to transport attractively priced crude oil from multiple supply markets to key refining centers along the gulf coast . our crude oil shippers periodically change the relative mix of crude oil grades delivered to the refineries and markets served by our pipelines . they also occasionally choose to store crude longer term when the forward price is higher than the current price ( a “ contango market ” ) . while these changes in the sourcing patterns of crude oil transported or stored are reflected in changes in the relative volumes of crude oil by type handled by our pipelines , our total crude oil transportation revenue is primarily affected by changes in overall crude oil supply and demand dynamics . similarly , our refined products pipelines have the ability to serve multiple major demand centers . our refined products shippers periodically change the relative mix of refined products shipped on our refined products pipelines , as well as the destination points , based on changes in pricing and demand dynamics . while these changes in shipping patterns are reflected in relative types of refined products handled by our various pipelines , our total product transportation revenue is primarily affected by changes in overall refined products supply and demand dynamics . demand can also be greatly affected by refinery performance in the end market , as refined products pipeline demand will increase to fill the supply gap created by refinery issues . we can also be constrained by asset integrity considerations in the volumes we ship . we may elect to reduce cycling on our systems to reduce asset integrity risk , which in turn would likely result in lower revenues . as these supply and demand dynamics shift , we anticipate that we will continue to actively pursue projects that link new sources of supply to producers and consumers . similarly , as demand dynamics change , we anticipate that we will create new services or capacity arrangements that meet customer requirements . changes in commodity prices and customers ' volumes crude oil prices declined substantially during 2015 and have fluctuated throughout 2016. the current global geopolitical and economic uncertainty may contribute to continued volatility in financial and commodity markets in the near to medium term . our direct exposure to commodity price fluctuations is limited to the pla provisions in our tariffs . we have indirect exposure to commodity price fluctuations to the extent such fluctuations affect the
| 58 replace_table_token_9_th ( 1 ) net cash provided by operating activities includes $ 1.8 million , $ ( 0.6 ) million , and $ ( 0.5 ) million of distributions in excess of ( less than ) income in 2016 , 2015 and 2014 , respectively . ( 2 ) adjusted ebitda attributable to parent for 2015 is entirely attributable to shell auger and lockport operations through september 30 , 2015 . ( 3 ) adjusted ebitda attributable to parent for 2014 includes $ 47.7 million attributable to shell auger and lockport operations prior to the acquisition and $ 95.2 attributable to zydeco and ho-ho prior to the ipo . ( 4 ) excluding non-recurring items ( reimbursements from parent ) , cash available for distribution attributable to the partnership would be $ 270.4 million for 2016 . excluding non-recurring items ( reimbursements from parent ) , cash available for distribution attributable to the partnership would be $ 169.8 million for 2015 . 2016 compared to 2015 revenues total revenue decreased by $ 35.2 million , or 10.8 % , comprised of $ 36.2 million attributable to transportation services revenue , partially offset by an increase of $ 1.0 million related to storage service revenues at lockport due to an electrical upgrade project . zydeco recognized an overall decrease in transportation services revenue of $ 20.1 million , comprised of a decrease in revenue from expiring credits on committed transportation agreements of $ 13.9 million , and decreased revenues related to delivered volumes of $ 6.2 million . the decreases in revenue related to delivered volumes primarily resulted from decreased spot shipments attributable to changes in certain customers ' sourcing strategies and tightening of certain spreads throughout 2016 causing a change in shipping behavior . shipments on non-mainlines decreased due to a variety of maintenance events at 59 refineries in our destination markets . these decreases were offset partially by increases in committed shippers ' delivered volumes on our mainline segments . pecten recognized a decrease in transportation services revenue of $ 16.1 million primarily attributable to expiration of the surcharge on auger rates related to the recovery of earlier improvements on the line and a well shut-in during 2016. costs
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primarily as a result of the reduction of our royalty costs related to our russian business as described below , and our successful efforts to reduce operating costs in all of our operating segments . primarily as a result of reductions of our royalty costs related to our russian business and onetime contract termination costs of $ 14.7 million related to the nutriplus settlement in 2011 , our consolidated operating income for 2012 increased to 9.3 percent of net sales revenue from 5.5 percent in the prior year . we distribute our products to consumers through an independent sales force comprised of independent managers and distributors . typically a person who joins our independent sales force begins as a distributor . a distributor interested in earning additional income by committing more time and effort to selling our products may earn manager status , which is contingent upon attaining certain purchase levels , recruiting additional distributors and demonstrating leadership abilities . on a worldwide basis , active managers were approximately 16,600 and 16,800 and active distributors and customers were approximately 333,400 and 340,100 at december 31 , 2012 and 2011 , respectively . we anticipate that the number of distributors and customers will increase if our existing business grows and we enter new international markets , and if current managers and distributors expand their networks and grow their businesses . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with u.s. gaap and form the basis for the following discussion and analysis on critical accounting policies and estimates . the preparation of these financial statements requires us to make estimates and assumptions that 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 and assumptions . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from these estimates and those differences could have a material effect on our financial position and results of operations . management has discussed the development , selection and disclosure of these estimates with the board of directors and its audit committee . a summary of our significant accounting policies is provided in note 1 of the notes to consolidated financial statements in item 8 of this report . we believe the critical accounting policies and estimates described below reflect our more significant 20 estimates and assumptions used in the preparation of our consolidated financial statements . the impact and any associated risks on our business that are related to these policies are also discussed throughout this management 's discussion and analysis of financial condition and results of operations where such policies affect reported and expected financial results . revenue recognition net sales revenue and related volume incentive expenses are recorded when persuasive evidence of an arrangement exists , collectability is reasonably assured , the amount is fixed and determinable , and title and risk of loss have passed , generally , when the merchandise has been delivered . the amount of the volume incentive is determined based upon the amount of qualifying purchases in a given month . it is necessary for us to make estimates about the timing of when merchandise has been delivered . these estimates are based upon our historical experience related to time in transit , timing of when shipments occurred and shipping volumes . amounts received for undelivered merchandise are recorded as deferred revenue . from time to time , our u.s. operations extend short-term credit associated with product promotions . in addition , for certain of our international operations , we offer credit terms consistent with industry standards within the country of operation . payments to managers and distributors for sales incentives or rebates related to individual purchases are recorded as a reduction of revenue . payments for sales incentives and rebates are calculated monthly based upon qualifying sales . membership fees are deferred and amortized as revenue over the life of the membership , primarily one year . prepaid event registration fees are deferred and recognized as revenues when the related event is held . a reserve for product returns is recorded based upon historical experience . we allow managers or distributors to return the unused portion of products within 90 days of purchase if they are not satisfied with the product . in some of our markets , the requirements to return product are more restrictive . sales returns for the years 2012 , 2011 and 2010 , were approximately $ 2.2 million , $ 0.6 million and $ 0.6 million , respectively . accounts receivable allowances accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future . this estimated allowance is based primarily on the aging category , historical trends and management 's evaluation of the financial condition of the customer . this reserve is adjusted periodically as information about specific accounts becomes available . investments our available-for-sale investment portfolio is recorded at fair value and consists of various securities such as state and municipal obligations , u.s. government security funds , short-term deposits and various equity securities . these investments are valued using ( a ) quoted prices for identical assets in active markets or ( b ) from significant inputs that are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset . our trading portfolio is recorded at fair value and consists of various marketable securities that are valued using quoted prices in active markets . story_separator_special_tag for available-for-sale debt securities with unrealized losses , we perform an analysis to assess whether it intends to sell or whether it would be more likely than not required to sell the security before the expected recovery of the amortized cost basis . where we intend to sell a security , or may be required to do so , the security 's decline in fair value is deemed to be other-than-temporary , and the full amount of the unrealized loss is recorded within earnings as an impairment loss . for all other debt securities that experience a decline in fair value that is determined to be other-than-temporary and not related to credit loss , we record a loss , net of any tax , in accumulated other comprehensive income ( loss ) . the credit loss is recorded within earnings as an impairment loss when sold . management judgment is involved in evaluating whether a decline in an investment 's fair value is other-than-temporary . regardless of our intent to sell a security , we perform additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security . credit losses are identified where we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security . for equity securities , when assessing whether a decline in fair value below our cost basis is other-than-temporary , we consider the fair market value of the security , the length of time and extent to which market value has been less than cost , the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer , and our intent and ability to hold the investment for a sufficient time in order to enable recovery of our cost . new information and the passage of time can change these judgments . where we have determined that we lack the intent and ability to hold an equity security to its expected recovery , the security 's decline in fair value is deemed to be other-than-temporary and is recorded within earnings as an impairment loss . inventories inventories are stated at the lower-of-cost-or-market , using the first-in , first-out method . the components of inventory cost include raw materials , labor and overhead . to estimate any necessary obsolescence or lower-of-cost-or-market adjustments , 21 various assumptions are made in regard to excess or slow-moving inventories , non-conforming inventories , expiration dates , current and future product demand , production planning and market conditions . self-insurance liabilities similar to other manufacturers and distributors of products that are ingested , we face an inherent risk of exposure to product liability claims in the event that , among other things , the use of our products results in injury to consumers due to tampering by unauthorized third parties or product contamination . we have historically had a very limited number of product claims or reports from individuals who have asserted that they have suffered adverse consequences as a result of using our products . these matters have historically been settled to our satisfaction and have not resulted in material payments . we have established a wholly owned captive insurance company to provide us with product liability insurance coverage , and have accrued a reserve that we believe is sufficient to cover probable and reasonable estimable liabilities related to product liability claims based upon our history . however , there can be no assurance that these estimates will prove to be sufficient , nor can there be any assurance that the ultimate outcome of any litigation for product liability will not have a material negative impact on our business prospects , financial position , results of operations or cash flows . we self-insure for certain employee medical benefits . the recorded liabilities for self-insured risks are calculated using actuarial methods , and are not discounted . the liabilities include amounts for actual claims and claims incurred but not reported . actual experience , including claim frequency and severity as well as health care inflation , could result in actual liabilities being more or less than the amounts currently recorded . impairment of long-lived assets we review our long-lived assets , such as property , plant and equipment and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . we use an estimate of future undiscounted net cash flows of the related assets or groups of assets over their remaining lives in measuring whether the assets are recoverable . an impairment loss is calculated by determining the difference between the carrying values and the fair values of these assets . we did not consider any of our long-lived assets to be impaired during the years ended december 31 , 2012 , 2011 or 2010. incentive trip accrual we accrue for expenses associated with our direct sales marketing program , which rewards independent managers and distributors with paid attendance for incentive trips , including company conventions and meetings . expenses associated with incentive trips are accrued over qualification periods as they are earned . we specifically analyze incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual . actual results could generate liabilities more or less than the amounts recorded . we have accrued incentive trip costs of approximately $ 4.6 million and $ 5.0 million at december 31 , 2012 and 2011 , respectively , which are included in accrued liabilities in the consolidated balance sheets . contingencies we are involved in certain legal proceedings . when a loss is considered probable in connection with litigation or non-income tax contingencies and when such loss can be reasonably estimated with a range , we record our best estimate within the range related to the contingency . if there is no best estimate , we record the minimum of the range .
| managers and distributors within nsp americas , asia pacific and europe are predominantly practitioners of nutritional supplement therapies and retailers and consumers of our products . segment net sales revenue and the number of managers , distributors and customers decreased primarily due to lower recruiting in the nsp united states and mexico markets and a change in operating model in the nsp peru market in response to changing local regulations . notable activity in the following markets contributed to the results of nsp americas , asia pacific and europe : the united states market includes both english and spanish language sales divisions , of which the english language division is approximately 80 percent of segment net sales revenue . our english language division net sales revenue decreased $ 2.0 million for the year ended december 31 , 2012 , or 1.8 percent , compared to the same period in 2011. our spanish language division net sales revenue decreased $ 0.1 million , or 0.3 percent , for the year ended december 31 , 2012 , compared to the same period in 2011. we continue to be adversely affected by lower sales to managers and lower recruiting in both divisions . we are continuing our efforts to return to growth through training , new products and incentive programs , while at the same time ensuring stability in sales to existing distributors and customers . in mexico , net sales revenues decreased approximately $ 1.4 million , or 11.4 percent , for the year ended december 31 , 2012 , compared to the same period in 2011. in local currency , net sales decreased 6.0 percent , compared to the same period in 2011. fluctuations in foreign exchange rates had a $ 0.6 million unfavorable impact on net sales for the year ended december 31 , 2012. the decrease in sales is due to lower manager and distributor activity . as a result , the local management team is currently being strengthened and a new
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