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in the media and entertainment market , as our existing customers expand their use of new applications and services available through aiware to gain additional insights from their data , our monthly recurring revenues and net revenues would increase while the associated number of customers , accounts and hours of data processed would remain unchanged . the timing of large contract renewals and the variable versus fixed fee nature of certain contracts will impact the contract value of new bookings from quarter to quarter . as such , our results for different kpis may fluctuate significantly within the same period , and the result for a particular kpi in one period may not be indicative of the results that we will ach ieve for that kpi in future periods . common stock offerings in june 2018 , we completed an offering of our common stock , pursuant to which we sold an aggregate of 1,955,000 shares of our common stock ( which included the full exercise of the underwriters ' option to purchase additional shares ) at $ 18.00 per share , for aggregate net proceeds of approximately $ 32.8 million after deducting underwriting discounts and commissions and offering costs of approximately $ 2.3 million . sales of common stock during the fourth quarter of 2019 , we sold an aggregate of 2,432,830 shares of our common stock pursuant to the equity distribution agreement that we entered into with jmp securities llc ( “ jmp securities ” ) in june 2018 ( the “ equity distribution agreement ” ) . we received net proceeds from such sales of approximately $ 6.8 million , after deducting commissions of $ 0.2 million paid to jmp securities . during the full year ended december 31 , 2019 , we sold an aggregate of 5,205,430 shares of our common stock pursuant to the equity distribution agreement , resulting in net proceeds of approximately $ 24.4 million , after deducting commissions of $ 0.8 million . the terms of the equity distribution agreement are discussed under the heading “ capital resources ” below . common stock warrants as of december 31 , 2019 and december 31 , 2018 , we had outstanding warrants to purchase an aggregate of 1,297,151 shares of our common stock . net loss carryforwards as of december 31 , 2019 , we had federal and state income tax net operating loss carryforwards ( “ nols ” ) totaling approximately $ 162.9 million and $ 158.0 million , respectively . the u.s. federal and state nols will begin to expire in 2034 and 2020 , respectively , unless previously utilized . nols generated after january 1 , 2018 may be carried forward indefinitely , subject to the 80 % taxable income limitation on the utilization of the carryforwards . in general , under section 382 of the internal revenue code of 1986 , as amended ( the “ code ” ) , a corporation that undergoes an “ ownership change ” ( generally defined as a cumulative change ( by value ) of more than 50 % in the equity ownership of certain stockholders over a rolling three-year period ) is subject to limitations on its ability to utilize its pre-change nols to offset post-change taxable income . our existing nols may be subject to limitations arising from previous ownership changes , and our ability to utilize nols could be further limited by section 382 of the code . in addition , future changes in our stock ownership , some of which may be outside of our control , could result in an ownership change under section 382 of the code . the amount of such limitations , if any , has not been determined . there is also a risk that due to other future regulatory changes , such as suspensions on the use of nols , or other unforeseen reasons , our existing nols could expire or otherwise be unavailable to offset future income tax liabilities . for these reasons , we may not be able to realize a tax benefit from the use of our nols , even if we attain profitability . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires management to make estimates and assumptions about future events that affect amounts reported in our consolidated financial statements and related notes , as well as the related disclosure of contingent assets and liabilities at the date of the financial statements . management evaluates its accounting policies , estimates and judgments on an on-going basis . management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions and conditions . 38 management evaluated the development and selection of its critical accounting policies and estimates and believes that the following involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and finan cial position and are therefore discussed as critical . the following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements . with respect to critical accounting policies , even a relatively minor variance between expected and actual experience can potentially have a materially favorable or unfavorable impact on subsequent results of operations . more information on these critical accounting policies and our significant acco unting policies can be found in note 2 to our audited consolidated financial statements included in part ii , item 8 ( financial statements and supplementary data ) . accounting for business combinations as part of the purchase accounting for the three businesses we acquired in 2018 , we estimated the fair values of the assets acquired and liabilities assumed . a fair value measurement is determined as the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date . story_separator_special_tag in the absence of active markets for the identical assets or liabilities , such measurements involve developing assumptions based on market observable data and , in the absence of such data , internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date . in the context of purchase accounting , the determination of fair value often involves significant judgments and estimates by management , including the selection of valuation methodologies , estimates of future revenues , costs and cash flows , discount rates , and selection of comparable companies . the fair values reflected in the purchase accounting rely on management 's judgment and the expertise of a third-party valuation firm engaged to assist in concluding on the fair value measurements . impairment of goodwill and long-lived assets goodwill is not amortized but instead is tested at least annually for impairment , or more frequently when events or changes in circumstances indicate that goodwill might be impaired . our annual impairment test is performed during the second quarter . in assessing goodwill impairment , we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that the fair value of a reporting unit is less than its carrying amount . our qualitative assessment of the recoverability of goodwill considers various macro-economic , industry-specific and company-specific factors . these factors include : ( i ) severe adverse industry or economic trends ; ( ii ) significant company-specific actions , including exiting an activity in conjunction with restructuring of operations ; ( iii ) current , historical or projected deterioration of our financial performance ; or ( iv ) a sustained decrease in our market capitalization below its net book value . if , after assessing the totality of events or circumstances , we determine it is unlikely that the fair value of a reporting unit is less than its carrying amount , then a quantitative analysis is unnecessary . however , if we conclude otherwise , or if we elect to bypass the qualitative analysis , then we are required to perform a quantitative analysis that compares the fair value of the reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying amount , goodwill is not considered impaired ; otherwise , a goodwill impairment loss is recognized for the lesser of : ( a ) the amount that the carrying amount of a reporting unit exceeds its fair value ; or ( b ) the amount of the goodwill allocated to that reporting unit . we conducted a quantitative analysis of our goodwill assets as of december 31 , 2019 , due to the decrease in the market price of our common stock , and we determined that our goodwill assets were not impaired . we review long-lived assets to be held and used , other than goodwill , for impairment at least annually , or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . if an evaluation of recoverability is required , the estimated undiscounted future cash flows directly associated with the asset are compared with the asset 's carrying amount . if the estimated future cash flows from the use of the asset are less than the carrying value , an impairment charge would be recorded to write down the asset to its estimated fair value . revenue recognition we recognize revenue under our contracts with customers in accordance with asu 2014-09 , revenue from contracts with customers ( “ topic 606 ” ) . we derive our revenues primarily from three sources : ( 1 ) advertising revenues , ( 2 ) content licensing revenues , which are comprised primarily of fees from customers for licenses to third-party content owners ' digital assets , and ( 3 ) subscription revenues , which are comprised primarily of subscription and related fees from customers for access to and use of our platforms and associated services delivered as software-as-a-service ( “ saas ” ) . 39 we recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . we follow a five-step process to determine revenue recognition , as follows : identify the contracts ( s ) with a customer ; identify the performance obligations in the contract ; determine the transaction price ; allocate the transaction price to the performance obligations in the contract ; and recognize revenue when ( or as ) performance obligations are satisfied . we enter into contracts with customers that may include promises to transfer multiple services . we evaluate these services to determine whether they represent distinct , separately identifiable performance obligations that should be accounted for separately or as a single performance obligation . for contracts containing multiple performance obligations , to meet the allocation objective of topic 606 , we allocate the transaction price to each performance obligation on a relative standalone selling price ( “ ssp ” ) basis . the ssp is the price at which we would sell a promised service separately to a customer . for certain arrangements , the determinations regarding whether a contract contains multiple performance obligations and , if so , the ssp of each performance obligation , may require judgment by management . advertising revenues our advertising business places advertisements for clients , primarily with radio broadcasters , podcasters and digital media producers . we receive commissions , at varying rates negotiated with our clients , as consideration for all services that we perform in conjunction with such media placements . under the most common billing arrangements , we bill clients for the gross cost of the advertisement , which is set by the broadcaster , less any discounts negotiated with the client off of the broadcaster 's standard commission rate .
| acquisitions performance bridge on august 21 , 2018 , we acquired all of the outstanding capital stock of performance bridge by means of a merger of one of our indirect , wholly owned subsidiaries with and into performance bridge , with performance bridge surviving the merger as our indirect , wholly owned subsidiary . we paid initial consideration of $ 5.2 million and paid a total of $ 3.9 million in additional contingent earnout amounts based on the achievement of certain revenue milestones by performance bridge in its 2018 fiscal year . the initial consideration was comprised of $ 1.2 million paid in cash and the issuance of 349,072 shares of our common stock valued at $ 3.9 million based on our closing stock price on august 21 , 2018. the initial consideration was subject to adjustment based on a final calculation of performance bridge 's net assets at closing , which was completed in the first quarter of 2019 and resulted in the issuance to the former stockholder of performance bridge of an additional 6,482 shares of common stock valued at less than $ 0.1 million based on the closing price of our common stock on january 25 , 2019 , which was the date both parties agreed upon the final calculation . a portion of the initial consideration , consisting of $ 0.1 million in cash and 34,335 shares of common stock , was deposited into a third-party escrow account at closing and will be held in such account until august 21 , 2020 , to secure certain indemnification and other obligations of the former stockholder of performance bridge . the additional earnout consideration was comprised of $ 0.9 million in cash and 574,231 shares of our common stock , valued at $ 3.0 million based on the closing price of our common stock on march 28 , 2019 , which were paid and issued to the former stockholder of performance bridge in the second quarter of 2019. wazee digital on august 31 , 2018 , we acquired all of the outstanding
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the extent to which the coronavirus impacts our operations will depend on future developments , which are highly uncertain and can not be predicted with confidence , including the duration of the outbreak , new information which may emerge concerning the severity of the coronavirus , the actions to contain the coronavirus or treat its impact , and changes in government spending or priorities , among others . in particular , the continued spread of the coronavirus globally could adversely impact our operations , including among others , our manufacturing and supply chain , sales and marketing and could have an adverse impact on our business and our financial results . the covid-19 outbreak is a widespread health crisis that could adversely affect the economies and financial markets of many countries , resulting in an economic downturn that could affect demand for our products and likely impact our operating results . results of operations for the years ended december 31 , 2019 and december 31 , 2018 revenues . revenues were $ 18,711,923 for the year ended december 31 , 2019 compared to $ 18,080,126 for the same period in 2018 , representing an increase of $ 631,797 or 3.5 % . the increase was the result of increases in sales of simulators , accessories , curriculum and training , and recurring extended warranty revenue in 2019. cost of sales . cost of sales were $ 8,998,232 for the year ended december 31 , 2019 compared to $ 7,030,286 for the same period in 2018 , representing an increase of $ 1,967,946 , or 28.0 % . the year-over-year increase was due to the increase in direct materials , direct labor , and other production costs . cost of sales included inventory reserve allowance of $ 15,621 for the year ended december 31 , 2019 compared to $ 0 for the year ended december 31 , 2018 , respectively . the inventory reserve allowance adjusts the net realizable carrying value of inventory on hand . gross profit . gross profit was $ 9,713,691 for the year ended december 31 , 2019 compared to $ 11,049,840 for the same period in 2018 , representing a decrease of $ 1,336,149 , or 12.1 % . the gross profit margin was 51.9 % for the year ended december 31 , 2019 and 61.1 % for the same period in 2018. the decrease in gross profit was primarily due to differences in the quantity and type of simulator systems , type of accessories and variety of services sold . 21 operating expenses . net operating expense was $ 9,451,373 for the year ended december 31 , 2019 compared to $ 10,049,939 for the same period in 2018 , representing a decrease of $ 598,566 , or 6.0 % . the year-over-year decrease in general and administrative was due to a decrease in stock option compensation and redemptions , a decrease in professional services and public company expenses , partially offset by an increase in salaries and benefits , an increase in sales and marketing , and an increase in facilities costs . during the year ended december 31 , 2019 , there was a $ 119,750 allowance for bad debt on accounts and note receivable and $ 280,000 impairment loss recorded as general and administrative expense on the statement of operations . for the year ended december 31 , 2018 , there was a $ 317,967 allowance for bad debt on accounts and note receivable and a $ 254,933 impairment loss recorded as general and administrative expenses on the statement of operations . income from operations . income from operations was $ 262,318 for the year ended december 31 , 2019 compared to $ 999,901 for the same period in 2018 , representing a decrease of $ 737,583 , or 73.8 % , resulting from an increase in cost of sales partially offset by a decrease in operating expenses . income tax expense . income tax expense was $ 446,725 for the year ended december 31 , 2019 compared to $ 309,998 for the same period in 2018 , representing an increase of $ 136,727 , or 44.1 % . the increase resulted from a true-up of our deferred tax asset and temporary timing differences in deferred revenue , reserves , depreciation and amortization , and net operating loss carryforward , offset by an adjustment for taxes prepaid and refunded from prior year tax overpayments . other income ( expense ) . other income net of other expense was $ 109,130 for the year ended december 31 , 2019 compared to $ 128,189 for the same period in 2018 , representing a decrease of $ 19,059 , or 14.9 % , primarily resulting from a decrease in miscellaneous income . net income ( loss ) . net loss was $ 75,277 for the year ended december 31 , 2019 compared to net income of $ 818,092 for the same period in 2018 , representing a decrease of $ 893,369 , or 109.2 % , related to each respective section discussed above . adjusted earnings before interest , taxes , depreciation and amortization ( aebitda ) . explanation and use of non-gaap financial measures : earnings ( loss ) before interest , income taxes , depreciation and amortization and before other non-operating costs and income ( “ ebitda ” ) and adjusted ebitda are non-gaap measures . adjusted ebitda also includes non-cash stock option expense , impairment expense and bad debt expense . other companies may calculate adjusted ebitda differently . the company calculates its adjusted ebitda to eliminate the impact of certain items it does not consider to be indicative of its performance and its ongoing operations . story_separator_special_tag adjusted ebitda is presented herein because management believes the presentation of adjusted ebitda provides useful information to the company 's investors regarding the company 's financial condition and results of operations and because adjusted ebitda is frequently used by securities analysts , investors and other interested parties in the evaluation of companies in the company 's industry , several of which present ebitda and a form of adjusted ebitda when reporting their results . adjusted ebitda has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under u.s. gaap . adjusted ebitda should not be considered as an alternative for net income , cash flows from operating activities and other income or cash flow statement data prepared in accordance with u.s. gaap or as a measure of profitability or liquidity . a reconciliation of net income to adjusted ebitda is provided in the following table : replace_table_token_1_th 22 liquidity and capital resources . liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements . the company had $ 1,415,091 and $ 2,500,381 cash and cash equivalents as of december 31 , 2019 and 2018 , respectively . the company also held certificates of deposits with maturities less than six months , which are recorded as short-term investments , totaling $ 1,915,000 and $ 3,490,000 as of december 31 , 2019 and 2018 , respectively . working capital was $ 7,173,280 and $ 6,769,068 as of december 31 , 2019 and 2018 , respectively . net cash used in operating activities was $ 1,432,351 for the year ended december 31 , 2019 and net cash provided by operating activities was $ 1,828,075 for the year ended december 31 , 2018. operating activities in 2019 consisted of changes in working capital with significant cash used for increased accounts receivable and unbilled revenue offset by deferred revenue . operating activities in 2018 consisted primarily of changes in working capital . net cash provided by investing activities was $ 699,165 for the year ended december 31 , 2019 and net cash used in investing activities was $ 3,782,827 for the year ended december 31 , 2018. investing activities in 2019 consisted of purchase and sales of property and equipment , purchase of intangible assets , and purchase and redemption of certificates of deposit . investing activities in 2018 consisted of purchase of property and equipment , and purchase and redemption of certificates of deposit . net cash used in financing activities was $ 352,104 and $ 625,312 for the years ended december 31 , 2019 and 2018 , respectively . financing activities in both 2019 and 2018 consisted of repurchase of stock options , purchase of treasury stock and repayment of the note payable for the machine shop . backlog the company defines bookings as the total of newly signed contracts and purchase orders received in a defined time period . the company received bookings totaling $ 4.2 million for the three months ended december 31 , 2019. the company defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not started , or are uncompleted performance objectives , and can not be recognized as revenue until delivered in a future quarter . backlog also includes extended warranty agreements and step agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement . as of december 31 , 2019 , the company 's backlog was $ 9.6 million . the total combined revenues and backlog were $ 28.3 million for the year ended december 31 , 2019 compared to $ 24.9 million for the same period in 2018 , representing an increase of $ 3.4 million or 13.7 % . management estimates the majority of the new bookings received in the fourth quarter of 2019 will be converted to revenue in 2020. management 's estimates for the conversion of backlog is based on current contract delivery dates , however , contract terms and dates are subject to modification and are routinely changed at the request of the customer . cash requirements our management believes that our current capital resources will be adequate to continue operating our company and maintaining our current business strategy for more than 12 months from the filing of this annual report . we are , however , open to raising additional funds from the capital markets , at a fair valuation , to purchase a business or assets , expand our production capacity , expand our product and services , to enhance our sales and marketing efforts and effectiveness , and to aggressively take advantage of market opportunities . there can be no assurance , however , that additional financing will be available to us when needed or , if available , that it can be obtained on commercially reasonable terms . if we are not able to obtain the additional financing on a timely basis , if and when it is needed , we will be forced to scale down our plans for expanded marketing and sales efforts . critical accounting policies we have identified the following policies below as critical to our business and results of operations . our reported results are impacted by the application of the following accounting policies , some of which require management to make subjective or complex judgments . these judgments involve making estimates and assumptions about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations . for all of these policies , management cautions that future events rarely develop exactly as expected , and the best estimates routinely require adjustment . the methods , estimates , interpretations and judgments we use in applying our most critical accounting policies can have a significant impact on the results that we report in our financial statements . the following discussion provides supplemental information regarding the significant estimates , judgments and assumptions made in implementing the company 's critical accounting policies .
| virtra 's driver training simulator provides an extensive and realistic range of training environments that allow for initial driver familiarization and orientation to advanced concepts , high-risk pursuits and defensive driving drills . we also are engaged in licensing our technology to that 's eatertainment corp. ( “ tec ” ) , a related party and a developer and operator of a combined dining and entertainment concept centered on an indoor shooting experience . mitchell saltz , who is a member of our board of directors , is chairman of the board and majority stockholder of tec . business strategy we have four main customer groups , namely , law enforcement , military , educational ( includes colleges and police academies ) and civilian . these are very different markets and require different sales and marketing programs as well as personnel . our focus is to expand the market share and scope of our training simulators sales to these identified customer groups by pursuing the following key growth strategies : ● build our core business . our goal is to profitably grow our market share by continuing to develop , produce and market the most effective simulators possible . through disciplined growth in our business , we have achieved a solid balance sheet by increasing our working capital and limiting our bank debt . we plan to add staff to our experienced management team as needed to meet the expected increase in demand for our products and services as we invest in potential growth . ● increase total addressable market . we plan to increase the size of our total addressable market . this effort will focus on new marketing and new product and or service offerings for the purpose of widening the number of types of customers who might consider our products or services uniquely compelling . ● broaden product offerings . since formation in 1993 , our company has had a proud tradition of innovation in the field of simulation and virtual reality . we plan to release revolutionary new products and services as well as to continue incremental improvements to existing product lines . in some
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continued strong leasing activity and rental rate growth in light of modest contractual lease expirations at the beginning of 2018 and a highly leased value-creation pipeline : 2018 total leasing activity – rsf 4,721,692 lease renewals and re-leasing of space : rsf ( included in total leasing activity above ) 2,088,216 rental rate increases 24.1 % rental rate increases ( cash basis ) 14.1 % 74 executed key leases during the year ended december 31 , 2018 ( included in total leasing activity above ) : replace_table_token_25_th strong external growth ; disciplined allocation of capital to visible , highly leased value-creation pipeline significant development and redevelopment projects placed into service during , and subsequent to , the year ended december 31 , 2018 : replace_table_token_26_th future growth of net operating income ( cash basis ) driven by recently delivered projects significant near-term growth of net operating income ( cash basis ) of $ 42 million upon the burn-off of initial free rent on recently delivered projects . completed acquisitions refer to the “ acquisitions ” subsection of the “ investments in real estate ” section under “ item 2. properties ” of this annual report on form 10-k for information on our opportunistic acquisitions . 75 core operating metrics as of and for the year ended december 31 , 2018 replace_table_token_27_th see “ strong internal growth ” in the above section for information on our leasing activity , net operating income , rental rate growth , total revenue , and same property net operating income growth . balance sheet management refer to the “ execution of capital strategy ” section below within this item 7 of this annual report on form 10-k. corporate responsibility and industry leadership two of our properties received leed certifications , demonstrating our commitment to sustainability : in march 2018 , 505 brannan street in our mission bay/soma submarket received leed platinum certification ; and in april 2018 , 100 binney street in our cambridge submarket received leed gold certification . in january 2018 , we were awarded a 2017 governor 's environmental and economic leadership award , california 's highest environmental honor recognizing entities that have demonstrated exceptional leadership and made notable contributions to conserving precious natural resources while promoting economic growth . in january 2018 , we launched the alexandria seed capital platform , an innovative seed-stage life science funding model and extension of alexandria launchlabs ® , which provides seed-stage financing to transformative life science companies . alexandria seed capital platform drives the growth of seed- and early-stage companies in new york city and across the country . in february 2018 , menlo gateway in our greater stanford submarket was awarded “ development of the year ” by naiop san francisco at its “ best of the bay ” awards event . nareit care gold award winner : 2018 recipient of the nareit gold investor care ( communications and reporting excellence ) award in the large cap equity reit category as the best-in-class reit that delivers transparency , quality , and efficient communications and reporting to the investment community , which is our third nareit gold investor care award ( 2015 , 2016 , and 2018 ) . in may 2018 , joel s. marcus , executive chairman and founder , served as a keynote speaker at the research triangle regional partnership 's 2018 state of the region . the event highlighted how the region can facilitate economic growth and infrastructural improvements to prepare for more diversified expansion in the future . in june 2018 , circulate san diego awarded 9880 campus point drive in our university town center submarket the circulate mobility certification , formerly known as the move alliance certification . the certification is awarded for transit-oriented , smart growth projects in the san diego region . in june 2018 , we released our inaugural 2017 corporate responsibility report that highlights our continual efforts to make a positive , meaningful and purposeful impact on the health , safety and well-being of our tenants , stockholders and employees , as well as on the communities in which we live and work . during the three months ended september 30 , 2018 , we received the following awards and recognitions : second consecutive “ green star ” designation and first “ a ” disclosure score by gresb , and were recognized as the # 1 real estate company in the world in gresb 's health & well-being module ; two design awards related to our interior build-out at 505 brannan street in our mission bay/soma submarket : architizer a+ award for commercial office interiors greater than 25,000 sf ; and award of merit for best projects 2018 from enr california . first place in the high-rise category of the city of seattle 's 2017 people 's choice urban design awards for our 400 dexter avenue north building ; sustainable design awards winner in the sustainable private organization category from the san diego green building council ; and 76 silver tier recognition in sandag 's diamond awards program for our commuting programs that encourage alternative transportation . our philanthropy and volunteerism efforts focus on providing mission-critical support to non-profit organizations doing impactful work in the areas of medical research , stem education , military support services , and local communities . in 2018 , our team members volunteered more than 2,600 hours to support over 250 non-profit organizations across the country . we value both the health and wellness of our team members as well as supporting organizations on the leading edge of medical innovation . we were honored to support 49 team members in the november 2018 new york city marathon in order to benefit memorial sloan kettering cancer center . in november 2018 , robin hood , new york city 's largest poverty-fighting organization , held its annual investor conference , at which joel s. marcus , our executive chairman and founder , curated and moderated the “ go long on ag ” panel that focused on the critical need for agricultural innovation to provide more nutritious food in order to feed a rapidly growing population . story_separator_special_tag in november 2018 , ari frankel , our assistant vice president of sustainability and high performance buildings , was elected 2019 chair of nareit 's real estate sustainability council . in january 2019 , we were recognized as the most active biopharma investor by new deal volume in 2017-2018 by silicon valley bank in its “ trends in healthcare investments and exits 2019 ” report and ranked by forbes as the top venture capital investor in the healthcare sector by u.s.-based deal volume in 2018 . 77 operating summary favorable lease structure ( 1 ) same property net operating income growth stable cash flows 97 % percentage of triple net leases increasing cash flows 95 % percentage of leases containing annual rent escalations lower capex burden 96 % percentage of leases providing for the recapture of capital expenditures margins ( 2 ) rental rate growth : renewed/re-leased space operating adjusted ebitda 71 % 69 % ( 1 ) percentages calculated based on rsf as of december 31 , 2018 . ( 2 ) for the year ended december 31 , 2018 . 78 execution of capital strategy during 2018 , we continued to execute on many of the long-term components of our capital strategy . some of our key accomplishments include the following : 2018 capital strategy key metrics $ 18.4 billion of total market capitalization as of december 31 , 2018 $ 2.4 billion of liquidity as of december 31 , 2018 3 % unhedged variable-rate debt as a percentage of total debt replace_table_token_28_th key capital events in 2018 replace_table_token_29_th ( 1 ) includes interest rate reduction of 10 bps and 15 bps on our unsecured senior line of credit and unsecured senior bank term loan , respectively , associated with the upgrade of our corporate issuer credit rating from moody 's investors service . replace_table_token_30_th replace_table_token_31_th ( 1 ) this loan for our unconsolidated real estate joint venture was refinanced with a new loan for $ 145.0 million that bears an interest rate of 4.15 % . the gain on early extinguishment of debt is included in equity in earnings of unconsolidated real estate joint ventures in our consolidated statements of operations under item 15 of this annual report on form 10-k. secured construction loan extension effective date maturity date debt original extended 50/60 binney street secured construction loan january 2019 1/28/19 1/28/20 79 real estate asset sales ( dollars in millions ) date property/market/submarket proceeds july land parcel/northern virginia/maryland $ 6.0 september 360 longwood avenue/greater boston/longwood medical area ( 1 ) 70.0 december 1300 quince orchard boulevard/maryland/gaithersburg 14.4 $ 90.4 ( 1 ) see the “ real estate asset sales ” section under item 2 of this annual report on form 10-k for additional information . issuances of equity ( dollars in millions ) program number of shares sold net proceeds forward equity sales agreements 6,900,000 $ 808.3 atm common stock offering program 4,015,120 496.3 10,915,120 $ 1,304.6 repurchase of equity ( dollars in millions ) stock redeemed shares repurchased total payment preferred stock redemption charge series d convertible preferred stock 402,000 $ 14.0 $ 4.2 replace_table_token_32_th 2019 capital strategy during 2019 , we intend to continue to execute our capital strategy to achieve further improvements to our credit rating , which will allow us to further improve our cost of capital and continue our disciplined approach to capital allocation . for further information , refer to the “ projected results ” section below within this item 7 of this annual report on form 10-k. consistent with 2018 , our capital strategy for 2019 includes the following elements : allocate capital to class a properties located in collaborative life science and technology campuses in aaa urban innovation clusters ; continue to improve our credit profile ; maintain prudent access to diverse sources of capital , which include cash flows from operating activities after dividends , incremental debt supported by our growth in ebitda , real estate asset sales , non-real estate investment sales , joint venture capital , and other capital such as sales of equity ; maintain commitment to long-term capital to fund growth ; prudently ladder debt maturities ; reduce short-term variable-rate debt ; prudently manage equity investments to support corporate-level investment strategies ; maintain significant balance sheet liquidity ; and maintain a stable and flexible balance sheet . given the anticipated delivery of significant incremental ebitda from our development and redevelopment of new class a properties , we expect to be able to debt fund a significant portion of construction on a leverage-neutral basis . we expect to continue to maintain access to a diverse source of debt , including unsecured senior notes payable , as well as secured construction loans for our development and redevelopment projects from time to time . we expect to continue to maintain a significant proportion of our net operating income on an unencumbered basis to allow for future flexibility for accessing both unsecured and secured debt markets , although we expect traditional secured mortgage notes payable will remain a small component of our capital structure . in addition to debt funding on a leverage-neutral basis , we intend to supplement our remaining capital needs with net cash flows from operating activities , after dividends and proceeds from real estate asset sales , non-real estate investment sales , partial interest sales , and other debt and equity capital . 80 improved cost of capital as part of our capital strategy to continue strengthening our credit profile , we expect to complete and place into service development and redevelopment projects currently under construction , which we expect will deliver significant incremental ebitda . as our ebitda grows in 2019 and beyond , this growth in ebitda should allow us to obtain debt funding on a leverage-neutral basis and provide significant capital to fund our development and redevelopment projects . additionally , the resulting improvement in our balance sheet leverage ratio should allow us to access diverse sources of capital , strengthen our credit profile , and reduce our cost of capital .
| ( 3 ) includes our share of amounts attributable to our unconsolidated real estate joint ventures which is classified in equity in earnings in our consolidated statements of operations . refer to note 4 – “ consolidated and unconsolidated real estate joint ventures ” to our consolidated financial statements under item 15 of this annual report on form 10-k for more information . ( 4 ) refer to note 3 – “ investments in real estate ” to our consolidated financial statements under item 15 of this annual report on form 10-k for more information . ( 5 ) refer to note 16 – “ stockholders ' equity ” to our consolidated financial statements under item 15 of this annual report on form 10-k for more information . 83 same properties we supplement an evaluation of our results of operations with an evaluation of operating performance of certain of our properties , referred to as “ same properties. ” for more information on the determination of our same properties portfolio , refer to “ same property comparisons ” in the “ non-gaap measures and definitions ” section within this item 7 of this annual report on form 10-k. the following table presents information regarding our same properties as of december 31 , 2018 and 2017 : replace_table_token_36_th the following table reconciles the number of same properties to total properties for the year ended december 31 , 2018 : replace_table_token_37_th acquisitions after january 1 , 2017 properties 100 tech drive 1 88 bluxome street 1 701 gateway boulevard 1 960 industrial road 1 1450 page mill road 1 219 east 42nd street 1 4110 campus point court 1 summers ridge science park 4 2301 5th avenue 1 9704 , 9708 , 9712 , and 9714 medical center drive 4 9920 belward campus drive 1 21 firstfield road 1 50 and 55 west watkins mill road 2 10260 campus point drive and 4161 campus point court 2 99 a street 1 other 1 24 unconsolidated real estate jv < td
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revenue recognition rayonier advanced materials generally recognizes sales when the following criteria are met : ( i ) persuasive evidence of an agreement exists , ( ii ) delivery has occurred , ( iii ) the price to the buyer is fixed and determinable and ( iv ) collectibility is reasonably assured . generally , title passes upon delivery to the agreed upon location . based on the time required to reach each location , customer orders are generally received in one period with the corresponding revenue recognized in a subsequent period . as such , there could be substantial variation in orders received and revenue recognized from period to period . payments from customers made in advance of the recognition of revenue are included in accrued customer incentives and prepayments . property , plant & equipment depreciation expense is computed using the units-of-production method for our plant and equipment and the straight-line method on all other property , plant and equipment over the useful economic lives of the assets involved . the total units of production used to calculate depreciation expense is determined by factoring annual production days , based on normal production conditions , by the economic useful life of the asset involved . on average , the units-of-production and straight-line methodologies accounted for approximately 94 percent and 6 percent of depreciation expense , respectively . the physical life of equipment , however , may be shortened by economic obsolescence caused by environmental regulation , competition or other causes . we depreciate our non-production assets , including office , lab and transportation equipment , using the straight-line depreciation method over 3 to 25 years . buildings and land improvements are depreciated using the straight-line method over 15 to 35 years and 5 to 30 years , respectively . management believes these depreciation methods are the most appropriate , versus other generally accepted accounting methods , as they most closely match revenues with expenses . gains and losses on the retirement of assets are included in operating income . long-lived assets are reviewed annually for impairment or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable . recoverability of assets that are held and used is measured by net undiscounted cash flows expected to be generated by the asset . property , plant and equipment are grouped for purposes of evaluating recoverability at the combined plant level , the lowest level for which independent cash flows are identifiable . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying value exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . environmental liabilities associated with disposed operations at december 31 , 2016 , we had $ 153 million of accrued liabilities for environmental costs relating to disposed operations . numerous cost assumptions are used in estimating these obligations . factors affecting these estimates include changes in the nature or extent of contamination , changes in the content or volume of the material discharged or treated in connection with one or more impacted sites , requirements to perform additional or different assessment or remediation , changes in technology that may lead to additional or different environmental remediation strategies , approaches and work-plans , discovery of additional or 23 unanticipated contaminated soil , groundwater or sediment on or off-site , changes in remedy selection , changes in law or interpretation of existing law and the outcome of negotiations with governmental agencies or non-governmental parties . we periodically review our environmental liabilities and also engage third-party consultants to assess our ongoing remediation of contaminated sites . quarterly , we review our environmental liabilities related to assessment activities and remediation costs and adjust them as necessary . liabilities for financial assurance , monitoring and maintenance activities and other activities are assessed annually . a significant change in any of these estimates could have a material effect on the results of our operations . see note 14 — liabilities for disposed operations for additional information . determining the adequacy of pension and other postretirement benefit assets and liabilities certain employees participate in the company 's defined benefit pension and postretirement health and life insurance plan . the defined benefit pension plan is closed to new participants . numerous estimates and assumptions are required to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements . the key assumptions include discount rate , return on assets , salary increases , health care cost trends , mortality rates , longevity and service lives of employees . although authoritative guidance on how to select most of these assumptions exists , we exercise some degree of judgment when selecting these assumptions based on input from our actuary . different assumptions , as well as actual versus expected results , would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements . our long-term return assumption was established based on historical long-term rates of return on broad equity and bond indices , discussions with our actuary and investment advisors and consideration of the actual annualized rate of return from 1994 ( the date of rayonier 's spin-off from itt corporation ) through 2016 . at the end of 2016 , we reviewed this assumption for reasonableness and determined the 2016 long-term rate of return assumption should be 8.50 percent . beginning in 2017 , we will reduce the expected long-term rate of return on plan assets to 7.75 percent . in 2017 , we will also change the method we use to determine the service and interest cost components of net periodic benefit cost . historically , we have determined the cost using a single weighted-average discount rate derived from the yield curve . story_separator_special_tag under the new method , known as the spot rate approach , individual spot rates along the yield curve that correspond with the timing of each benefit payment will be used . we believe this change will provide a more precise measurement of service and interest costs by improving the correlation between projected cash outflows and corresponding spot rates on the yield curve . this change does not affect the measurement of plan obligations but generally results in lower pension expense in periods where the yield curve is upward sloping . we will account for this change prospectively as a change in accounting estimate . in determining future pension obligations , we select a discount rate based on information supplied by our actuary . the actuarial rates are developed by models which incorporate high-quality ( aa rated ) , long-term corporate bond rates into their calculations . the discount rate decreased from 4.03 % at december 31 , 2015 to 3.88 % at december 31 , 2016 . our pension plans were underfunded by $ 139 million at december 31 , 2016 . the funded status is essentially flat as compared to 2015 as actual investment performance and higher voluntary contributions to the pension plan in the current year were offset by a decrease in the discount rate . we did not have any mandatory pension contributions in 2016 , 2015 or 2014 . in july of 2016 , we made a $ 10 million voluntary contribution to the pension plan . no discretionary contributions to our qualified pension plan were made in 2015 or 2014 . future contribution requirements will vary depending on actual investment performance , changes in valuation assumptions , interest rates and requirements under the pension protection act . no contributions are expected to be made in 2017. in 2017 , we expect pension expense to be approximately the same as 2016 . future pension expense will be impacted by many factors including actual investment performance , changes in discount rates , timing of contributions and other employee related matters . see note 16 — employee benefit plans for additional information . the sensitivity of pension expense and projected benefit obligation related to our two qualified pension plans to changes in economic assumptions is highlighted below : replace_table_token_4_th 24 realizability of both recorded and unrecorded tax assets and tax liabilities we have recorded certain deferred tax assets we believe will be realized in future periods . the realization of tax assets is based on our historical profitability and unlimited carryforward periods on a majority of our deferred tax assets . these assets are reviewed periodically in order to assess their realizability . this review requires management to make assumptions and estimates about future profitability affecting the realization of these tax assets . if the review indicates the realizability may be less than likely , a valuation allowance is recorded . our income tax returns are subject to examination by u.s. federal and state taxing authorities . in evaluating the tax benefits associated with various tax filing positions , we record a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement of the issue . we record a liability for an uncertain tax position that does not meet this criterion . the liabilities for unrecognized tax benefits are adjusted in the period in which it is determined the issue is settled with the taxing authorities , the statute of limitations expires for the relevant taxing authority to examine the tax position or when new facts or information become available . see note 13 — income taxes for additional information . new accounting standards see note 1 — basis of presentation and new accounting pronouncements for a discussion of recently issued accounting pronouncements that may affect our financial results and disclosures in future periods . summary of our results of operations for the three years ended december 31 : replace_table_token_5_th 25 results of operations , year ended december 31 , 2016 versus december 31 , 2015 replace_table_token_6_th total net sales were $ 72 million lower , or approximately 8 percent , in 2016 , primarily due to a 7 percent decline in cellulose specialties prices which reflects the anticipated declines from the prior year . additionally , cellulose specialties sales volumes decreased approximately 11 thousand tons , or 2 percent as a result of weak market conditions . this decrease was slightly less than expected due to the timing of revenue recognition in the fourth quarter of 2016. replace_table_token_7_th ( a ) computed based on contribution margin . in 2016 , operating income and margin percentage increased $ 18 million and 3.1 percentage points versus prior year . lower cellulose specialties prices and sales volumes were partially offset by lower costs driven by the company 's cost improvements . selling , general and administrative ( “ sg & a ” ) and other expenses decreased $ 40 million primarily as a result of the jesup asset impairment recognized in the second quarter of 2015. additionally , lower professional fees , stock compensation expense and pension expense in 2016 compared to 2015 contributed to the decrease in sg & a and other . we incurred $ 35 million of interest expense in 2016 compared with $ 37 million of interest expense in 2015 . the decrease in interest expense reflects the repurchase of senior notes in the first quarter of 2016 , partially offset by higher libor rates on floating rate debt . see note 6 — debt for additional information . our effective tax rate for 2016 was 34.9 percent , compared with 33.3 percent for 2015 . the increase from the prior year period reflects the impact of the domestic manufacturing tax deduction being limited in the current year . the company anticipates it will have no taxable income for 2016 as a result of higher tax depreciation and a tax accounting method change related to the deductibility of certain repair expenditures .
| cost of sales includes the cost of wood , chemicals , energy , depreciation , manufacturing overhead and transportation used to manufacture and deliver our products . significant components and percentages of per metric ton cost are as follows : wood costs represent approximately 28 percent of the per metric ton cost of sales . we consume approximately 1.6 million short green tons of hardwood chips and 2.5 million short green tons of softwood chips per year . weather conditions and demand in the wood products and pulp and paper markets can affect the cost of wood . chemical costs represent approximately 13 percent of the per metric ton cost of sales . chemicals , including caustic soda ( sodium hydroxide ) , sulfuric acid , sodium chlorate and various specialty chemicals are purchased under negotiated supply agreements with third parties . energy costs represent approximately 5 percent of the per metric ton costs of sales . the great majority of our energy is produced through the burning of lignin and other residual biomass in recovery and power boilers located at our plants . the plants also require fuel oil , natural gas and electricity to supplement their energy requirements . wood , chemicals and energy are subject to significant changes in price and availability . we continually pursue reductions in usage and costs of key raw materials , supplies and services and do not foresee any material constraints in the near term from pricing or availability . we currently have limited ability to pass cost increases on to our customers . rayonier advanced materials four pillars of strategic growth in 2016 , we launched a four-pronged approach aimed at transforming our business and growing ebitda to drive long-term success for our stockholders . our plan centers on strategic focus on the following four pillars : cost transformation achieved through sustainable cost improvements and fostering a culture of continuous improvement ; new products through which we are committed to expanding our business by developing
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as a result of the covid-19 pandemic , nearly all of our employees in the united states and europe worked from home during the calendar year ending on december 31 , 2020 and we implemented certain travel restrictions , neither of which disrupted our operations . the covid-19 pandemic and its adverse effects have become more prevalent in the locations where we , our customers , suppliers and third-party business partners conduct business and , as a result , we may experience disruptions in our operations . as covid-19 effects abate , we may experience curtailed customer demand that could materially adversely impact our business , results of operations and overall financial performance in future periods . specifically , we may experience impact from enterprises reducing usage of our services or delaying decisions to implement our services . the effect of the covid-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods . see “ item 1a . risk factors ” for further discussion of the possible impact of the covid-19 pandemic on our business . key performance indicators we monitor the following key performance indicators ( “ kpis ” ) to help us evaluate our business , identify trends affecting our business , formulate business plans , and make strategic decisions . we believe the following kpis are useful in evaluating our business : replace_table_token_9_th 67 management ' s discussion and analysis number of active cpaas customer accounts we believe the number of active cpaas customer accounts is an important indicator of the growth of our business , the market acceptance of our platform and our future revenue trends . we define an active cpaas customer account at the end of any period as an individual account , as identified by a unique account identifier , for which we have recognized at least $ 100 of revenue in the last month of the period . we believe that the use of our platform by active cpaas customer accounts at or above the $ 100 per month threshold is a stronger indicator of potential future engagement than trial usage of our platform at levels below $ 100 per month . a single organization may constitute multiple unique active cpaas customer accounts if it has multiple unique account identifiers , each of which is treated as a separate active cpaas customer account . customers who pay after using our platform and customers that have credit balances are included in the number of active cpaas customer accounts . customers from our other segment are excluded in the number of active cpaas customer accounts , unless they are also cpaas customers . in the years ended december 31 , 2018 , 2019 and 2020 , revenue from active cpaas customer accounts represented approximately 99 % of total cpaas revenue . dollar-based net retention rate our ability to drive growth and generate incremental revenue depends , in part , on our ability to maintain and grow our relationships with our existing customers that generate cpaas revenue and seek to increase their use of our platform . we track our performance in this area by measuring the dollar-based net retention rate for our customers who generate cpaas revenue . our dollar-based net retention rate compares the cpaas revenue from customers in a quarter to the same quarter in the prior year . to calculate the dollar-based net retention rate , we first identify the cohort of customers that generate cpaas revenue and that were customers in the same quarter of the prior year . the dollar-based net retention rate is obtained by dividing the cpaas revenue generated from that cohort in a quarter , by the cpaas revenue generated from that same cohort in the corresponding quarter in the prior year . when we calculate dollar-based net retention rate for periods longer than one quarter , we use the average of the quarterly dollar-based net retention rates for the quarters in such period . our dollar-based net retention rate increases when such customers increase usage of a product , extend usage of a product to new applications or adopt a new product . our dollar-based net retention rate decreases when such customers cease or reduce usage of a product or when we lower prices on our solutions . as our customers grow their business and extend the use of our platform , they sometimes create multiple customer accounts with us for operational or other reasons . as such , when we identify a significant customer organization ( defined as a single customer organization generating more than 1 % of cpaas revenue in a quarterly reporting period ) that has created a new cpaas customer , this new customer is tied to , and cpaas revenue from this new customer is included with , the original cpaas customer for the purposes of calculating this metric . key components of statements of operations revenue we generate a majority of our revenue from our cpaas segment . cpaas revenue is derived from voice usage , phone number services , 911-enabled phone number services , messaging services and other services . we generate a portion of our cpaas revenue from usage-based fees , which include voice calling and messaging services . for the years ended december 31 , 2018 , 2019 and 2020 , we generated 64 % , 66 % and 74 % of our cpaas revenue , respectively , from usage-based fees . we also earn monthly fees from services such as phone number services and 911 access service . for the years ended december 31 , 2018 , 2019 and 2020 , we generated 34 % , 31 % and 24 % of our cpaas revenue , respectively , in each period from monthly per unit fees . the remaining 2 % , 3 % and 2 % of our cpaas revenue is generated from other miscellaneous services . 68 management ' s discussion and analysis the remainder of our revenue is generated by our other segment . story_separator_special_tag other revenue is composed of revenue earned from our legacy services and indirect revenue . other revenue as a percentage of total revenue is expected to continue to decline over time . we recognize accounts receivable at the time the customer is invoiced . additionally , we record a receivable and revenue for unbilled revenue if the services have been delivered and are billable in subsequent periods . unbilled revenue made up 47 % , 54 % and 51 % of outstanding accounts receivable , net of allowance for doubtful accounts as of december 31 , 2018 , 2019 and 2020 , respectively . cost of revenue and gross margin cpaas cost of revenue consists primarily of fees paid to other network service providers from whom we buy services such as minutes of use , phone numbers , messages , porting of customer numbers and network circuits . cost of revenue also contains costs related to support of our ip voice network , web services , cloud infrastructure , capacity planning and management , rent for network facilities , software licenses , hardware and software maintenance fees and network engineering services . personnel costs ( including non-cash stock-based compensation expenses ) associated with personnel who are responsible for the delivery of services , operation and maintenance of our communications network , and customer support , as well as , third-party support agreements and depreciation of network equipment , amortization of internally developed software and gain ( loss ) on disposal of property and equipment are also included in cost of revenue . other cost of revenue consists of costs supporting non-cpaas services including leased circuit costs paid to third party providers , internet connectivity expenses , minutes of use , direct operations , contractors , regulatory fees , surcharges and other pass-through costs and software and hardware maintenance fees . gross margin is calculated by subtracting cost of revenue from revenue , divided by total revenue , expressed as a percentage . our cost of revenue and gross margin have been , and will continue to be , affected by several factors , including the timing and extent of our investments in our network , our ability to manage off-network minutes of use and messaging costs , the product mix of revenue , the timing of amortization of capitalized software development costs and the extent to which we periodically choose to pass on any cost savings to our customers in the form of lower usage prices . operating expenses the most significant components of operating expenses are personnel costs , which consist of salaries , benefits , bonuses , and stock-based compensation expenses . we also incur other non-personnel costs related to our general overhead expenses , including facility expenses , software licenses , web services , depreciation and amortization of assets unrelated to delivery of our services . we expect that our operating expenses will increase in absolute dollars . research and development research and development ( “ r & d ” ) consists primarily of personnel costs ( including non-cash stock-based compensation expenses ) , outsourced software development and engineering service and cloud infrastructure fees for staging and development of outsourced engineering services . we capitalize the portion of our software development costs in instances where we invest resources to develop software for internal use . we plan to continue to invest in r & d to enhance current product offerings and develop new services . sales and marketing sales and marketing expenses consist primarily of personnel costs , including commissions for our sales employees and non-cash stock-based compensation expenses . sales and marketing expenses also include expenditures related to advertising , marketing , our brand awareness activities , sales support and professional services fees . 69 management ' s discussion and analysis we focus our sales and marketing efforts on creating sales leads and establishing and promoting our brand . we plan to continue to invest in sales and marketing in order to expand our cpaas customer base by growing headcount , driving our go-to-market strategies , building brand awareness , advertising and sponsoring additional marketing events . general and administrative general and administrative expenses consist primarily of personnel costs , including stock-based compensation , for our accounting , finance , legal , human resources and administrative support personnel and executives . general and administrative expenses also include costs related to product management and reporting , customer billing and collection functions , information services , professional services fees , credit card processing fees , rent associated with our headquarters in raleigh , north carolina and our other offices , and depreciation and amortization . income taxes for the years ended december 31 , 2018 , 2019 and 2020 , our effective tax rate was ( 154.1 ) % , 116.4 % and ( 51.8 ) % , respectively . the decrease in our effective tax rate is primarily due to the change in judgment related to the realizability of certain deferred tax assets and the resulting valuation allowance . judgment is required in determining whether deferred tax assets will be realized in full or in part . management assesses the available positive and negative evidence on a jurisdictional basis to estimate if deferred tax assets will be recognized and when it is more likely than not that all or some deferred tax assets will not be realized , and a valuation allowance must be established . as of december 31 , 2020 , the company continues to maintain a valuation allowance for its u.s. federal and state and u.k. net deferred tax assets . on march 27 , 2020 , the coronavirus aid , relief , and economic security ( cares ) act ( the “ cares act ” ) was enacted . the cares act includes multiple income tax provisions that impact our tax expense , such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after december 31 , 2017. we have accounted for the estimated impact of the cares act .
| in 2020 , cpaas revenue also increased by $ 11.8 million from higher usage pricing due to a shift in product mix to products with a higher rate compared to the same period in 2019. in addition , $ 16.6 million of growth was attributable to the acquisition of voxbone for the period from november 1 , 2020 through december 31 , 2020. the changes in usage and price in 2020 compared to the same period in 2019 were reflected in our dollar-based net retention rate of 131 % . in addition , revenue from new cpaas customers contributed $ 22.9 million , or 11 % , to cpaas revenue for 2020 compared to $ 11.7 million , or 7 % , in the same period in 2019. the increase in usage was also attributable to a 65 % increase in the number of active cpaas customer accounts , from 1,728 as of december 31 , 2019 to 2,848 as of december 31 , 2020. as a percentage of total revenue , cpaas revenue increased from 85 % in 2019 to 87 % in the same period in 2020 . other revenue increased by $ 10.4 million , or 30 % , in 2020 due to higher indirect revenue , which increased by $ 12.7 million primarily due to an increase in messaging surcharges and indirect voice revenue , offset by the expected decline of legacy revenue , which decreased by $ 2.3 million , compared to the same period in 2019 . cost of revenue and gross margin replace_table_token_13_th 73 management ' s discussion and analysis in 2020 , total gross profit increased by $ 50.2 million , or 47 % , compared to the same period in 2019 . total gross margin was 46 % for both years . in 2020 , cpaas cost of revenue increased by $ 50.4 million , or 46 % , compared to the same period in 2019. cpaas cost of revenue increased due to an increase in voice usage costs of $ 25.0 million due to growth in minutes used by customers . cost of messaging increased by $ 10.3 million due to growth in messages used by customers , including an increase related to political campaigns and increased cost per message . network costs also increased $ 13.0 million due to network expansions and depreciation expense .
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on february 5 , 2018 , the company paid down the outstanding balance of the line of credit which had an outstanding balance of $ 2,758,517. on february 9 , 2018 , the underwriters exercised their over-allotment option to purchase an additional 200,000 shares of common stock at the public offering price of $ 5.00 per share of which 100,000 newly issued shares of common stock were purchased directly from the company and 100,000 shares were sold by our ceo 's family trust as selling stockholder . the company received gross proceeds of $ 500,000 , which resulted in net proceeds of $ 465,000 to the company , after deducting underwriting discounts and commissions of $ 35,000. on february 15 , 2018 , the company paid-off the remaining balances of the related party notes payable in the amount of $ 152,973. on february 15 , 2018 , the company paid-off the remaining balance of the “ july 2016 note ” in the amount of $ 109,267. on february 23 , 2018 , the company paid-off the remaining balance of the bank of the west term loan in the amount of $ 834,103. on march 2 , 2018 , the company cancelled its line of credit with bank of the west . on august 31 , 2018 , the company acquired concept development inc. ( cdi ) located in irvine , california for cash of $ 646,759 , and common stock of $ 4,194,673 ( note 3 ) . cdi specializes in the design and manufacture of custom high-performance computing systems for airborne in-flight entertainment systems . the operating results for cdi for the months of september 2018 through december 2018 are included in the accompanying consolidated financial statements . on october 3 , 2018 , the company filed a form s-8 relating to the 3,432,525 shares of the company 's common stock , par value $ 0.0001 per share issuable to the employees , officers , directors , consultants and advisors of the company under the company 's 2017 plan , 2015 plan , 2011 plan , and 2000 plan . 39 on october 31 , 2018 , the company 's wholly-owned german subsidiary , oss gmbh , acquired 100 % of the outstanding stock of bressner technology gmbh , a germany limited liability company located near munich , germany , from its principal owners for cash consideration of 4,725,000 ( us $ 5,374,582 ) and stock consideration of 106,463 newly-issued restricted shares of the company 's common stock . the operating results for bressner for the months of november 2018 and december 2018 are included in the accompanying consolidated financial statements . on december 31 , 2018 , as a result of changes in the competitive landscape and downward pressure on pricing from large competitors , the members to the joint venture agreement agreed to begin the dissolution of skyscale . our business model oss designs , manufactures and sells specialized high performance computing ( hpc ) systems to customers world-wide . we differentiate ourselves from other suppliers of hpc solutions by utilizing our expertise in custom systems design and pcie expansion to build systems with a greater quantity of pcie add-in slots , gpu-based compute cards and or flash cards . our systems offer industry leading capabilities that occupy less physical space and power consumption . components of results of operations revenue the company recognizes revenue in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 605. accordingly , revenue from the sale of products is recognized when there is evidence of an arrangement , the selling price is fixed or determinable , title and risk of loss has transferred to the customer , any installation or service obligations have been satisfied , and collection is reasonably assured . net revenue includes deductions for customer discounts and actual and estimated returns . all amounts billed to customers related to shipping and handling are classified as net sales . customer agreements include one vendor managed inventory program . pursuant to staff accounting bulletin topic 13.a.3.a , the company recognizes revenue under this arrangement when ( i ) risks of ownership have passed to the customer ; ( ii ) the customer 's commitment to purchase the goods is fixed ; ( iii ) there is a fixed schedule for delivery of the goods that is reasonable and consistent with the customer ' s business purpose ; ( iv ) the company does not have any specific performance obligations such that the earning process is not complete ; ( v ) the ordered goods have been segregated from the company ' s inventory and are not subject to being used to fill other orders ; and ( vi ) the product is complete and ready for shipment . also , such arrangement must be requested by the customer and the customer has explained a substantial business purpose for the arrangement . management also considers whether the customer ' s custodial risks are insured and whether modifications to the company ' s normal billing and credit terms were required . revenues on certain fixed-price contracts where we provide engineering services , prototypes and completed products are recognized over the contract term based on the percentage of completion or based upon milestones delivered that are provided during the period and compared to the total estimated development and milestone goals to be provided over the entire contract . these services require that we perform significant , extensive and complex design , development , modification or implementation of our customers ' systems . performance will often extend over long periods of time , and our right to receive future payment depends on our future performance in accordance with the agreement the percentage-of-completion methodology involves recognizing probable and reasonably estimable revenue using the percentage of services completed , on a current cumulative cost to estimated total cost basis , using a reasonably consistent profit margin over the period . due to the long-term nature of these projects , developing the estimates of costs often requires significant judgment . story_separator_special_tag factors that must be considered in estimating the progress of work completed and ultimate cost of the projects include , but are not limited to , the availability of labor and labor productivity , the nature and complexity of the work to be performed and the impact of delayed performance . if changes occur in delivery , productivity or other factors used in developing the estimates of costs or revenues , we revise our cost and revenue estimates , which may result in increases or decreases in revenues and costs , and such revisions are reflected in earnings in the period in which the revision becomes known . 40 products are typically shipped directly to our customers , or in some cases to our international distributors . these international distributors assist with import regulations , currency conversions and local language , but do not stock our inventory . our product revenues vary from period to period based on , among other things , the customer orders received and our ability to produce and deliver the ordered products . customers often specify requested delivery dates that coincide with their need for our products . because these customers may use our products in connection with a variety of projects of different sizes and durations , a customer 's orders for one reporting period generally do not indicate a trend for future orders by that customer . additionally , order patterns do not necessarily correlate amongst customers and , therefore , we generally can not identify seasonal trends . in 2017 , we began offering support services which may involve providing customer phone support , system debug and software upgrades for a period of time . we recognize revenue from support services ratably over the contractual service period . cost of revenue cost of revenue primarily consists of costs of materials , costs paid to third-party contract manufacturers ( which may include the costs of components ) , and personnel costs associated with manufacturing and support operations . personnel costs consist of wages , bonuses , benefits , stock-based compensation expenses . cost of revenue also includes freight , allocated overhead costs and inventory write-offs and changes to our inventory and warranty reserves . allocated overhead costs consist of certain facilities and utility costs . we expect cost of revenue to increase in absolute dollars , as product revenue increases . operating expenses our operating expenses consist of general and administrative , sales and marketing and research and development expenses . salaries and personnel-related costs , benefits , and stock-based compensation expense , are the most significant components of each category of operating expenses . operating expenses also include allocated overhead costs for facilities and utility costs . general and administrative - general and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance , legal , human resources and fees for third-party professional services , as well as allocated overhead . for 2018 , general and administrative expenses include the costs related to the dissolution of skyscale , llc . we expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing the business . sales and marketing - sales and marketing expense consists primarily of employee compensation and related expenses , sales commissions , marketing programs , travel and entertainment expenses as well as allocated overhead . marketing programs consist of advertising , tradeshows , events , corporate communications and brand-building activities . we expect sales and marketing expenses to increase in absolute dollars as we expand our sales force , increase marketing resources , and further develop sales channels . research and development - research and development expense consists primarily of employee compensation and related expenses , prototype expenses , depreciation associated with assets acquired for research and development , third-party engineering and contractor support costs , as well as allocated overhead . we expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products . other income ( expense ) , net other income consists of income received for activities outside of our core business . in 2017 , this includes rental income received through the sub-leasing of certain facility space . other expense includes expenses for activities outside of our core business . these expenses consist primarily of loan amortization and interest expense . 41 provision for income taxes provision for income taxes consists of estimated income taxes due to the united states and german governments and to the state tax authorities in jurisdictions in which we conduct business , as well as the change in our deferred income tax assets and liabilities . story_separator_special_tag style= '' color : # 000000 ; font-family : times new roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > attributable to common stockholders and diluted earnings per share : replace_table_token_9_th free cash flow , a non-gaap measure for reporting cash flow , is defined as cash provided by operating activities less capital expenditures for property and equipment , which includes capitalized software development costs . we believe free cash flow provides investors with an important perspective on cash available for investments and acquisitions after making capital investments required to support ongoing business operations and long-term value creation . we believe that trends in our free cash flow can be valuable indicators of our operating performance and liquidity . free cash flow is a non-gaap financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with gaap . this non-gaap financial measure may not be computed in the same manner as similarly titled measures used by other companies . we expect to continue to incur expenditures similar to the free cash flow adjustments described above , and investors should not infer from our presentation of this non-gaap financial measure that these expenditures reflect all of our obligations which require cash .
| because of varying available valuation methodologies , subjective assumptions and the variety of equity instruments that can impact a company 's non-cash operating expenses , we believe that providing a non-gaap financial measure that excludes non-cash and non-recurring expenses allows for meaningful comparisons between our core business operating results and those of other companies , as well as providing us with an important tool for financial and operational decision making and for evaluating our own core business operating results over different periods of time . 43 our adjusted ebitda measure may not provide information that is directly comparable to that provided by other companies in our industry , as other companies in our industry may calculate non-gaap financial results differently , particularly related to non-recurring , unusual items . our adjusted ebitda is not a measurement of financial performance under gaap , and should not be considered as an alternative to operating income or as an indication of operating performance or any other measure of performance derived in accordance with gaap . we do not consider adjusted ebitda to be a substitute for , or superior to , the information provided by gaap financial results . replace_table_token_8_th ( 1 ) expenses incurred in the acquisition of cdi and bressner in 2018 and ion in 2017 , respectively . adjusted eps adjusted eps excludes the impact of certain items and , therefore , has not been calculated in accordance with gaap . we believe that exclusion of certain selected items assists in providing a more complete understanding of our underlying results and trends and allows for comparability with our peer company index and industry . we use this measure along with the corresponding gaap financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace . the company defines non-gaap ( loss ) income attributable to common stockholders as ( loss ) or income before amortization , stock-based compensation , expenses related to discontinued operations , and acquisition costs . adjusted eps expresses adjusted ( loss ) income on a per share basis using weighted average diluted shares outstanding . adjusted eps is a non-gaap financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with gaap . these non-gaap financial
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revenue recognition revenue recognition methodology—sales , net of estimates for discounts , returns , rebates , allowances , and excise taxes are recognized when persuasive evidence of an arrangement exists , all risks of ownership have been transferred , and payment is reasonably assured . 33 allowance for doubtful accounts we maintain an allowance for doubtful receivables for estimated losses resulting from the inability of our trade customers to make required payments . we provide an allowance for specific customer accounts where collection is doubtful and also provide an allowance for customer deductions based on historical collection and write-off experience . additional allowances would be required if the financial conditions of our customers deteriorated . inventories our inventories are valued at the lower of cost or market . we evaluate the quantities of inventory held against past and future demand and market conditions to determine excess or slow moving inventory . for those product classes of inventory identified , we estimate their market value based on current and projected selling prices . if the projected market value is less than cost , we provide an allowance to reflect the lower value of that inventory . this methodology recognizes projected inventory losses at the time such losses are evident rather than at the time goods are actually sold . the projected market value can decrease due to consumer preferences , legislation , or loss of key contracts among other events . income taxes provisions for federal , state and foreign income taxes are calculated based on reported pre-tax earnings and current tax law . such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes . significant judgment is required in determining income tax provisions and evaluating tax positions . we periodically assess our liabilities and contingencies for all periods that are currently open to examination or have not been effectively settled based on the most current available information . where it is not more likely than not that our tax position will be sustained , we record the entire resulting tax liability and when it is more likely than not of being sustained , we record our best estimate of the resulting tax liability . any applicable interest and penalties related to these positions are also recorded in the consolidated and combined financial statements . to the extent our assessment of the tax outcome of these matters changes , such change in estimate will impact the income tax provision in the period of the change . it is our policy to record any interest and penalties related to income taxes as part of the income tax expense for financial reporting purposes . deferred tax assets related to carryforwards are reduced by a valuation allowance when it is not more likely than not that the amount will be realized before expiration of the carryforward period . as part of this analysis , we take into account the amount and character to determine if the carryforwards will be realized . significant estimates are required for this analysis . changes in the amounts of valuation allowance are recorded in the tax provision in the period when the change occurs . acquisitions the results of acquired businesses are included in our consolidated and combined financial statements from the date of acquisition . we allocate the purchase price of an acquired business to the underlying tangible and intangible acquired assets and liabilities assumed based on their fair value . estimates are used in determining the fair value and estimated remaining lives of intangible assets until the final purchase price allocation is completed . actual fair values and remaining lives of intangible assets may vary from those estimates . the excess purchase price over the estimated fair value of the net assets acquired is recorded as goodwill . on july 20 , 2015 , we completed the acquisition of jimmy styks , llc ( `` jimmy styks '' ) , using $ 40,000 of cash on hand with additional contingent consideration payable if incremental profitability growth milestones are achieved over the three years from acquisition . we determined a value of the future contingent consideration as of the acquisition date of $ 4,471 utilizing the black-scholes option pricing model ; the total amount paid may differ from this value . the option pricing model requires us to make assumptions including the risk-free rate , expected volatility , cash flows , and expected life . the risk-free rate is based on u.s. treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of grant . the expected option life is based on the contractual term of the agreement . expected volatility is based on the average volatility of similar public companies ' stock over the past three years . the discounted cash flows are based on our estimates of future performance of the business . as of march 31 , 2017 , there was no value for the future contingent consideration . the reduction from the original estimate was primarily a result of not achieving the first growth milestone and the likelihood of not meeting any future growth milestones , which were predicated on meeting the first growth milestone . the purchase price allocation was completed during the quarter ended october 2 , 2016. the majority of the goodwill generated in this acquisition is deductible for tax purposes . jimmy styks is an immaterial acquisition to our company . 34 on august 3 , 2015 , we completed the acquisition of camelbak products , llc ( `` camelbak '' ) for total consideration of $ 412,500 , subject to a customary working capital adjustment , utilizing cash on hand and borrowings under our existing credit facilities . camelbak is the leading provider of personal hydration solutions for outdoor , recreation and military use . camelbak 's products include hydration packs , reusable bottles and individual purification and filtration systems . camelbak has approximately 300 employees worldwide . story_separator_special_tag the purchase price allocation was completed during the quarter ended october 2 , 2016. a portion of the goodwill generated in this acquisition is deductible for tax purposes . on april 1 , 2016 , we completed the acquisition of brg sports inc. 's action sports division , operated by bell sports corp. ( `` action sports '' ) . the acquisition includes brands bell , giro , blackburn , copilot , krash , and raskullz . under the terms of the transaction , we paid $ 400,000 , subject to customary working capital adjustments , utilizing cash on hand and borrowings under our existing credit facilities , and additional contingent consideration payable if incremental profitability growth milestones within the bell powersports product line are achieved . we determined a value of the future contingent consideration as of the acquisition date of $ 4,272 using a risk-neutral monte carlo simulation in an option pricing framework ; the total amount paid may differ from this value . the option pricing model requires us to make assumptions including the risk-free rate , expected volatility , profitability growth , and expected life . the risk-free rate is based on u.s. treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of grant . the expected option life is based on the contractual term of the agreement . expected volatility is based on the average volatility of similar public companies ' stock over the past two years . the profitability growth is based on simulated estimates of future performance of the business using a geometric brownian risk-neutral framework . as of march 31 , 2017 , the value of the future contingent consideration was $ 4,886. the increase from the original estimate was primarily a result of improved profitability forecasts over the remainder of the earnout period . action sports remains headquartered in scotts valley , california and operates facilities in the u.s. , canada , europe and asia . the acquisition of action sports included more than 600 employees worldwide . the purchase price allocation was completed during the quarter ended march 31 , 2017. a portion of the goodwill generated in this acquisition is deductible for tax purposes . on september 1 , 2016 , we completed the acquisition of privately owned logan outdoor products , llc and peak trades , llc ( `` camp chef '' ) , a leading provider of outdoor cooking solutions . under the terms of the transaction , we paid $ 60,000 , subject to customary working capital adjustments , utilizing cash on hand and borrowings under our existing credit facility . an additional $ 4,000 has been deferred and will be paid in equal installments on the first , second and third anniversary of the closing date , and $ 10,000 will be payable if incremental profitability growth milestones are met and key members of camp chef management continue their employment with us . the $ 10,000 will be expensed over the three-year measurement period and paid at each milestone date . the preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation . a majority of the goodwill generated in this acquisition is deductible for tax purposes . camp chef is an immaterial acquisition to our company . accounting for goodwill and indefinite lived intangible assets we test goodwill and indefinite lived intangible assets for impairment on the first day of our fourth fiscal quarter or upon the occurrence of events or changes in circumstances that indicate that the asset might be impaired . we have determined that the reporting units on a standalone basis for our goodwill impairment review are our operating segments , or components of an operating segment , that constitute a business for which discrete financial information is available , and for which segment management regularly reviews the operating results . we then evaluate these components to determine if they are similar and should be aggregated into one reporting unit for testing purposes . based on this analysis , we have identified five reporting units , as of the fiscal 2017 testing date . for goodwill impairment tests performed prior to january 1 , 2017 we used a two-step process . in the first step , we determine the estimated fair value of each reporting unit and compare it to the carrying value of the reporting unit , including goodwill . if the carrying amount of a reporting unit is higher than its estimated fair value , an indication of impairment exists and the second step must be performed in order to determine the amount of the impairment . in the second step , we determine the implied fair value of the reporting unit 's goodwill , which is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation . the implied fair value is compared to the carrying amount and if the carrying amount of the reporting unit 's goodwill exceeds the implied fair value of its goodwill , an impairment loss must be recognized for the excess . for goodwill impairment tests performed subsequent to january 1 , 2017 , we have elected to early adopt accounting standards update no . 2017-04 , simplifying the test for goodwill impairment . as a result of this election , we now perform only 35 one step in performing our impairment analysis , which is to determine the estimated fair value of each reporting unit and compare it to the carrying value of the reporting unit , including goodwill . if the carrying amount of a reporting unit is higher than its estimated fair value , an impairment loss must be recognized for the excess . the fair value of each reporting unit is determined using both an income and market approach . the value estimated using a discounted cash flow model is weighted equally against the estimated value derived from the guideline company market approach method .
| action sports includes helmets , goggles , and accessories for cycling , snow sports , action sports and powersports . archery/hunting accessories include high-performance hunting arrows , game calls , hunting blinds , game cameras and waterfowl decoys . camping products include our outdoor cooking solutions . eyewear and sport protection products include safety and protective eyewear , as well as fashion and sports eyewear . golf products include laser rangefinders . hydration products include hydration packs and water bottles . optics products include binoculars , riflescopes and telescopes . shooting accessories products include reloading equipment , clay targets , and premium gun care products . tactical products include holsters , duty gear , bags and packs . water sports products include stand up paddle boards . shooting sports , which generated 54 % of our sales in fiscal 2017 . shooting sports product lines include centerfire ammunition , rimfire ammunition , shotshell ammunition , reloading components , and firearms . financial highlights and notable events certain notable events or activities affecting our fiscal 2017 financial results and subsequent results included the following : financial highlights for fiscal 2017 annual sales of $ 2,546,892 and $ 2,270,734 for the fiscal years ended march 31 , 2017 and 2016 , respectively . the increase was driven by the action sports and camp chef acquisitions completed this fiscal year and the camelbak and 31 jimmy styks acquisitions for the period in which they were not a part of vista outdoor in the prior year period , partially offset by decreases in the outdoor products and shooting sports segments due to decreased demand within the shooting sports market . gross profit was $ 669,186 and $ 619,445 for the fiscal years ended march 31 , 2017 and 2016 , respectively . the increase was driven by the action sports and camp chef acquisitions completed this fiscal year and the camelbak and jimmy styks acquisitions for the period in which they were not a part of vista outdoor in the prior year period , partially offset by decreases in the outdoor products and shooting sports segments due to decreased demand within the shooting sports market . during the second
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upon completion of the transaction in third quarter 2012 , we recognized $ 375.0 million as patent sales revenue and $ 15.6 million as patent sales expense , which was recorded within the patent administration and licensing line on our consolidated statements of income . included in the patent sales expense was the remaining net book value of the patents sold , as well as commissions and legal and accounting services fees paid in conjunction with the sale . we intend to pursue additional patent sale opportunities as part of our expanded strategy . however , we are unable to predict the timing and magnitude of any such sales due to the unpredictable nature of the sales cycle for such transactions . 30 patent license agreements in fourth quarter 2012 , we entered into an agreement that extends the term of our worldwide , non-exclusive , royalty-bearing patent license agreement with blackberry . in addition to extending the patent license agreement for a multi-year period , the parties agreed to amend the patent license to add coverage for 4g products , including lte and lte-advanced products . also in fourth quarter 2012 , we entered into a patent license agreement with sony that covers sony 's sale of 3g and 4g products . additionally , during 2012 , we entered into new or expanded patent license agreements with u-blox ag , cinterion wireless modules gmbh , sierra wireless , inc. , acer inc. , pantech co. ltd. , wistron corporation and quanta computers , inc. these agreements cover various wireless modules for consumer electronics and m2m devices , including handsets , wireless modules , computers and tablets designed to operate in accordance with 4g wireless technologies , lte , lte-advanced and wimax standards , in addition to 2g and 3g wireless technologies . expiration of patent license agreement with samsung in 2012 , we recognized the remaining $ 102.7 million of revenue associated with the 2009 samsung pla . the 2009 samsung pla covered the sale of single-mode terminal units and infrastructure designed to operate in accordance with tdma-based 2g standards , which portion of the license became paid up in 2010 , and the sale of terminal units and infrastructure designed to operate in accordance with 3g standards through 2012. pursuant to the 2009 samsung pla , samsung paid interdigital $ 400.0 million in four equal installments over an 18-month period . samsung paid the first two $ 100.0 million installments in 2009. we received the third and fourth $ 100.0 million installments in january 2010 and july 2010 , respectively . upon expiration of the 2009 samsung pla , samsung retained its paid-up license to sell single-mode terminal units and infrastructure designed to operate in accordance with tdma-based 2g standards and became unlicensed as to all other products covered under the agreement . in january 2013 , we filed a complaint with the usitc against samsung and seven other respondents , alleging that they engaged in unfair trade practices by selling for importation into the united states , importing into the united states and or selling after importation into the united states certain 3g and 4g wireless devices that infringe up to seven of interdigital 's u.s. patents . patent licensing royalties patent licensing royalties in 2012 of $ 276.6 million decreased 6 % from the prior year . this $ 18.7 million year-over-year decrease in patent licensing royalties was primarily driven by a decrease in royalties from our japanese per-unit licensees and lower shipments from our per-unit licensees with concentrations in the smartphone market . refer to `` results of operations -- 2012 compared with 2011 `` for further discussion of our 2012 revenue . technology solutions and engineering services we are engaged in arbitration to determine whether royalties are owed on specific product classes pursuant to one of our technology solutions agreements . as of december 31 , 2012 and december 31 , 2011 , we have deferred related revenue of $ 44.3 million and $ 29.7 million , respectively . these amounts have either been collected or recorded in accounts receivable on their respective balance sheet dates . during fourth quarter 2012 , we entered into an agreement with convida wireless , our joint venture with sony corporation of america , to provide m2m research and platform development . work under this agreement commenced during first quarter 2013. usitc proceedings samsung , nokia , huawei and zte 2013 usitc proceeding ( 337-ta-868 ) and related delaware district court proceedings on january 2 , 2013 , the company 's wholly owned subsidiaries interdigital communications , inc. , interdigital technology corporation , ipr licensing , inc. and interdigital holdings , inc. filed a complaint with the usitc against samsung electronics co. , ltd. , samsung electronics america , inc. and samsung telecommunications america , llc , nokia corporation and nokia inc. , huawei technologies co. , ltd. , huawei device usa , inc. and futurewei technologies , inc. d/b/a 31 huawei technologies ( usa ) and zte corporation and zte ( usa ) inc. ( collectively , the “ 337-ta-868 respondents ” ) , alleging violations of section 337 of the tariff act of 1930 in that they engaged in unfair trade practices by selling for importation into the united states , importing into the united states and or selling after importation into the united states certain 3g and 4g wireless devices ( including wcdma- , cdma2000- and lte-capable mobile phones , usb sticks , mobile hotspots , laptop computers and tablets and components of such devices ) that infringe one or more of up to seven of interdigital 's u.s. patents . the complaint also extends to certain wcdma and cdma2000 devices incorporating wifi functionality . story_separator_special_tag interdigital 's complaint with the usitc seeks an exclusion order that would bar from entry into the united states infringing 3g or 4g wireless devices ( and components ) , including lte devices , that are imported by or on behalf of the 337-ta-868 respondents , and also seeks a cease-and-desist order to bar further sales of infringing products that have already been imported into the united states . certain of the asserted patents have been asserted against nokia , huawei and zte in earlier pending usitc proceedings ( including the nokia , huawei and zte 2011 usitc proceeding ( 337-ta-800 ) and the nokia 2007 usitc proceeding ( 337-ta-613 ) , as set forth below ) and therefore are not being asserted against those 337-ta-868 respondents in this investigation . on february 6 , 2013 , the administrative law judge ( “ alj ” ) overseeing the proceeding issued an order setting a target date of june 4 , 2014 for the commission 's final determination in the investigation , with the alj 's initial determination on alleged violation due on february 4 , 2014. on february 21 , 2013 , each 337-ta-868 respondent filed their respective responses to the complaint . on february 21 , 2013 , samsung moved for partial termination of the investigation as to six of the seven patents asserted against samsung , alleging that samsung was authorized to import the specific 3g or 4g devices that interdigital relied on to form the basis of its complaint . interdigital 's opposition is due march 4 , 2013. on february 22 , 2013 , huawei and zte moved to stay the investigation pending their respective requests to the united states district court for the district of delaware to set a frand royalty rate for a license that covers the asserted patents , or in the alternative , until a final determination issues in the 337-ta-800 investigation . interdigital 's opposition is due march 4 , 2013. on january 2 , 2013 , the company 's wholly owned subsidiaries interdigital communications , inc. , interdigital technology corporation , ipr licensing , inc. and interdigital holdings , inc. filed four related district court actions in the delaware district court against the 337-ta-868 respondents . these complaints allege that each of the defendants infringes the same patents with respect to the same products alleged in the complaint filed by interdigital in usitc proceeding ( 337-ta-868 ) . the complaints seek permanent injunctions and compensatory damages in an amount to be determined , as well as enhanced damages based on willful infringement and recovery of reasonable attorneys ' fees and costs . on january 24 , 2013 , huawei filed its answer and counterclaims to interdigital 's complaint . huawei asserted counterclaims for breach of contract , equitable estoppel , waiver of right to enjoin and declarations that interdigital has not offered or granted huawei licenses on frand terms , declarations seeking the determination of frand terms and declarations of noninfringement , invalidity and unenforceability of the asserted patents . in addition to the declaratory relief specified in its counterclaims , huawei seeks specific performance of interdigital 's purported contracts with huawei and standards-setting organizations , appropriate damages in an amount to be determined at trial , reasonable attorneys ' fees and such other relief as the court may deem appropriate . on january 31 , 2013 , zte filed its answer and counterclaims to interdigital 's complaint ; zte asserted counterclaims for breach of contract , equitable estoppel , waiver of right to enjoin and declarations that interdigital has not offered zte licenses on frand terms , declarations seeking the determination of frand terms and declarations of noninfringement , invalidity and unenforceability . nokia and samsung have not yet responded to the complaints against them . in addition to the declaratory relief specified in its counterclaims , zte seeks specific performance of interdigital 's purported contracts with zte and standards-setting organizations , appropriate damages in an amount to be determined at trial , reasonable attorneys ' fees and such other relief as the court may deem appropriate . on february 11 , 2013 , huawei and zte filed motions to expedite discovery and trial on their frand-related counterclaims . huawei seeks a schedule for discovery and trial on its frand-related counterclaims that would afford huawei the opportunity to accept a frand license rate at the earliest opportunity , and in any case before december 28 , 2013. zte seeks a trial on its frand-related counterclaims no later than november 2013. nokia , huawei and zte 2011 usitc proceeding ( 337-ta-800 ) and related delaware district court proceeding on july 26 , 2011 , interdigital 's wholly owned subsidiaries interdigital communications , llc ( now interdigital communications , inc. ) , interdigital technology corporation and ipr licensing , inc. filed a complaint with the usitc against nokia corporation and nokia inc. , huawei technologies co. , ltd. and futurewei technologies , inc. d/b/a huawei technologies ( usa ) and zte corporation and zte ( usa ) inc. , alleging violations of section 337 of the tariff act of 1930 in that they engaged in unfair trade practices by selling for importation into the united states , importing into the united states and or selling after importation into the united states certain 3g wireless devices ( including wcdma- and cdma2000-capable mobile phones , usb sticks , mobile hotspots and tablets and components of such devices ) that infringe seven of interdigital 's 32 u.s. patents . the action also extends to certain wcdma and cdma2000 devices incorporating wifi functionality . interdigital 's complaint with the usitc seeks an exclusion order that would bar from entry into the united states any infringing 3g wireless devices ( and components ) that are imported by or on behalf of the 337-ta-800 respondents , and also seeks a cease-and-desist order to bar further sales of infringing products that have already been imported into the united states .
| the $ 77.1 million increase in total operating expenses was primarily due to increases/ ( decreases ) in the following items ( in millions ) : replace_table_token_16_th intellectual property enforcement and non-patent litigation costs increased $ 31.2 million primarily due to costs associated with the usitc actions initiated in second half 2011 and january 2013 , the ongoing arbitration proceeding related to one of our technology solutions agreements , and various arbitrations with our existing licensees . we recognized $ 16.7 million of expense associated with patent sales . included in this amount was the remaining net book value of patents sold , as well as commissions and legal and accounting services fees paid in conjunction with the sales . personnel-related costs grew $ 6.8 million primarily due to increased personnel levels and merit increases . long-term compensation increased $ 5.0 million , primarily due to a $ 4.4 million charge to increase the accrual rate on our ltcp cycle ended december 31 , 2012 , and a net $ 4.4 45 million reduction to the accrual rates on our active cycles in 2011. this increase was partially offset by lower accrual rates on the remaining two active cycles under the ltcp in 2012 as compared to 2011. in 2012 we recorded a litigation contingency related to our huawei china proceedings . patent amortization increased $ 3.1 million due to increases in the number of patent applications filed in recent years and patent acquisitions made during 2012 , and was partially offset by decreases in depreciation of $ 0.5 million . the increase in patent maintenance and patent evaluation costs was primarily related to due diligence associated with both patent acquisition and patent sale opportunities . costs associated with our strategic alternatives evaluation process decreased $ 1.5 million due to the company exiting the process in first quarter 2012. patent administration and licensing expense : the increase in patent administration and licensing expense primarily resulted from the above-noted increases in intellectual property enforcement , cost of patent sales , personnel-related costs , patent amortization and
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until ceasing business in the state of indiana in august 2015 , we also provided limited home health services reimbursable by medicare in order to comply with regulatory requirements that personal care services be provided by a licensed home health agency . priority home health care , located in ohio , also maintains enrollment in but does not derive significant revenues from medicare . business the results of the home health business sold are reflected as discontinued operations for all periods presented herein . continuing operations include the results of operations previously included in our home and community segment and three agencies previously included in our home health segment . following the sale of the home health business , we manage and internally report our business in one segment . as of december 31 , 2016 , we provided our personal care services through 114 locations across 24 states , including three adult day services centers in illinois . in order to focus on providing services to consumers in their homes , effective march 1 , 2017 , addus ceased the adult day services businesses and sold substantially all of the assets used in our adult day services centers . our payor clients are principally federal , state and local governmental agencies and , increasingly , managed care organizations . the federal , state and local programs under which the agencies operate are subject to legislative , budgetary and other risks that can influence reimbursement rates . we are experiencing a further transition of business from government payors to managed care organizations with which we are seeking to grow our business given our emphasis on coordinated care and the prevention of the need for acute care . managed care organizations are commercial insurance carriers that are under contract with various federal and state governmental agencies to provide and manage a full continuum of care . 41 for the years ended december 31 , 2016 , 2015 and 2014 , our payor revenue mix for continuing operations was : replace_table_token_12_th we derive a significant amount of our net service revenues from our continuing operations in illinois , which represented 53.6 % , 59.5 % and 60.6 % of our total net service revenues from continuing operations for the years ended december 31 , 2016 , 2015 and 2014 , respectively . a significant amount of our net service revenues from continuing operations are derived from one payor client , the illinois department on aging , which accounted for 42.1 % , 48.8 % and 53.2 % of our total net service revenues from continuing operations for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the state of illinois ' payments have been delayed in the past and may continue to be delayed due to a budget impasse that began in 2015. the state of illinois did not adopt a comprehensive budget for fiscal year 2016 , which ended on june 30 , 2016 , and it has not yet adopted a comprehensive budget for fiscal year 2017 , which began on july 1 , 2016. stopgap budget legislation was enacted on june 30 , 2016 , which appropriated funds through december 31 , 2016. without a budget , the state is not authorized to pay for non-medicaid consumers we served . non-medicaid consumers from illinois represent approximately 15 % of our current total annual revenues . our accounts receivable , net of allowance for doubtful accounts at december 31 , 2016 increased 37.7 % compared to 2015 , due in part to delays from the state of illinois in the second half of 2016. accounts receivable attributable to delayed payments from the illinois department on aging totaled $ 53.0 million at the end of 2016 , approximately $ 36.8 million thereof related to non-medicaid consumers and approximately $ 16.2 related to medicaid consumers . reimbursements from the state of illinois could be further delayed due to the lack of a budget for fiscal year 2017 and because current forecasts indicate higher state deficits in the near future . we measure the performance of our business using a number of different metrics , including billable hours , billable hours per business day , revenues per billable hour and the number of consumers , or census . in 2016 , the increase in managed care organization revenue was mainly attributable to the south shore acquisition . components of our statements of income net service revenues we generate net service revenues from continuing operations by providing our services directly to consumers and primarily on an hourly basis . we receive payment for providing such services from our payor clients , including federal , state and local governmental agencies , managed care organizations , commercial insurers and private consumers . net service revenues from continuing operations are principally provided based on authorized hours , determined by the relevant agency , at an hourly rate which is either contractual or fixed by legislation and are recognized at the time services are rendered . 42 cost of service revenues we incur direct care wages , payroll taxes and benefit-related costs from continuing operations in connection with providing our services . we also provide workers ' compensation and general liability coverage for our employees . employees are also reimbursed for their travel time and related travel costs . general and administrative expenses our general and administrative expenses from continuing operations include our costs for operating our network of local agencies and our administrative offices . our agency expenses from continuing operations consist of costs for supervisory personnel , our community care supervisors and office administrative costs . personnel costs include wages , payroll taxes , and employee benefits . facility costs including rents , utilities , postage , telephone and office expenses . our support center and executive office includes costs for accounting , information systems , human resources , billing and collections , contracting , marketing and executive leadership . story_separator_special_tag these expenses consist of compensation , including stock-based compensation , payroll taxes , employee benefits , legal , accounting and other professional fees , travel , general insurance , rents and related facility costs . during 2016 , the company took steps to streamline and simplify its operations . the expenses recorded for the year ended december 31 , 2016 included costs related to terminated employees and other direct costs associated with implementing these initiatives . other direct costs included contract termination costs , accelerated depreciation and asset write-offs . the company incurred total pretax expenses related to these streamlining initiatives of approximately $ 8.0 million during the year ended december 31 , 2016 , which is included in general and administrative expenses on the consolidated statements of income . the company expects some additional restructuring and other costs to occur , however , the amount and timing can not be determined at this time . depreciation and amortization expenses we amortize our intangible assets with finite lives , consisting of customer and referral relationships , trade names , trademarks , state licenses and non-compete agreements , principally using accelerated methods based upon their estimated useful lives . depreciable assets consist principally of furniture and equipment , network administration and telephone equipment , and operating system software . depreciable and leasehold assets are depreciated or amortized on a straight-line method over their useful lives or , if less and if applicable , their lease terms . interest income illinois law entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time . as the amount and timing of the receipt of these payments are not certain , the interest income from continuing operations is recognized when received . for the year ended december 31 , 2016 , we received $ 2.8 million in prompt payment interest . for the years ended december 31 , 2015 and 2014 we did not earn or receive any prompt payment interest . interest expense interest expense from continuing operations consists of interest costs on our credit facility , capital lease obligations and other debt instruments and is reported in the statement of income when incurred . 43 other income for the year ended december 31 , 2016 , other income from continuing operations of $ 0.2 million consists of income distributions received from the cost method investment in joint venture . no distributions were received during the years ended december 31 , 2015 or 2014. we account for this income in accordance with asc topic 325 , investmentsother. we recognize the net accumulated earnings only to the extent distributed by the joint venture on the date received . income tax expense all of our income is from domestic sources . we incur state and local taxes in states in which we operate . for 2016 and 2015 , our federal statutory rates were 35.0 % and 34.5 % , respectively . the effective income tax rates were 25.2 % and 26.1 % for 2016 and 2015 , respectively . the difference between federal statutory and effective income tax rates was principally due to the inclusion of state taxes and the use of federal employment tax credits that lower our effective tax rate . discontinued operations discontinued operations consists of the reduction of the indemnification reserve , net of tax for our home health business that was sold effective march 1 , 2013 and the results of operations for an agency in pennsylvania that was sold on december 30 , 2013 . 44 results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 the following table sets forth , for the periods indicated , our consolidated results of operations . replace_table_token_13_th ( 1 ) average billable census is the number of unique clients receiving a billable service during a period . ( 2 ) billable hours is the total number of hours served to clients during a period . net service revenues from state , local and other governmental programs accounted for 70.4 % and 77.7 % of net service revenues for 2016 and 2015 , respectively . managed care organizations accounted for 26.1 % and 18.3 % of net service revenues in 2016 and 2015 respectively , with private and commercial payors accounting for the remainder of net service revenues . a significant amount of our net service revenues in 2016 and 2015 were derived from one payor client , illinois department on aging , which accounted for 42.1 % and 48.8 % respectively , of our total net service revenues from continuing operations . 45 net service revenues increased $ 63.9 million , or 19.0 % , to $ 400.7 million for 2016 compared to $ 336.8 million for 2015. the increase was primarily due to the south shore acquisition contributing net service revenues of $ 51.7 million in 2016 and a 3.6 % increase in average billable census and a 0.8 % increase in revenues per billable hour . gross profit , expressed as a percentage of net service revenues , decreased to 26.5 % for 2016 , from 27.1 % in 2015. the decrease was primarily due to the south shore acquisition which is a lower margin business . general and administrative expenses , expressed as a percentage of net service revenues increased to 21.0 % for 2016 , from 20.9 % in 2015. general and administrative expenses increased to $ 84.2 million in 2016 as compared to $ 70.5 million in 2015. the increase in general and administrative expenses for the years ended december 31 , 2016 as compared to 2015 was primarily due to the following : $ 4.8 million charge for lease commitments , a write-off of unamortized leasehold improvements , an equipment write-off resulting from the closure of three adult day services centers in illinois during the third quarter of 2016 , a write-off for unused contact center office space and a write-off related to the discontinued use of internally developed software and fees for
| 48 general and administrative expenses , expressed as a percentage of net service revenues increased to 21.0 % for 2015 , from 19.8 % in 2014. general and administrative expenses increased to $ 70.5 million in 2015 as compared to $ 61.8 million in 2014. the increase in general and administrative expenses as compared to 2014 was due to an increase in costs related to wages , payroll taxes , stock compensation expenses , and increased expenditures related to legal , consulting , temporary office personnel and the ongoing installation of our new human resources and payroll information system for the year ended december 31 , 2015. depreciation and amortization , expressed as a percentage of net service revenues , increased to 1.4 % from 1.2 % for the year ended december 31 , 2015 and 2014 , respectively . amortization of intangibles , which are principally amortized using accelerated methods , totaled $ 3.0 million and $ 2.4 million for the years ended december 31 , 2015 and 2014 , respectively . interest income illinois law entitles designated service program providers to receive a prompt payment interest penalty based on qualifying services approved for payment that remain unpaid after a designated period of time . as the amount and timing of the receipt of these payments are not certain , the interest income is recognized when received and reported in the income statement caption , interest income. we did not receive or earn any prompt payment interest in 2015 and 2014 and $ 0.2 million in 2013. interest expense , net interest expense , net , increased to $ 0.7 million from $ 0.7 million for the year ended december 31 , 2015 as compared to december 31 , 2014. the increase was primarily as a result of the capital lease agreements entered into on july 12 , 2014 , september 11 , 2014 and april 13 , 2015 and interest on the new senior credit facility entered into on november 10 , 2015 , as described in note 7 to the consolidated financial statements . income tax expense our effective tax rates from continuing operations for 2015 and 2014 were 26.1 % and 31.2 % , respectively . the principal difference between the federal and state statutory rates and our effective tax rate is the use of federal employment opportunity tax credits . discontinued operations effective march 1 , 2013 , we sold substantially all of the assets used in our home health
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non‑cash acceleration of unvested equity held by employees of the australian jv . half of the expenses associated with acceleration of equity held by employees of the australian jv is included in other expenses and the other half is included in income ( loss ) from equity method investments . follow-on offerings of class a common stock in november 2014 , the company completed an offering of 6,325,000 shares of class a common stock sold by the company and selling stockholders . the company conducted the offering to facilitate organized liquidity in its class a common stock and to increase the public float of its class a common stock . the shares were offered by selling stockholders , including certain of the company 's pre-ipo equity holders and managing directors , other than 1,535,392 shares offered by the company , the proceeds of which were used to repurchase the same number of shares or partnership interests or other equity interests that are exchangeable or convertible into shares of class a common stock from certain of the company 's managing directors and employees . in connection with the offering , the shares of class a common stock outstanding of the company increased by 4,511,058 shares . the company did not retain any proceeds from the sale of its class a common stock . see note 4 in these consolidated and combined financial statements for further information . on january 11 , 2017 , the company completed an offering of 5,750,000 shares of class a common stock in order to facilitate organized liquidity and increase the public float of its class a common stock . the proceeds of the offering were used to repurchase the same number of shares of class a common stock or partnership interests or other equity interests that are exchangeable or convertible into shares of class a common stock from certain of the company 's managing directors and former employees . in connection with the offering , the shares of class a common stock outstanding of the company increased by 5,356,876 shares . the company did not retain any proceeds from the sale of its class a common stock . see note 17 in these consolidated and combined financial statements for further information . 32 business environment and outlook economic and global financial conditions can materially affect our operational and financial performance . see “ risk factors ” elsewhere in this form 10‑k for a discussion of some of the factors that can affect our performance . revenues and net income in any period may not be indicative of full year results or the results of any other period and may vary significantly from year to year and quarter to quarter . for the year ended december 31 , 2016 , we earned revenues of $ 613.4 million , or an increase of 11 % from the $ 551.9 million earned during the same period in 2015. this compares favorably with a 7 % decrease in the number of global completed m & a transactions greater than $ 100 million in the same period . in the u.s. , which has particularly contributed to our full year growth , we are witnessing many companies pursue m & a in order to grow revenues and or drive greater efficiencies by reducing costs . based on historical experience , we believe the current economic backdrop ( high corporate cash balances , relatively low interest rates and availability of credit ) , provides a solid foundation for m & a . additionally , if regulatory and tax reforms are implemented under the new administration , we would expect to see a positive benefit to the m & a environment . finally , the dislocation in energy and other commodity related sectors as well as in the emerging markets continues to provide opportunity for recapitalization and restructuring and capital markets related activity . as our team of investment professionals expands and continues to gain traction , we expect our global collaboration will deepen and continue to resonate with clients . our current conversations with clients remain robust , and we continue to experience a growing global demand for independent advice as clients evaluate a wide range of strategic alternatives . story_separator_special_tag style= '' display : inline ; font-weight : bold ; font-style : italic ; '' > operating expenses the following table sets forth information relating to our operating expenses , which are reported net of reimbursements by our clients : replace_table_token_5_th 34 our operating expenses are classified as compensation and benefits expenses and non‑compensation expenses , and headcount is the primary driver of the level of our expenses . compensation and benefits expenses account for the majority of our operating expenses . non‑compensation expenses , which include the costs of professional fees , travel and related expenses , communication , technology and information services , occupancy , depreciation and other expenses , generally have been less significant in comparison with compensation and benefits expenses . expenses are recorded on the consolidated and combined statements of operations , net of any expenses reimbursed by clients . our operating expenses ( both compensation and non‑compensation expenses ) for the year ended december 31 , 2014 were impacted by the significant reorganization and ipo related expenses as described above in “ reorganization and initial public offering. ” year ended december 31 , 2016 versus 2015 operating expenses were $ 452.3 million for the year ended december 31 , 2016 and represented 74 % of revenues , compared with $ 414.4 million for the same period in 2015 which represented 75 % of revenues . story_separator_special_tag the increase in operating expenses in 2016 was generally in-line with the growth in revenues and was primarily driven by higher compensation expenses due to an additional tranche of equity amortization as compared to the prior year , as well as modified vesting terms associated with that equity which have a five year pro-rata vest for managing directors as compared with awards issued in the previous two years which have a five year vest , pro-rata in years three , four and five . year ended december 31 , 2015 versus 2014 operating expenses were $ 414.4 million for the year ended december 31 , 2015 and represented 75 % of revenues , compared with $ 471.0 million for the same period in 2014 which represented 91 % of revenues . the decrease in operating expenses in 2015 is due primarily to the impact of approximately $ 112.4 million of expense relating to the reorganization and ipo in 2014 , partially offset by higher compensation and benefits expense associated with increased headcount in 2015. compensation and benefits expenses our compensation and benefits expenses are determined by management based on revenues earned , the competitiveness of the prevailing labor market and anticipated compensation requirements for our employees , the level of recruitment of new managing directors , the amount of compensation expenses amortized for equity awards and other relevant factors . our compensation expenses consist of base salary and benefits , annual incentive compensation payable as cash bonus awards , including certain amounts subject to clawback and contingent upon a required period of service ( “ contingent cash awards ” ) and amortization of equity‑based compensation awards . base salary and benefits are paid ratably throughout the year . equity awards are amortized into compensation expenses on a graded basis ( based upon the fair value of the award at the time of grant ) during the service period over which the award vests , which is typically four or five years . the awards are recorded within equity as they are expensed . contingent cash awards are amortized into compensation expenses over the required service period . cash bonuses , which are accrued each quarter , are discretionary and dependent upon a number of factors including the performance of the company and are generally paid during the first two months of each calendar year with respect to prior year performance . the equity component of the annual incentive award is determined with reference to the company 's estimate of grant date fair value , which in turn determines the number of equity awards granted subject to a vesting schedule . our compensation expenses are primarily based upon revenues , prevailing labor market conditions and other factors that can fluctuate , including headcount , and as a result , our compensation expenses may fluctuate materially in any particular period . accordingly , the amount of compensation expenses recognized in any particular period may not be consistent with prior periods or indicative of future periods . year ended december 31 , 2016 versus 2015 for the year ended december 31 , 2016 , compensation‑related expenses of $ 360.9 million represented 59 % of revenues , compared with $ 311.2 million of compensation‑related expenses which represented 56 % of revenues in the 35 prior year . the increase in expenses primarily relates to a combination of greater revenue and increased equity amortization during 2016 as compared with 2015. our fixed compensation costs , which are primarily the sum of base salaries , payroll taxes and benefits and the amortization of previously issued equity and contingent cash awards , were $ 232.9 million and $ 190.1 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in fixed compensation costs relates to an additional tranche of equity amortization as compared to the prior year . the aggregate amount of discretionary cash bonus expenses , which generally represents the excess amount of total compensation over base compensation and amortization of equity and contingent cash awards , was $ 128.0 million and $ 121.1 million for the years ended december 31 , 2016 and 2015 , respectively . the combination of the discretionary and fixed compensation expenses represents the overall compensation expense pool . the increase in discretionary cash bonus expense is primarily related to higher revenues earned , partially offset by the increase in fixed compensation expense exceeding the growth in the overall compensation pool . year ended december 31 , 2015 versus 2014 for the year ended december 31 , 2015 , compensation‑related expenses of $ 311.2 million represented 56 % of revenues , compared with $ 377.2 million of compensation‑related expenses which represented 73 % of revenues in the prior year . the decrease in expenses primarily relates to $ 106.2 million of compensation expense associated with the reorganization and ipo that occurred during 2014 and a lower discretionary bonus accrual in 2015. our fixed compensation costs , which are primarily the sum of base salaries , payroll taxes and benefits and the amortization of previously issued equity and contingent cash awards , were $ 190.1 million and $ 245.2 million for the years ended december 31 , 2015 and 2014 , respectively . the decrease in fixed compensation costs relates to the acceleration of equity compensation expense associated with the ipo that occurred in april 2014. the aggregate amount of discretionary cash bonus expenses , which generally represents the excess amount of total compensation over base compensation and amortization of equity and contingent cash awards , was $ 121.1 million and $ 132.0 million for the years ended december 31 , 2015 and 2014 , respectively . the decrease in discretionary cash bonus expense is primarily related to increased fixed compensation costs ( excluding amounts associated with the ipo accelerated vesting ) due to higher headcount . non‑compensation expenses our non‑compensation expenses include the costs of occupancy , professional fees , communication , technology and information services , travel and related expenses , depreciation and other expenses .
| barriers to the completion of a restructuring transaction may include a lack of anticipated bidders for the assets of our client or the inability of our client to restructure its operations or indebtedness due to a failure to reach agreement with its creditors . in these circumstances , our fees are generally limited to monthly retainer fees and reimbursement of certain out‑of‑pocket expenses . we do not allocate our revenues by the type of advice we provide ( m & a , recapitalizations and restructurings or other corporate finance matters ) because of the complexity of the transactions on which we may earn revenues and our holistic approach to client service . for example , a restructuring engagement may evolve to require a sale of all or a portion of the client , m & a assignments can develop from relationships established on prior restructuring engagements and capital markets expertise can be instrumental on both m & a and restructuring assignments . year ended december 31 , 2016 versus 2015 revenues were $ 613.4 million for the year ended december 31 , 2016 compared with $ 551.9 million for the same period in 2015 , representing an increase of 11 % . this compares favorably with a 7 % decrease in the number of globally completed m & a transactions greater than $ 100 million in the same period . the increase in revenues was primarily driven by higher fees earned in the u.s. and rest of world , partially offset by decreased fees from europe . the number of clients we advised increased year‑over‑year from 269 clients in 2015 to 305 clients in 2016 , and the number of clients who paid fees equal to or greater than $ 1 million increased from 139 clients in 2015 to 167 clients in 2016. year ended december 31 , 2015 versus 2014 revenues were $ 551.9 million for the year ended december 31 , 2015 compared with $ 518.8 million for the same period in 2014 , representing an increase
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in 2018 , our net loss also includes a $ 6.8 million non-cash expense related to the change in fair value of our warrant liabilities , a $ 2.5 million non-cash expense related to the vesting of warrants issued to an fi partner that accelerated upon our ipo , a $ 0.9 million loss on extinguishment of debt and a $ 0.8 million gain related to the renewal of our agreement with an fi partner . fi partners today , our fi partners include bank of america , national association ( `` bank of america '' ) , jpmorgan chase bank , national association ( “ chase ” ) and wells fargo bank , national association ( “ wells fargo ” ) in the u.s. and lloyds bank plc ( “ lloyds ” ) and santander uk plc ( “ santander ” ) in the u.k. , as well as many other national and regional financial institutions , including several of the largest bank processors and digital banking providers to reach customers of small and mid-sized fis . wells fargo began a phased launch of our platform in the fourth quarter of 2019 that will continue into the first half of 2020. as the amount of revenue that we can generate from marketers with respect to cardlytics direct is primarily a function of the number of active users on our fi partners ' digital banking platforms , we believe that the number of monthly active users ( `` fi maus '' ) contributed by any fi partner is indicative of our level of dependence on such fi partner . during 2017 , 2018 and 2019 , bank of america contributed 51 % , 47 % , and 26 % of our average fi maus , respectively . chase contributed 9 % and 47 % of our average fi maus in 2018 and 2019 , respectively . we anticipate that chase , bank of america and , once the phased launch is complete , wells fargo will contribute a significant portion of our average fi maus for the foreseeable future . fi partner commitments agreements with certain fi partners require us to fund the development of specific enhancements , pay for certain implementation fees , or make milestone payments upon the deployment of our solution . certain of these agreements provide for future reductions in fi share due to the fi partner . during 2018 , development payments to a certain fi partner totaled $ 9.3 million which was partially offset by recoveries through fi share payment reductions of $ 4.6 million in 2019. we have an fi share commitment to a certain fi partner totaling $ 10.0 million over a 12-month period following the completion of certain milestones by the fi partner , which were not met as of december 31 , 2019 . the timing of the completion of the milestones is uncertain ; however , we do not currently believe the fi partner will complete the milestones in 2020. any expected shortfall will be accrued during the 12-month period following the completion of the milestones . 40 non-gaap measures and other performance metrics we regularly monitor a number of financial and operating metrics in order to measure our current performance and estimate our future performance . our metrics may be calculated in a manner different than similar metrics used by other companies . replace_table_token_5_th ( 1 ) adjusted contribution and adjusted ebitda includes the impact of a $ 0.8 million gain during 2018 related to the renewal of our agreement with an fi partner , which contains certain amendments that are retroactively applied as of january 1 , 2018. monthly active users we define fi maus as targetable customers or accounts of our fi partners that logged in and visited the online or mobile banking applications of , or opened an email containing our offers from , our fi partners during a monthly period . we then calculate a monthly average of these fi maus for the periods presented . we believe that fi maus is an indicator of our and our fi partners ' ability to drive engagement with cardlytics direct and is reflective of the marketing base that we offer to marketers through cardlytics direct . average revenue per user we define arpu as the total cardlytics direct revenue generated in the applicable period calculated in accordance with generally accepted accounting principles in the united states ( `` gaap '' ) , divided by the average number of fi maus in the applicable period . we believe that arpu is an indicator of the value of our relationships with our fi partners with respect to cardlytics direct . billings billings represents the gross amount billed to marketers for advertising campaigns in order to generate revenue . billings is reported gross of both consumer incentives and fi share . our gaap revenue is recognized net of consumer incentives and gross of fi share . we review billings for internal management purposes . we believe that billings provides useful information to investors for period-to-period comparisons of our core business and in understanding and evaluating our results of operations in the same manner as our management and board of directors . nevertheless , our use of billings has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under gaap . other companies , including companies in our industry that have similar business arrangements , may address the impact of consumer incentives differently . you should consider billings alongside our other gaap financial results . the following table presents a reconciliation of billings to revenue , the most directly comparable gaap measure , for each of the periods indicated ( in thousands ) : replace_table_token_6_th 41 adjusted contribution adjusted contribution measures the degree by which revenue generated from our marketers exceeds the cost to obtain the purchase data and the digital advertising space from our fi partners . story_separator_special_tag adjusted contribution demonstrates how incremental marketing spend on our platform generates incremental amounts to support our sales and marketing , research and development , general and administration and other investments . adjusted contribution is calculated by taking our total revenue less our fi share and other third-party costs exclusive of a non-cash equity expense and amortization of deferred fi implementation costs , which are non-cash costs . adjusted contribution does not take into account all costs associated with generating revenue from advertising campaigns , including sales and marketing expenses , research and development expenses , general and administrative expenses and other expenses , which we do not take into consideration when making decisions on how to manage our advertising campaigns . we use adjusted contribution extensively to measure the efficiency of our advertising platform , make decisions to manage advertising campaigns and evaluate our operational performance . adjusted contribution is also used to determine the vesting of performance-based equity awards and is used to determine the achievement of quarterly and annual bonuses across our entire global employee base , including executives . we view adjusted contribution as an important operating measure of our financial results . we believe that adjusted contribution provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors . adjusted contribution should not be considered in isolation from , or as an alternative to , measures prepared in accordance with gaap . adjusted contribution should be considered together with other operating and financial performance measures presented in accordance with gaap . also , adjusted contribution may not necessarily be comparable to similarly titled measures presented by other companies . refer to note 15—segments to our condensed consolidated financial statements for further details on our adjusted contribution by segment . the following table presents a reconciliation of adjusted contribution to revenue , the most directly comparable gaap measure , for each of the periods indicated ( in thousands ) : replace_table_token_7_th ( 1 ) fi share and other third-party costs , gross profit and adjusted contribution include the impact of a $ 0.8 million gain during 2018 related to the renewal of our agreement with an fi partner , which contains certain amendments that are retroactively applied as of january 1 , 2018 . ( 2 ) stock-based compensation expense recognized in delivery costs totaled $ 0.2 million , $ 0.6 million and $ 0.7 million during 2017 , 2018 and 2019 , respectively . ( 3 ) non-cash equity expense included in fi share and amortization of deferred fi implementation costs are excluded from adjusted fi share and other third-party costs as follows ( in thousands ) : replace_table_token_8_th 42 adjusted ebitda adjusted ebitda represents our net loss before income tax benefit ; interest expense , net ; depreciation and amortization expense ; stock-based compensation expense ; foreign currency ( gain ) loss ; amortization of deferred fi implementation costs ; costs associated with financing events ; loss on extinguishment of debt ; change in fair value of warrant liabilities , net ; change in fair value of convertible promissory notes ; and a non-cash equity expense recognized in fi share . we do not consider these excluded items to be indicative of our core operating performance . the items that are non-cash include change in fair value of warrant liabilities , change in fair value of convertible promissory notes , foreign currency ( gain ) loss , amortization of fi implementation costs , depreciation and amortization expense , stock-based compensation expense and a non-cash equity expense included in fi share . notably , any impacts related to minimum fi share commitments in connection with agreements with certain fi partners are not added back to net loss in order to calculate adjusted ebitda . adjusted ebitda is a key measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans , make strategic decisions regarding the allocation of capital and invest in initiatives that are focused on cultivating new markets for our solution . in particular , the exclusion of certain expenses in calculating adjusted ebitda facilitates comparisons of our operating performance on a period-to-period basis . adjusted ebitda is not a measure calculated in accordance with gaap . we believe that adjusted ebitda provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . nevertheless , use of adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under gaap . some of these limitations are : ( 1 ) adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; ( 2 ) adjusted ebitda does not reflect the potentially dilutive impact of stock-based compensation and equity instruments issued to our fi partners ; ( 3 ) adjusted ebitda does not reflect tax payments or receipts that may represent a reduction or increase in cash available to us and ( 4 ) other companies , including companies in our industry , may calculate adjusted ebitda or similarly titled measures differently , which reduces the usefulness of the metric as a comparative measure . because of these and other limitations , you should consider adjusted ebitda alongside our net loss and other gaap financial results . the following table presents a reconciliation of adjusted ebitda to net loss , the most directly comparable gaap measure , for each of the periods indicated ( in thousands ) : replace_table_token_9_th ( 1 ) net loss and adjusted ebitda include the impact of a $ 0.8 million gain during 2018 related to the renewal of our agreement with an fi partner , which contains certain amendments that are retroactively applied as of january 1 , 2018 .
| refer to note 11—fair value measurements to our consolidated financial statements for additional information regarding the valuation of the warrants that vested upon the consummation of our ipo . agreements with certain fi partners require us to fund the development of specific enhancements . amortization of deferred fi implementation costs increased by $ 1.3 million during 2019 compared to 2018 primarily due to an increase in the value of enhancements placed in service by our fi partners . delivery costs replace_table_token_14_th delivery costs increased by $ 2.3 million during 2019 compared to 2018 primarily due to a $ 1.3 million increase in personnel costs associated with additional headcount to host cardlytics direct for certain new fi partners , a $ 0.9 million increase in hosting-related it costs and a $ 0.1 million increase in stock-based compensation expense . 48 sales and marketing expense replace_table_token_15_th sales and marketing expense increased by $ 2.0 million during 2019 compared to 2018 primarily due to a $ 6.3 million increase in personnel costs associated with additional headcount , a $ 0.5 million increase in event hosting and sponsorship , a $ 0.2 million increase in software licensing fees and a $ 0.1 million increase in outsourcing costs , offset by a $ 5.1 million decrease in stock-based compensation expense . research and development expense replace_table_token_16_th research and development expense decreased by $ 4.5 million during 2019 compared to 2018 primarily due to a $ 2.5 million decrease in stock-based compensation expense , a $ 0.4 million decrease in recruiting fees and a $ 0.1 million decrease in other expense , offset by a $ 2.0 million increase in capital development and $ 0.5 million increase in personnel costs . general and administrative expense replace_table_token_17_th general and administrative expense increased by $ 2.5 million during 2019 compared to 2018 primarily due to a $ 1.8 million increase in personnel costs associated with additional headcount , a $ 1.6 million increase in software licensing fees , a $ 1.2 million
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as a result , we believe that a reasonable likely change in the contractual allowance reserve estimate would not be more than 1 % at december 31 , 2016. for purposes of demonstrating the sensitivity of this estimate on the company 's financial condition , a one percent increase or decrease in our aggregate contractual allowance reserve percentage would decrease or increase , respectively , net patient revenue by approximately $ 901,450 for the year ended december 31 , 2016. management believes the changes in the estimate of the contractual allowance reserve for the periods ended december 31 , 2016 , 2015 and 2014 have not been material to the statement of operations . the following table sets forth information regarding our patient accounts receivable as of the dates indicated ( in thousands ) : replace_table_token_6_th the following table presents our patient accounts receivable aging by payor class as of the dates indicated ( in thousands ) : replace_table_token_7_th * workers compensation is paid by state administrators or their designated agents . * * other includes primarily litigation claims and , to a lesser extent , vehicular insurance claims . 24 reimbursement for medicare beneficiaries is based upon a fee schedule published by hhs . for a more complete description of our third party revenue sources , see “ business—sources of revenue ” in item 1. provision for doubtful accounts . we determine our provision for doubtful accounts based on the specific agings and payor classifications at each clinic . we review the accounts receivable aging and rely on prior experience with particular payors to determine an appropriate reserve for doubtful accounts . historically , clinics that have a large number of aged accounts generally have less favorable collection experience , and thus , require a higher allowance . accounts that are ultimately determined to be uncollectible are written off against our bad debt provision . the amount of our aggregate provision for doubtful accounts is regularly reviewed for adequacy in light of current and historical experience . accounting for income taxes . we account for income taxes under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . the company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit . for tax positions meeting the more-likely-than-not threshold , the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority . we do not believe that we have any significant uncertain tax positions at december 31 , 2016 , nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation . we did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the twelve months ended december 31 , 2016 and 2015. carrying value of long-lived assets . our property and equipment , intangible assets and goodwill ( collectively , our “ long-lived assets ” ) comprise a significant portion of our total assets . the accounting standards require that we periodically , and upon the occurrence of certain events , assess the recoverability of our long-lived assets . if the carrying value of our property and equipment exceeds their undiscounted cash flows , we are required to write the carrying value down to estimated fair value . goodwill . the fair value of goodwill and other intangible assets with indefinite lives are tested for impairment annually and upon the occurrence of certain events , and are written down to fair value if considered impaired . we evaluate goodwill for impairment on at least an annual basis ( in the third quarter ) by comparing the fair value of its reporting units to the carrying value of each reporting unit including related goodwill . we operate a one segment business which is made up of various clinics within partnerships . the partnerships are components of regions and are aggregated to that operating segment level for the purpose of determining reporting units when performing the annual goodwill impairment test . in 2016 and 2015 , we had six regions . an impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit , inclusive of goodwill and other intangible assets , exceeds the estimated fair value of the reporting unit . the estimated fair value of a reporting unit is determined using two factors : ( i ) earnings prior to taxes , depreciation and amortization for the reporting unit multiplied by a price/earnings ratio used in the industry and ( ii ) a discounted cash flow analysis . a weight is assigned to each factor and the sum of each weight times the factor is considered the estimated fair value . for 2016 , the factors ( i.e. , price/earnings ratio , discount rate and residual capitalization rate ) were updated to reflect current market conditions . the evaluation of goodwill in 2016 , 2015 and 2014 did not result in any goodwill amounts that were deemed impaired . story_separator_special_tag mandatorily redeemable non-controlling interests – the non-controlling interests that are reflected as mandatorily redeemable non-controlling interests in the consolidated financial statements are subject to required redemption ( as defined in footnote 5 – mandatorily redeemable non-controlling interest ) , whether currently exercisable or not , and which currently , or in the future , require that the company purchase the non-controlling interest of those owners at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements . the required redemption is triggered at such time as both of the following events have occurred : 1 ) termination of the holder 's employment with newco ( as defined in footnote 5 – mandatorily redeemable non-controlling interest ) , regardless of the reason for such termination , and 2 ) the passage of specified number of years after the closing of the transaction , typically three to five years , as defined in the applicable limited partnership agreement . on the date the company acquires a controlling interest in a partnership and the limited partnership agreement contains a required redemption , the fair value of the non-controlling interest is recorded in the long-term liabilities section of the consolidated balance sheet under the caption – mandatorily redeemable non-controlling interests . then , in each reporting period thereafter until purchased by the company , the redeemable non-controlling interest is adjusted to its current redemption amount ( as defined in footnote 5 – mandatorily redeemable non-controlling interest ) . the company reflects any adjustment in the redemption amount of the mandatorily redeemable non-controlling interest in its consolidated financial statements of net income by recording the change in the redemption value and any earnings to other income and expense in the caption - interest expense – mandatorily redeemable non-controlling interests – change in redemption value or interest expense – mandatorily redeemable non-controlling interests – allocable earnings , respectively . see note 5 – mandatorily redeemable non-controlling interest for further details . 25 selected operating and financial data the following table and discussion relates to continuing operations unless otherwise noted . the defined terms with their respective description used in the following discussion are listed below : 2016 year ended december 31 , 2016 2015 year ended december 31 , 2015 2014 year ended december 31 , 2014 new clinics clinics opened or acquired during the year ended december 31 , 2016 mature clinics clinics opened or acquired prior to january 1 , 2016 2015 new clinics clinics opened or acquired during the year ended december 31 , 2015 2015 mature clinics clinics opened or acquired prior to january 1 , 2015 2014 new clinics . clinics opened or acquired during the year ended december 31 , 2014 2014 mature clinics clinics opened or acquired prior to january 1 , 2014 2013 new clinics clinics opened or acquired during the year ended december 31 , 2013 the following table presents selected operating and financial data , used by management as key indicators of our operating performance : replace_table_token_8_th story_separator_special_tag $ 3.1 million of the increase and 2015 new clinics accounted for approximately $ 3.2 million of the increase due to a full year of activity . rent , clinic supplies , contract labor and other costs for 2015 mature clinics decreased $ 2.4 million in 2016 as compared to 2015. rent , clinic supplies , contract labor and other costs as a percent of net revenues was 20.2 % for 2016 and 20.5 % for 2015. clinic operating costs—provision for doubtful accounts the provision for doubtful accounts for net patient receivables was $ 4.0 million for 2016 and $ 4.2 million for 2015. as a percentage of net patient revenues , the provision for doubtful accounts was 1.1 % for 2016 and 1.3 % for 2015. our provision for doubtful accounts as a percentage of total patient accounts receivable was 4.4 % at december 31 , 2016 and 3.8 % at december 31 , 2015. the provision for doubtful accounts at the end of each period is based on a detailed , clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience . the average accounts receivable days outstanding were 36 days for december 31 , 2016 and for december 31 , 2015. net patient receivables in the amount of $ 3.6 million and $ 4.4 million were written-off in 2016 and 2015 , respectively . 27 closure costs for 2016 and 2015 , closure costs amounted to $ 131,000 and $ 211,000 , respectively . gross margin in 2016 , the gross margin ( net revenues less total clinic operating costs ) increased by 4.7 % to $ 82.0 million from $ 78.4 million in 2015. the gross margin percentage for 2016 was 23.0 % as compared to 23.7 % for 2015. corporate office costs corporate office costs , consisting primarily of salaries , benefits and equity based compensation of corporate office personnel and directors , rent , insurance costs , depreciation and amortization , travel , legal , compliance , professional , marketing and recruiting fees , were $ 32.5 million for 2016 and $ 31.1 million for 2015. the dollar increase is primarily due to increases in salaries , benefits and equity based compensation . corporate office costs as a percentage of net revenues were 9.1 % for 2016 and 9.4 % in 2015. interest expense – mandatorily redeemable non-controlling interest – change in redemption value . interest expense – mandatorily redeemable non-controlling interest – change in redemption value increased to $ 6.2 million for the year 2016 from $ 2.7 million in 2015. this increase is due to the increased earnings performance of the underlying businesses .
| the increase in net patient revenues of $ 24.5 million consisted of an increase of $ 12.8 million from new clinics and $ 11.7 million from mature clinics of which $ 15.1 million was related to 2015 new clinics offset by a decrease of $ 3.4 million related to 2015 mature clinics . during 2016 , we acquired two multi-clinic groups for a total of 20 clinics . the net patient revenues from these multi-clinic groups are included in our results of operations since the respective date of their acquisition . see above table under “ —executive summary ” detailing our multi-clinic acquisitions . total patient visits increased to 3,316,800 for 2016 from 3,080,200 for 2015. the growth in patient visits was attributable to 102,800 visits in new clinics primarily due to the acquisitions in 2016 and an increase of 133,800 visits for mature clinics primarily due to 2015 new clinics . the average net patient revenue per visit slightly decreased to $ 105.18 in 2016 from $ 105.28 in 2015. net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers ' compensation . net patient revenues reflect contractual and other adjustments , which we evaluate monthly , relating to patient discounts from certain payors . payments received under these programs are based on predetermined rates and are generally less than the established billing rates of the clinics . other revenues other revenues , consisting primarily of management fees , increased by $ 0.7 million , from $ 7.0 million in 2015 to $ 7.7 million in 2016. clinic operating costs clinic operating costs were $ 274.5 million , or 77.0 % of net revenues , for 2016 and $ 252.9 million , or 76.3 % of net revenues , for 2015. the increase was attributable to $ 10.9 million in operating costs for new clinics , an increase in operating costs of $ 11.2 million for 2015 new clinics , due to a full year of activity ( see
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we may attempt to raise additional funds by : ( 1 ) out-licensing technologies or products to one or more third parties , ( 2 ) renegotiating third party agreements , ( 3 ) selling assets , ( 4 ) securing additional debt financing and or ( 5 ) selling equity securities , including , without limitation , in at the market offerings . satisfying long-term liquidity needs may require the successful commercialization and or one or more partnering arrangements for ( 1 ) vaccines containing qs-21 stimulon under 33 development by our licensees , ( 2 ) herpv , oncophage and or our other prophage series vaccines , and or ( 3 ) potentially other product candidates , each of which will require additional capital . our common stock is currently listed on the nasdaq capital market under the symbol “ agen ” . story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-align : left ; text-indent:17px ; font-size:10pt ; '' > herpv in october 2005 , we initiated a multicenter phase 1 clinical trial of herpv ( designated in the study as ag-707 plus qs-21 stimulon ) in hsv-2 ( genital herpes ) . in this four-arm , phase 1 study , 35 hsv-2 seropositive patients received herpv , ag-707 alone , qs-21 stimulon alone , or placebo . the vaccine was well tolerated , with injection site pain as the most common reported adverse event . this study is the first to demonstrate that hsps complexed to viral antigens induce an antigen-specific t cell response in humans . the results from this study were published in the peer-reviewed journal vaccine in september 2011. we have advanced herpv into a phase 2 study during the fourth quarter of 2012 that will measure the effect of vaccination on viral shedding in individuals infected with hsv-2 . experts in hsv-2 clinical research believe that a reduction in viral shedding could translate into clinical benefit . for additional information regarding herpv , please read part i-item 1 . “ business ” of this annual report on form 10-k. prophage series vaccines we started enrolling patients in our first clinical trial studying a prophage series vaccine at memorial sloan-kettering cancer center in new york , new york in november 1997. to date , nearly 900 cancer patients have been treated with our vaccine in clinical trials . because prophage series vaccines are novel therapeutic vaccines that are patient-specific , meaning derived from the patient 's own tumor , they are experiencing a long development process and high development costs , either of which could delay or prevent our commercialization efforts . for additional information regarding regulatory risks and uncertainties , please read the risks identified under part i-item 1a . “ risk factors ” of this annual report on form 10-k. we believe that the collective results from our clinical trials to date with product candidates from the prophage series indicate a favorable safety profile and signals of efficacy in multiple cancer types . we also believe that available results from clinical trials suggest that treatment with the prophage series vaccines can generate immunological and anti-tumor responses . the prophage series vaccine r-100 is referred to as oncophage ® vaccine and is approved in russia for the treatment of rcc in patients at intermediate risk of recurrence . a phase 2 trial testing the prophage series vaccine candidate g-100 in newly diagnosed glioma has been fully enrolled and patient follow up is underway . separately , a phase 2 trial with g-200 in recurrent glioma has been completed and final data are in the process of being prepared for publication in a peer reviewed medical journal . the g-100 and g-200 studies are solely based in the united states . for additional information regarding our prophage series vaccines , please read part i-item 1 . “ business ” of this annual report on form 10-k. liquidity and capital resources we have incurred annual operating losses since inception , and we had an accumulated deficit of $ 619.0 million as of december 31 , 2012 . we expect to incur significant losses over the next several years as we continue clinical trials , apply for regulatory approvals , prepare for commercialization , and continue development of our technologies . we have financed our operations primarily through the sale of equity and convertible notes , and interest income earned on cash , cash equivalents , and short-term investment balances . from our inception through december 31 , 2012 , we have raised aggregate net proceeds of $ 524.9 million through the sale of common and preferred stock , the exercise of stock options and warrants , proceeds from our employee stock purchase plan , and the issuance of convertible notes . during the quarter ended march 31 , 2012 , we received $ 9.0 million from gsk for a first right to negotiate and an expanded license agreement and $ 6.25 million through a license of non-core technologies with an existing licensee . we granted gsk the first right to negotiate for the purchase of the company or certain of our assets which will expire in five years . the expanded license agreement provides gsk with an additional license to an undisclosed indication and also provides for additional royalty payments for this indication upon commercialization of a vaccine product . the license of non-core technologies converted a license grant from non-exclusive to exclusive and enabled the licensee to buy-out the current royalty stream structure . we also maintain an effective registration statement to sell an aggregate of up to 10,000,000 shares of our common stock from time to time pursuant to an at the market issuance sales agreement with mlv & co. llc , as sales agent . story_separator_special_tag as of december 31 , 2012 , we had debt outstanding of $ 39.2 million in principal , including $ 39.0 million in principal of our 2006 notes maturing august 31 , 2014. our cash and cash equivalents at december 31 , 2012 were $ 21.5 million , an increase of $ 10.7 million from december 31 , 2011 . this increase primarily resulted from one-time payments received under amended license agreements of $ 15.3 million as well as net proceeds of $ 10.5 million received from at the market offerings and therefore is not indicative of our future financial condition . however , we believe that , based on our current plans and activities , our cash balance , along with the estimated 36 additional proceeds from our license , supply , and collaborative agreements , will be sufficient to satisfy our liquidity requirements through 2013 based on our estimated annual use of cash of $ 18-21 million during 2013 . we continue to monitor the likelihood of success of our key initiatives and are prepared to discontinue funding of such activities if they do not prove to be feasible , restrict capital expenditures and or reduce the scale of our operations . we expect to attempt to raise additional funds in advance of depleting our current funds . in order to fund our operations through 2013 and beyond , we will need to contain costs and raise additional funds . we may attempt to raise additional funds by : ( 1 ) out-licensing technologies or products to one or more third parties , ( 2 ) renegotiating third party agreements , ( 3 ) selling assets , ( 4 ) securing additional debt financing and or ( 5 ) selling equity securities , including , without limitation , in at the market offerings . our ability to successfully enter into any such arrangements is uncertain , and if funds are not available , or not available on terms acceptable to us , we may be required to revise our planned clinical trials , other development activities , capital expenditures , and or the scale of our operations . while we expect to attempt to raise additional funds in advance of depleting our current funds , we may not be able to raise funds or raise amounts sufficient to meet the long-term needs of the business . satisfying long-term liquidity needs may require the successful commercialization and or one or more partnering arrangements for ( 1 ) herpv and the prophage series vaccines , ( 2 ) vaccines containing qs-21 stimulon under development by our licensees , and or ( 3 ) potentially other product candidates , each of which will require additional capital . we anticipate earning royalties from our qs-21 stimulon product in 2014. please see “ note regarding forward-looking statements ” on page 2 of this annual report on form 10-k and the risks highlighted under part i-item 1a . “ risk factors ” of this annual report on form 10-k. our future cash requirements include , but are not limited to , supporting clinical trial and regulatory efforts and continuing our other research and development programs . since inception , we have entered into various agreements with institutions and clinical research organizations to conduct and monitor our clinical studies . under these agreements , subject to the enrollment of patients and performance by the applicable institution of certain services , we have estimated our payments to be $ 51.1 million over the term of the studies . through december 31 , 2012 , we have expensed $ 47.8 million as research and development expenses and $ 47.4 million has been paid related to these clinical studies . the timing of expense recognition and future payments related to these agreements is subject to the enrollment of patients and performance by the applicable institution of certain services . we have also entered into sponsored research agreements related to our product candidates that required payments of $ 6.5 million , all of which has been paid as of december 31 , 2012 . we plan to enter into additional sponsored research agreements , and we anticipate significant additional expenditures will be required to advance our clinical trials , apply for regulatory approvals , continue development of our technologies , and bring our product candidates to market . part of our strategy is to develop and commercialize some of our product candidates by continuing our existing collaborative arrangements with academic and collaborative partners and licensees and by entering into new collaborations . as a result of our collaborative agreements , we will not completely control the efforts to attempt to bring those product candidates to market . we have various agreements , for example , with collaborative partners and or licensees , which allow the use of our qs-21 stimulon adjuvant in numerous vaccines . these agreements grant exclusive worldwide rights in some fields of use and co-exclusive or non-exclusive rights in others . these agreements generally provide us with rights to manufacture and supply qs-21 stimulon to the collaborative partner or licensee and also call for royalties to be paid to us on future sales of licensed vaccines that include qs-21 stimulon , which may or may not be achieved . significant investment in manufacturing capacity could be required if we were to retain our manufacturing and supply rights . net cash provided by operating activities for the year ended december 31 , 2012 was $ 1.0 million while cash used in operating activities for the year ended december 31 , 2011 was $ 16.2 million . this increase in cash provided by operating activities for the year ended december 31 , 2012 primarily resulted from one-time payments received under amended license agreements and therefore is not indicative of future results . during the year ended december 31 , 2012 , we recognized revenue of $ 12.8 million related to expanded license agreements .
| general and administrative expenses increased 6.0 % to $ 11.5 million for the year ended december 31 , 2012 from $ 10.8 million for the year ended december 31 , 2011 . our non-cash share-based compensation expense increased $ 1.3 million for the year ended december 31 , 2012 over the same period in 2011 . this increase was partially offset by decreased expenses related to our general cost-containment efforts . interest expense : interest expense increased to $ 4.7 million for the year ended december 31 , 2012 from $ 4.2 million for the year ended december 31 , 2011 . this increase is related to an increase in the amount of debt discount amortized related to our 2006 notes in addition to the increase in the principal amount of debt outstanding . interest on our 2006 notes is payable semi-annually on december 30 and june 30 in cash or , at our option , in additional notes or a combination thereof . during the years ended december 31 , 2012 and 2011 , interest expense included $ 1.5 million and $ 2.8 million , respectively , paid in the form of additional 2006 notes . year ended december 31 , 2011 compared to the year ended december 31 , 2010 revenue : we generated revenue of $ 2.8 million and $ 3.4 million during the years ended december 31 , 2011 and 2010 , respectively . revenue includes license fees and royalties earned , and in 2010 , revenue earned on shipments of qs-21 stimulon to our qs-21 stimulon licensees , grants earned and oncophage sales . in the years ended december 31 , 2011 and 2010 , we recorded revenue of $ 1.6 million and $ 1.5 million , respectively , from the amortization of deferred revenue related to our qs-21 stimulon partnered programs . research and development : research and development expenses include the costs associated with our internal research and development activities , including compensation and benefits , occupancy costs , clinical manufacturing costs , costs of consultants , and administrative costs . research and development expense decreased 15 % to $ 11.0
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additionally , we recorded restructuring charges during 2012 associated with the write-off of certain assets and the recording of severance related costs , the majority of which related to a realignment of our cost structure due to the decline in our defense and security business . additionally , we closed our north carolina office , where our maritime business formerly operated , and moved the research component of that business to our bedford , massachusetts location . the net impact of these adjustments was an increase to our 2012 net income and earnings per share of approximately $ 6.6 million and $ 0.23 , respectively . on october 1 , 2012 , we acquired privately-held evolution robotics , inc. , the developer of mint and mint plus automatic floor cleaning robots based in pasadena , california , for approximately $ 74.5 million , net of cash received . our 2012 net income and earnings per share were negatively impacted by $ 4.7 million and $ 0.17 , respectively , as a result of the inclusion of evolution robotics operations as of the october 1 , 2012 acquisition date . we currently expect the evolution robotics operations to have a dilutive effect on our earnings through the third quarter of 2013 and to become accretive beginning in the fourth quarter of 2013. revenue we currently derive revenue from product sales , government research and development contracts , and commercial research and development contracts . product revenue is derived from the sale of our various home cleaning robots and defense and security robots and related accessories . research and development revenue is derived from the execution of contracts awarded by the u.s. federal government , other governments and a small number of other partners . in the future , we expect to derive increasing revenue from product maintenance and support services due to a focused effort to market these services to the expanding installed base of our robots . we currently derive a majority of our product revenue from the sale of our home cleaning robots , and to a lesser extent , our packbot and sugv tactical military robots . for the fiscal years ended december 29 , 2012 and december 31 , 2011 , product revenues accounted for 95.9 % and 91.6 % of total revenue , respectively . for the fiscal years ended december 29 , 2012 and december 31 , 2011 , our funded research and development contracts accounted for approximately 4.1 % and 8.4 % of our total revenue , respectively . we expect to continue to perform funded research and development work with the intent of leveraging the technology developed to advance our new product development efforts . in the future , based on changes in operational needs from the u.s. armed forces , and significant pressures on u.s. spending levels , we anticipate that revenue from product sales to the u.s. armed forces will decrease in the near term . in addition , we expect that revenue from funded research and development contracts could decrease on an absolute dollar basis . for the fiscal years ended december 29 , 2012 and december 31 , 2011 , approximately 75.4 % and 74.0 % , respectively , of our home robot product revenue resulted from sales to 15 customers . for fiscal 2012 and fiscal 2011 , the customers were comprised of both u.s. retailers and international distributors . direct-to-consumer revenue generated through our domestic and international on-line stores accounted for 6.3 % of our home robot product revenue for the fiscal year ended december 29 , 2012 compared to 9.6 % in the fiscal year ended december 31 , 2011. we typically sell our recently launched products direct on-line , and then subsequently offer these products through other channels of distribution . in addition , 79.5 % and 88.4 % of defense product revenue , and 95.2 % and 95.7 % of funded research and development contract revenue , resulted from orders and contracts or subcontracts with the u.s. federal government in the fiscal years ended december 29 , 2012 and december 31 , 2011 , respectively . for the fiscal years ended december 29 , 2012 and december 31 , 2011 , sales to non-u.s. customers accounted for 57.3 % and 45.5 % of total revenue , respectively . 26 our revenue from product sales is generated through sales to our retail distribution channels , our distributor network and to certain u.s. and foreign governments . we recognize revenue from the sales of home robots under the terms of the customer agreement upon transfer of title and risk of loss to the customer , net of estimated returns , provided that collection is determined to be reasonably assured and no significant obligations remain . during 2012 , we recorded favorable adjustments to our home robots business revenue resulting from reductions to our defective returns provision that were directly attributable to lower defective returns experience and contractual modifications limiting our defective returns liability with certain customers . revenue from our defense and security robot sales and revenue from funded research and development contracts are occasionally influenced by the september 30 fiscal year-end of the u.s. federal government . in addition , our revenue can be affected by the timing of the release of new products and the size and timing of contract awards from defense and other government agencies . historically , revenue from consumer product sales has been significantly seasonal , with a majority of our consumer product revenue generated in the second half of the year ( in advance of the holiday season ) . as a result of the growth of our international consumer business , which is less seasonal than our domestic consumer business , our consumer product revenue is currently spread more evenly throughout the year . cost of revenue cost of product revenue includes the cost of raw materials and labor that go into the development and manufacture of our products as well as manufacturing overhead costs such as manufacturing engineering , quality assurance , logistics and warranty costs . story_separator_special_tag for the fiscal years ended december 29 , 2012 and december 31 , 2011 , cost of product revenue was 57.3 % and 57.9 % of total product revenue , respectively . the decrease in cost of product revenue as a percentage of revenue was driven primarily by unfavorable absorption of our overhead expense against lower revenue , restructuring charges , scrap , rework and excess and obsolete inventory costs in our defense and security business unit , offset by a shift in our product mix to higher margin home robot products and favorable adjustments relating to reductions in our international warranty accrual for our home robots business that were directly attributable to declining warranty cost experience . raw material costs , which are our most significant cost items , can fluctuate materially on a periodic basis , although many components have been historically stable . additionally , unit costs can vary significantly depending on the mix of products sold . there can be no assurance that our costs of raw materials will not increase . labor costs also comprise a significant portion of our cost of revenue . we outsource the manufacture of our home robots to contract manufacturers in china . while labor costs in china traditionally have been favorable compared to labor costs elsewhere in the world , including the united states , we believe that labor in china is becoming more scarce . in addition fluctuations in currency exchange rates could increase the cost of labor . consequently , the labor costs for our home robots could increase in the future . cost of contract revenue includes the direct labor costs of engineering resources committed to funded research and development contracts , as well as third-party consulting , travel and associated direct material costs . additionally , we include overhead expenses such as indirect engineering labor , occupancy costs associated with the project resources , engineering tools and supplies and program management expenses . for the fiscal years ended december 29 , 2012 and december 31 , 2011 , cost of contract revenue was 94.9 % and 67.9 % of total contract revenue , respectively . gross margin our gross margin as a percentage of revenue varies according to the mix of product and contract revenue , the mix of products sold , total sales volume , the level of defective product returns , and levels of other product costs such as warranty , scrap , re-work and manufacturing overhead . for the years ended december 29 , 2012 and december 31 , 2011 , gross margin was 41.2 % and 41.3 % of total revenue , respectively . the decrease in margin was driven primarily by unfavorable absorption of our overhead expense against lower revenue , restructuring charges , scrap , rework and excess and obsolete inventory costs in our defense and security business unit , offset by product mix to higher margin home robot products , favorable adjustments to our return provision due to gradual improvement in returns resulting from sustained investment in product quality , and favorable adjustments relating to reductions in our international warranty accrual for our home robots business that were directly attributable to declining warranty cost experience . research and development expenses research and development expenses consist primarily of : salaries and related costs for our engineers ; costs for high technology components used in product and prototype development ; and costs of test equipment used during product development . we have significantly expanded our research and development capabilities and expect to continue to expand these capabilities in the future . we are committed to consistently maintaining the level of innovative design and development of new products as we strive to enhance our ability to serve our existing consumer and military markets as well as new markets for 27 robots . we anticipate that research and development expenses will increase in absolute dollars but remain relatively consistent as a percentage of revenue in the foreseeable future . for the fiscal years ended december 29 , 2012 and december 31 , 2011 , research and development expense was $ 37.2 million and $ 36.5 million , or 8.5 % and 7.8 % of total revenue , respectively . in addition to our internal research and development activities discussed above , we incur research and development expenses under funded development arrangements with both governments and other third parties . for the fiscal years ended december 29 , 2012 and december 31 , 2011 , these expenses amounted to $ 16.8 million and $ 26.5 million , respectively . in accordance with generally accepted accounting principles , these expenses have been classified as cost of revenue rather than research and development expense . for the years ended december 29 , 2012 and december 31 , 2011 , the combined investment in future technologies , classified as cost of revenue and research and development expense , was $ 54.0 million and $ 63.0 million , respectively . selling , general and administrative expenses our selling , general and administrative expenses consist primarily of : salaries and related costs for sales and marketing personnel ; salaries and related costs for executives and administrative personnel ; advertising , marketing and other brand-building costs ; fulfillment costs associated with direct-to-consumer sales through our on-line store ; customer service costs ; professional services costs ; information systems and infrastructure costs ; travel and related costs ; and occupancy and other overhead costs . we anticipate that selling , general and administrative expenses will increase in absolute dollars but remain relatively consistent as a percentage of revenue in the foreseeable future as we continue to build the irobot brand and also maintain company profitability . for the fiscal years ended december 29 , 2012 and december 31 , 2011 , selling , general and administrative expense was $ 117.3 million and $ 102.3 million , or 26.9 % and 22.0 % of total revenue , respectively .
| the increase in demand was driven by demand for our new roomba 700 series robot and the introduction of the roomba 600 series robot , and an increase in marketing programs by us and our international distributors . the increase in domestic sales of our home robots products was primarily attributable to increased sales to domestic retail stores driven by the success of our recent domestic advertising campaign , expanded distribution of our roomba 700 series robot and the introduction of the roomba 600 series robot , and favorable adjustments to our return provision due to gradual improvement in returns resulting from sustained investment in product quality . in addition , net average selling prices in the home robots business unit increased due to increased volume of higher priced products including the roomba 700 series robot , and fewer sales of our lower priced roomba series . the $ 107.5 million decrease in revenue from our defense and security robots business unit was driven by an $ 81.1 million decrease in defense and security robot revenue , a $ 21.3 million decrease in recurring contract development revenue generated under research and development contracts , and a $ 5.1 million decrease in product life cycle revenue ( spare parts , accessories ) . the $ 81.1 million decrease in defense and security robots revenue was primarily due to a decrease in sales of higher price packbot and sugv units in 2012 as compared to 2011. net average selling price decreased by 38.2 % due to product mix primarily attributable to firstlook units shipped in 2012 which have a lower selling price than the packbot and sugv units that comprised a larger portion of the units shipped in 2011. total defense and security robots shipped in 2012 were 289 units compared to 773 units in 2011. the $ 21.3 million decrease in recurring contract development revenue generated under research and development contracts was primarily the result of decreases in
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the acquisition of residential building products distributors resulted in a $ 9.4 million increase compared to 2019. net income attributable to the corporation in 2020 was $ 41.9 million compared to net income of $ 110.5 million in 2019. the change was primarily driven by $ 45.6 million of impairments and costs related to the covid-19 pandemic and related economic disruption and lower workplace furnishings volume , partially offset by net productivity , lower core sg & a , and higher residential building products volume . on december 31 , 2020 , the corporation acquired design public group ( `` dpg '' ) , a leading e-commerce distributor of high-design furniture and accessories for the office and home . dpg brings a digitally native organization with skills and capabilities to help the corporation accelerate its digital and e-commerce initiatives . dpg 's platform will support the corporation 's traditional distribution models and allow for increased reach to a broader consumer group that increasingly purchases furniture online . due to the timing of the transaction , dpg had no net sales or expenses included in the corporation 's consolidated statement of comprehensive income for fiscal 2020. dpg 's provisional purchase price allocation recorded as of january 2 , 2021 is included in the corporation 's workplace furnishings segment . see `` note 4. acquisitions '' in the notes to the consolidated financial statements for additional information . 21 story_separator_special_tag style= '' min-height:45pt ; width:100 % '' > in 2020 , the investing activities reflected a net cash outflow of $ 58.3 million related to the acquisition of design public group and three residential building products distributors . see `` note 4. acquisitions '' in the notes to consolidated financial statements for further information . cash flow – financing activities long-term debt - the corporation maintains a revolving credit facility as the primary source of committed funding from which the corporation finances its planned capital expenditures , strategic initiatives , and seasonal working capital needs . cash flows included in financing activities represent periodic borrowings and repayments under the revolving credit facility . during the second quarter of 2018 , the corporation issued $ 100 million of private placement notes . see `` note 7. long-term debt '' in the notes to consolidated financial statements for further information . dividend - the corporation is committed to maintaining or modestly growing the quarterly dividend . cash dividends declared and paid per share are as follows ( in dollars ) : replace_table_token_7_th the last quarterly dividend increase was from $ 0.295 to $ 0.305 per common share effective with the june 3 , 2019 dividend payment for shareholders of record at the close of business on may 17 , 2019. the average dividend payout percentage for the most recent three-year period has been 53 percent of prior year earnings or 29 percent of prior year cash flow from operating activities . stock repurchase - the corporation 's capital strategy related to stock repurchase is focused on offsetting the dilutive impact of issuances for various compensation related matters . the corporation may elect to opportunistically purchase additional shares based on excess cash generation and or share price considerations . the board authorized $ 200 million on november 9 , 2007 and an additional $ 200 million each on november 7 , 2014 and february 13 , 2019 for repurchases of the corporation 's common stock . see `` note 10. accumulated other comprehensive income ( loss ) and shareholders ' equity '' in the notes to consolidated financial statements for further information . contractual obligations the following table discloses the corporation 's obligations and commitments to make future payments , by period , under contracts ( in thousands ) : replace_table_token_8_th ( 1 ) interest has been included for all debt at the fixed or variable rate in effect as of january 2 , 2021 , as applicable . see `` note 7. long-term debt '' in the notes to consolidated financial statements for further information . ( 2 ) purchase obligations include agreements to purchase goods or services that are enforceable , legally binding , and specify all significant terms , including the quantity to be purchased , the price to be paid , and the timing of the purchase . ( 3 ) other long-term obligations represent payments due to members who are participants in the corporation 's deferred and long-term incentive compensation programs , liability for unrecognized tax liabilities , deferred payroll taxes , and contribution and benefit payments expected to be made pursuant to the corporation 's post-retirement benefit plans . it should be noted the obligations related to post-retirement benefit plans are not contractual and the plans could be amended at the discretion of the corporation . the disclosure of contributions and benefit payments has been limited to 10 years , as information beyond this time period was not available . other long-term obligations of $ 35.9 million , primarily insurance allowances and long-term warranty , are not included in the table above due to the corporation 's inability to predict their timing . 25 litigation and uncertainties see `` note 15. guarantees , commitments , and contingencies '' in the notes to consolidated financial statements for further information . looking ahead management continues to anticipate near-term challenges as the corporation navigates the covid-19 pandemic and related economic disruption . however , cash flows are anticipated to remain healthy , with net debt levels expected to be stable . management remains optimistic about the long-term prospects in the workplace furnishings and residential building products markets . management believes the corporation continues to compete well and remains confident the investments made in the business will continue to generate strong returns for shareholders . story_separator_special_tag 26 critical accounting policies and estimates general management 's discussion and analysis of financial condition and results of operations is based upon the consolidated financial statements , prepared in accordance with generally accepted accounting principles ( `` gaap '' ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . management bases its 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 . senior management has discussed the development , selection , and disclosure of these estimates with the audit committee of the board . actual results may differ from these estimates under different assumptions or conditions . an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters uncertain at the time the estimate is made , and if different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact the financial statements . management believes the following critical accounting policies reflects its more significant estimates and assumptions used in the preparation of the consolidated financial statements . goodwill the corporation evaluates its goodwill for impairment on an annual basis during the fourth quarter or whenever indicators of impairment exist . asset impairment charges associated with the corporation 's goodwill impairment testing are discussed in `` note 6. goodwill and other intangible assets '' in the notes to consolidated financial statements . the corporation reviews goodwill at the reporting unit level within its workplace furnishings and residential building products operating segments . these reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management . the accounting standards for goodwill permit entities to first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test . if the quantitative test is required , the corporation estimates the fair value of its reporting units . in estimating the fair value , the corporation generally relies on an average of the income approach and the market approach . in the income approach , the estimate of fair value of each reporting unit is based on management 's projection of revenues , gross margin , operating costs , and cash flows considering historical and estimated future results , general economic and market conditions , as well as the impact of planned business and operational strategies . the valuations employ present value techniques to measure fair value and consider market factors . in the market approach , the corporation utilizes the guideline company method , which involves calculating valuation multiples based on operating data from guideline publicly-traded companies . these multiples are then applied to the operating data for the reporting units and adjusted for factors similar to those used in the discounted cash flow analysis . management believes the assumptions used for the impairment test are consistent with those utilized by a market participant in performing similar valuations of its reporting units . management bases its fair value estimates on assumptions they believe to be reasonable at the time , but such assumptions are subject to inherent uncertainty . actual results may differ from those estimates . additionally , the corporation compares the estimated aggregate fair value of its reporting units to its overall market capitalization . assessing the fair value of goodwill includes , among other things , making key assumptions for estimating future cash flows and appropriate market multiples . these assumptions are subject to a high degree of judgment and complexity . the corporation makes every effort to estimate future cash flows as accurately as possible with the information available at the time the forecast is developed . however , changes in assumptions and estimates may affect the estimated fair value of the reporting unit , and could result in an impairment charge in future periods . factors that have the potential to create variances in the estimated fair value of the reporting unit include , but are not limited to , economic conditions in the united states and other countries where the corporation has a presence , competitor behavior , the mix of product sales , commodity costs , wage rates , the level of manufacturing capacity , the pricing environment , and currency exchange fluctuations . in addition , estimates of fair value are impacted by estimates of the market-participant derived weighted average cost of capital . the key to recoverability of goodwill is the forecast of economic conditions and its impact on future revenues , operating profit , and cash flows . management 's projection for the united states office furniture and domestic hearth markets and global economic conditions is inherently subject to a number of uncertain factors , such as global economic improvement , the impact and timeframe of the covid-19 pandemic , the u.s housing market , credit availability , borrowing rates , and overall consumer confidence . in the near term , as management monitors the above factors , it is possible it may change the revenue and cash flow projections of certain reporting units , which may require the recording of additional goodwill impairment charges . 27 in 2020 , the corporation determined that goodwill recorded at three smaller reporting units in the workplace furnishings segment was fully impaired as a result of the covid-19 pandemic and resulting economic disruption , and thus a material amount of impairment charges was incurred in the aggregate . in 2019
| in 2019 , the corporation recorded $ 2.4 million of restructuring costs primarily associated with structural realignments in the workplace furnishings segment . operating income for 2020 , operating income decreased 59.4 percent to $ 61.4 million compared to $ 151.3 million in 2019. the change was primarily driven by $ 45.6 million of impairments and costs related to the covid-19 pandemic and related economic disruption and lower workplace furnishings volume , partially offset by net productivity , lower core sg & a , and higher residential building products volume . interest expense , net interest expense , net was $ 7.0 million and $ 8.6 million in 2020 and 2019 , respectively . the decrease was due to lower interest rates and reduced borrowings , partially offset by lower interest income . income taxes the following table summarizes the corporation 's income tax provision ( in thousands ) : replace_table_token_4_th the income tax provision reflects a higher rate in 2020 compared to 2019 primarily due to the non-deductibility of foreign losses for which valuation allowances have been recorded . in addition , there was an asset impairment charge recorded related to foreign operations that was not deductible for tax purposes and which resulted in an increase in the overall tax rate . see `` note 8. income taxes '' in the notes to consolidated financial statements for further information relating to income taxes . net income attributable to hni corporation net income attributable to the corporation was $ 41.9 million or $ 0.98 per diluted share in 2020 compared to $ 110.5 million or $ 2.54 per diluted share in 2019. comparison of fiscal year ended december 28 , 2019 with the fiscal year ended december 29 , 2018 to review commentary for the consolidated and segment-level results of operations comparison of the fiscal year ended december 28 , 2019 with the fiscal year ended december 29 , 2018 , please refer to item 7 of our form 10-k filed february
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our volume offerings include our video cloud express customers and our zencoder customers on month-to-month contracts and pay-as-you-go contracts . as of december 31 , 2017 , we had 4,168 customers , of which 2,001 used our volume offerings and 2,167 used our premium offerings . as of december 31 , 2016 , we had 4,571 customers , of which 2,564 used our volume offerings and 2,007 used our premium offerings . during 2013 , we shifted our go-to-market focus and growth strategy to expanding our premium customer base , as we believe our premium customers represent a greater opportunity for our solutions . volume customers decreased in recent periods primarily due to our discontinuation of the promotional video cloud express offering . as a result , we have experienced attrition of this base level offering without a corresponding addition of customers . we expect customers using our volume offerings to continue to decrease in 2018 and beyond as we continue to focus on the market for our premium solutions . recurring dollar retention rate . we assess our ability to retain customers using a metric we refer to as our recurring dollar retention rate . we calculate the recurring dollar retention rate by dividing the retained recurring value of subscription revenue for a period by the previous recurring value of subscription revenue for the same period . we define retained recurring value of subscription revenue as the committed subscription fees for all contracts that renew in a given period , including any increase or decrease in contract value . we define previous recurring value of subscription revenue as the recurring value from committed subscription fees for all contracts that expire in that same period . we typically calculate our recurring dollar retention rate on a monthly basis . recurring dollar retention rate provides visibility into our ongoing revenue . during the years ended december 31 , 2017 and 2016 , the recurring dollar retention rate was 89 % and 96 % , respectively . the decrease is primarily due to the loss of certain customers as well as a reduction in contract value for certain recurring customers , based on certain commodity elements being repriced within our media market . average annual subscription revenue per premium customer . we define average annual subscription revenue per premium customer as the total subscription revenue from premium customers for an annual period , excluding professional services revenue , divided by the average number of premium customers for that period . we believe that this metric is important in understanding subscription revenue for our premium offerings in addition to the relative size of premium customer arrangements . we began selling our starter edition to customers in the second quarter of 2016. we consider starter to be a premium offering and thus include starter customers as premium customers . our starter edition has a price point of $ 199 or $ 499 per month , and as of the first quarter of 2017 , sales of our starter edition reached such a level that we determined that the overall average annual subscription revenue per premium customer is a more meaningful metric if we exclude revenue from starter edition customers . 38 as such , we now disclose the average annual subscription revenue per premium customer separately for starter edition customers and all other premium customers . the following table includes our key metrics for the periods presented : replace_table_token_6_th components of consolidated statements of operations revenue subscription and support revenue we generate subscription and support revenue from the sale of our products . video cloud is offered in two product lines . the first product line is comprised of our premium product editions . all premium editions include functionality to publish and distribute video to internet-connected devices , with higher levels of premium editions providing additional features and functionality . customer arrangements are typically one year contracts , which include a subscription to video cloud , basic support and a pre-determined amount of video streams , bandwidth , transcoding and storage . we also offer gold support or platinum support to our premium customers for an additional fee , which includes extended phone support . the pricing for our premium editions is based on the value of our software , as well as the number of users , accounts and usage , which is comprised of video streams , bandwidth , transcoding and storage . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . we believe that our bundled pricing approach has made it easier for our customers to purchase all of the elements required to manage , store and deliver their video assets to their viewers . pricing for some of the non-software elements of our products , howeversuch as bandwidth and storagehas been subject to moderate but consistent pricing pressure as a result of competition among bandwidth and cloud infrastructure providers . this pricing pressure has not historically had a meaningful impact on our results of operations . during the year ended december 31 , 2017 , we experienced an unexpected , significant increase in the impact of the price competition among bandwidth and cloud infrastructure providers in the markets for these increasingly commoditized non-software services . as a result , our recurring dollar retention rate decreased in the year ended december 31 , 2017. we have taken steps to reduce the portion of our revenue that is subject to such pricing pressure by bringing new solutions , such as dynamic delivery ( formerly known as bolt ) , to market . we believe that these new solutions increase the value of our software platform to customers and allow us to retain a larger portion of the customers ' total contract value while reducing the revenue related to non-software elements . story_separator_special_tag however , as a result of the impact of the commoditization of the non-software elements , we now expect that our subscription revenue growth rate will be impacted through the first quarter of 2018. the second product line is comprised of our volume product edition . our volume editions target small and medium-sized businesses , or smbs . the volume editions provide customers with the same basic functionality that is offered in our premium product editions but have been designed for customers who have lower usage 39 requirements and do not typically require advanced features and functionality . we discontinued the lower level pricing options for the express edition of our volume offering and expect the total number of customers using the express edition to continue to decrease . customers who purchase the volume editions generally enter into month-to-month agreements . volume customers are generally billed on a monthly basis and pay via a credit card . zencoder is offered to customers on a subscription basis , with either committed contracts or pay-as-you-go contracts . the pricing is based on usage , which is comprised of minutes of video processed . the committed contracts include a fixed number of minutes of video processed . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . zencoder customers are considered premium customers other than zencoder customers on month-to-month contracts or pay-as-you-go contracts , which are considered volume customers . ssai is offered to customers on a subscription basis , with varying levels of functionality , usage entitlements and support based on the size and complexity of a customer 's needs . player is offered to customers on a subscription basis . customer arrangements are typically one-year contracts , which include a subscription to player , basic support and a pre-determined amount of video streams . we also offer gold support or platinum support to our player customers for an additional fee , which includes extended phone support . the pricing for player is based on the number of users , accounts and usage , which is comprised of video streams . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . ott flow is offered to customers on a subscription basis , with varying levels of functionality , usage entitlements and support based on the size and complexity of a customer 's needs . customer arrangements are typically one-year contracts . video marketing suite and enterprise video suite are offered to customers on a subscription basis in starter , pro and enterprise editions . the pro and enterprise customer arrangements are typically one-year contracts , which typically include a subscription to video cloud , gallery , brightcove social ( for video marketing suite customers ) or brightcove live ( for enterprise video suite customers ) , basic support and a pre-determined amount of video streams or plays ( for video marketing suite customers ) , viewers ( for enterprise video suite customers ) , bandwidth and storage or videos . we also generally offer gold support or platinum support to these customers for an additional fee , which includes extended phone support . the pricing for our pro and enterprise editions is based on the number of users , accounts and usage , which is comprised of video streams or plays , viewers , bandwidth and storage or videos . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . the starter edition provides customers with the same basic functionality that is offered in our pro and enterprise editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality . customers who purchase the starter edition may enter into one-year agreements or month-to-month agreements . starter customers with month-to-month agreements are generally billed on a monthly basis and pay via a credit card . all ssai , player , ott flow , video marketing suite and enterprise video suite customers are considered premium customers . professional services and other revenue professional services and other revenue consists of services such as implementation , software customizations and project management for customers who subscribe to our premium editions . these arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed , or on a time and materials basis . our backlog consists of the total future value of our committed customer contracts , whether billed or unbilled . as of december 31 , 2017 , we had backlog of approximately $ 106 million compared to backlog of 40 approximately $ 99 million as of december 31 , 2016. of the approximately $ 106 million in backlog as of december 31 , 2017 , between $ 83 million and $ 85 million is expected to be recognized as revenue during the year ended december 31 , 2018. during the year ended december 31 , 2017 , approximately $ 73 million of revenue was recognized from backlog as of december 31 , 2016. because revenue for any period is a function of revenue recognized from backlog at the beginning of the period as well as from contract renewals and new customer contracts executed during the period , backlog at the beginning of any period is not necessarily indicative of future performance . our presentation of backlog may differ from that of other companies in our industry . cost of revenue cost of subscription , support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services .
| cost 48 of professional services revenue increased due to a higher level of contractor costs and project hours during the year ended december 31 , 2017. our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery . loss from operations was $ 19.7 million in 2017 compared to $ 9.0 million in 2016. loss from operations in 2017 included stock-based compensation expense and amortization of acquired intangible assets of $ 7.2 million and $ 2.7 million , respectively . loss from operations in 2016 included stock-based compensation expense and amortization of acquired intangible assets of $ 6.0 million and $ 3.1 million , respectively . we expect operating income to improve from increased sales to both new and existing customers and from improved efficiencies throughout our organization as we continue to grow and scale our operations . as of december 31 , 2017 , we had $ 26.1 million of unrestricted cash and cash equivalents , a decrease of $ 10.7 million from $ 36.8 million at december 31 , 2016 , due primarily to $ 6.4 million of cash used in operating activities , $ 3.0 million in capitalized internal-use software costs , and $ 1.1 million in capital expenditures . there were also cash outflows of $ 489,000 in payments under capital lease obligations , $ 307,000 for payments on equipment financing and $ 268,000 in payments of withholding tax on rsu vesting . revenue replace_table_token_9_th during 2017 , revenue increased by $ 5.6 million , or 4 % , compared to 2016 , primarily due to an increase in revenue from our premium offerings , which consist of subscription and support revenue , as well as professional services and other revenue . the increase in premium revenue of $ 7.5 million , or 5 % , is partially the result of an 8 % increase in the number of premium customers from 2,007 at december 31 , 2016 to 2,167 at december 31 , 2017 , in addition to a $ 4.5 million ,
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as a result of the merger , the company acquired the business of organovo , and will continue the existing business operations of organovo as a wholly-owned subsidiary . simultaneously with the merger , on the closing date , all of the issued and outstanding shares of organovo common stock converted , on a 1 for 1 basis , into shares of the company 's common stock , par value $ 0.001 per share ( common stock ) . also on the closing date , all of the issued and outstanding options to purchase shares of organovo common stock , all of the issued and outstanding bridge warrants ( as defined below ) to purchase shares of organovo common stock , and other outstanding warrants to purchase organovo common stock converted , respectively , into options ( the new options ) , new bridge warrants ( the new bridge 27 warrants ) and new warrants ( the new warrants ) to purchase shares of common stock . the new bridge warrants , the new warrants and new bridge options were converted on a 1 for 1 basis . the new options will be administered under organovo 's 2008 equity incentive plan ( the 2008 plan ) , which the company assumed and adopted on the closing date in connection with the merger . specifically , on the closing date , ( i ) 22,445,254 shares of common stock were issued to former organovo stockholders ; ( ii ) new options to purchase 896,256 shares of common stock granted under the 2008 plan were issued to optionees pursuant to the assumption of the 2008 plan ; ( iii ) new warrants to purchase 1,309,750 shares of common stock at $ 1.00 per share were issued to holders of organovo warrants ; and ( iv ) new bridge warrants to purchase 1,500,000 shares of common stock at $ 1.00 per share were issued to bridge investors ( as defined below ) . additionally , new warrants to purchase 100,000 shares of common stock at $ 1.00 per share were issued to a former noteholder of organovo in connection with the repayment at the closing date of a promissory note in the principal amount of $ 100,000. the merger was treated as a recapitalization of the company for financial accounting purposes . the historical financial statements of organovo holdings , inc. before the merger were replaced with the historical financial statements of organovo before the merger . before the merger , organovo holdings , inc. 's board of directors and stockholders adopted the 2012 equity incentive plan ( the 2012 plan ) . the 2012 plan provides for the issuance of up to 6,553,986 shares , or approximately 11 % of our december 31 , 2012 outstanding common stock , to executive officers , directors , advisory board members and employees . in addition , we assumed and adopted the 2008 plan , and as described above option holders under that plan were granted new options to purchase common stock . no further options will be granted under the 2008 plan . the parties have taken all actions necessary to ensure that the merger was treated as a tax free exchange under section 368 ( a ) of the internal revenue code of 1986 , as amended . as of march 1 , 2013 , the company had 62,237,772 total issued and outstanding shares of common stock , and five year warrants for the opportunity to purchase an additional 7,359,149 shares of common stock at exercise prices ranging from $ 1.00 to $ 3.24 per share . if all warrants were exercised on a cash basis , the company would realize approximately $ 8.1 million in additional gross proceeds . critical accounting policies our consolidated financial statements , which appear under item 8 of part ii have been prepared in accordance with accounting principles generally accepted in the united states , which require that we make certain assumptions and estimates and , in connection therewith , adopt certain accounting policies . our significant accounting policies are set forth in note 1 to our consolidated financial statements . of those policies , we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations . revenue recognition the company 's revenues are derived from collaborative research agreements , national institute of health ( nih ) and u.s. treasury department grants , the sale of bioprinter related products and services , and license agreements . the company recognizes revenue when the following criteria have been met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) services have been rendered or product has been delivered ; ( iii ) price to the customer is fixed and determinable ; and ( iv ) collection of the underlying receivable is reasonably assured . billings to customers or payments received from customers are included in deferred revenue on the balance sheet until all revenue recognition criteria are met . 28 product revenue the company recognizes product revenue at the time of shipment to the customer , provided all other revenue recognition criteria have been met . the company recognizes product revenues upon shipment to distributors , provided that ( i ) the price is substantially fixed or determinable at the time of sale ; ( ii ) the distributor 's obligation to pay the company is not contingent upon resale of the products ; ( iii ) title and risk of loss passes to the distributor at time of shipment ; ( iv ) the distributor has economic substance apart from that provided by the company ; ( v ) the company has no significant obligation to the distributor to bring about resale of the products ; and ( vi ) future returns can be reasonably estimated . story_separator_special_tag for any sales that do not meet all of the above criteria , revenue is deferred until all such criteria have been met . the company 's collaboration revenue consists of license and collaboration agreements that contain multiple elements , including non-refundable upfront fees , payments for reimbursement of third-party research costs , payments for ongoing research , payments associated with achieving specific development milestones and royalties based on specified percentages of net product sales , if any . the company considers a variety of factors in determining the appropriate method of revenue recognition under these arrangements , such as whether the elements are separable , whether there are determinable fair values and whether there is a unique earnings process associated with each element of a contract . collaborative and license revenue the company recognizes revenue from research funding under collaboration agreements when earned on a proportional performance basis as research hours are incurred . the company performs services as specified in each respective agreement on a best-efforts basis , and is reimbursed based on labor hours incurred on each contract . the company initially defers revenue for any amounts billed , or payments received , in advance of the services being performed and recognizes revenue pursuant to the related pattern of performance , based on total labor hours incurred relative to total labor hours estimated under the contract . revenue arrangements with multiple deliverables the company occasionally enters into revenue arrangements that contain multiple deliverables . judgment is required to properly identify the accounting units of the multiple deliverable transactions and to determine the manner in which revenue should be allocated among the accounting units . moreover , judgment is used in interpreting the commercial terms and determining when all criteria of revenue recognition have been met for each deliverable in order for revenue recognition to occur in the appropriate accounting period . for multiple deliverable agreements , consideration is allocated at the inception of the agreement to all deliverables based on their relative selling price . the relative selling price for each deliverable is determined using vendor specific objective evidence ( vsoe ) of selling price or third-party evidence of selling price if vsoe does not exist . if neither vsoe nor third-party evidence of selling price exists , the company uses its best estimate of the selling price for the deliverable . the company recognizes revenue for delivered elements only when it determines there are no uncertainties regarding customer acceptance . while changes in the allocation of the arrangement consideration between the units of accounting will not affect the amount of total revenue recognized for a particular sales arrangement , any material changes in these allocations could impact the timing of revenue recognition , which could affect the company 's results of operations . nih grant revenues revenues from the nih grants are based upon internal and subcontractor costs incurred that are specifically covered by the grants , and where applicable , an additional facilities and administrative rate that provides funding for overhead expenses . these revenues are recognized when expenses have been incurred by subcontractors and as the company incurs internal expenses that are related to the grants . 29 allowance for doubtful accounts when we begin to sell commercial product we expect to establish a reserve for estimated sales returns that will be recorded as a reduction to revenue . that reserve will be maintained to account for future return of products sold in the current period . the reserve will be reviewed quarterly and will be estimated based on an analysis of our historical experience related to product returns . derivative financial instruments the company does not use derivative instruments to hedge exposures to cash flow , market or foreign currency risks . the company reviews the terms of convertible debt and equity instruments it issues to determine whether there are derivative instruments , including an embedded conversion option that is required to be bifurcated and accounted for separately as a derivative financial instrument . in circumstances where the convertible instrument contains more than one embedded derivative instrument , including the conversion option , that is required to be bifurcated , the bifurcated derivative instruments are accounted for as a single , compound derivative instrument . also , in connection with the sale of convertible debt and equity instruments , the company may issue freestanding warrants that may , depending on their terms , be accounted for as derivative instrument liabilities , rather than as equity . derivative instruments are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense . when the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities , the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments . the remaining proceeds , if any , are then allocated to the convertible instruments themselves , usually resulting in those instruments being recorded at a discount from their face value . fair value measurements financial assets and liabilities are measured at fair value , which is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs . the following is a fair value hierarchy based on three levels of inputs , of which the first two are considered observable and the last unobservable , that may be used to measure fair value : level 1 quoted prices in active markets for identical assets or liabilities .
| moreover , the company invested in building its executive , research , and development staff , increasing payroll related expenses by $ 2.0 million or 154 % over 2011 , from $ 1.3 million to $ 3.3 million . the increase in payroll-related expenses accounted for approximately 28 % of total year-to-year increase in operating expenses . stock-based compensation expense increased by approximately $ 1.4 million compared to the prior year under the 2012 equity incentive plan with awards granted related to increased headcount in line with expanded operations . additionally , the company consolidated and relocated its facilities to a larger space to accommodate its growing research operations staff at an incremental cost over 2011 of approximately $ 0.3 million . 31 research and development expenses 2012 research and development expenses of $ 3.4 million increased by approximately $ 2.0 million , or 143 % , over 2011 expenses of $ 1.4 million as the company increased its research staff to support its obligations under certain collaborative research agreements and to expand product development efforts in preparation for research-derived revenues . full-time research and development staffing increased from eight scientists and engineers as of december 31 , 2011 to nineteen as of december 31 , 2012. selling , general and administrative expenses selling , general and administrative expenses grew from $ 1.7 million in 2011 to $ 7.1 million in 2012 , an increase of $ 5.4 million or 318 % . expense increases were driven by non-recurring charges associated with the financing , increased payroll and facilities expenses and our transition from operating in a private company environment to operating in a publicly traded corporation . as expected in such transition , incremental initiatives were established in investor outreach , corporate governance , and sec financial reporting . non-payroll related incremental public company expenses incurred in 2012 were approximately $ 3.2 million including non-recurring charges associated with the merger and the private placements completed during the year . in addition , expanded staff increased payroll and facilities expenses in
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additionally , the amount of unearned revenue derived from transactions denominated in a foreign currency is impacted by fluctuations in the foreign currencies in which we invoice . cost of license revenue , cost of services revenue and operating expenses our cost of services revenue and operating expenses were primarily impacted by increasing employee-related expenses including salaries , bonuses , commissions and stock-based compensation across most of our income statement expense categories , net of realignment activities , during the years ended december 31 , 2016 and 2015. we expect this trend to continue . as part of the realignment plan approved in january 2016 , we have largely reinvested the associated savings primarily in research and development as well as sales and marketing . in calculating the impact of foreign currency fluctuations on cost of license revenue , cost of services revenue and operating expenses , we converted expenses recognized during the current period derived from non-u.s. dollar-based transactions into u.s. dollars using the exchange rates that were effective in the comparable prior-year period and compared the calculated amount to the amount , as reported , in the comparable prior-year period . 37 cost of license revenue cost of license revenue principally consists of the cost of fulfillment of our software , royalty costs in connection with technology licensed from third-party providers and amortization of intangible assets . the cost of fulfillment of our software includes personnel costs and related overhead associated with the physical and electronic delivery of our software products . cost of license revenue during the years ended december 31 , 2016 , 2015 and 2014 was as follows ( dollars in millions ) : replace_table_token_7_th cost of license revenue decreased in 2016 compared to 2015 primarily due to a decrease in royalty costs of $ 16 million and amortization of intangible assets of $ 7 million . cost of license revenue decreased in 2015 compared to 2014 primarily due to a decrease in royalty costs of $ 6 million . cost of services revenue cost of services revenue primarily includes the costs of personnel and related overhead to physically and electronically deliver technical support for our products and to provide professional services . additionally , cost of services revenue includes depreciation on equipment supporting our service offerings . cost of services revenue during the years ended december 31 , 2016 , 2015 and 2014 was as follows ( dollars in millions ) : replace_table_token_8_th cost of services revenue increased in 2016 compared to 2015. the increase was primarily due to growth in cash-based employee-related expenses of $ 69 million , driven by incremental growth in headcount and salaries . in addition , stock-based compensation increased by $ 8 million , primarily driven by an increase in restricted stock awards granted . cost of services revenue increased in 2015 compared to 2014. the increase was primarily due to growth in cash-based employee-related expenses of $ 96 million , driven by incremental growth in headcount , and an increase in equipment , depreciation and facilities-related costs of $ 42 million . additionally , third-party professional services costs increased $ 23 million due to an increase in demand for technical support and services . these increases were partially offset by a decrease in cost of services revenue of $ 47 million resulting from fluctuations in the exchange rates for foreign currencies in which we incur expenses . 38 research and development expenses research and development expenses include the personnel and related overhead associated with the development of our product software and service offerings . research and development expenses during the years ended december 31 , 2016 , 2015 and 2014 were as follows ( dollars in millions ) : replace_table_token_9_th research and development expenses increased in 2016 compared to 2015. the increase was primarily due to growth in cash-based employee-related expenses of $ 120 million , driven by incremental growth in headcount and salaries . in addition , stock-based compensation increased by $ 80 million , primarily driven by an increase in restricted stock unit awards granted . research and development expenses increased in 2015 compared to 2014. the increase was primarily due to growth in cash-based employee-related expenses of $ 90 million , driven by incremental growth in headcount . in addition , facilities-related costs increased $ 7 million . these increases were partially offset by a decrease in stock-based compensation of $ 18 million , primarily as a result of certain awards becoming fully vested in 2014. additionally , research and development expenses decreased by $ 16 million due to fluctuations in the exchange rates for foreign currencies in which we incur expenses . sales and marketing expenses sales and marketing expenses include personnel costs , sales commissions and related overhead associated with the sale and marketing of our license and services offerings , as well as the cost of product launches and marketing initiatives . sales commissions for our license offerings are generally earned and expensed when a firm order is received from the customer . in the event of a multi-year ea or our saas offerings , sales commissions may be expensed over the term of the arrangement . sales and marketing expenses during the years ended december 31 , 2016 , 2015 and 2014 were as follows ( dollars in millions ) : replace_table_token_10_th sales and marketing expenses increased in 2016 compared to 2015. the increase was primarily due to growth in cash-based employee-related expenses of $ 134 million , driven by incremental growth in headcount and salaries , as well as higher sales commission expense resulting from increased sales volume . in addition , stock-based compensation increased by $ 28 million , primarily driven by an increase in restricted stock unit awards granted . these increases were partially offset by decreases in costs incurred for marketing programs and related initiatives of $ 45 million . in addition , sales and marketing expenses decreased by $ 28 million due to fluctuations in the exchange rates for foreign currencies in which we incur expenses . story_separator_special_tag sales and marketing expenses increased in 2015 compared to 2014. the increase was primarily driven by growth in cash-based employee-related expenses of $ 158 million , due to incremental growth in headcount , and higher commission expense resulting from increased sales volume . in addition , equipment , depreciation and facilities-related costs increased $ 24 million . costs incurred for marketing programs and related initiatives increased $ 20 million , and costs incurred for third-party services increased $ 19 million . these increases were partially offset by a decrease in sales and marketing expenses of $ 109 million resulting from fluctuations in the exchange rates for foreign currencies in which we incur expenses . 39 general and administrative expenses general and administrative expenses include personnel and related overhead costs to support the business . these expenses include the costs associated with finance , human resources , it infrastructure and legal , as well as expenses related to corporate costs and initiatives , including charitable donations . general and administrative expenses during the years ended december 31 , 2016 , 2015 and 2014 were as follows ( dollars in millions ) : replace_table_token_11_th general and administrative expenses decreased in 2016 compared to 2015. the decrease was primarily driven by a decrease in installment payments to certain key employees of airwatch that were subject to the achievement of specified employment conditions . the final installment payment to key employees of airwatch occurred during the first quarter of 2016. as a result , compensation expense relating to these installment payments decreased by $ 132 million in 2016. these decreases in general and administrative expenses were partially offset by an increase in equipment , depreciation and facilities-related costs of $ 36 million . in addition , cash-based employee-related expenses increased by $ 32 million , driven by incremental growth in headcount and salaries , and stock-based compensation increased by $ 17 million , primarily due to an increase in restricted stock awards granted . general and administrative expenses increased in 2015 compared to 2014. the increase was primarily driven by an increase in equipment , depreciation and facilities-related costs of $ 37 million and an increase in cash-based employee-related expenses of $ 30 million , due to incremental growth in headcount . in addition , professional services-related costs increased $ 18 million . we also made installment payments to certain key employees of airwatch that had been subject to the achievement of specified future employment conditions . we recognized compensation expense of $ 145 million during 2015 relating to these installment payments . the increase to general and administrative expenses was partially offset by a decrease of $ 13 million resulting from fluctuations in the exchange rates for foreign currencies in which we incur expenses . realignment realignment expenses during the years ended december 31 , 2016 , 2015 and 2014 were as follows ( dollars in millions ) : replace_table_token_12_th on january 22 , 2016 , we approved a plan to streamline our operations , with plans to reinvest the associated savings in field , technical and support resources associated with growth products . as a result of these actions , approximately 800 positions were eliminated during the year ended december 31 , 2016 . we recognized $ 50 million of severance-related realignment expenses during the year ended december 31 , 2016 on the consolidated statements of income . additionally , we consolidated certain facilities as part of this plan , which resulted in the recognition of $ 2 million of related expenses during the year ended december 31 , 2016 on the consolidated statements of income . actions associated with this plan were substantially completed by december 31 , 2016. during the year ended december 31 , 2015 , we eliminated approximately 380 positions across all major functional groups and geographies to streamline our operations . as a result of these actions , $ 23 million of realignment expenses were recognized during the year ended december 31 , 2015. during the year ended december 31 , 2014 , we eliminated approximately 180 positions across all major functional groups and geographies to streamline our operations . as a result of these actions , $ 16 million of severance-related realignment expenses were recognized during the year ended december 31 , 2014 on the consolidated statements of income . 40 investment income investment income during the years ended december 31 , 2016 , 2015 and 2014 was as follows ( dollars in millions ) : replace_table_token_13_th investment income increased in 2016 compared to 2015 and 2015 compared to 2014 , primarily as a result of increased interest income earned on our short-term investments resulting from both higher yields and higher invested balances , partially offset by the amortization of premiums . income tax provision our annual effective income tax rate was 19.5 % , 17.8 % and 15.5 % during the years ended 2016 , 2015 , and 2014 , respectively . our effective income tax rate in 2016 was higher than in 2015 primarily as a result of a shift in mix of earnings from our lower tax non-u.s. jurisdictions to the united states . this impact from the shift in mix of earnings was partially offset by the favorable impact of lower unrecognized tax benefit additions recorded in 2016 compared to 2015. our annual effective tax rate in 2015 was higher than in 2014 primarily due to a shift in the mix of earnings from lower tax non-u.s. jurisdictions to the united states , a reduction in the benefit from the federal research tax credit and the net increase in unrecognized tax benefits . our rate of taxation in non-u.s. jurisdictions is lower than our u.s. tax rate . our non-u.s. earnings are primarily earned by our subsidiaries organized in ireland , and as such , our annual effective tax rate can be significantly impacted by the composition of our earnings in the u.s. and non-u.s. jurisdictions .
| we expect compute license sales to decline in 2017 and over the longer-term . license revenue increased in 2015 compared to 2014 primarily as a result of increased sales of our emerging product offerings , including nsx , airwatch mobile solutions and vsphere with operations management ( “ vsom ” ) , as well as revenue from our hybrid cloud offerings . license revenue during 2015 also benefited from declines in unearned license revenue . in 2015 , our license revenue growth rate was negatively impacted by certain factors including lower license sales of our core compute products , changes in the value of the u.s. dollar against the foreign currencies in which we invoice and an increase in the percentage of sales derived from our hybrid cloud and saas offerings . increased sales of our hybrid cloud and saas offerings resulted in less revenue being recognized up-front , which also had an adverse impact on our growth rate during 2015 . 36 services revenue during 2016 and 2015 , software maintenance revenue benefited from strong renewals of our software enterprise agreements , maintenance contracts sold in previous periods and additional maintenance contracts sold in conjunction with new software license sales . in each period presented , customers purchased , on a weighted-average basis , more than 24 months of support and maintenance with each new license purchased . professional services revenue increased 7 % in 2016 and 23 % in 2015. as we continue to invest in our partners and expand our ecosystem of third-party professionals with expertise in our offerings to independently provide professional services to our customers , our professional services revenue will vary based on the delivery channels used in any given period as well as the timing of service engagements . gsa settlement during 2015 , we reached an agreement with the department of justice ( “ doj ” ) and the general services administration ( “ gsa ” ) to pay $ 76 million to resolve allegations that our government sales practices between 2006 and 2013
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on october 12 , 2014 , netscout , danaher , newco merger sub and merger sub ii , entered into the merger agreement pursuant to which netscout will acquire the communications business in a reverse morris trust transaction . for additional information regarding the proposed acquisition , see note 20 of our notes to consolidated financial statements . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001078075/000162828015004363/ # s7a0c50967f35ee8b6a83cd9f58202fb7 '' style= '' font-family : inherit ; font-size:10pt ; font-weight : bold ; text-decoration : underline ; '' > investments and marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary . we periodically evaluate whether a decline in fair value below cost basis is other-than-temporary by considering available evidence regarding these investments including , among other factors , the duration of the period that , and extent to which , the fair value is less than cost basis , the financial health of and business outlook for the issuer , including industry and sector performance and operational and financing cash flow factors , overall market conditions and trends and our intent and ability to retain our investment in the security for a period of time sufficient to allow for an anticipated recovery in market value . once a decline in fair value is determined to be other-than-temporary , a write-down is recorded and a new cost basis in the security is established . assessing the above factors involves inherent uncertainty . write-downs , if recorded , could be materially different from the actual market performance of investments and marketable securities in our portfolio if , among other things , relevant information related to our investments and marketable securities was not publicly available or other factors not considered by us would have been relevant to the determination of impairment . revenue recognition product revenue consists of sales of our hardware products ( which include required embedded software that works together with the hardware to deliver the hardware 's essential functionality ) , licensing of our software products , and sale of hardware bundled with a software license . product revenue is recognized upon shipment , provided that evidence of an arrangement exists , title and risk of loss have passed to the customer , fees are fixed or determinable and collection of the related receivable is probable . because many of our solutions are comprised of both hardware and more than incidental software components , we recognize revenue in accordance with authoritative guidance on both hardware and software revenue recognition . service revenue consists primarily of fees from customer support agreements , consulting and training . we generally provide software and hardware support as part of product sales . revenue related to the initial bundled software and hardware support is recognized ratably over the support period . in addition , customers can elect to purchase extended support agreements for periods after the initial software warranty expiration . support services generally include rights to unspecified upgrades ( when and if available ) , telephone and internet-based support , updates and bug fixes . reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in services revenue , with the offsetting expense recorded in cost of service revenue . training services include on-site and classroom training . training revenues are recognized as the related training services are provided . generally , our contracts are accounted for individually . however , when contracts are closely interrelated and dependent on each other , it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts . multi-element arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time . for multi-element arrangements comprised only of hardware products and related services , we allocate the total arrangement consideration to the multiple elements based on each element 's selling price compared to the total relative selling price of all the elements . each element 's selling price is based on management 's best estimate of selling price ( besp ) paid by customers based on the element 's historical pricing when vsoe or third party evidence ( tpe ) does not exist . we have established besp for product elements as the average selling price the element was sold for over the past six quarters , whether sold alone or sold as part of a multiple element transaction . our internal list price for products , reviewed quarterly by senior management , with consideration in regards to changing factors in our technology and in the marketplace , is generated to target the desired gross margin from sales of product after analyzing historical discounting trends . we review sales of the product elements on a quarterly basis and update , when appropriate , besp for such elements to ensure that it reflects recent pricing experience . we have established vsoe for services related undelivered elements based on historical stand-alone sales . for multi-element arrangements comprised only of software products and related services , we allocate a portion of the total arrangement consideration to the undelivered elements , primarily support agreements and training , using vsoe of fair value for the undelivered elements . the remaining portion of the total arrangement consideration is allocated to the delivered software , referred to as the residual method . vsoe of fair value of the undelivered elements is based on the price customers pay when the element is sold separately . we review the separate sales of the undelivered elements on a quarterly basis and update , when appropriate , our vsoe of fair value for such elements to ensure that it reflects recent pricing experience . if we can not objectively determine the vsoe of the fair value of any undelivered software element , we defer revenue until all elements are delivered and services have been performed , or until fair value can objectively be determined for any remaining undelivered elements . story_separator_special_tag 33 for multi-element arrangements comprised of a combination of hardware and software elements , the total arrangement consideration is bifurcated between the hardware and hardware related deliverables and the software and software related deliverables based on the relative selling prices of all deliverables as a group . then , arrangement consideration for the hardware and hardware-related services is recognized upon delivery or as the related services are provided outlined above and revenue for the software and software-related services is allocated following the residual method and recognized based upon delivery or as the related services are provided . our product is distributed through our direct sales force and indirect distribution channels through alliances with resellers . revenue arrangements with resellers are recognized on a sell-in basis ; that is , when we deliver the product to the reseller . we record consideration given to a reseller as a reduction of revenue to the extent we have recorded revenue from the reseller . we do not offer contractual rights of return , stock balancing , or price protection to our resellers , and actual product returns from them have been insignificant to date . in addition , we have a history of successfully collecting receivables from the resellers . as a result , we do not maintain reserves for reseller product returns . valuation of goodwill , intangible assets and other acquisition accounting items the carrying value of goodwill was $ 197.4 million and $ 203.4 million at march 31 , 2015 and 2014 , respectively . we have two reporting units : ( 1 ) unified service delivery and ( 2 ) test optimization . goodwill is tested for impairment at a reporting unit level at least annually , or on an interim basis if an event occurs or circumstances change that would , more likely than not , reduce the fair value of the reporting segment below its carrying value . we performed the qualitative step 0 assessment on our unified service delivery reporting unit . in performing the qualitative step 0 assessment , we considered certain events and circumstances specific to the entity at the reporting unit level , such as macroeconomic conditions , industry and market considerations , overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . no indicators of impairment were noted at january 31 , 2015 . we performed the quantitative step 1 assessment on our test optimization reporting unit . if the reporting unit 's carrying value exceeds its fair value , we record an impairment loss equal to the difference between the carrying value of goodwill and its implied fair value . we estimate the fair values of our reporting units using discounted cash flow valuation models . those models require estimates of future revenues , profits , capital expenditures , working capital , terminal values based on revenue multiples , and discount rates for each reporting unit . we estimate these amounts by evaluating historical trends , current budgets , operating plans and industry data . the estimated fair value of the test optimization reporting unit was approximately 120 percent greater than its carrying value as of january 31 , 2015. additionally , the market capitalization of netscout as a whole significantly exceeded its carrying value . the carrying value of intangible assets was $ 50.2 million and $ 58.5 million at march 31 , 2015 and 2014 , respectively . intangible assets acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition . we amortize intangible assets over their estimated useful lives , except for the acquired tradename which resulted from the network general acquisition , which has an indefinite life and thus , is not amortized . the carrying value of the indefinite lived tradename is evaluated annually or more frequently if events or changes in circumstances indicate that the asset might be impaired . indefinite-lived intangible assets are tested for impairment at a reporting unit level at least annually , or on an interim basis if an event occurs or circumstances change that would , more likely than not , reduce the fair value of the reporting segment below its carrying value . to test impairment , we first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired . if based on our qualitative assessment we conclude that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount , quantitative impairment testing is required . however , if we conclude otherwise , quantitative impairment testing is not required . we completed our annual impairment test of the indefinite lived intangible at january 31 , 2015 using the qualitative step 0 assessment described above , which largely mirrors the unified service delivery analysis , as the tradenames apply to a majority of the products and branding within that reporting unit . no impairment indicators were observed as of january 31 , 2015 . 34 we have acquired two companies during the three year period ended march 31 , 2015 . the acquisition method of accounting requires that we estimate the fair value of the assets and liabilities acquired as part of these transactions . in order to estimate the fair value of acquired intangible assets we use a relief from royalty model which requires management to estimate : future revenues expected to be generated by the acquired intangible assets , a royalty rate which a market participant would pay related to the projected revenue stream , a present value factor which approximates a risk adjusted rate of return for a market participant purchasing the assets , and a technology migration curve representing a period of time over which the technology assets or some portion thereof are still being used .
| non-gaap net income includes the foregoing adjustment and also removes inventory fair value adjustments , expenses related to the amortization of acquired intangible assets , share-based compensation , restructuring , certain expenses relating to acquisitions including compensation for post-combination services and business development charges , net of related income tax effects . non-gaap diluted net income per share also excludes these expenses as well as the related impact of all these adjustments on the provision for income taxes . these non-gaap measures are not in accordance with gaap , should not be considered an alternative for measures prepared in accordance with gaap ( revenue , net income and diluted net income per share ) , and may have limitations in that 31 they do not reflect all our results of operations as determined in accordance with gaap . these non-gaap measures should only be used to evaluate our results of operations in conjunction with the corresponding gaap measures . the presentation of non-gaap information is not meant to be considered superior to , in isolation from , or as a substitute for results prepared in accordance with gaap . management believes these non-gaap financial measures enhance the reader 's overall understanding of our current financial performance and its prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business . we believe that providing these non-gaap measures affords investors a view of our operating results that may be more easily compared to our peer companies and also enables investors to consider our operating results on both a gaap and non-gaap basis during and following the integration period of our acquisitions . presenting the gaap measures on their own may not be indicative of our core operating results . furthermore , management believes that the presentation of non-gaap measures when shown in conjunction with the corresponding gaap measures provide useful information to management and investors
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home equity lines of credit decreased $ 1,598,000 , or 10.9 % , as of december 31 , 2012 to $ 13,025,000 , compared to $ 14,623,000 as of december 31 , 2011. this decrease was primarily due to lower customer demand for home equity loans in 2012. home equity lines of credit allow the borrowers to draw funds up to a specified loan amount , from time to time . bancorp 's management believes it has sufficient liquidity resources to have the funding available as these borrowers draw on these loans . mortgage loan commitments increased $ 12,542,000 , or 1,184.3 % , as of december 31 , 2012 to $ 13,601,000 , compared to $ 1,059,000 as of december 31 , 2011. this increase was primarily due to the timing of loan commitments booked at year end . loan commitments are obligations of bancorp to provide loans , and such commitments are made in the usual course of business . lines of credit , which are obligations of bancorp to fund loans made to certain borrowers , decreased $ 45,000 , or 0.1 % , to $ 31,480,000 as of december 31 , 2012 , compared to $ 31,525,000 as of december 31 , 2011. the decrease was a result of slightly lower demand for this type of loan product during 2012. bancorp 's management believes it has sufficient liquidity resources to have the funding available as these borrowers draw on these loans . loans sold and serviced with limited repurchase provisions increased $ 14,033,000 , or 79.9 % as of december 31 , 2012 to $ 31,591,000 , compared to $ 17,558,000 as of december 31 , 2011. this increase was the result of a greater volume of loans sold in the secondary market in 2012. bancorp uses the same credit policies in making commitments and conditional obligations as it does for its on-balance sheet instruments . 55 comparison of results of operations for the years ended december 31 , 2012 and 2011. general . bancorp 's net income for the year ended december 31 , 2012 was $ 3,728,000 , or income of $ 0.22 per share diluted after giving effect to dividends paid on preferred stock and amortization of discount on preferred stock . this compared to net income of $ 1,552,000 , or a loss of $ ( 0.02 ) per share diluted in 2011. this increase of $ 2,176,000 was primarily the result of the economic environment bancorp experienced in 2012 compared to 2011 , including an increase in total other income , a decrease in net interest income , a decrease in the provision for loan losses , an increase in mortgage banking activities and an increase in income tax provision . net interest income . net interest income ( interest earned net of interest charges ) decreased $ 2,359,000 , or 8.2 % , to $ 26,555,000 for the year ended december 31 , 2012 , compared to $ 28,914,000 for the year ended december 31 , 2011. this decrease was primarily due to a decrease in bancorp 's loan volume and to a decrease in the interest rate spread . bancorp 's interest rate spread decreased by 0.07 % to 3.27 % for the year ended december 31 , 2012 , compared to 3.34 % for the year ended december 31 , 2011. this decrease was the result of interest rates earned on bancorp 's loan portfolio decreasing faster than the decrease in interest rates paid on bancorp 's interest bearing liabilities . in addition , bancorp 's non-accrual loans increased from $ 31,432,000 at december 31 , 2011 to $ 37,495,000 at december 31 , 2012. this resulted in $ 1,964,000 of interest income not recorded on non-accrual loans in 2012 , compared to $ 2,083,000 of unrecorded interest in 2011. bancorp discontinues the accrual of interest on all non-accrual loans , at which time all previously accrued but uncollected interest is deducted from income . bancorp is uncertain whether it will be able to further reduce the interest rate paid on its interest bearing liabilities by attracting lower cost deposits , due to the general expectation of continued increased competition for deposit accounts . provision for loan losses . bancorp 's loan portfolio is subject to varying degrees of credit risk and an allowance for loan losses is maintained to absorb losses inherent in its loan portfolio . credit risk includes , but is not limited to , the potential for borrower default and the failure of collateral to be worth what the bank determined it was worth at the time of the granting of the loan . the bank monitors its loan portfolio loan delinquencies at least as often as monthly . all loans that are delinquent and all loans within the various categories of the bank 's portfolio as a group are evaluated . the bank 's board , with the advice and recommendation of the bank 's loss mitigation committee , estimates an allowance to be set aside for loan losses . included in determining the calculation are such factors as historical losses for each loan portfolio , current market value of the loan 's underlying collateral , inherent risk contained within the portfolio after considering the state of the general economy , economic trends , consideration of particular risks inherent in different kinds of lending and consideration of known information that may affect loan collectibility . a decrease in the loan loss provision from the beginning of the year to the end of a year is the result after an analysis of the aforementioned factors and applying that rationale to the total portfolio . the total allowance for loan losses decreased $ 8,460,000 , or 32.6 % , to $ 17,478,000 as of december 31 , 2012 , compared to $ 25,938,000 as of december 31 , 2011. the decrease in the allowance was due to a modification of the bank 's loan classification story_separator_special_tag home equity lines of credit decreased $ 1,598,000 , or 10.9 % , as of december 31 , 2012 to $ 13,025,000 , compared to $ 14,623,000 as of december 31 , 2011. this decrease was primarily due to lower customer demand for home equity loans in 2012. home equity lines of credit allow the borrowers to draw funds up to a specified loan amount , from time to time . bancorp 's management believes it has sufficient liquidity resources to have the funding available as these borrowers draw on these loans . mortgage loan commitments increased $ 12,542,000 , or 1,184.3 % , as of december 31 , 2012 to $ 13,601,000 , compared to $ 1,059,000 as of december 31 , 2011. this increase was primarily due to the timing of loan commitments booked at year end . loan commitments are obligations of bancorp to provide loans , and such commitments are made in the usual course of business . lines of credit , which are obligations of bancorp to fund loans made to certain borrowers , decreased $ 45,000 , or 0.1 % , to $ 31,480,000 as of december 31 , 2012 , compared to $ 31,525,000 as of december 31 , 2011. the decrease was a result of slightly lower demand for this type of loan product during 2012. bancorp 's management believes it has sufficient liquidity resources to have the funding available as these borrowers draw on these loans . loans sold and serviced with limited repurchase provisions increased $ 14,033,000 , or 79.9 % as of december 31 , 2012 to $ 31,591,000 , compared to $ 17,558,000 as of december 31 , 2011. this increase was the result of a greater volume of loans sold in the secondary market in 2012. bancorp uses the same credit policies in making commitments and conditional obligations as it does for its on-balance sheet instruments . 55 comparison of results of operations for the years ended december 31 , 2012 and 2011. general . bancorp 's net income for the year ended december 31 , 2012 was $ 3,728,000 , or income of $ 0.22 per share diluted after giving effect to dividends paid on preferred stock and amortization of discount on preferred stock . this compared to net income of $ 1,552,000 , or a loss of $ ( 0.02 ) per share diluted in 2011. this increase of $ 2,176,000 was primarily the result of the economic environment bancorp experienced in 2012 compared to 2011 , including an increase in total other income , a decrease in net interest income , a decrease in the provision for loan losses , an increase in mortgage banking activities and an increase in income tax provision . net interest income . net interest income ( interest earned net of interest charges ) decreased $ 2,359,000 , or 8.2 % , to $ 26,555,000 for the year ended december 31 , 2012 , compared to $ 28,914,000 for the year ended december 31 , 2011. this decrease was primarily due to a decrease in bancorp 's loan volume and to a decrease in the interest rate spread . bancorp 's interest rate spread decreased by 0.07 % to 3.27 % for the year ended december 31 , 2012 , compared to 3.34 % for the year ended december 31 , 2011. this decrease was the result of interest rates earned on bancorp 's loan portfolio decreasing faster than the decrease in interest rates paid on bancorp 's interest bearing liabilities . in addition , bancorp 's non-accrual loans increased from $ 31,432,000 at december 31 , 2011 to $ 37,495,000 at december 31 , 2012. this resulted in $ 1,964,000 of interest income not recorded on non-accrual loans in 2012 , compared to $ 2,083,000 of unrecorded interest in 2011. bancorp discontinues the accrual of interest on all non-accrual loans , at which time all previously accrued but uncollected interest is deducted from income . bancorp is uncertain whether it will be able to further reduce the interest rate paid on its interest bearing liabilities by attracting lower cost deposits , due to the general expectation of continued increased competition for deposit accounts . provision for loan losses . bancorp 's loan portfolio is subject to varying degrees of credit risk and an allowance for loan losses is maintained to absorb losses inherent in its loan portfolio . credit risk includes , but is not limited to , the potential for borrower default and the failure of collateral to be worth what the bank determined it was worth at the time of the granting of the loan . the bank monitors its loan portfolio loan delinquencies at least as often as monthly . all loans that are delinquent and all loans within the various categories of the bank 's portfolio as a group are evaluated . the bank 's board , with the advice and recommendation of the bank 's loss mitigation committee , estimates an allowance to be set aside for loan losses . included in determining the calculation are such factors as historical losses for each loan portfolio , current market value of the loan 's underlying collateral , inherent risk contained within the portfolio after considering the state of the general economy , economic trends , consideration of particular risks inherent in different kinds of lending and consideration of known information that may affect loan collectibility . a decrease in the loan loss provision from the beginning of the year to the end of a year is the result after an analysis of the aforementioned factors and applying that rationale to the total portfolio . the total allowance for loan losses decreased $ 8,460,000 , or 32.6 % , to $ 17,478,000 as of december 31 , 2012 , compared to $ 25,938,000 as of december 31 , 2011. the decrease in the allowance was due to a modification of the bank 's loan classification
| the total allowance for loan losses decreased $ 3,933,000 , or 13.2 % , to $ 25,938,000 as of december 31 , 2011 , compared to $ 29,871,000 as of december 31 , 2010. the decrease in the allowance was due to a decrease in loans receivable , an improvement in loan delinquencies and non-accrual loans offset in part by an increase in impaired loans primarily due to a slowdown in foreclosed loans transferred to foreclosed real estate . during the year ended december 31 , 2011 , the provision for loan losses was $ 4,612,000 compared to $ 5,744,000 for the year ended december 31 , 2010. this decrease of $ 1,132,000 , or 19.7 % , was a result of management 's determination that less of a provision for loan losses was needed for the level of inherent risk in its portfolio for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010. other income and non-interest expenses . total other income decreased $ 235,000 , or 8.6 % , to $ 2,510,000 for 2011 compared to $ 2,745,000 for 2010. revenues from mortgage banking activities decreased $ 267,000 , or 31.7 % , to $ 576,000 for the year ended december 31 , 2011 , compared to $ 843,000 for the year ended december 31 , 2010. this decrease was primarily a result of the market conditions which affected our ability to originate loans to be sold in the secondary market . real estate commissions increased $ 63,000 , or 10.6 % , to $ 657,000 for the year ended december 31 , 2011 , compared to $ 594,000 for the year ended december 31 , 2010. this increase was primarily the result of an increase in commercial sales and leasing in 2011 compared to 2010. real estate management fees increased $ 52,000 , or 9.1 % , to $ 625,000 for the year ended december 31 , 2011 , compared to $ 573,000 for the year ended december 31 , 2010. this increase was primarily due to increased fees charged in 2011. other non-interest income decreased $ 83,000 , or 11.3 % , to $ 652,000 for the year ended december 31 , 2011 , compared to $ 735,000 for the year ended december 31 , 2010. this decrease
| 12,999 |
sustained periods of low prices for oil or natural gas could materially and adversely affect our financial position , our results of operations , the quantities of oil and natural gas reserves that we can economically produce and our access to capital . prices for oil and natural gas can fluctuate widely in response to relatively minor changes in the global and regional supply of and demand for oil and natural gas , as well as market uncertainty , economic conditions and a variety of additional factors . since the inception of our oil and natural gas activities , commodity prices have experienced significant fluctuations . we enter into crude oil sales contracts with purchasers who have access to crude oil transportation capacity , utilize derivative financial instruments to manage our commodity price risk and enter into physical delivery contracts to manage our price differentials . in an effort to improve price realizations from the sale of our oil and natural gas , we manage our commodities marketing activities in-house , which enables us to market and sell our oil and natural gas to a broader array of potential purchasers . due to the availability of other markets and pipeline connections , we do not believe that the loss of any single oil or natural gas customer would have a material adverse effect on our results of operations or cash flows . additionally , we sell a significant amount of our crude oil production through gathering systems connected to multiple pipeline and rail facilities . these gathering systems , which originate at the wellhead , reduce the need to transport barrels by truck from the wellhead . as of december 31 , 2013 , we were flowing approximately 75 % of our gross operated oil production through these gathering systems . please see “ item 1. business—marketing , transportation and major customers. ” our quarterly average net realized oil prices and average price differentials are shown in the tables below . replace_table_token_18_th replace_table_token_19_th replace_table_token_20_th ( 1 ) realized oil prices do not include the effect of derivative contract settlements . ( 2 ) price differential reflects the difference between realized oil prices and wti crude oil index prices . changes in commodity prices may also significantly affect the economic viability of drilling projects as well as the economic valuation and economic recovery of oil and gas reserves . oil prices have increased significantly since 2009. the higher commodity prices , as well as continued successes in the application of completion technologies in the bakken and three forks formations , caused the active drilling rig count in the williston basin to increase to approximately 192 rigs at december 31 , 2013 . although additional williston basin transportation takeaway capacity was added in recent years , production also increased due to the elevated drilling activity . the increased production coupled with delays in rail car arrivals and commissioning of rail loading facilities caused price differentials at times to be at the high-end of the historical average range of approximately 10 % to 15 % of the wti crude oil index price in the first half of 2012. in the third quarter of 2012 , our average price differentials relative to wti began to narrow , primarily due to transportation capacity additions , including expanded rail infrastructure and pipeline expansions , outpacing production growth . in the fourth quarter of 2012 and into the first quarter of 2013 , average price differentials continued to narrow , primarily due to our ability to access premium coastal markets by rail . as the premium received in coastal markets contracted during the second and third quarters of 2013 , our average price differentials relative to wti increased . in the fourth quarter of 2013 , our average price differentials relative to wti continued to increase due to the pipeline market weakening as a result of refinery down time and increased united states and canadian production . our market optionality on the crude oil gathering systems allows us to shift volumes between pipeline and rail markets in order to optimize price realizations . 48 our large concentrated acreage position potentially provides us with a multi-year inventory of drilling projects and requires some forward planning visibility for obtaining services . our ability to develop and hold our existing undeveloped leasehold acreage is primarily dependent upon having access to drilling rigs and completion services . to ensure access to drilling rigs , we have entered into fixed-term drilling rig contracts for periods of up to three years and currently have 14 drilling rigs under contract . in order to ensure the availability of completion services and the timely fracture stimulation of newly drilled wells , we formed ows in 2011 to provide well services on our operated wells , in addition to entering into fracturing service contracts with third party companies . we are also adding a second fracturing fleet to ows in 2014 to further ensure our ability to complete our wells . 2013 highlights we completed and placed on production 136 gross ( 106.1 net ) operated bakken and three forks wells during 2013 , and increased average daily production by 51 % to 33,904 boe per day from 22,469 boe per day in 2012 . we increased estimated net proved oil and natural gas reserves at december 31 , 2013 to 227.9 mmboe , a 59 % increase over year-end 2012 estimated net proved reserves . approximately 87 % of our estimated net proved reserves at year-end 2013 consisted of oil and 54 % were classified as proved developed . we grew our leasehold position to 515,314 total net acres in the williston basin , primarily targeting the bakken and three forks formations , and increased our operated drilling spacing units by 123 through acquisitions , acreage additions and trades during 2013 . in addition , we increased our acreage that is held-by-production to 422,386 net acres as of december 31 , 2013 . story_separator_special_tag during 2013 , we closed four separate purchase and sale agreements to acquire an aggregate of approximately 161,000 net acres in the williston basin . in the first quarter of 2013 , our salt water disposal assets were transferred from opna to the newly formed oms , which provides midstream services to opna 's operated wells . on september 24 , 2013 , we issued $ 1,000.0 million of 6.875 % senior unsecured notes due march 15 , 2022. the issuance of these notes resulted in net proceeds to us of approximately $ 983.6 million , which we used to fund the west williston acquisition . on december 9 , 2013 , we completed a public offering of 7,000,000 shares of our common stock , par value $ 0.01 per share , at an offering price of $ 44.94 per share . net proceeds from the offering were approximately $ 314.4 million . as of december 31 , 2013 , we had 14 operated rigs running . at december 31 , 2013 , we had $ 91.9 million of cash and cash equivalents and had total liquidity of $ 1,251.1 million , including our $ 1,500.0 revolving credit facility . our total 2014 capital expenditure budget is $ 1,425 million , which includes $ 1,367 million for e & p capital expenditures and $ 58 million for non-e & p capital expenditures . our planned capital expenditures primarily consist of : ◦ $ 1,250 million of drilling and completion ( including production-related equipment ) capital expenditures for operated and non-operated wells ( including expected savings from services provided by ows and oms ) ; ◦ $ 60 million for constructing infrastructure to support production in our core project areas , primarily related to salt water disposal systems ; ◦ $ 25 million for maintaining and expanding our leasehold position ; ◦ $ 19 million for field facilities and other miscellaneous e & p capital expenditures ; ◦ $ 13 million for collection of subsurface reservoir data ; ◦ $ 35 million for ows , including district tools ; and ◦ $ 23 million for other non-e & p capital , including items such as administrative capital and capitalized interest . story_separator_special_tag increase from ows ' well completion activity and related product sales , and a $ 1.5 million increase related to midstream operating expenses . there were no midstream operating expenses for the year ended december 31 , 2012 because oms did not commence activity until the first quarter of 2013. marketing , transportation and gathering expenses . marketing , transportation and gathering expenses includes all of our marketing , transportation and gathering charges for our oil production as well as bulk oil purchase costs . the $ 16.7 million increase year over year , or $ 0.96 increase per boe , is primarily attributable to increased oil transportation costs associated with having additional wells connected to third-party infrastructure , combined with a $ 4.4 million increase in costs related to bulk oil purchases made by opm and a $ 2.1 million increase due to the change in the non-cash valuation adjustments on our oil pipeline imbalances and linefill inventory . excluding these non-cash valuation adjustments and bulk oil purchase costs , our marketing , transportation and gathering expenses on a per boe basis would have been $ 1.52 and $ 1.04 for the years ended december 31 , 2013 and 2012 , respectively . production taxes . our production taxes for the years ended december 31 , 2013 and 2012 were 9.3 % and 9.4 % , respectively , as a percentage of oil and natural gas sales , and are inclusive of lower incentivized production tax rates on certain new montana wells . for each of the years ended december 31 , 2013 and 2012 , approximately 82 % of our production was in north dakota with an average production tax rate of approximately 11 % . depreciation , depletion and amortization ( dd & a ) . dd & a expense increased $ 100.3 million to $ 307.1 million for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 . the increase in dd & a expense for the year ended december 31 , 2013 was primarily a result of our production increases from our wells completed during 2013 . the dd & a rate for the year ended december 31 , 2013 was $ 24.81 per boe compared to $ 25.14 per boe for the year ended december 31 , 2012 . the decrease in dd & a rate was a result of lower well costs for wells completed during the second half of 2012 and the first half of 2013 , partially offset by costs related to the west williston acquisition . our lower well costs were a result of decreases in service costs in the williston basin , efficiency gains , completion and well design optimization and pad development operations . the west williston acquisition completed on october 1 , 2013 increased our dd & a rate by approximately $ 1.90 per boe for the fourth quarter of 2013. impairment of oil and gas properties . no impairment of proved oil and natural gas properties was recorded for the years ended december 31 , 2013 and 2012 . during the years ended december 31 , 2013 and 2012 , we recorded non-cash impairment charges of $ 1.2 million and $ 3.6 million , respectively , for unproved properties due to leases that expired during the period and periodic assessments of unproved properties . the 2012 impairment charge included $ 1.8 million related to acreage expiring in 2013 as a result of a periodic assessment because there were no plans to drill or extend the leases prior to their expiration . in 2013 , we did not record any impairment charges as a result of periodic assessments based on our ability to actively manage and prioritize our capital expenditures to drill leases and to make payments to extend leases that would otherwise expire .
| the increase in average daily production sold was primarily a result of a higher number of well completions during 2013 coupled with our west williston acquisition and east nesson acquisitions and offset by the decline in production in wells that were producing as of december 31 , 2012 . production from wells completed in our west williston , east nesson and sanish project areas contributed to average daily production during 2013 by approximately 7,119 boe per day , 4,117 boe per day and 706 boe per day , respectively . average oil sales prices , without derivative settlements , increased by $ 7.12 /bbl , or 8 % , to an average of $ 92.34 /bbl for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 . the higher production amounts sold increased revenues by $ 354.9 million , and higher oil and natural gas sales prices increased revenues by $ 54.7 million during the year ended december 31 , 2013 . in addition , bulk oil sales related to marketing activities included in oil revenues increased $ 4.3 million during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 . well services revenues increased $ 35.7 million for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 due to an increase in well completion activity and related product sales and tool rentals . midstream revenues totaled $ 5.7 million for the year ended december 31 , 2013 . there were no midstream revenues during 2012 because oms did not commence activity until the first quarter of 2013. prior to 2013 , our salt water disposal systems were owned by opna , and the related income was included as a reduction to lease operating expenses . well services and midstream revenues represent revenue for third-party working interest owners in opna 's operated wells only , as work performed by ows and oms for opna 's working interests are eliminated in consolidation . year
| 13,000 |
at september 30 , 2015 and 2014 , the company 's occupancy was 97.7 % and 95.9 % , respectively . during fiscal 2015 , the company acquired ten industrial properties totaling approximately 2,729,000 square feet for approximately $ 191,985,000. the company has a concentration of properties leased to fedex corporation ( fdx ) . as of september 30 , 2015 , the company had approximately 13,919,000 square feet of property , of which approximately 6,002,000 square feet , or 43 % , consisting of forty-seven separate stand-alone leases , were leased to fdx and its subsidiaries , ( 7 % to fdx and 36 % to fdx subsidiaries ) . these properties are located in twenty different states . the percentage of rental and reimbursement revenue from fdx and its subsidiaries was 54 % for the year ended september 30 , 2015 , consisting of 8 % leased to fdx and 46 % leased to fdx subsidiaries . no other tenant accounted for 5 % or more of the company 's total rental and reimbursement revenue for the fiscal 2015. the company 's revenue primarily consists of rental and reimbursement revenue from the ownership of industrial rental property . rental and reimbursement revenue increased $ 13,103,156 , or 20 % , for the year ended september 30 , 2015 as compared to the year ended september 30 , 2014. total expenses ( excluding other income and expense ) increased $ 6,885,886 , or 20 % , for the year ended september 30 , 2015 as compared to the year ended september 30 , 2014. the increases were due mainly to the revenue and expenses relating to the property acquisitions made during fiscal 2015. net operating income from property operations ( noi ) is defined as recurring rental and reimbursement revenue , less real estate taxes and operating expenses , such as insurance , utilities and repairs and maintenance . noi increased $ 11,930,616 , or 22 % , for the fiscal year ended september 30 , 2015 as compared to the fiscal year ended september 30 , 2014 and increased $ 7,976,386 , or 18 % , for the fiscal year ended september 30 , 2014 as compared to the fiscal year ended september 30 , 2013. the increase from fiscal year 2014 to 2015 was due to the additional income related to ten industrial properties purchased during fiscal 2015. the increase from fiscal year 2013 to 2014 was due to the additional income related to six industrial properties purchased during fiscal 2014 . 32 the company 's noi for the fiscal years ended september 30 , 2015 , 2014 and 2013 is calculated as follows : replace_table_token_10_th in the first quarter of fiscal 2016 to date , the company purchased two industrial properties totaling approximately 506,000 square feet with net-leased terms of ten years each . both properties are leased to fedex ground package system , inc. the purchase price for the two properties was approximately $ 50,386,000 and they are located in louisiana and north carolina . these two properties generate annualized rental income over the life of their respective leases of approximately $ 3,336,000. in addition , these two industrial properties purchased during fiscal 2016 to date , increased our current total leasable square feet to approximately 14,425,000 and our occupancy rate to 97.8 % . the funds for these acquisitions were provided by two property level mortgage loans totaling $ 33,670,000 , draws on an unsecured line of credit and cash on hand . the two mortgages are at fixed rates ranging from 3.87 % to 4.08 % and have a weighted average interest rate of 3.95 % . each of these mortgages is a fifteen year , self-amortizing loan . in addition to the two properties purchased during the first quarter of fiscal 2016 to date , we have entered into agreements to purchase seven new build-to-suit , industrial buildings that are currently being developed in florida , kansas , kentucky , michigan , new york and washington totaling approximately 1,869,000 square feet with net-leased terms ranging from ten to fifteen years resulting in a weighted average lease maturity of 14.1 years . approximately 1,732,000 square feet , or 93 % , is leased to fedex ground package system , inc. the purchase price for the seven properties is approximately $ 198,804,000. subject to satisfactory due diligence , we anticipate closing these seven transactions during fiscal 2016 and fiscal 2017. in connection with four of the seven properties , the company has entered into commitments to obtain four mortgages totaling approximately $ 92,116,000 at fixed rates ranging from 3.55 % to 3.95 % , with a weighted average interest rate of 3.81 % . each of these mortgages is a fifteen year , self-amortizing loan . the company may make additional acquisitions in fiscal 2016 and fiscal 2017 and the funds for these acquisitions may come from mortgages , draws on our unsecured line of credit , cash on hand , sale of marketable securities , other bank borrowings , proceeds from the drip , private placements and public offerings of additional common or preferred stock or other securities . to the extent that funds or appropriate properties are not available , fewer acquisitions will be made . during the fiscal years ended september 30 , 2015 and 2014 , the company completed twelve expansions at nine of its locations , consisting of eight building expansions and four parking lot expansions . two of the parking lot expansions included the purchase of additional land . the eight building expansions resulted in approximately 438,000 additional square feet . total costs for all nine property expansions were approximately $ 39,460,000 and resulted in total increased annual rent of approximately $ 4,007,000. each completed expansion resulted in a new ten year lease extension for each property that was expanded . in addition , the company currently has three property expansions in progress consisting of two building expansions and one parking lot expansion . story_separator_special_tag total expansion costs are expected to be approximately $ 7,765,000. upon completion of the three expansions , annual rent will be increased by approximately $ 777,000 and each property will provide for a new ten year lease extension from the date of completion for each property being expanded . in addition , the two building expansions will provide additional rentable square feet of approximately 65,700 . 33 revenues also include interest and dividend income and net realized gain on securities transactions . the company holds a portfolio of marketable securities of other reits with a fair value of $ 54,541,237 as of september 30 , 2015. the company generally limits its marketable securities investments to no more than approximately 10 % of its undepreciated assets . the company invests in reit securities and , from time to time , may use margin debt when an adequate yield spread can be obtained . as of september 30 , 2015 and 2014 , there were no draws against the margin . the reit securities portfolio provides the company with additional liquidity and additional income and serves as a proxy for real estate when more favorable risk adjusted returns are not available . as of september 30 , 2015 , the company 's portfolio consisted primarily of 73 % reit common stocks and 27 % reit preferred stocks . the company 's weighted-average yield on the securities portfolio for fiscal 2015 was approximately 7.6 % . interest and dividend income for fiscal 2015 was $ 3,723,867 , which is in-line with interest and dividend income of $ 3,882,597 for fiscal 2014. during fiscal 2015 , the company realized $ 805,513 in gains on sales of securities transactions . the company has unrealized losses of $ 5,441,603 in its reit securities portfolio as of september 30 , 2015. the dividends received from our securities investments continue to meet our expectations . the company intends to hold these securities for investment on a long-term basis . the company had $ 12,073,909 in cash and cash equivalents and $ 54,541,237 in reit securities as of september 30 , 2015. the company believes that funds generated from operations , the drip , the unsecured line of credit , together with the ability to finance and refinance its properties , will provide sufficient funds to adequately meet its obligations over the next several years . the company has a dividend reinvestment and stock purchase plan ( drip ) , in which participants can purchase stock from the company at a price of approximately 95 % of market value . amounts received in connection with the drip , ( including dividend reinvestments of $ 8,489,169 , $ 7,624,528 and $ 6,781,345 for fiscal years ended 2015 , 2014 and 2013 , respectively ) , were $ 48,404,556 , $ 38,090,334 and $ 31,119,351 for fiscal years ended 2015 , 2014 and 2013 , respectively . industrial space demand is very closely correlated to gross domestic product ( gdp ) growth . despite six years of unprecedented monetary stimulus , real annual gdp growth has averaged under 2.0 % over this period . however , there has been significant demand for industrial space and national occupancy rates have been steadily increasing . one major catalyst driving increased demand for the industrial property type has been the ongoing shift from traditional brick and mortar retail shopping , to shopping on-line or “ e-commerce ” . this favorable trend for the industrial real estate sector has been increasing for several years now and is expected to be a leading demand driver for many years to come . new home construction and sales of existing homes have vastly improved . housing demand typically translates into greater demand for warehouse space . additionally , automotive sales are at historic highs and low energy costs have resulted in a resurgence of domestic manufacturing plants . these catalysts have put upward pressure on rental rates in most major industrial markets . the financial position of our tenants , together with the long duration of our leases , should enable the company to perform well despite the slow growth economic environment . the company intends to continue to increase its real estate investments in fiscal 2016 and 2017 through acquisitions and expansions of properties . the growth of the real estate portfolio depends on the availability of suitable properties which meet the company 's investment criteria and appropriate financing . competition in the market areas in which the company operates is significant and affects acquisitions , occupancy levels , rental rates and operating expenses of certain properties . transaction costs , such as broker fees , transfer taxes , legal , valuation , and other professional fees related to acquisitions are expensed as incurred . see part i , item 1 – business and item 1a – risk factors for a more complete discussion of the economic and industry-wide factors relevant to the company and the opportunities and challenges , and risks on which the company is focused . 34 significant accounting policies and estimates the discussion and analysis of the company 's financial condition and results of operation are based upon the company 's consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities at the date of the company 's consolidated financial statements . actual results may differ from these estimates under different assumptions or conditions . significant accounting policies are defined as those that involve significant judgment and potentially could result in materially different results under different assumptions and conditions . management believes the following significant accounting policies are affected by our more significant judgments and estimates used in the preparation of the company 's consolidated financial statements .
| 38 fiscal 2015 renewals approximately 6 % of the company 's gross leasable area , consisting of six leases totaling 778,702 square feet , were scheduled to expire during fiscal 2015. the company has renewed all six leases , or 100 % of the gross leasable area that were scheduled to expire during fiscal 2015. the company has incurred or expects to incur tenant improvement costs of approximately $ 665,200 and leasing costs of approximately $ 438,300 in connection with these six lease renewals . the table below summarizes the lease terms of the six leases which were renewed and includes both the tenant improvement costs and the leasing costs which are presented on a per square foot ( psf ) basis averaged over the renewal term . property tenant square feet former u.s. gaap straight-line rent psf former cash rent psf former lease expiration renewal u.s gaap straight-line rent psf renewal initial cash rent psf renewal lease expiration renewal term ( years ) tenant improvement cost psf over renewal term ( 1 ) leasing commissions cost psf over renewal term ( 1 ) orangeburg , ny kellogg sales co. 50,400 $ 7.00 $ 7.00 2/28/15 $ 6.50 $ 6.50 2/28/18 3.0 $ 0.21 $ 0.26 hanahan , sc saic ( 2 ) 302,400 4.25 4.54 4/29/15 4.79 4.65 4/30/19 4.3 0.22 0.28 montgomery , il home depot 171,200 5.11 5.27 6/30/15 5.70 5.48 6/30/20 5.0 -0- -0- o'fallon , mo pittsburgh glass works 102,135 4.18 4.18 6/30/15 4.18 4.18 6/30/18 3.0 0.99 -0- kansas city , mo kellogg sales co. 65,067 5.38 5.38 7/31/15 5.00 5.00 7/31/18 3.0 0.22 0.20 ft. myers , fl fedex ground 87,500 4.76 4.76 10/31/14 4.95 4.95 10/31/16 2.0 -0- -0- total 778,702 weighted average $ 4.76 $ 4.91 $ 5.06 $ 4.95 3.8 $ 0.22 $ 0.15 ( 1 ) amount calculated based on the total cost divided by the square feet , divided by the renewal term . ( 2 ) in december 2014 , the company entered into a lease termination agreement with its tenant , norton mcnaughton of squire , inc. ( norton ) , whereby the company received a lease termination fee of $ 238,625 , terminating the lease effective january 31 , 2015. prior to the lease termination , norton leased the company 's 302,400 square foot building located in
| 13,001 |
named special servicer on three new issue cmbs deals with total unpaid principal balances of $ 2.5 billion . purchased $ 68.9 million of cmbs , including $ 28.3 million in new issue b-pieces . originated new conduit loans of $ 626.4 million . received proceeds of $ 504.9 million from sales of conduit loans . amended two existing repurchase facilities to upsize available borrowings by a total of $ 500.0 million and amended one of these facilities to allow for funding of foreign currency denominated investments . amended two existing repurchase facilities to extend the maturity dates while reducing pricing on one of these facilities . 58 issued $ 431.3 million in aggregate principal amount of our 3.75 % convertible senior notes due 2017 for total net proceeds of $ 420.8 million . amended an existing $ 250.0 million share repurchase program to include the repurchase of our outstanding convertible senior notes . developments during the third quarter of 2014 originated a $ 480.0 million first mortgage and mezzanine financing for the construction of a 54-story class a+ office and luxury condominium tower in san francisco , california , of which the company funded $ 104.1 million during the third quarter . following the origination , the company sold $ 172.8 million of the first mortgage and $ 115.2 million of the mezzanine loan . originated a $ 264.3 million first mortgage land improvement loan on 196 acres of oceanfront land in orange county , california , of which the company funded $ 62.0 million during the third quarter . originated and fully funded a $ 150.0 million first mortgage for the redevelopment of a luxury resort in maui , hawaii . announced the co-origination of £86.75 million in a £101.75 million first mortgage loan for the development of a 46-story residential tower and 18-story housing development containing a total of 366 private residential and affordable housing units located in london . acquired a $ 123.4 million portfolio of diverse office , retail and multi-family loans throughout the united states . originated a $ 103.3 million first mortgage and mezzanine loan for the refinancing and expansion of a 149-key , full service boutique hotel in boston , massachusetts , of which the company funded $ 65.0 million during the third quarter . originated an $ 81.5 million first mortgage and mezzanine financing secured by a 36-building office and industrial portfolio in lenexa , kansas , of which the company funded $ 57.4 million during the third quarter . co-originated 58.0 million in a 99.0 million mortgage loan for the refinancing and refurbishment of a 239-key , full service hotel located in amsterdam , netherlands with seref and other private funds , both affiliates of our manager . the company funded 23.2 million during the third quarter . funded $ 71.7 million of previously originated loan commitments during the third quarter . sold $ 209.9 million of previously originated loan commitments during the third quarter . named special servicer on three new issue cmbs deals with total unpaid principal balances of $ 3.4 billion . purchased $ 43.4 million of cmbs , including $ 36.8 million in new issue b-pieces . originated new conduit loans of $ 577.2 million . received proceeds of $ 498.8 million from sales of conduit loans . amended one of our repurchase facilities to upsize available borrowings from $ 225 million to $ 325 million and reduce pricing . executed a $ 250 million repurchase facility with a new lender . the facility has a three year term with a one year extension available at the option of the lender . the facility carries an annual 59 interest rate of libor + 2.75 % and eligible collateral includes identified commercial mortgage loans and other asset types at the discretion of the lender . amended one of our repurchase facilities to extend the maturity date to september 2016 , assuming the exercise of a one-year extension option , and reduce pricing . established a share repurchase program which allows for the repurchase of up to $ 250.0 million of our outstanding common stock over a period of one year . during the third quarter , we repurchased 587,900 shares of common stock at a total cost of $ 13.0 million under the program . developments during the second quarter of 2014 originated a $ 152.0 million first mortgage and mezzanine financing for the acquisition of a class a office campus in pleasanton , california , of which the company funded $ 106.5 million during the second quarter . originated a $ 120.0 million first mortgage and mezzanine refinancing of existing first mortgage , senior mezzanine and junior mezzanine loans on a six property office portfolio located in rosslyn , virginia . the company was the original lender on the $ 49.8 million junior mezzanine loan . the company fully funded the refinancing during the second quarter . originated a $ 69.6 million first mortgage and mezzanine financing for the acquisition of a class a office building in parsippany , new jersey , of which the company funded $ 58.9 million during the second quarter . originated a $ 62.2 million first mortgage for the acquisition of a 953-key , full service hotel in san diego , california , of which the company funded $ 59.6 million during the second quarter . originated a $ 59.7 million first mortgage and mezzanine financing for the acquisition of a seven property office portfolio in minneapolis , minnesota , of which the company funded $ 54.3 million during the second quarter . originated a $ 58.0 million first mortgage for the acquisition of a class a office building in san francisco , california . the company fully funded the loan during the second quarter . funded $ 72.3 million of previously originated loan commitments during the second quarter . named special servicer on six new issue cmbs deals with total unpaid principal balances of $ 6.6 billion . purchased $ 107.1 million of cmbs , including $ 97.0 million in new issue b-pieces . story_separator_special_tag originated new conduit loans of $ 320.6 million . received proceeds of $ 364.3 million from sales of conduit loans . amended one of our repurchase facilities to ( i ) increase additional borrowings by $ 42.7 million ; ( ii ) extend the maturity date for loan collateral to may 2019 , assuming the exercise of two one-year extension options ; ( iii ) reduce pricing for all purchased assets ; and ( iv ) increase advance rates for certain purchased assets . issued 25.3 million shares of common stock for gross proceeds of $ 564.7 million . entered into an amended and restated at-the-market equity offering sales agreement ( the `` atm agreement '' ) with merrill lynch , pierce , fenner & smith incorporated to sell shares of the company 's common stock of up to $ 500 million from time to time , through an `` at the market '' equity offering program . during the second quarter , we issued 759 thousand shares under the atm agreement for gross proceeds of $ 18.3 million . 60 established the starwood property trust , inc. dividend reinvestment and direct stock purchase plan ( the `` drip plan '' ) which provides stockholders with a means of purchasing additional shares of our common stock by reinvesting the cash dividends paid on our common stock and by making additional optional cash purchases . during the second quarter , shares issued under the drip plan were not material . developments during the first quarter of 2014 completed the spin-off of our sfr segment to our stockholders on january 31 , 2014 , as described in note 1 to our consolidated financial statements . originated a $ 450.0 million first mortgage and mezzanine construction financing for the development of a 57-story tower containing luxury condominium residences and ground floor retail space in manhattan , new york , of which the company funded $ 26.1 million during the first quarter . originated a $ 234.9 million first mortgage and mezzanine construction financing for the development of a mixed-use luxury residential and retail development in the flushing area of queens , new york , of which the company funded $ 19.9 million during the first quarter . co-originated $ 407.5 million out of a total of $ 815.0 million of first mortgage and mezzanine financing , which was used to refinance and recapitalize loans the company had co-originated in october 2012 for the acquisition and redevelopment of a 10-story retail building in the times square area of manhattan , new york , including the addition of a hotel . the company 's balance under the prior loans was $ 210.9 million . the company funded $ 182.0 million of the financing during the first quarter . originated and fully funded $ 197.2 million of first mortgage and mezzanine financing secured by an 89-asset bank branch portfolio in california . originated a $ 179.5 million first mortgage and mezzanine loan to finance the acquisition of a premier data center in philadelphia , pennsylvania , of which the company funded $ 99.9 million during the first quarter . originated a $ 113.5 million first mortgage and mezzanine loan to finance the acquisition of a 31-story class a office tower located in burbank , california , of which the company funded $ 74.0 million during the first quarter . named special servicer on three new issue cmbs deals with total unpaid principal balances of $ 3.2 billion . purchased $ 44.7 million of cmbs , including $ 38.9 million in new issue b-pieces . originated new conduit loans of $ 261.8 million . received proceeds of $ 302.5 million from sales of conduit loans . amended one of our repurchase facilities to upsize available borrowings to $ 1.0 billion from $ 550 million , extend the maturity date , allow for additional extension options , reduce pricing and debt-yield thresholds for purchased assets and amend certain financial covenants to contemplate the spin-off of the sfr segment . subsequent events refer to note 25 to the consolidated financial statements for disclosure regarding significant transactions that occurred subsequent to december 31 , 2014 . 61 story_separator_special_tag for using the fair value option , all partially offset by a $ 16.8 million decrease in fair value of our domestic servicing rights , which reflects the expected amortization of this deteriorating asset , net of increases in fair value due to the attainment of new servicing contracts . for the year ended december 31 , 2013 , other income primarily consisted of $ 116.4 million of income of consolidated vies and $ 35.1 million of net increases in fair value of investment securities and mortgage loans held-for-sale . income of consolidated vies reflects amounts associated with the investing and servicing segment 's variable interests in the cmbs trusts it consolidates , including special servicing fees , interest income , and changes in fair value of cmbs and servicing rights . as noted above , this number is merely a function of the number of cmbs trusts consolidated in any given period , and as such , is not a meaningful indicator of the operating results for this segment . income tax provision most of our consolidated income tax provision relates to the taxable nature of the investing and servicing segment 's loan servicing and loan conduit businesses which are housed in trss . our overall effective tax rate for the year ended december 31 , 2014 is lower than for the year ended december 31 , 2013 primarily due to the finalization of our tax planning strategies associated with the lnr acquisition .
| expenses , all partially offset by the absence of $ 18.0 million of business combination costs incurred in the 2013 period associated with the lnr acquisition . the increase in interest expense reflects our issuance of $ 1.1 billion of convertible senior notes in 2013 , $ 431.3 million of convertible senior notes in 2014 and a $ 735.9 million increase in outstanding balances under secured financing agreements of our lending segment between december 31 , 2013 and 2014. these borrowings , along with equity issuances , are used to fund the growth of our investment portfolio . the increase in management fees reflects the impacts of ( i ) higher manager stock compensation expense resulting from awards granted in the first quarter of 2014 and ( ii ) higher levels of invested capital which resulted in an increased base management fee in 2014. the increase in g & a expenses reflects higher legal fees principally associated with the administration of our financing facilities and higher compensation expense . other income for the year ended december 31 , 2014 , other income of our lending segment decreased $ 1.5 million to $ 24.4 million , from $ 25.9 million for the year ended december 31 , 2013. this decrease was primarily due to a $ 12.2 million decrease in gain on sales of investments , partially offset by a $ 4.9 million increase in earnings from unconsolidated entities . a $ 44.0 million favorable swing in gain ( loss ) on derivatives , primarily foreign exchange contracts , was substantially offset by a $ 39.6 million unfavorable swing in foreign currency gain ( loss ) . investing and servicing segment and vies the company acquired lnr on april 19 , 2013. therefore , a comparison of results of the investing and servicing segment and vies for the year ended december 31 , 2014 to the year ended december 31 , 2013 is not meaningful as the current year period has an additional 108 days of
| 13,002 |
when a loan is considered to be impaired , the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate or if the loan is collateral-dependent , the fair value of the collateral is used to determine the amount of impairment . impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses . subsequent recoveries are credited to the allowance for loan losses . cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement . cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income . certain economic and interest rate factors could have a material impact on the determination of the allowance for loan losses . an improving economy could result in the expansion of businesses and creation of jobs which would positively affect our loan growth and improve our gross revenue stream . conversely , certain factors could result from an expanding economy which could increase our credit costs and adversely impact our net earnings . a significant rapid rise in interest rates could create higher borrowing costs and shrinking corporate profits which could have a material impact on a borrower 's ability to pay . we will continue to concentrate on maintaining a high quality loan portfolio through strict administration of our loan policy . another factor that we have considered in the determination of the allowance for loan losses is loan concentrations to individual borrowers or industries . at december 31 , 2016 , we had six individual loans that exceeded our in-house credit limit of $ 25.0 million . we had eight relationships consisting of 12 different non-covered loans that exceeded our $ 25.0 million in-house credit limit . total exposure resulting from these eight relationships was $ 298.7 million . additional disclosure concerning the company 's largest loan relationships is provided in the “ balance sheet comparison ” section below . a substantial portion of our loan portfolio is in the commercial real estate and residential real estate sectors . the majority of these loans are secured by real estate in our primary market areas . a substantial portion of oreo is located in those same markets . therefore , the ultimate collectability of a substantial portion of our loan portfolio and the recoverability of a substantial portion of the carrying amount of oreo are susceptible to changes to market conditions in our primary market area . fair value accounting estimates gaap requires the use of fair values in determining the carrying values of certain assets and liabilities , as well as for specific disclosures . the most significant include impaired loans , oreo , and the net assets acquired in business combinations . certain of these assets do not have a readily available market to determine fair value and require an estimate based on specific parameters . when market prices are unavailable , we determine fair values utilizing estimates , which are constantly changing , including interest rates , duration , prepayment speeds and other specific conditions . in most cases , these specific parameters require a significant amount of judgment by management . at december 31 , 2016 , the percentage of the company 's assets measured at fair value was 14 % . see note 21 , “ fair value measures ” , in the notes to consolidated financial statements herein for additional disclosures regarding the fair value of our assets and liabilities . when a loan is considered impaired , a specific valuation allowance is allocated , if necessary , so that the loan is reported net , at the present value of estimated future cash flows using the loan 's existing rate or at the fair value of collateral if repayment is expected solely from the collateral . in addition , foreclosed assets are carried at the net realizable value , following foreclosure . the company 's impaired loans and foreclosed property are concentrated in markets and areas where the determination of fair value through market research ( recent sales and or qualified appraisals ) is difficult . accordingly , the determination of fair value in the current environment is sometimes difficult and more subjective than it would be in traditionally stable real estate environments . although management believes its processes for determining the value of these assets are appropriate and allow ameris to arrive at a fair value , the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be different from management 's determination of fair value . 33 business combinations assets purchased and liabilities assumed in a business combination are recorded at their fair value . the fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of purchased assets or assumed liabilities . on the date of acquisition , when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the company will not collect all contractually required principal and interest payments , the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference . the company must estimate expected cash flows at each reporting date . subsequent decreases to the expected cash flows will generally result in a provision for loan losses . subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on future interest income . in addition , purchased loans without evidence of credit deterioration are also handled under this method . story_separator_special_tag income taxes as required by gaap , we use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences . see note 15 , “ income taxes , ” in the notes to consolidated financial statements for additional details . as part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as gains on fdic-assisted transactions and the provision for loan losses , for tax and financial reporting purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheet . we must also assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets . to the extent we establish a valuation allowance or adjust this allowance in a period , we must include an expense within the tax provisions in the statement of income . long-lived assets , including intangibles intangible assets consist of goodwill and core deposit intangibles . goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions . core deposit intangibles represent premiums paid for deposits acquired via acquisition and are being amortized over its estimated useful life , typically five to ten years . net income/ ( loss ) and earnings per share the company 's net income available to common shareholders during 2016 was $ 72.1 million , or $ 2.08 per diluted share , compared with $ 40.8 million , or $ 1.27 per diluted share , in 2015 , and $ 38.4 million , or $ 1.46 per diluted share , in 2014. for the fourth quarter of 2016 , the company recorded net income available to common shareholders of $ 18.2 million , or $ 0.52 per diluted share , compared with $ 14.1 million , or $ 0.43 per diluted share , for the quarter ended december 31 , 2013 , and $ 10.6 million , or $ 0.39 per diluted share , for the quarter ended december 31 , 2014. earning assets and liabilities average earning assets were approximately $ 5.60 billion in 2016 , compared with approximately $ 4.32 billion in 2015. the earning asset and interest-bearing liability mix is regularly monitored to maximize the net interest margin and , therefore , increase return on assets and shareholders ' equity . the following statistical information should be read in conjunction with the remainder of “ management 's discussion and analysis of financial condition and results of operation ” and the consolidated financial statements and related notes included elsewhere in this annual report and in the documents incorporated herein by reference . 34 the following tables set forth the amount of average balance , interest income or interest expense , and average interest rate for each category of interest-earning assets and interest-bearing liabilities , net interest spread and net interest margin on average interest-earning assets . federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35 % federal tax rate . replace_table_token_6_th 35 story_separator_special_tag purchased non-covered and covered loans compared with $ 20.4 million , or 0.85 % , and $ 21.2 million , or 1.12 % , at december 31 , 2015 and 2014 , respectively . a significant portion of the company 's loan growth during 2016 consisted of municipal loans , residential mortgages and commercial insurance premium loans , each of which presents a lower risk of default than other loan types , such as acquisition , construction and development or investor commercial real estate loans . the growth in lower-risk loans during 2016 , combined with the improved historical loss rates and qualitative factors , are the primary reasons the allowance for loan losses as a percentage of loans , excluding purchased loans , decreased during the year . 37 noninterest income following is a comparison of noninterest income for 2016 , 2015 and 2014. replace_table_token_8_th 2016 compared with 2015. total noninterest income in 2016 was $ 105.8 million , compared with $ 85.6 million in 2015 , an increase of $ 20.2 million . this increase is due primarily to an $ 11.5 million increase in mortgage banking activity and an $ 8.3 million increase in service charges on deposit accounts . service charges on deposit accounts increased by $ 8.3 million to $ 42.7 million during 2016 , an increase of 24.0 % compared with 2015. growth in service charge related revenues on commercial and consumer accounts was responsible for most of the increase in service charges , while nsf and debit card revenues were mostly flat . income from mortgage banking activities continued to increase during 2016 , from $ 36.8 million in 2015 to $ 48.3 million in 2016. retail mortgage revenues increased 36.8 % during 2016 , from $ 43.3 million for 2015 to $ 59.3 million for 2016. net income for the company 's retail mortgage division grew 42.3 % during 2016 to $ 13.2 million . revenues from the company 's warehouse lending division increased 54.1 % during the year , from $ 5.5 million for 2015 to $ 8.5 million for 2016 , and net income for the division increased 48.3 % , from $ 3.1 million for 2015 to $ 4.6 million for 2016 . 2015 compared with 2014. total noninterest income in 2015 was $ 85.6 million , compared with $ 62.8 million in 2014 , an increase of $ 22.8 million .
| interest expense on deposits and other borrowings for the year ended december 31 , 2016 was $ 19.7 million , compared with $ 14.9 million for the year ended december 31 , 2015. during 2016 , average noninterest-bearing accounts amounted to $ 1.52 billion and comprised 29.1 % of average total deposits , compared with $ 1.23 billion , or 29.2 % of average total deposits , during 2015. average balances of time deposits amounted to $ 890.8 million and comprised 17.1 % of average total deposits during 2016 , compared with $ 810.3 million , or 19.3 % of average total deposits , during 2015. on a taxable-equivalent basis , net interest income for 2016 was $ 223.6 million , compared with $ 178.1 million in 2015 , an increase of $ 45.5 million , or 25.6 % . the company 's net interest margin , on a tax equivalent basis , decreased to 3.99 % for the year ended december 31 , 2016 , compared with 4.12 % for the year ended december 31 , 2015. accretion income for 2016 increased to $ 14.1 million , compared with $ 11.7 million for 2015. excluding the effect of accretion , the company 's net interest margin for 2016 was 3.74 % , compared with 3.85 % for 2015 . 2015 compared with 2014. for the year ended december 31 , 2015 , interest income was $ 190.4 million , an increase of $ 25.8 million , or 15.7 % , compared with the same period in 2014. average earning assets increased $ 1.02 billion , or 30.8 % , to $ 4.32 billion for the year ended december 31 , 2015 , compared with $ 3.30 billion as of december 31 , 2014. yield on average earning assets on a taxable equivalent basis decreased during 2015 to 4.47 % , compared with 5.03 % for the year ended december 31 , 2014. however , lower yields on most earning assets have been partially offset by lower funding costs . interest expense on deposits and other borrowings for the year ended december 31 , 2015 was $ 14.9 million , compared with $ 14.7 million for the year ended december 31 , 2014. the company 's funding mix continued to improve during 2015 , leading to savings in cost of funds . during 2015 , average noninterest-bearing accounts amounted to $ 1.23 billion and comprised 29.2 % of average total deposits , compared with $ 751.9 million , or 23.5 % of average total deposits , during 2014. average balances of time deposits amounted to $ 810.3 million and comprised 19.3 % of average total deposits during 2015 ,
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story_separator_special_tag first , we intend to focus on our core molded footwear heritage , as well as develop innovative new casual lifestyle footwear platforms . we intend to streamline the product portfolio , eliminate non-core product development and will explore strategic alternatives for the non-core products and brands . we expect more centralized product line control will also result in a reduction of the sku proliferation that has occurred over the past few years , a more simplified and efficient supply chain and a reduction in overall product line costs and inventory levels . further , we intend to drive cohesive global brand positioning from region-to-region and year-to-year to create a clearer and consistent product portfolio and message , resulting in a more powerful consumer connection to the brand . we intend to accomplish this strategy through developing powerful product stories supported with effective consistent and clear marketing . finally , during 2015 we intend to increase our working market spend , which we define as funds that put marketing messages in front of consumers . we have been discontinuing non-core programs in order to focus on growing our core-molded heritage categories while developing more compelling casual footwear platforms . we have discontinued our crocs golf products as well as gear and apparel , and closed ocean minded as an independent brand . we are currently focusing on products and product stories for fall/holiday 2015. second , we are refining our business model around the world , prioritizing direct investment in larger-scale geographies to focus our resources on the biggest opportunities , moving away from direct investment in the retail and wholesale businesses in smaller markets and transferring significant commercial responsibilities to distributors and third-party agents . these re-alignments are already underway in brazil , taiwan and other markets around the globe . further , we intend to expand engagement with leading wholesale accounts in select markets to drive sales growth , optimize product placement and enhance brand reputation . third , we have reorganized key business functions to improve efficiency and have eliminated approximately185 global positions of which the majority occurred on july 21 , 2014 , reducing structural complexity , size and cost . in addition , we opened our global commercial center in the boston area in late 2014 , housing key merchandising , marketing and retail executives . the boston location was selected in order to attract experienced senior footwear and business development management talent . the global commercial center in boston will join the product creation and global shared services center in niwot , colorado , the cornerstone of support for crocs ' global business . we intend to strengthen our regional commercial centers in the netherlands , singapore and japan with responsibility for managing crocs ' global business . we have made multiple organizational changes including the appointment of andrew rees as president of the company and interim ceo during 2014 , and the subsequent appointment of gregg ribatt as chief executive officer effective in early 2015 , the hiring of michelle poole , as senior vice president of global product creation and merchandising , and bob munroe , as the new general manager of our americas segment . additionally , we hired david thomson as svp , general manager of asia/africa and middle east , commencing may 1 , 2015. we are excited to enrich our team as we focus on the future and potential growth opportunities of the crocs brand . fourth , we plan to rationalize under-performing business units , in order to re-align cost structure and place greater focus on assets and operations with higher profit potential . during the year ended december 31 , 2014 , we closed 104 company-operated stores ( 20 of which were identified in the initial 36 restructuring plan ) . we plan to continue to close approximately 65 stores during 2015. the impact of these closures and conversions is expected to reduce annual revenue by approximately $ 8 million , with an insignificant impact on future operating income during 2015. overall , we undertook a comprehensive strategic review of the business and its operations globally , and identified four key areas of opportunity in the business : products , geographies , organization and channels . these plans prioritize earnings growth and our focus on becoming the leading brand in casual lifestyle footwear . results of operations comparison of the years ended december 31 , 2014 to 2013 replace_table_token_8_th revenues . during the year ended december 31 , 2014 , revenues remained relatively flat , increasing $ 5.5 million , or 0.5 % , compared to 2013 primarily due to an increase of 1.4 million , or 2.5 % , in global footwear unit sales primarily driven by improved year-over-year performance in our wholesale and internet channels . this increase was partially offset by a decrease of $ 0.35 per unit , or 1.7 % , in average footwear selling price . 37 for the year ended december 31 , 2014 , revenues from our wholesale channel decreased $ 6.2 million , or 0.9 % , compared to 2013 , which was primarily driven by lower unit sales in our americas and japan segments , decreased performance in our china business as a result of increased distributor inventory levels and lower replenishment orders and lower average selling price in europe and japan . these decreases were partially offset by a 19.2 % increase in unit sales in europe primarily driven by product volume expansion through new wholesale doors and continued support from existing customers . for the year ended december 31 , 2014 , revenues from our retail channel increased $ 7.8 million , or 1.9 % , compared to 2013 , which was primarily driven by a 3.8 % increase in footwear unit sales , primarily attributable to the americas and japan segments . this increase was partially offset by lower average selling prices in those segments . additionally , we experienced an overall decrease of 3.7 % in comparable store sales compared to the prior year . story_separator_special_tag during the year ended december 31 , 2014 , we opened 70 and closed 104 company-operated stores . we plan to continue to moderate the pace of our retail expansion in 2015 with a focus on outlet and kiosk locations and consolidating and enhancing the profitability of existing locations . for the year ended december 31 , 2014 , revenues from our internet channel increased $ 3.9 million , or 3.9 % , compared to 2013 , which was primarily driven by increased internet sales in our asia pacific segment partially offset by a decrease in internet sales in our europe segment and lower average selling prices in all segments except europe . our internet sales totaled approximately 8.8 % and 8.5 % of our consolidated net sales during the years ended december 31 , 2014 and 2013 , respectively . we continue to benefit from our online presence through webstores worldwide enabling us to have increased access to our customers in a low cost , attractive manner and providing us with an opportunity to educate them about our products and brand . during the year ended december 31 , 2014 , we decreased our global company-operated e-commerce sites 12 in order to focus our internet strategy in our principal geographical locations . 38 the following table summarizes our total revenue by channel for the years ended december 31 , 2014 and 2013 : replace_table_token_9_th ( 1 ) reflects year over year change as if the current period results were in `` constant currency , '' which is a non-gaap financial measure . see `` use of non-gaap financial measures '' above for more information . the table below illustrates the overall growth in the number of our company-operated retail locations by type of store and reportable operating segment as of december 31 , 2014 and 2013 : replace_table_token_10_th 39 the table below sets forth our comparable store sales by reportable operating segment for the year ended december 31 , 2014 as compared to the same period in 2013 : replace_table_token_11_th ( 1 ) comparable store status is determined on a monthly basis . comparable store sales begin in the thirteenth month of a store 's operation . stores in which selling square footage has changed more than 15 % as a result of a remodel , expansion or reduction are excluded until the thirteenth month in which they have comparable prior year sales . temporarily closed stores are excluded from the comparable store sales calculation during the month of closure . location closures in excess of three months are excluded until the thirteenth month post re-opening . comparable store sales exclude the impact of our internet channel revenues and are calculated on a currency neutral basis using historical annual average currency rates . ( 2 ) reflects quarter over quarter change as if the current period results were in `` constant currency , '' which is a non-gaap financial measure . see `` use of non-gaap financial measures '' above for more information . impact on revenues due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates used to translate revenues from our functional currencies to our reporting currency during the year ended december 31 , 2014 decreased our revenues by $ 15.6 million compared to 2013. gross profit . during the year ended december 31 , 2014 , gross profit decreased $ 32.9 million , or 5.3 % , compared to 2013 , which was primarily attributable to a $ 34.4 million , or 6.0 % , increase in cost of sales , excluding restructuring , partially offset by a 0.5 % increase in revenue . gross margin percentage decreased 298 basis points compared to the same period in 2013. the decline in gross margin percentage is primarily driven by an increase in obsolete inventory of $ 8.1 million for the year ended december 31 , 2014 compared to 2013 primarily driven by inventory obsolescence in china , $ 4.0 million of costs related to restructuring and the evolution of our product assortment and is consistent with our product strategy . in addition , we experienced unit sales volume difficulty in our americas market , lower than expected unit sales in our china market leading to decreased gross margins , as average margins in china are typically higher than the global average , and increased shipping costs globally . impact on gross profit due to foreign exchange rate fluctuations . changes in average foreign currency exchange rates used to translate revenues and costs of sales from our functional currencies to our reporting currency during the year ended december 31 , 2014 decreased our gross profit by $ 9.2 million compared to 2013. selling , general and administrative expenses . selling , general and administrative expenses increased $ 16.6 million , or 3.0 % , during the year ended december 31 , 2014 compared to the same period in 2013. as a percentage of revenue , selling , general and administrative expenses increased 117 basis points to 47.2 % from 46.0 % during the year ended december 31 , 2014 compared to 2013. this increase was predominately due to year over year increases of $ 16.7 million in professional fees and other outside services , $ 10.2 million increases in bad debt expense , primarily related to delayed payments from distributors in china and southeast asia , and an increase of $ 7.2 million related to 40 rising rental rates and repairs and maintenance for retail locations . we have slowed the expansion of our retail channel in order to focus on the long-term profitability of existing locations and we have closed 104 company-operated locations between december 31 , 2013 and december 31 , 2014. these increases were partially offset by a decrease of approximately $ 5.4 million related to the reduction in headcount , $ 2.7 million related to travel reductions and other cost saving and mitigation initiatives .
| gross profit decreased $ 32.9 million , or 5.3 % , to $ 590.3 million and gross margin percentage decreased 298 basis points to 49.3 % compared to 2013. the decline in gross margin percentage is primarily driven by the evolution of our product assortment and foreign currency translation adjustments , as only approximately 35 % of our revenues were earned in the u.s. dollar , compared to approximately 80 % of costs of sales that were incurred in the u.s. dollar . in addition , we experienced unit sales volume difficulty in our americas market , lower than expected unit sales in our china market leading to decreased gross margins as average margins in china are typically higher than the global average , increased shipping costs globally and a 34 $ 11.5 million write-down and or disposals of obsolete inventory , $ 4.0 million of which was reported in 'restructuring charges ' in cost of sales related to the elimination of our golf product line . selling , general and administrative expenses increased $ 16.6 million , or 3.0 % , to $ 565.7 million compared to the same period in 2013. selling , general and administrative expenses increased predominately due to an increase of $ 10.2 million in bad debt expense associated with delayed payments from distributors in china and southeast asia . in addition , we experienced an increase of $ 24.8 million in expenses that we believe to be non-indicative of our underlying business trends including reorganizational charges as a result of transition activities , additional operating expenses related to our erp implementation and charges related to litigation settlements . we incurred $ 24.5 million in restructuring charges as a result of our strategic plans for long-term improvement and growth of the business . these charges included severance costs related to executive management and employees , retail store closure costs and a write-down of obsolete inventory related to an exited business lines . we incurred $ 8.8 million in retail asset impairment charges related to certain underperforming retail locations in our americas , europe and asia pacific segments that were unlikely to generate sufficient cash flows
| 13,004 |
research and development expense for the year ended december 31 , 2019 increased $ 0.9 million as compared to the year ended december 31 , 2018 , primarily as a result of an increase in headcount and higher pre-clinical research and development-related costs related to our programs , particularly increases in costs for mcla-117 offset by decreases in costs for zenocutuzumab and mcla 145. research and development activities are central to our business model . we expect research and development costs to increase significantly for the foreseeable future as our development programs progress , as we continue to support the clinical trials of our bispecific antibody candidates as treatments for various cancers and as we move these candidates into additional clinical trials . there are numerous factors associated with the successful commercialization of any of our antibody candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control may impact our clinical development programs and plans . general and administrative expense general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , intellectual property , business development and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses , travel expenses and professional fees for auditing , tax and legal services , including intellectual property and general legal services . general and administrative expense for the year ended december 31 , 2019 increased $ 4.8 million as compared to the year ended december 31 , 2018 , primarily as a result of an increase in headcount , consulting , accounting and professional fees as well as higher facilities-related expenses . we expect general and administrative expenses to increase as we grow as a company , driven by the need to support a growing workforce , engaging in financing transactions , establishing and maintaining our intellectual property rights , fulfilling our compliance requirements as a public company and related legal costs . other income , net the following is a comparison of other income , net , for the years ended december 31 , 2019 and 2018 : replace_table_token_3_th other income , net consists of interest earned on our cash and cash equivalents held on account , accretion of investment earnings and net foreign exchange gains on our foreign denominated cash , cash equivalents and marketable securities . for the year ended december 31 , 2018 , other income included a gain recognized upon the settlement of litigation with regeneron of $ 8.1 million . 76 income tax expense the following is a comparison of income tax expense for the years ended december 31 , 2019 and 2018 : replace_table_token_4_th we are subject to income taxes in the netherlands and the u.s. our current and deferred tax provision represents taxable income attributed to our u.s. operations as a consequence of allocating income to that jurisdiction . no current or deferred provision for income taxes has been made for income taxes in the netherlands due to losses for tax purposes . further , given a history of losses in the netherlands , no deferred tax assets in excess of deferred tax liabilities are recognized as it is not more likely than not that they will be recovered . net loss net loss for the year ended december 31 , 2019 was $ 55.2 million , compared to $ 28.3 million for the year ended december 31 , 2018. the increase in net loss was primarily due to the decrease in collaboration revenue and increases in research and development and general and administrative expenses discussed above . liquidity and capital resources since inception , we have raised an aggregate of $ 527.5 million to fund our operations , of which $ 125.4 million was non-equity funding through our collaboration agreements , $ 291.4 million was from the sale of common stock in our public offerings and $ 110.7 million was from private funding sources prior to the company 's initial public offering . in november 2019 , we completed an underwritten follow-on public offering in which we sold 5,462,500 common shares , including 715,500 common shares pursuant to the underwriters ' option to purchase additional shares , at a public offering price of $ 14.50 per share and received net proceeds of $ 74.0 million , after deducting underwriting discounts and commissions and offering expenses . as of december 31 , 2019 , we had $ 241.8 million in cash , cash equivalents and marketable securities that are available to fund our current operations . in addition to our existing cash , cash equivalents and marketable securities , we may receive research and development co-funding and are eligible to earn a significant amount of milestone payments under our collaboration agreements . our ability to earn these payments and the timing of earning these payments is dependent upon the outcome of our research and development activities and is uncertain at this time . funding requirements our primary uses of capital are , clinical trial costs , third-party research and development services , laboratory and related supplies , legal and other regulatory expenses and general overhead costs . because our product candidates are in various stages of clinical and pre-clinical development and the outcome of these efforts is uncertain , we can not estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether , or when , we may achieve profitability . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity or debt financings , collaboration arrangements and government grants . story_separator_special_tag except for any obligations of our collaborators to make license , milestone or royalty payments under our agreements with them , and government grants , we do not have any committed external sources of liquidity . to the extent that we raise additional capital through the future sale of equity or debt , the ownership interest of our stockholders may be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders . debt financing and preferred equity financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise additional funds through collaboration arrangements in the future , we may have to relinquish valuable rights to our technologies , future revenue streams or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise any additional funds that may be needed through equity or debt financings when needed , we may be required to delay , limit , reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . outlook based on our research and development plans and our timing expectations related to the progress of our programs , we expect that our existing cash , cash equivalents and marketable securities as of december 31 , 2019 , will be sufficient to fund our planned operating expenses and capital expenditure requirements into 2022 , without giving effect to any potential milestone payments we may receive under our collaboration agreements . we have based this estimate on assumptions that may prove to be wrong , particularly as the 77 process of testing product candidates in clinical trials is costly and the timing of progress in these trials is uncertain . as a result , we could use our capital resources sooner tha n we expect . cash flows the following is a summary of cash flows for the years ended december 31 , 2019 and 2018 : replace_table_token_5_th operating activities net cash used in operating activities for the year ended december 31 , 2019 increased $ 17.2 million as compared to the year ended december 31 , 2018 , primarily as a result of the increase in net loss of $ 26.8 million , and decrease in non-cash stock-based compensation of $ 1.9 million , offset by an increase in depreciation changes of $ 0.3 million , a net decrease in foreign exchange gains of $ 5.1 million , and changes in working capital of $ 6.2 million . the increase in operating cash outflows for the year ended december 31 , 2019 may also be viewed as a result of operating cash receipts related to revenue arrangements decreasing $ 6.2 million , operating cash out flows related to operating expenses increasing $ 2.5 million and a non-recurring litigation settlement of $ 8.1 million that was received in 2018. investing activities net cash provided by investing activities for the year ended december 31 , 2019 increased $ 49.7 million as compared to the year ended december 31 , 2018 , primarily as a result of the change in net cash inflows from the maturity of debt securities used to fund current operations of $ 47.6 million offset by the change in purchases of property , equipment and intangibles of $ 2.1 million . financing activities net cash provided by financing activities for the year ended december 31 , 2019 increased $ 11.2 million as compared to the year ended december 31 , 2018 , primarily as a result of the increase in receipt of proceeds from our equity issuances of $ 12.2 million offset by decreases in proceeds received from option exercises of $ 1.0 million . contractual obligations and contingent liabilities we enter into contracts in the normal course of business with cros for clinical and pre-clinical research studies , external manufacturers for product for use in our clinical trials , and other research supplies and other services as part of our operations . these contracts generally provide for termination on notice , and therefore are cancelable contracts and are not contractual obligations . critical accounting policies and use of estimates our accounting policies are more fully described in note 2 to our consolidated financial statements included elsewhere in the annual report on form 10-k. as disclosed in note 2 , the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . actual results could differ significantly from those estimates . we believe that 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 and require management 's most difficult , subjective and complex judgments on material matters . revenue recognition significant judgement is required in applying our accounting policies concerning revenue recognition . our collaboration arrangements may be subject to the scope of many accounting standards in addition to the standards applicable to revenue from contracts with customers , including whether all or part of the arrangement may be a collaboration arrangement as defined in the accounting standards or whether financial instruments exchanged in the same arrangement may be subject to other guidance . such matters may impact the initial recognition , subsequent accounting and disclosures concerning the arrangement . our collaboration arrangements typically include a license to our intellectual property and significant judgement is applied in determining whether the particular license is distinct from other performance obligations in the arrangement . we consider whether the counterparty may be able to utilize the license in the absence of the
| these platforms referred to as biclonics ® and triclonics tm allows us to generate large numbers of diverse panels of bispecific and trispecific antibodies , respectively , which can then be functionally screened in large-scale cell-based assays to identify those unique molecules that possess novel biology , which we believe are best suited for a given therapeutic application . further , by binding to multiple targets , biclonics ® and triclonics tm may be designed to provide a variety of mechanisms of action , including simultaneously blocking receptors that drive tumor cell growth and survival and mobilizing the patient 's immune response by engaging t cells , and or activating various killer cells to eradicate tumors . our technology platforms employ an assortment of patented technologies and techniques to generate human antibodies . we utilize our patented memo ® mouse to produce a host of antibodies with diverse heavy chains and a common light chain that are capable of binding to virtually any antigen target . we use our patented heavy chain dimerization technology to generate substantially pure bispecific and trispecific antibodies . we also employ our patented spleen to screen ® technology to efficiently screen panels of diverse heavy chains , designed to allow us to rapidly identify biclonics ® and triclonics tm therapeutic candidates with differentiated modes of action for pre-clinical and clinical testing . using our biclonics ® platform we have produced , and are currently developing , the following candidates : mcla-128 , or zenocutuzumab , for the potential treatment of solid tumors that harbor neuregulin 1 ( nrg1 ) gene fusions ; mcla-117 for the potential treatment of acute myeloid leukemia ; mcla-158 for the potential treatment of solid tumors ; and mcla-145 , developed in collaboration with incyte corporation , for the potential treatment of solid tumors and a hematological malignancy , b-cell lymphoma . we are also developing a late-stage pre-clinical candidate , mcla-129 in collaboration with betta pharmaceuticals , for the potential treatment of solid tumors . furthermore , we have a pipeline of proprietary antibody candidates in pre-clinical development and intend to further leverage our biclonics ® technology platform to identify multiple additional
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pre-tax , pre-provision operating earnings of $ 120.3 million for 2012 were down $ 10.9 million , or 8.3 % , compared to 2011 , resulting primarily from a reduction in net interest income , which was partly mitigated by an increase in fee-based revenues , gains on mortgage loan sales , and the recognition of net trading income for 2012 compared to losses for 2011. tax-equivalent net interest margin declined 18 basis points to 3.86 % for 2012 from 4.04 % for 2011. the reduction in margin reflected a 25 basis point decrease in the average yield on interest-earning assets , due primarily to a lower yield earned on new and renewing loans in the low interest rate environment as well as the reinvestment of cash flows from the investment portfolio into lower yielding securities . in addition , the yield on covered interest-earning assets declined as a result of revised cash flow estimates . these lower yields were partially offset by a decline in the rates paid for interest-bearing liabilities , including a 6 basis point decline on interest bearing transaction accounts , a 27 basis point decline on time deposits , and a 16 basis point decline on senior and subordinated debt . total noninterest income increased from 2011 as a result of higher fee-based and operating revenues , slightly offset by securities losses compared to securities gains in the prior year . the gain on the bulk loan sales and a gain recognized on the acquisition of waukegan savings also contributed to the increase from 2011 . 44 the rise in noninterest expense resulted primarily from higher compensation expense , increased professional services , $ 6.7 million of accelerated amortization of the fdic indemnification asset , and valuation adjustments of assets held-for-sale . a discussion of net interest income and noninterest income and expense is presented in the following section titled `` earnings performance '' of this item 7. as of december 31 , 2012 , our securities portfolio totaled $ 1.1 billion , increasing 4.1 % from december 31 , 2011 , following a 5.8 % decrease from december 31 , 2010. the current year increase was driven by an increase in collateralized mortgage obligations ( `` cmos '' ) and other mortgage-backed securities ( `` mbss '' ) . in the first quarter of 2012 , deposits acquired in the fourth quarter of 2011 that had previously been held in short-term investments were redeployed into these types of securities . for a detailed discussion of our securities portfolio , refer to the section titled `` investment portfolio management '' of this item 7. during the third quarter of 2012 , we identified certain non-performing and performing potential problem loans for accelerated disposition through multiple bulk loan sales and recorded charge-offs of $ 80.3 million . the bulk loan sales of $ 172.5 million in original carrying value were completed in the fourth quarter of 2012 , resulting in proceeds of $ 94.5 million and a gain , less commissions and other selling expenses , of $ 2.6 million . for a detailed discussion of the bulk loan sales , refer to the section titled `` accelerated credit remediation actions '' of this item 7. total loans of $ 5.4 billion as of december 30 , 2012 grew $ 39.0 million from december 31 , 2011. excluding covered loans , net charge-offs of $ 172.6 million , $ 89.3 million of loans disposed through bulk loan sales , and $ 46.3 million of loans acquired in the waukegan savings transaction , our loan portfolio increased by approximately 6.5 % from december 31 , 2011. the loan portfolio benefitted from growth in commercial and industrial loans , agricultural loans , office and retail loans , and 1-4 family mortgages . for a discussion of our loan portfolio , see the section titled `` loan portfolio and credit quality '' of this item 7. the improvement in non-performing assets , excluding covered loans and covered oreo , from december 31 , 2011 to december 31 , 2012 reflected aggressive remediation actions taken by management during the year and , in particular , the bulk loan sales discussed above . refer to the section titled `` loan portfolio and credit quality '' of this item 7 for additional discussion of non-performing assets . for 2012 , total average funding sources increased $ 98.8 million , or 1.4 % , from 2011 driven primarily by growth of $ 352.9 million , or 7.4 % , in average transactional deposits , partially offset by reductions in higher-costing time deposits of $ 263.0 million and borrowed funds of $ 72.1 million , resulting in a more favorable funding mix . the rise in average senior and subordinated debt reflects the issuance of $ 115.0 million of senior debt in the fourth quarter of 2011 , less the repurchase and retirement of $ 37.4 million of junior subordinated debentures and subordinated notes during 2012. for a discussion of our funding sources , see the section titled `` funding and liquidity management '' of this item 7. performance overview for 2011 compared with 2010 net income applicable to common shareholders for 2011 was $ 25.4 million , or $ 0.35 per share . this compares to net loss applicable to common shareholders of $ 19.7 million , or $ 0.27 per share , for 2010. pre-tax , pre-provision operating earnings of $ 131.2 million for 2011 were down $ 5.2 million , or 3.8 % , compared to 2010 primarily as a result of a $ 13.9 million , or 5.9 % , increase in noninterest expense , excluding losses on sales and write-downs of oreo , integration costs , and severance-related costs . this was partially offset by a $ 7.4 million increase in fee-based revenues . story_separator_special_tag tax-equivalent net interest margin for 2011 was 4.04 % , a decline of 9 basis points from 4.13 % in 2010. the reduction in margin resulted from a 23 basis point decrease in the average yield on interest-earning assets , largely due to the cumulative effect of prior year securities sales and a lower yield on securities as cash flows from securities paydowns and maturities repriced at lower interest rates . while loans also repriced at lower rates in 2011 , the reduction was more than offset by an increase in the yield on covered loans . the overall decline in yield was mitigated by a 16 basis point drop in the rates paid for interest-bearing liabilities , driven by a 14 basis point decline in the rates paid for time deposits , and a 16 basis point reduction in the rates paid on interest-bearing transaction accounts . 45 the rise in noninterest expense was a result of higher loan remediation costs ; increased salaries related to the expansion of commercial , retail , and wealth management sales staff ; and a $ 1.3 million correction of a 2010 actuarial pension expense calculation related to the valuation of future early retirement benefits recorded in the fourth quarter of 2011. a discussion of net interest income and noninterest income and expense is presented in the following section titled `` earnings performance '' of this item 7. as of december 31 , 2011 , our securities portfolio totaled $ 1.1 billion , decreasing 5.8 % from december 31 , 2010 , following a 15.6 % decrease from december 31 , 2009. our securities portfolio declined over the past three years as we took advantage of opportunities in the market to sell securities at a gain given the low interest rate environment . for a detailed discussion of our securities portfolio , refer to the section titled `` investment portfolio management '' of this item 7. total loans of $ 5.3 billion as of december 30 , 2011 declined $ 123.7 million , or 2.3 % , from $ 5.5 billion as of december 31 , 2010. the continued decline in covered loan balances , reflecting paydowns , charge-offs , and transfers to oreo , accounted for the majority of this reduction . total loans , excluding covered loans , as of december 31 , 2011 were stable compared to december 31 , 2010. the office , retail , and industrial and other commercial real estate portfolios exhibited 6.2 % growth during this period , substantially in the form of owner-occupied business relationships . offsetting this progress , we continued to reduce our exposure to the higher risk categories of construction and multi-family real estate during 2011. non-performing assets , excluding covered loans and covered oreo , were $ 248.4 million at december 31 , 2011 , decreasing $ 21.1 million , or 7.8 % , from december 31 , 2010. the reduction was substantially due to management 's remediation activities , charge-offs , and the return of accruing tdrs to performing status , partially offset by loans downgraded to non-accrual status . for a detailed discussion of non-performing assets , refer to the section titled `` loan portfolio and credit quality '' of this item 7. total average funding sources for 2011 increased $ 152.4 million , or 2.2 % , from 2010 resulting from a $ 433.0 million , or 10.0 % , increase in average transactional deposits and a $ 12.5 million , or 9.1 % , increase in senior and subordinated debt . these increases were partially offset by declines in higher-costing time deposits of $ 199.6 million , or 10.0 % , and borrowed funds of $ 93.5 million , or 26.0 % . the rise in demand deposits and drop in time deposits resulted in a more favorable product mix . for a discussion of our funding sources , see the section titled `` funding and liquidity management '' of this item 7. in the fourth quarter of 2011 , we redeemed all of the $ 193.0 million of preferred shares issued to the treasury , resulting in the recognition of $ 1.5 million in accelerated amortization . we funded the redemption through a combination of existing liquid assets and proceeds from a $ 115.0 million senior debt offering . the notes , which have an interest rate of 5.875 % , payable semi-annually , will mature in november 2016. in a related transaction , we redeemed the treasury 's associated warrant . we paid $ 900,000 to the treasury to redeem the warrant , which concluded our participation in the cpp . for a discussion of our capital position , see the section titled `` management of capital '' of this item 7. acquisition activity on august 3 , 2012 , the company acquired substantially all the assets of waukegan savings in an fdic-assisted transaction generating a pre-tax gain of $ 3.3 million . the $ 46.3 million of acquired loans are not subject to a loss sharing agreement with the fdic . the transaction also included $ 72.7 million in deposits . refer to note 2 of `` notes to the condensed consolidated financial statements , '' in item 8 of this form 10-k for additional discussion regarding the acquisition . in december 2011 , we completed the purchase of certain chicago-market deposits . the transaction included $ 106.7 million in deposits ( comprised of $ 70.6 million in transactional deposits and $ 36.1 in time deposits ) and one banking facility . as a result of the transaction , we recorded $ 1.4 million in core deposit intangibles and a net gain of $ 1.1 million . 46 earnings performance net interest income net interest income is our primary source of revenue and is impacted by interest rates and the volume and mix of interest-earning assets and interest-bearing liabilities .
| the remainder of the portfolio was comprised of seven cdos with a fair value of $ 12.1 million and an aggregate unrealized loss of $ 34.4 million , and miscellaneous other securities with a fair value of $ 26.4 million . investments in municipal securities comprised 48.0 % , or $ 520.0 million , of the total available-for-sale securities portfolio as of december 31 , 2012. this type of security has historically experienced very low default rates and provided a predictable cash flow . the majority consists of general obligations of local municipalities . the average life of our investment portfolio as of december 31 , 2012 is consistent with the prior year . the decrease in average life in other securities from december 31 , 2011 was driven by the purchase of preferred stock during the second quarter of 2012 , which was amortized over a two-year period based on the stock conversion date . securities sales net securities losses were $ 921,000 for 2012 compared to net securities gains of $ 2.4 million for 2011 and $ 12.2 million for 2010. net securities losses for 2012 included otti charges of $ 3.7 million on two cdos and several cmos and net gains of $ 2.7 million from the sale of $ 153.7 million in cmos , municipal securities , and corporate bonds . gains on sales of securities of $ 3.3 million for 2011 resulted from the sale of $ 188.6 million in cmos , municipal securities , and corporate debt securities . we sold these shorter-term investments in order to take advantage of opportunities in the market . these gains were partially offset by otti charges of $ 936,000 on two cdos . in 2010 , we sold $ 390.2 million in cmos , other mbss , municipal securities , and corporate bonds for a gain of $ 17.1 million . net securities gains were $ 12.2 million for 2010 and were net of otti charges of $ 4.9 million primarily related to our cdos . unrealized gains and losses unrealized gains and losses on securities available-for-sale
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in the first quarter of fiscal 2013 , we announced our expectation to repurchase approximately $ 1.2 to $ 1.3 billion in fiscal 2013. we paid quarterly dividends of $ 0.095 per share , aggregating $ 275 million , for fiscal 2012. we expect to pay quarterly dividends for fiscal 2013 of $ 0.115 per share , or an annual dividend of $ 0.46 , up 21 % over the prior year , subject to the declaration and approval of our board of directors . our board of directors approved a two-for-one stock split of our common stock , reflecting our strong performance and confidence in our future . ( all share and related data have been adjusted to reflect the split . ) the following is a discussion of our consolidated operating results , followed by a discussion of our segment operating results . net sales : consolidated net sales for fiscal 2012 totaled $ 23.2 billion , a 6 % increase over $ 21.9 billion in fiscal 2011. the increase reflected a 5 % increase from new stores , a 4 % increase from same store sales and a 1 % increase from foreign currency exchange rates , offset in part by a 4 % decrease due to the elimination of sales from stores operating under the a.j . wright banner . ( the fiscal 2012 sales from the converted a.j . wright stores are included in new stores . ) consolidated net sales for fiscal 2011 totaled $ 21.9 billion , an 8 % increase over $ 20.3 billion in fiscal 2010. the increase reflected a 4 % increase from same store sales , a 3 % increase from new stores and a 1 % increase from foreign currency exchange rates . our consolidated store count and selling square footage as of january 28 , 2012 each increased 2 % as compared to the same period last year . these levels of increase , lower than our historical levels , were primarily due to the 72 a.j . wright stores that were closed and not converted to other banners . we expect to end fiscal 2013 with 3,055 stores , which would represent a 5 % increase in both our consolidated store base and our selling square footage . same store sales increases in the u.s. for fiscal 2012 reflected an increase in both the value of the average transaction and the number of transactions , which in turn reflected an increase in customer traffic . same store sales of our home , dresses , men 's , shoes and accessories categories were particularly strong . geographically , same store sales increases in the u.s. were strong throughout most regions with florida and the southwest performing above the consolidated average and the midwest trailing the consolidated average . although for the 24 full fiscal year 2012 , the same store sales increase for tjx europe was well below the consolidated average , and same store sales at tjx canada decreased from the prior year , both europe and canada posted strong same store sales gains in the fourth quarter of fiscal 2012. the 4 % same store sales increase in fiscal 2011 was driven entirely by growth in the number of transactions , with the value of the average transaction down slightly for the year . juniors , jewelry and home performed particularly well in fiscal 2011. geographically , in the u.s. , same store sales were strong throughout the country with the west coast and southwest above the consolidated average and the northeast below the consolidated average . the same store sales increase in canada was in line with the consolidated average , while same store sales decreased in europe . we define same store sales to be sales of those stores that have been in operation for all or a portion of two consecutive fiscal years , or in other words , stores that are starting their third fiscal year of operation . we classify a store as a new store until it meets the same store sales criteria . we determine which stores are included in the same store sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year , unless a store is closed . we calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned . relocated stores and stores that have increased in size are generally classified in the same way as the original store , and we believe that the impact of these stores on the consolidated same store percentage is immaterial . same store sales of our foreign segments are calculated on a constant currency basis , meaning we translate the current year 's same store sales of our foreign segments at the same exchange rates used in the prior year . this removes the effect of changes in currency exchange rates , which we believe is a more accurate measure of segment operating performance . the following table sets forth our consolidated operating results from continuing operations as a percentage of net sales on an as reported and as adjusted basis : replace_table_token_8_th * see adjusted financial measures below . * * figures may not foot due to rounding . * * * there were no adjustments for fiscal 2010. impact of foreign currency exchange rates : our operating results are affected by foreign currency exchange rates as a result of changes in the value of the u.s. dollar in relation to other currencies . two ways in which foreign currency affects our reported results are as follows : translation of foreign operating results into u.s. dollars : in our financial statements we translate the operations of tjx canada and tjx europe from local currencies into u.s. dollars using currency rates in effect at different points in time . story_separator_special_tag significant changes in foreign exchange rates between comparable prior periods can result in meaningful variations in consolidated net sales , net income and earnings per share growth as well as the net sales and operating results of these segments . currency translation generally does not affect operating margins , or affects them only slightly , as sales and expenses of the foreign operations are translated at essentially the same rates within a given period . 25 inventory hedges : we routinely enter into inventory-related hedging instruments to mitigate the impact of foreign currency exchange rates on merchandise margins when our divisions , principally in europe and canada , purchase goods in currencies other than their local currencies . as we have not elected hedge accounting for these instruments as defined by gaap , we record a mark-to-market gain or loss on the hedging instruments in our results of operations at the end of each reporting period . in subsequent periods , the income statement impact of the mark-to-market adjustment is effectively offset when the inventory being hedged is sold . while these effects occur every reporting period , they are of much greater magnitude when there are sudden and significant changes in currency exchange rates during a short period of time . the mark-to-market adjustment on these hedges does not affect net sales , but it does affect the cost of sales , operating margins and earnings we report . cost of sales , including buying and occupancy costs : cost of sales , including buying and occupancy costs , as a percentage of net sales was 72.7 % in fiscal 2012 , 73.1 % in fiscal 2011 and 73.8 % in fiscal 2010. the improvement in this ratio for fiscal 2012 was due to expense leverage on buying and occupancy costs ( particularly at marmaxx and homegoods ) partially offset by lower merchandise margins at tjx europe and tjx canada . the improvement in this ratio for fiscal 2011 reflected improved consolidated merchandise margin , which increased 0.5 percentage points over the prior year , along with expense leverage on the 4 % same store sales increase , partially offset by a 0.2 percentage point negative impact from the a.j . wright segment loss in the fiscal 2011 fourth quarter arising from the a.j . wright consolidation . merchandise margin improvement was driven by our strategy of operating with leaner inventories and buying closer to need , leading to lower markdowns compared to the prior year . selling , general and administrative expenses : selling , general and administrative expenses as a percentage of net sales were 16.8 % in fiscal 2012 , 16.9 % in fiscal 2011 and 16.4 % in fiscal 2010. the a.j . wright consolidation had a significant impact on this ratio in fiscal 2012 and fiscal 2011 , increasing the ratio by 0.3 percentage points in fiscal 2012 and 0.6 percentage points in fiscal 2011. excluding the impact of the a.j . wright consolidation , selling , general and administrative expenses as a percentage of net sales increased by 0.2 percentage points in fiscal 2012 and decreased 0.1 percentage points in fiscal 2011. the increase in the adjusted selling , general and administrative expense ratio in fiscal 2012 compared to fiscal 2011 was due to increased general corporate expenses , primarily investment in new systems , talent and e-commerce , costs associated with a voluntary retirement program and fourth quarter charges and write-offs at tjx canada and tjx europe ( see segment discussions below ) , offset in part by expense leverage on strong same store sales , particularly at homegoods . the decrease in selling , general and administrative expenses in fiscal 2011 as a percentage of net sales , on an adjusted basis , compared to fiscal 2010 reflected the benefit of cost reduction programs , a reduction in incentive compensation versus the prior year and expense leverage on strong same store sales . interest expense , net : interest expense , net was an expense of $ 35.6 million for fiscal 2012 , $ 39.1 million for fiscal 2011 and $ 39.5 million for fiscal 2010. the components of interest expense , net for the last three fiscal years are summarized below : replace_table_token_9_th gross interest expense for both fiscal 2012 and fiscal 2011 was essentially flat to the respective prior periods . income taxes : our effective annual income tax rate was 38.0 % in fiscal 2012 , 38.1 % in fiscal 2011 and 37.8 % in fiscal 2010. the decrease in the effective income tax rate for fiscal 2012 as compared to fiscal 2011 is primarily attributable to a reduction in tax reserves related to the resolution of u.s. federal tax audits , partially offset by an increase in state and federal tax reserves , for a net decrease in the provision . 26 the increase in our effective income tax rate for fiscal 2011 as compared to fiscal 2010 is primarily attributable to the effects of repatriation of cash from europe and an increase in our state tax reserves , partially offset by the finalization of an advance pricing agreement between canada and the united states ( related to our intercompany transfer pricing ) and a favorable canadian court ruling regarding withholding taxes . we anticipate our effective annual income tax rate for fiscal 2013 will increase to 38.5 % primarily due to the expiration of the u.s. work opportunity tax credit legislation and the absence of the fiscal 2012 net benefit due to a reduction in our tax reserves .
| the impact of the changes in all other assets and liabilities , which reduced operating cash flows by $ 77 million year-over-year , was more than offset by the favorable impact on cash flows of $ 94 million due to a higher deferred income tax provision . operating cash flows for fiscal 2011 decreased $ 295 million compared to fiscal 2010. net income plus the non-cash impact of depreciation and impairment charges provided cash of $ 1,897 million in fiscal 2011 compared to $ 1,659 in fiscal 2010 , an increase of $ 238 million . the change in merchandise inventory , net of the related change in accounts payable , resulted in a use of cash of $ 48 million in fiscal 2011 , compared to a source of cash of $ 345 million in fiscal 2010. although we continued to operate with leaner inventories throughout fiscal 2011 , our strategy of being more aggressive with managing inventories had a much greater impact on cash flows in fiscal 2010. in addition , the increase in inventory in fiscal 2011 reflected our business growth , as well as a year-end increase in packaway merchandise to take advantage of market opportunities . changes in current income taxes payable/recoverable unfavorably impacted fiscal 2011 cash flows , as compared to fiscal 2010 , by $ 203 million due to the timing of tax payments . the change in accrued expenses and other liabilities provided cash of $ 78 million in fiscal 2011 compared to cash provided of $ 31 million in fiscal 2010. we have a reserve for the remaining future obligations of operations we have closed , sold or otherwise disposed of including , among others , bob 's stores and a.j . wright . the majority of these obligations relate to real estate leases associated with these operations . the reserve balance was $ 45.4 million at january 28 , 2012 and $
| 13,007 |
the thistledown racino added approximately 1,100 vlts to its existing racetrack in april 2013. turfway park is a thoroughbred horseracing track located in florence , kentucky . story_separator_special_tag related to the rocky gap project . there were no preopening expenses during fiscal 2012. amortization of intangible assets related to indian casino projects amortization of intangible assets related to indian casino projects was $ 0.7 million for fiscal 2013 compared to $ 1.1 million for fiscal 2012 and were associated with the project with the shingle springs tribe . in connection with the debt termination agreement entered into with the shingle springs tribe during the third quarter of 2013 , the remaining intangible assets associated with that project were fully impaired as of august 29 , 2013. other income ( expense ) , net other income ( expense ) , net was $ 5.2 million for fiscal 2013 compared to $ 7.8 million for fiscal 2012 . during the current year period , lakes recognized a $ 1.7 million gain on the modification of its financing facility with centennial bank to reduce the interest rate from 10.5 % to 5.5 % . the prior year period amount included a $ 2.2 million payment related to the settlement of the lawsuit entitled wpt enterprises , inc. , et al vs. deloitte & touche , llp , which was received in november 2012. a significant portion of the remaining amount of other income , net of expense in both periods relates to non-cash interest income associated with accretion on the notes receivable from the shingle springs tribe . income taxes there was no income tax provision for fiscal 2013 because the company released valuation allowance against deferred tax assets available to offset current income . the income tax benefit for fiscal 2012 was $ 2.5 million and resulted from lakes ' ability to carry back its taxable losses to a prior year and receive a refund of taxes previously paid . our effective tax rates for fiscal 2013 and fiscal 2012 were 0 % and ( 325.7 ) % , respectively . for fiscal 2013 , the effective tax rate differs from the federal tax rate of 35 % primarily due to the release of valuation allowance against deferred tax assets which were available to offset current income . for fiscal 2012 , the effective tax rate differs from the federal tax rate of 35 % due primarily to a change in the valuation allowance and our ability to carry back taxable losses to recover federal taxes previously paid . 13 as of december 29 , 2013 , we evaluated all available positive and negative evidence related to our ability to utilize our deferred tax assets . we considered the non-recurring nature of current year book income , expected future book income ( losses ) , lack of taxable loss carryback potential and other factors in reaching the conclusion that the deferred tax assets are not currently expected to be realized , and therefore the valuation allowance against the deferred tax assets continues to be appropriate as of december 29 , 2013. outlook historically , lakes ' revenues have primarily come from the management of indian casino properties . as a result of the august 29 , 2013 termination of the management agreement between lakes and the shingle springs tribe for the management of the red hawk casino , lakes ' subsequent consolidated statement of operations is not currently expected to include revenues from the management of indian casino properties . during the next twelve months , lakes currently expects the majority of its revenue to come from the operation of rocky gap . however , due to the relatively short operating history of rocky gap , we do not plan to provide guidance on future results of operations . liquidity and capital resources as of december 29 , 2013 , we had $ 37.9 million in cash and cash equivalents and $ 49.1 million in short-term investments . we currently believe that our cash and cash equivalents , short-term investments and our cash flows from operations will be sufficient to meet our working capital requirements during the next 12 months . our operating results and performance depend significantly on economic conditions and their effect on consumer spending at the property we own . declines in consumer spending would cause our revenues generated from the ownership of rocky gap to be adversely affected . on july 17 , 2013 , we entered into a debt termination agreement with the shingle springs tribe relating to amounts we had previously advanced to the shingle springs tribe for the development of the red hawk casino . per the terms of the debt termination agreement , the shingle springs tribe paid us $ 57.1 million on august 29 , 2013. this debt payment constituted full and final payment of all debt owed to us by the shingle springs tribe . as a result of the receipt of the debt payment , during the third quarter of 2013 , we recognized approximately $ 17.4 million in recovery of impairment on notes receivable because the shingle springs notes had previously been impaired and were valued at $ 39.7 million . the face value of the shingle springs notes including accrued interest was $ 69.7 million as of the payment date . the management agreement under which lakes was managing the red hawk casino also terminated on the payment date . during fiscal 2013 , our management fee revenues were derived from the management of the red hawk casino . because our agreement for the management of this casino terminated on august 29 , 2013 , we will no longer earn fees for the management of the red hawk casino . on august 3 , 2012 , we acquired the assets of rocky gap for $ 6.8 million . story_separator_special_tag in connection with the closing of the acquisition of rocky gap , we entered into a 40 year operating ground lease with the maryland department of natural resources for approximately 268 acres in the rocky gap state park on which rocky gap is situated . we converted existing convention center space at rocky gap into a gaming facility which opened to the public on may 22 , 2013. we also constructed a new event and conference center , which opened during the fourth quarter of 2013. the total cost of the rocky gap project , which was substantially complete as of december 29 , 2013 , was approximately $ 35.0 million , which included the initial acquisition cost . we have a $ 17.5 million financing facility that was used to finance a portion of the gaming facility project and new event and conference center construction costs . we have drawn $ 13.4 million on the financing facility , of which $ 13.3 million remains outstanding as of december 29 , 2013. although we do n't currently plan to make additional draws on the financing facility , we have the ability to draw the remaining $ 4.1 million through december 31 , 2018. effective november 1 , 2013 , we amended this financing facility to reduce the interest rate from 10.5 % to 5.5 % . monthly principal and interest payments on the outstanding amount of the financing facility began on december 1 , 2013 and continue for 84 months . room , food and beverage , and other operating revenues and expenses from rocky gap are included in operations from the date of the acquisition of the property . gaming revenues and expenses are included in operations from may 22 , 2013 , the date that the gaming facility opened for public play . 14 we have a total investment of $ 21.0 million in rock ohio ventures . per our agreement with rock ohio ventures related to the casino properties in cincinnati and cleveland , ohio , the thistledown racino in north randall , ohio and turfway park , a thoroughbred horseracing track located in florence , kentucky , we may be required to invest additional funds of up to $ 4.1 million in those projects . we have an interest-only $ 8.0 million revolving bank line of credit loan agreement ( the “ loan agreement ” ) that expires on october 28 , 2014. as of december 29 , 2013 and december 30 , 2012 , no amounts were outstanding under the loan agreement . critical accounting policies and estimates this management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with united states generally accepted accounting principles . the preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition and promotional allowances , short-term investments , long-term assets related to indian casino projects , investments in unconsolidated investees , litigation costs , income taxes and share-based compensation . we base our estimates and judgments on historical experience and on various other factors that are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the following represent our accounting policies that involve the more significant judgments and estimates used in the preparation of our consolidated financial statements . see note 2 , summary of significant accounting policies , to the consolidated financial statements included in item 8 of this annual report on form 10-k for a discussion of all of our significant accounting policies . revenue recognition and promotional allowances revenue from the management , development , financing of and consulting with indian-owned casino gaming facilities is recognized as it is earned pursuant to each respective agreement . food , beverage , and retail revenues are recorded at the time of sale . room revenue is recorded at the time of occupancy . sales taxes and surcharges collected from guests and remitted to governmental authorities are presented on a net basis . accounts receivable deemed uncollectible are charged off through a provision for uncollectible accounts . gaming revenue , which is defined as the difference between gaming wins and losses , is recognized as wins and losses occur from gaming activities . the retail value of rooms , food and beverage , and other services furnished to guests without charge is included in gross revenues and then deducted as a promotional allowance . the estimated cost of providing such promotional allowances is included in gaming expenses . short-term investments and concentrations of credit risk short-term investments consist of commercial paper and corporate bonds which are classified as available-for-sale securities and are valued at current market value , with the resulting unrealized gains and losses , if any , excluded from earnings and reported , net of tax , as a separate component of shareholders ' equity until realized . there were no net unrealized gains or losses as of december 29 , 2013. all of our investments carry a rating by one or more of the nationally recognized statistical rating organizations . any change in such rating agencies ' approach to evaluating credit and assigning an opinion could negatively impact the fair value of our investments . any impairment loss to reduce an investment 's carrying amount to its fair market value is recognized in income when a decline in the fair market value of an individual security below its cost or carrying value is determined to be other than temporary .
| selling , general and administrative expenses selling , general and administrative expenses were $ 19.3 million for fiscal 2013 compared to $ 10.2 million for fiscal 2012. included in these amounts were lakes corporate selling , general and administrative expenses of $ 6.8 million and $ 7.8 million during fiscal 2013 and fiscal 2012 , respectively , and rocky gap selling , general and administrative expenses of $ 12.5 million and $ 2.4 million during fiscal 2013 and 2012 , respectively . for fiscal 2013 , selling , general and administrative expenses included payroll and related expenses of $ 9.6 million ( including share-based compensation ) , marketing and advertising expenses of $ 2.0 million , building and rent expense of $ 2.4 million and professional fees of $ 2.8 million . for fiscal 2012 , selling , general and administrative expenses included payroll and related expenses of $ 5.0 million ( including share-based compensation ) , building and rent expense of $ 0.8 million and professional fees of $ 2.6 million . 12 recovery of impairment on notes receivable on july 17 , 2013 , lakes entered into the debt termination agreement with the shingle springs tribe relating to amounts lakes had previously advanced to the shingle springs tribe . per the debt termination agreement , the shingle springs tribe paid lakes $ 57.1 million on august 29 , 2013 which constituted full and final payment of all debt owed to lakes as of that date . as a result of the receipt of the debt payment and due to the fact that the shingle springs notes had previously been impaired , lakes recognized $ 17.4 million in recovery of impairment on notes receivable for the year ended december 29 , 2013. gain on extinguishment of liabilities during fiscal 2013 , lakes recognized a gain on extinguishment of liabilities of $ 3.8 million associated with contract acquisition costs related to the project with the shingle springs tribe that were no longer owed upon the termination of the management agreement between lakes and the shingle springs tribe . impairments and
| 13,008 |
upon the consummation of the business combination , each legacy canoo ordinary share issued and outstanding was canceled and converted into the right to receive the per share merger consideration . upon the closing of the business combination , hcac 's certificate of incorporation was amended and restated to , among other things , increase the total number of authorized shares of all classes of capital stock to 510,000,000 shares , of which 500,000,000 shares were designated common stock , $ 0.0001 par value per share , and of which 10,000,000 shares were designated preferred stock , $ 0.0001 par value per share . in connection with the execution of the merger agreement , hcac entered into separate subscription agreements with a number of investors , pursuant to which the subscribers agreed to purchase , and hcac agreed to sell to the subscribers , an aggregate of 32,325,000 pipe shares , for a purchase price of $ 10.00 per share and an aggregate purchase price of $ 323.3 million , in the pipe . the pipe investment closed simultaneously with the consummation of the business combination . for additional information on the business combination , see note 4 of the notes to our accompanying financial statements . as of december 31 , 2020 , our cash increased by $ 672.9 million compared to that at december 31 , 2019 , primarily as a result of the business combination . the business combination is accounted for as a reverse merger in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . while hcac was the legal acquirer , because legacy canoo was deemed the accounting acquirer , the historical financial statements of legacy canoo became the historical financial statements of the combined company , upon the consummation of the business combination . as a consequence of the business combination , we will need 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 for , among other things , directors and officers liability insurance , director fees and additional internal and external accounting , legal and administrative resources , including increased audit and legal fees . covid-19 impact on january 30 , 2020 , the world health organization declared the covid-19 outbreak a “ public health emergency of international concern ” and on march 11 , 2020 , declared it to be a pandemic . actions taken around the world to help mitigate the spread of covid-19 include restrictions on travel , quarantines in certain areas and forced closures for certain types of public places and businesses . covid-19 and actions taken to mitigate its spread have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries , including 73 the geographical area in which we operate . on march 27 , 2020 , the cares act was enacted to , among other provisions , provide emergency assistance for individuals , families and businesses affected by the covid-19 pandemic . as the covid-19 pandemic continues to evolve , the ultimate extent of the impact on our businesses , operating results , cash flows , liquidity and financial condition will be primarily driven by the severity and duration of the pandemic , the pandemic 's impact on the u.s. and global economies and the timing , scope and effectiveness of federal , state and local governmental responses to the pandemic . the covid-19 pandemic has resulted in government authorities implementing numerous measures to try to contain the virus , such as travel bans and restrictions , quarantines , stay-at-home or shelter-in-place orders , and business shutdowns . these measures have adversely impacted our employees ability to collaborate in a discipline that requires a high degree of collaborative work . our operations have had to change and adapt to meet these new demands . the operations of our suppliers , vendors and business partners have been impacted and our sales and marketing activities for our vehicles and other services were made increasingly difficult as a result of the covid-19 pandemic . our team has worked to maintain the production schedule of our evs but the work and collaboration with suppliers for our next phase of development would have required a significant degree of in-person work that was not feasible . various aspects of our business can not be conducted remotely , including the testing and manufacturing of our evs . further , as a growing company , the ability for us to hire , onboard and train new employees has been impacted and has required us to evaluate areas of our business that will not result in the best use of our human capital for long-term growth . the spread of covid-19 has also caused us and many of our contractors and service providers to modify our business practices ( including employee travel , recommending that all non-essential personnel work from home and cancellation or reduction of physical participation in testing activities , meetings , events and conferences ) , and collectively with our contractors and service providers , we have been and may further be required to take actions as required by government authorities or that we determine are in the best interests of our employees , customers , suppliers , vendors and business partners . there is no certainty that such actions will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities . if significant portions of our workforce or contractors and service providers are unable to work effectively , including due to illness , quarantines , social distancing , government actions or other restrictions in connection with the covid-19 pandemic , our operations will be impacted . story_separator_special_tag these factors related to covid-19 are beyond our knowledge and control and , as a result , at this time , we are unable to predict the ultimate impact , both in terms of severity and duration , that the covid-19 pandemic will have on our business , operating results , cash flows and financial condition , but it could be material if the current circumstances continue to exist for a prolonged period of time . although we have made our best estimates based upon current information , actual results could materially differ from the estimates and assumptions developed by management . accordingly , it is reasonably possible that the estimates made in the financial statements have been , or will be , materially and adversely impacted in the near term as a result of these conditions , and if so , we may be subject to future impairment losses related to long-lived assets as well as changes to valuations . comparability of financial information our results of operations and statements of assets and liabilities may not be comparable to historical results as a result of the business combination , which was completed late in the fourth quarter of 2020. 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 discussed below and in item 1a , “ risk factors. ” successful commercialization our evs we expect to derive significant future revenue from our first vehicle offerings including through sales and subscription programs for our lifestyle vehicle , mpdv1 , and or pickup which are not expected to launch until 2022 and 2023 or later . in order to reach commercialization , we must purchase and integrate related property and equipment , as well as achieve several research and development milestones . 74 we expect that both our capital and operating expenditures will increase significantly in connection with our ongoing activities , as we : ● commercialize our evs ; ● continue to invest in our technology , research and development efforts ; ● increase our investment in marketing , advertising , sales and distribution infrastructure for our evs and services ; ● obtain , maintain and improve our operational , financial and management information systems ; ● hire additional personnel ; ● obtain , maintain , expand and protect our intellectual property portfolio ; and ● operate as a public company . as a result , we will require substantial additional capital to develop our evs and services and fund our operations for the foreseeable future . we will also require capital to identify and commit resources to investigate new areas of demand . until we can generate sufficient revenue from vehicle sales , we expect to primarily finance our operations through commercialization and production with proceeds from the business combination , including the proceeds from the pipe financing , and , as needed , secondary public offerings or debt financings . the amount and timing of our future funding requirements , if any , will depend on many factors , including the pace and results of our research and development efforts and our ability to successfully manage and control costs . key components of statements of operations basis of presentation currently , we conduct business through one operating segment . we are an early stage-growth company with no commercial operations , and our activities to date have been limited and are conducted in the united states . for more information about our basis of presentation , refer to note 2 of the notes to our accompanying financial statements for the years ended december 2020 and 2019. revenue during 2020 , our revenue has been derived from the provision of engineering , development and design consulting services on a project basis . once we reach commercialization and commence production of our evs , we expect that the majority of our revenue will be derived initially from sales and subscription programs from our lifestyle vehicle , mpdv1 , and other vehicles and commercial products and services when launched . cost of revenue , excluding depreciation we have recorded cost of revenue , excluding depreciation for the consulting services rendered in relation to engineering , development and design services provided on a project basis . once we reach commercialization and commence production of our vehicles , we expect cost of revenue to include vehicle components and parts , including batteries , direct labor costs and costs associated with the consumer subscription services . research and development expenses , excluding depreciation research and development expenses , excluding depreciation consist of salaries , employee benefits and expenses for design and engineering personnel , stock-based compensation , as well as materials and supplies used in research and 75 development activities . in addition , research and development expenses include fees for consulting and engineering services from third party vendors . the company allocates a portion of overhead costs which includes lease expense , utilities and worker 's compensation premiums to the research and development department expense based on headcount . selling , general and administrative expenses , excluding depreciation the principal components of our selling , general and administrative expenses are salaries , wages , benefits and bonuses paid to our employees ; stock-based compensation ; travel and other business expenses ; professional services fees ( including legal , audit and tax ) ; and ordinary day-to-day business expenses . depreciation expense depreciation is provided on property and equipment over the estimated useful lives on a straight-line basis . upon retirement or disposal , the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in the loss from operations . no depreciation expense is allocated to research and development , cost of revenue and selling , general and administrative expenses . interest expense interest expense consists primarily of interest expenses and debt discount amortization .
| the increase in stock-based compensation expenses of $ 58.7 million was primarily driven by the restricted stock awards modified and issued during the year ended december 31 , 2020. out of the $ 58.7 million increase , $ 56.1 million was related to the modification of the performance restricted stock awards to become time-based vesting with a merger trigger , which was satisfied on december 21 , 2020. see further discussion on the restricted stock awards in note 12 of the notes to our accompanying financial statements . the increases in salaries and related benefits expenses of $ 4.4 million and professional fees of $ 2.1 million were primarily due to our continuing investment in personnel and contract employees to drive and reach our research and development goals . the decrease in research and development costs of $ 58.6 million reflects decreases in costs related to reduced expenditures in 2020 resulting from the impact of the covid-19 pandemic , including higher relative costs on prototype development in 2019 , which included beta prototype development and delayed gamma prototype expenditures with suppliers as a result of the covid-19 pandemic . beta prototype development costs , including engineering , design , parts and consulting expenses , totaled approximately $ 56.7 million in 2019 but did not re-occur in 2020. the decrease in travel and entertainment expenses of $ 0.8 million was largely due to covid-19 impact . we expect to see an overall increase in research and development expenses to support our initiatives related to the lifestyle vehicle , multi-purpose delivery vehicles , and pickup expected to launch as early as 2022 and 2023 , respectively . selling , general and administrative expenses , excluding depreciation selling , general and administrative expenses increased by $ 20.1 million , or 63.6 % , to $ 51.6 million in the year ended december 31 , 2020 , compared to $ 31.6 million in the year ended december 31 , 2019. the increase was primarily due to increases of $ 23.8 million in stock-based compensation expenses and $ 2.4 million in professional fees , partially offset by decreases of $ 6.3 million in salary and related benefits . the increase in stock-based compensation expenses of $ 23.8 million was primarily driven by the restricted stock awards modified and issued during
| 13,009 |
the acquisition is a non-taxable business combination . accordingly , the goodwill is considered non-deductible for income tax purposes . intangible assets the company 's intangible assets represent definite lived intangible assets , which are being amortized on a straight- line basis over their estimated useful lives as follows human animation technologies 7 years trademark and trade names 7 years animation and visual effects technologies 7 years digital asset library 7 years intellectual property 7 years derivative financial instruments the monte carlo model was used to estimate the fair value of the embedded conversion features of the company 's convertible notes . the model includes subjective input assumptions that can materially affect the fair value estimates . the expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the convertible notes . there were no extinguishment charges , as the notes converted to shares in accordance with the prepayment provisions specified in the note agreements . the company used a black-scholes model to record the fair value of the warrant liability assumed at the date of acquisition and at december 31 , 2018 . 12 recently issued accounting pronouncements in february 2016 , the financial accounting standards board ( the “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2016-02 , leases ( topic 842 ) , which supersedes fasb accounting standards codification ( “ asc ” ) topic 840 , leases ( topic 840 ) and provides principles for the recognition , measurement , presentation and disclosure of leases for both lessees and lessors . the new standard requires lessees to apply a dual approach , classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee . this classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease , respectively . a lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification . leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases . the standard is effective for annual and interim periods beginning after december 15 , 2018 , with early adoption permitted upon issuance . the adoption of this standard is not expected to have a material impact on the company 's consolidated financial position and results of operations . in january 2017 , the fasb issued asu 2017-04 , intangibles - goodwill and other ( topic 350 ) : simplifying the accounting for goodwill impairment . asu 2017-04 removes step 2 of the goodwill impairment test , which requires a hypothetical purchase price allocation . a goodwill impairment will now be the amount by which a reporting unit 's carrying value exceeds its fair value , not to exceed the carrying amount of goodwill . this standard will be effective for the company beginning in the first quarter of fiscal year 2020 and is required to be applied prospectively . early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. the company early adopted and will use this guidance for all goodwill impairment tests beginning january 1 , 2019. in july 2017 , the fasb has issued a two-part asu no . 2017-11 , ( i ) . accounting for certain financial instruments with down round features and ( ii ) replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests with a scope exception which simplifies the accounting for certain financial instruments with down round features , a provision in an equity-linked financial instrument ( or embedded feature ) that provides a downward adjustment of the current exercise price based on the price of future equity offerings . it is effective for public business entities for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2018. early adoption is permitted . the company adopted this standard on its consolidated financial statements and disclosures as of january 1 , 2019. the company 's warrants with down round features will be reclassified as equity as of the effective date . in august 2018 , the fasb issued asu no . 2018-13 , “ fair value measurement ( topic 820 ) : disclosure framework—changes to the disclosure requirements for fair value measurement ( “ asu 2018-13 ” ) . the amendments in asu 2018-13 modify the disclosure requirements on fair value measurements based on the concepts in the concepts statement , including the consideration of costs and benefits . the amendments on changes in unrealized gains and losses , the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements , and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption . all other amendments should be applied retrospectively to all periods presented upon their effective date . the amendments are effective for all entities for fiscal years beginning after december 15 , 2019 , and interim periods within those fiscal years . early adoption is permitted , including adoption in an interim period . the company is currently evaluating asu 2018-13 and its impact on its consolidated financial statements recently adopted accounting standards in april 2016 , the fasb issued asu 2016-10 to clarify the implementation guidance on licensing and the identification of performance obligations consideration included in asu 2014-09 , revenue from contracts with customers ( “ asu 2014-09 ” ) , which is also known as asc 606 , was issued in may 2014 and outlines a single comprehensive model story_separator_special_tag the acquisition is a non-taxable business combination . accordingly , the goodwill is considered non-deductible for income tax purposes . intangible assets the company 's intangible assets represent definite lived intangible assets , which are being amortized on a straight- line basis over their estimated useful lives as follows human animation technologies 7 years trademark and trade names 7 years animation and visual effects technologies 7 years digital asset library 7 years intellectual property 7 years derivative financial instruments the monte carlo model was used to estimate the fair value of the embedded conversion features of the company 's convertible notes . the model includes subjective input assumptions that can materially affect the fair value estimates . the expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the convertible notes . there were no extinguishment charges , as the notes converted to shares in accordance with the prepayment provisions specified in the note agreements . the company used a black-scholes model to record the fair value of the warrant liability assumed at the date of acquisition and at december 31 , 2018 . 12 recently issued accounting pronouncements in february 2016 , the financial accounting standards board ( the “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2016-02 , leases ( topic 842 ) , which supersedes fasb accounting standards codification ( “ asc ” ) topic 840 , leases ( topic 840 ) and provides principles for the recognition , measurement , presentation and disclosure of leases for both lessees and lessors . the new standard requires lessees to apply a dual approach , classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee . this classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease , respectively . a lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification . leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases . the standard is effective for annual and interim periods beginning after december 15 , 2018 , with early adoption permitted upon issuance . the adoption of this standard is not expected to have a material impact on the company 's consolidated financial position and results of operations . in january 2017 , the fasb issued asu 2017-04 , intangibles - goodwill and other ( topic 350 ) : simplifying the accounting for goodwill impairment . asu 2017-04 removes step 2 of the goodwill impairment test , which requires a hypothetical purchase price allocation . a goodwill impairment will now be the amount by which a reporting unit 's carrying value exceeds its fair value , not to exceed the carrying amount of goodwill . this standard will be effective for the company beginning in the first quarter of fiscal year 2020 and is required to be applied prospectively . early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after january 1 , 2017. the company early adopted and will use this guidance for all goodwill impairment tests beginning january 1 , 2019. in july 2017 , the fasb has issued a two-part asu no . 2017-11 , ( i ) . accounting for certain financial instruments with down round features and ( ii ) replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests with a scope exception which simplifies the accounting for certain financial instruments with down round features , a provision in an equity-linked financial instrument ( or embedded feature ) that provides a downward adjustment of the current exercise price based on the price of future equity offerings . it is effective for public business entities for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2018. early adoption is permitted . the company adopted this standard on its consolidated financial statements and disclosures as of january 1 , 2019. the company 's warrants with down round features will be reclassified as equity as of the effective date . in august 2018 , the fasb issued asu no . 2018-13 , “ fair value measurement ( topic 820 ) : disclosure framework—changes to the disclosure requirements for fair value measurement ( “ asu 2018-13 ” ) . the amendments in asu 2018-13 modify the disclosure requirements on fair value measurements based on the concepts in the concepts statement , including the consideration of costs and benefits . the amendments on changes in unrealized gains and losses , the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements , and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption . all other amendments should be applied retrospectively to all periods presented upon their effective date . the amendments are effective for all entities for fiscal years beginning after december 15 , 2019 , and interim periods within those fiscal years . early adoption is permitted , including adoption in an interim period . the company is currently evaluating asu 2018-13 and its impact on its consolidated financial statements recently adopted accounting standards in april 2016 , the fasb issued asu 2016-10 to clarify the implementation guidance on licensing and the identification of performance obligations consideration included in asu 2014-09 , revenue from contracts with customers ( “ asu 2014-09 ” ) , which is also known as asc 606 , was issued in may 2014 and outlines a single comprehensive model
| million in other compensation expense is primarily related to increased payroll and related benefits for new employees hired during the year ended december 31 , 2018. other income/expense during the year ended december 31 , 2018 other expenses totaled $ 0.2 million compared to other income of $ 11.6 million for the year ended december 31 , 2017. the decrease of $ 11.9 million is primarily related to a lower gain of $ 0.7 million recognized for the change in fair value of our derivative liability during the year ended december 31 , 2018 , compared with $ 12.4 million recognized for the year ended december 31 , 2017 upon the extinguishment of related debt obligations and free standing warrants , and an increase of $ 1.7 million of interest expense which was primarily related to the $ 1.3 million increase in amortization of the debt discount related to the embedded conversion options recorded and $ 0.4 million of coupon interest , and offset by the gain on extinguishment of $ 1.9 million , related to our convertible notes . income taxes during the year ended december 31 , 2018 , we recorded an income tax benefit of $ 2.1 million . the company 's deferred tax liability is tied to our amortizable intangible assets . the amortization of intangibles of $ 8.2 million caused the deferred tax liability to decrease from $ 2.1 million , which resulted in an income tax benefit for the period . net income/loss during the year ended december 31 , 2018 , our net loss was $ 13.1 million , compared to net income of $ 10.5 million for the year ended december 31 , 2017. liquidity and going concern cash flows ( in thousands ) replace_table_token_3_th the accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern , which contemplates the continuity of operations , realization of assets , and liquidation of
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in december 2012 , we entered into a definitive agreement with trytech corporation to terminate its distribution of our products in a certain japanese territory effective as of april 1 , 2013. the agreement required us to pay approximately $ 0.1 million in exchange for the purchase of their customer list for our products , certain customer contracts , sales and marketing transition services , and minimal inventory . in march 2013 , we began shipping directly to canadian hospitals from our sales office in toronto , canada . 39 in october 2013 , we entered into a definitive agreement with medistim norge as ( medistim ) to terminate its distribution of our products in norway effective january 1 , 2014. the agreement required us to pay approximately $ 0.2 million in exchange for the purchase of their customer list for our products , sales and marketing transition services , and minimal inventory . in october 2013 , we entered into a definitive agreement with tag medical pty ltd ( tag ) to terminate its distribution of our products in australia effective january 1 , 2014. the agreement required us to pay approximately $ 0.2 million in exchange for the purchase of their customer list for our products , certain customer contracts , sales and marketing transition services , and minimal inventory . we anticipate that the expansion of our direct sales organization in norway and australia will result in increased sales and marketing expenses during 2014. our strategy for growing our business includes the acquisition of complementary product lines and companies and occasionally the discontinuance or divestiture of products or activities that are no longer complementary : in june 2011 , we divested our taarget and unifit stent grafts to duke vascular , inc. for $ 0.6 million . in addition , duke vascular , inc. assumed our future obligations for the associated unite and entrust clinical trials . in august 2011 , we terminated our distribution of endologix 's aortic stent graft products in europe in exchange for $ 1.3 million . in october 2012 , we acquired the manufacturing and distribution rights of the xenosure biologic vascular patch from neovasc , inc. for $ 4.6 million , having previously been an exclusive distributor of the xenosure biologic vascular patch since 2008. in july 2013 , we acquired substantially all of the assets of clinical instruments international , inc. ( clinical instruments ) , a manufacturer of latex and latex free shunts and catheters , for $ 1.1 million . in august 2013 , we acquired substantially all of the assets of inavein , llc ( inavein ) , a manufacturer of a varicose veins removal system . the purchase price consisted of $ 2.5 million plus contingent consideration totaling $ 1.4 million in 2014 and 2015 , dependent on the sales performance of the acquired business and regulatory approval in china . in addition to relying upon acquisitions to grow our business , we also rely on our product development efforts to bring differentiated technology and next-generation products to market . these efforts have led to the following recent product developments : in january 2012 , we launched the over-the-wire lemaitre valvulotome . in april 2013 , we launched the multitasc device . in may 2013 , we launched the 1.5mm expandable lemaitre valvulotome . in june 2013 , we launched the albosure vascular patch . in addition to our sales growth strategies , we have also executed several operational initiatives designed to consolidate and streamline manufacturing within our burlington , ma facilities . we expect that these plant consolidations will result in improved control over our production capacity as well as reduced costs over the long-term . our most recent manufacturing transitions included : in may 2011 , we adopted a reorganization plan that was designed to eliminate redundant costs resulting from our 2010 acquisition of the lifespan vascular graft and to improve efficiencies in manufacturing operations . we have completed the transition of lifespan vascular graft manufacturing into our existing corporate headquarters in burlington , massachusetts . 40 in november 2012 , we initiated a project to build a third clean room for our newly acquired biologic vascular patch . we expect this transition to our burlington facility to be complete in the second quarter of 2014. we expect the transition to negatively impact gross margins on our biologic vascular patch in 2014 , and to improve our biologic vascular patch gross margins beginning in 2015 ; however , there can be no assurance that these results will be achieved . further , the production of the biologic vascular patch is our first experience in manufacturing biological tissues . there can be no assurance that we will not experience delays or additional expenses associated with this transfer . in january 2014 , we initiated a project to transfer the manufacturing of the newly acquired clinical instruments devices to our facility in burlington . we expect the transfer to be complete in the second quarter of 2014 ; however there can be no assurances that this will be achieved on the expected timetable or that transfer costs wo n't exceed our expectations . further , the manufacturing transfer may result in a shortage of clinical instruments devices , which could negatively impact sales . our execution of these business opportunities may affect the comparability of our financial results from period to period and may cause substantial fluctuations from period to period , as we incur related restructuring and other non-recurring charges , as well as longer term impacts to revenues and operating expenditures . for example , in 2011 we exited the stent graft business , and realized gains of approximately $ 0.7 million in 2011 and $ 0.2 million in 2012 in connection with that exit . separately , we recognized $ 1.1 million and $ 1.8 million of restructuring expenses in 2011 and 2010 , respectively , related to the biomateriali plant closure and relocation to burlington , ma . story_separator_special_tag fluctuations in the rate of exchange between the u.s. dollar and foreign currencies , primarily the euro , affect our financial results . for the year ended december 31 , 2013 , approximately 34 % of our sales were from outside the americas . we expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future . selling , marketing , and administrative costs related to these sales are largely denominated in the same respective currency , thereby partially mitigating our transaction risk exposure . however , most of our foreign sales are denominated in local currency , and if there is an increase in the rate at which a foreign currency is exchanged for u.s. dollars , it will require more of the foreign currency to equal a specified amount of u.s. dollars than before the rate increase . in such cases we will receive less in u.s. dollars than we did before the rate increase went into effect . net sales and expense components the following is a description of the primary components of our net sales and expenses : net sales . we derive our net sales from the sale of our products , less discounts and returns . net sales include the shipping and handling fees paid for by our customers . most of our sales are generated by our direct sales force and are shipped and billed to hospitals or clinics throughout the world . in countries where we do not have a direct sales force , sales are primarily generated by shipments to distributors who , in turn , sell to hospitals and clinics . in those cases where our products are held on consignment at a hospital or clinic , we generate sales at the time the product is used in surgery rather than at shipment . cost of sales . we manufacture nearly all of the products that we sell . our cost of sales consists primarily of manufacturing personnel , raw materials and components , depreciation of property and equipment , and other allocated manufacturing overhead , as well as freight expense we pay to ship products to customers . sales and marketing . our sales and marketing expense consists primarily of salaries , commissions , stock based compensation , travel and entertainment , attendance at medical society meetings , training programs , advertising and product promotions , direct mail , and other marketing costs . general and administrative . general and administrative expense consists primarily of executive , finance and human resource expense , stock based compensation , legal and accounting fees , information technology expense , intangible amortization expense , and insurance expense . 41 research and development . research and development expense includes costs associated with the design , development , testing , enhancement , and regulatory approval of our products , principally salaries , laboratory testing , and supply costs . it also includes costs associated with design and execution of clinical studies , regulatory submissions and costs to register , maintain , and defend our intellectual property , and royalty payments associated with licensed and acquired intellectual property . restructuring . restructuring expense includes costs directly associated with distribution agreement termination expenses , severance and retention costs for terminated employees , factory relocation costs , and other expenses associated with restructuring our operations . other income ( expense ) . other income ( expense ) primarily includes interest income and expense , investment impairment charges , foreign currency gains ( losses ) , and other miscellaneous gains ( losses ) . income tax expense . we are subject to federal and state income taxes for earnings generated in the united states , which include operating losses in certain foreign jurisdictions for certain years depending on tax elections made , and foreign taxes on earnings of our wholly-owned canadian , german , and italian subsidiaries . our consolidated tax expense is affected by the mix of our taxable income ( loss ) in the united states and foreign subsidiaries , permanent items , discrete items , unrecognized tax benefits , and amortization of goodwill for u.s tax reporting purposes . story_separator_special_tag /font > restructuring . we did not incur restructuring charges in 2013 and 2012. in february 2014 , we committed to a plan intended to improve operational efficiencies , which includes a reduction in force of approximately 10 % of our workforce and other cost-cutting measures . the plan was implemented during the first quarter of 2014. we estimate that termination costs will be $ 0.2 million to $ 0.4 million . we expect to record the majority of these charges in 2014. gain on divestitures . in 2012 , we recognized a gain on divestitures of $ 0.2 million resulting from payments on a promissory note related to the divestiture of our taarget and unifit stent graft product lines to duke vascular , inc. in 2011. other income ( expense ) . foreign exchange losses for 2013 were $ 0.2 million compared to $ 0.3 million for 2012 and were generally flat other than a one-time exchange loss of $ 0.2 million as a result of a cumulative translation adjustment recorded at our biomateriali subsidiary upon the liquidation and dissolution of that legal entity in 2012. net interest income and other income ( expense ) decreased by approximately $ 80,000 primarily related to interest earned in 2012 from the stent graft divestiture promissory note . income tax expense . we recorded a provision for taxes of $ 1.1 million on pre-tax income of $ 4.3 million in 2013 compared to $ 1.4 million on pre-tax income of $ 4.0 million in 2012. the 2013 provision was comprised of federal tax in the united states of $ 2.5 million , state taxes of $ 0.1 million and a net foreign tax benefit of $ 1.4 million . the 2012 provision was comprised of federal tax in the united states of $ 1.4 million , state taxes of $ 0.1 million and a net foreign benefit of $ 0.1 million .
| net sales increases in the americas were also due to higher canadian and export sales . these increases were partially offset by a decrease in radiopaque tape of $ 0.6 million and non-occlusive modeling catheters of $ 0.1 million . international net sales increased $ 3.4 million to $ 21.9 million in 2013. the increase was primarily driven by higher sales of biologic vascular patches of $ 1.3 million , catheters of $ 0.9 million , dacron grafts , valvulotomes , and shunts . replace_table_token_8_th * not applicable gross profit . gross profit increased $ 4.2 million to $ 45.1 million in 2013 from $ 40.9 million in 2012 , while our gross margin decreased 2.1 % to 69.9 % . the gross margin decrease was largely driven by unfavorable geographic mix , sales to lower margin export markets , increased sales of our lower margin biologic vascular patch , manufacturing start-up costs associated with our biologic vascular patch , and costs associated with newly acquired clinical instruments facility . these decreases were partially offset by higher non-recurring dacron graft inventory write-offs in 2012 , higher average selling prices across all product lines , and improved manufacturing efficiencies . the gross profit increase was a result of higher sales . in november 2012 , we acquired the manufacturing and distribution rights of the xenosure biologic vascular patch , and we expect that the related manufacturing transfer will continue to negatively affect our gross margin in 2014. we expect to realize efficiencies which may improve gross margins on our xenosure biologic vascular patch beginning in 2015. in addition , we closed our clinical instruments facility in march 2014 and are transitioning production to our burlington facility which we believe will help improve the gross margin beginning in the second quarter of 2014. replace_table_token_9_th * not a meaningful percentage . sales and marketing . sales and marketing expenses were $ 22.1 million in 2013 compared to $ 20.8 million in 2012 , an increase of
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we earn management fees pursuant to contractual arrangements with the investment funds that we manage and fees for transaction advisory and oversight services provided to portfolio companies of these funds . we also typically receive a performance fee from an investment fund , which may be either an incentive fee or a special residual allocation of income , which we refer to as a carried interest , in the event that specified investment returns are achieved by the fund . under u.s. generally accepted accounting principles ( u.s . gaap ) , we are required to consolidate some of the investment funds that we advise . however , for segment reporting purposes , we present revenues and expenses on a basis that deconsolidates these investment funds . accordingly , our segment revenues primarily consist of fund management and related advisory fees , performance fees ( consisting of incentive fees and carried interest allocations ) , investment income , including realized and unrealized gains on our investments in our funds and other trading securities , as well as interest and other income . our segment expenses primarily consist of compensation and benefits expenses , including salaries , bonuses , performance payment arrangements , and equity-based compensation granted subsequent to our initial public offering , and general and administrative expenses . refer to note 18 to the consolidated financial statements included elsewhere in this annual report on form 10-k for more information on the differences between our financial results reported pursuant to u.s. gaap and our financial results for segment reporting purposes . trends affecting our business we believe that our diversified , multi-product global platform , which invests across numerous industries , asset classes and geographies generally enhances , on an annual basis , the stability of our distributable earnings and management fee streams , reduces the volatility of our carried interest and incentive fees and decreases our exposure to a negative event associated with any specific fund , investment or vintage . however , our results of operations are affected by a variety of factors including global economic , market and financial conditions , particularly in the united states , europe and asia . in general , a climate of reasonable interest rates and high levels of liquidity in the debt and equity capital markets provide a positive environment for us to generate attractive investment returns in our carry funds , but periods of volatility and dislocation in the capital markets can present us with opportunities to invest at reduced valuations that position us for future revenue growth . for our hedge funds , opportunities to generate revenue depend on their respective investment strategies , certain of which may benefit from higher market volatility . these strategies include , but are not limited to , low levels of correlation in equity and debt markets , differences in market prices versus fundamental value and opportunities to profit from trading inefficiencies . in the u.s. macroeconomic environment , risk asset prices continued to drift upward since the end of the third quarter of 2013 , with the s & p 500 posting its highest return , including dividends , since 1997. by contrast , emerging market equity declined during the fourth quarter of 2013 and posted a loss for the year . on december 18 , 2013 , the federal open market committee announced that it would start to taper its asset purchase program by reducing monthly purchases from the prior pace of $ 85 billion . although interest rates initially moved upward , additional economic announcements mitigated this movement . also during the year , the global issuance of speculative grade credit increased and spreads fell to levels last seen in 2007. investors ' concern about higher interest rates causes the issuance of fixed-rate high-yield bonds to slow in the second half of 2013 , but this was offset by demand for leveraged loans , which increased over the course of the year . this economic environment generally provided access to reasonably priced credit for our portfolio companies and for financing new transactions during the year . our management team monitors trends in the global marketplace and our industry in order to anticipate developments in the business climate and tailor our strategy . some of these trends include : our ability to attract new capital and new fund investors . our ability to attract new capital and investors in our funds is driven , in part , by the extent to which they continue to see the alternative asset management industry generally , and our investment products specifically , as an attractive vehicle for capital appreciation . we continually seek to meet our investors ' evolving needs and broaden the appeal of our 87 investment products by offering an expansive range of investment funds , developing new products and creating managed accounts and other investment vehicles tailored to our investors ' goals . one area of recent focus has been the expansion of our solutions business through our acquisition of metropolitan in november 2013 and dgam in february 2014. during the year ended december 31 , 2013 , we raised more than $ 22 billion of new capital commitments across our fund platform . however , the fundraising environment remains competitive and the time required to raise a fund has increased from prior years . however , with several of our larger funds currently in the market , we expect fundraising to continue at a strong pace through 2014. we also are continuing to create avenues through which we expect to attract a new base of individual fund investors , including retail investors . our efforts to reach out to a new investor base include the use of feeder funds and the launch of new mutual funds and other registered investment products and we have dedicated resources to support and further develop these products . these new fundraising strategies differ from our traditional fundraising model and have meaningfully increased our fundraising expenses and are likely to continue to do so . our successful deployment of capital . story_separator_special_tag our ability to maintain and grow our revenue base is dependent upon our ability to deploy successfully the capital that our investors have committed to our investment funds . greater competition , high valuations , increased overall cost of credit and other general market conditions may impact our ability to identify and execute attractive investments . additionally , because we maintain a disciplined investment approach and analyze each carry fund transaction based on our ability to achieve our targeted returns while taking on a reasonable level of risk , we will not deploy our capital until we have sourced a suitable investment opportunity . we have a long-term investment horizon and the capital deployed in any one quarter may vary significantly from the capital deployed in any other quarter or the quarterly average of capital deployed in any given year . during the year ended december 31 , 2013 , we invested over $ 8 billion in new and existing investments in our carry funds . over the past five years , we have invested an average of more than $ 8 billion a year in new and existing investments in our carry funds . as of december 31 , 2013 , we had capital available for investment through our carry funds of $ 32 billion , we had capital available for investment in our solutions segment through our fund of funds vehicles of $ 17 billion and we had over $ 14 billion in hedge fund assets invested across credit , equities , and commodities trading strategies . our ability to generate strong absolute and risk adjusted returns . the strength of our investment performance affects investors ' willingness to commit capital to our funds . the capital we are able to attract is one of the main drivers of the growth of our aum and the management fees we earn . during the year ended december 31 , 2013 , we realized proceeds of over $ 17 billion for our carry fund investors . our decision to realize carry considers such factors as the level of embedded valuation gains , the portion of the fund invested , the portion of the fund returned to limited partner investors , and the length of time the fund has been in carry , as well as other qualitative measures . the valuation of our carry fund portfolio increased 20 % overall during 2013 with a 30 % increase in our corporate private equity segment , a 28 % increase in our global market strategies segment and a 1 % increase in our real assets segment . during the fourth quarter of 2013 alone we achieved a 6 % overall increase in the valuation of our carry fund portfolio , with a 9 % increase in our corporate private equity segment , a 10 % increase in our global market strategies segment and a 1 % decline in our real assets segment . there can be no assurance that these trends will continue , though we focus our efforts on maximizing the valuation of our portfolio . given the current investment environment with increased competition from other financial sponsors and strategic purchasers , the internal rates of return we are able to generate on certain of our near-term investments may be lower than our historical rates , but we continue to follow our core investment tenets and disciplined approach to participate in transactions that we believe will be the most successful for our investors . the timing of the expiration of the investment periods of our funds and the raising of successor funds . in general , the expiration of the original investment period ( regardless of whether it is extended ) of our carry funds will trigger a change in the capital base on which management fees are calculated from committed capital to invested capital at cost . in some cases , a step-down in the applicable rate used to calculate management fees may also occur . as a result , the management fee revenues we earn from these extended funds will decline . in certain circumstances , this reduction will occur prior to the raising of a successor fund . the favorable impact on fee-earning aum and related management fee revenues of a successor fund or new fundraising initiatives will , to the extent of the success of these new funds or initiatives , offset the management fee revenue reductions . for example , during 2013 , we had several funds move out of their investment period at the same time as we were raising successor funds , which caused a gap period for generating fees . we expect to see this trend begin to reverse as these new funds begin their investment period . 88 recent transactions on october 3 , 2013 , the partnership borrowed 12.6 million ( $ 17.4 million as of december 31 , 2013 ) under a new term loan and security agreement with a financial institution . proceeds from the borrowing were used to fund the partnership 's investment in a clo . the facility is scheduled to mature on the earlier of five years after closing or the date that the clo is dissolved . refer to note 8 to our consolidated financial statements included in this annual report on form 10-k for more information . on november 1 , 2013 , the partnership acquired 100 % of metropolitan , one of the largest managers of indirect investments in global real estate , which manages 22 fund of funds vehicles with $ 2 billion in aum as of december 31 , 2013. refer to note 3 to our consolidated financial statements included in this annual report on form 10-k for more information .
| 101 replace_table_token_12_th 102 year ended december 31 , 2013 compared to the year ended december 31 , 2012. revenues total revenues were $ 4,441.2 million for the year ended december 31 , 2013 , an increase of 49 % over total revenues in 2012. the increase in revenues was primarily attributable to an increase in performance fees and interest and other income of consolidated funds , which increased $ 1,334.2 million and $ 139.6 million , respectively , for the year ended december 31 , 2013 as compared to 2012. fund management fees . fund management fees increased $ 7.0 million , or 1 % , to $ 984.6 million for the year ended december 31 , 2013 as compared to 2012. in addition , fund management fees from consolidated funds increased $ 45.5 million for the year ended december 31 , 2013 as compared to 2012. these fees eliminate upon consolidation of these funds . the overall increase , inclusive of management fees eliminated from consolidated funds , was primarily due to approximately $ 149.0 million of incremental management fees from the commencement of the investment period for certain newly raised funds and catch-up management fees from subsequent closes of funds that are in the fundraising period , approximately $ 61.1 million of increased management fees from greater assets under management in esg , claren road , and alpinvest , and approximately $ 12.7 million of incremental management fees related to the acquisition of vermillion in october 2012. offsetting these increases were decreases in management fees of approximately $ 166.1 million resulting from the change in the basis for earning management fees from commitments to invested capital for certain funds and from investment sales and monetizations in funds where the management fee basis is invested capital . fund management fees include transaction and portfolio advisory fees , net of rebate offsets , of $ 50.6 million and $ 49.5 million for the years ended december 31 , 2013 and 2012 , respectively . performance
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stanson is a saas-based provider of clinical decision support tools that are integrated directly into the electronic health record workflow , to help provide real-time , patient-specific best practices at the point of care . stanson is reported as part of the performance services segment . see note 3 - business acquisitions to the consolidated financial statements included in this annual report for further information . acquisition of innovatix and essensa on december 2 , 2016 , we acquired the remaining 50 % ownership interest of innovatix , llc ( `` innovatix '' ) that we did not already own , and 100 % of the ownership interest in essensa ventures , llc ( `` essensa '' ) for an adjusted purchase price of $ 336.0 million . innovatix and essensa specialize in group purchasing in the continuum of care market , or institutional healthcare providers that are outside the acute care hospital or health system . innovatix and essensa are reported as part of the supply chain services segment . see note 3 - business acquisitions to the consolidated financial statements included in this annual report for further information . acquisition of acro on august 23 , 2016 , we acquired 100 % of the membership interests in each of acro pharmaceutical services llc and community pharmacy services , llc ( collectively , `` acro pharmaceuticals '' ) for an adjusted purchase price of $ 62.9 million . acro pharmaceuticals was primarily a specialty pharmacy . see `` discontinued operations '' below for a discussion of the sale of certain assets of our specialty pharmacy business and note 3 - business acquisitions and note 4 - discontinued operations and exit activities to the consolidated financial statements included in this annual report for further information . divestiture of specialty pharmacy business - discontinued operations on june 7 , 2019 , we completed the sale of prescription files and records and certain other assets used in our specialty pharmacy business for $ 22.3 million . we also received $ 7.6 million related to the sale of a portion of our pharmaceutical inventory on june 10 , 2019 , and an additional $ 3.6 million on july 24 , 2019 primarily in connection with the sale of our remaining pharmaceutical inventory . in addition , during the fourth quarter of fiscal year 2019 , we finalized and commenced a plan to wind down and exit from the specialty pharmacy business . we recognized non-cash impairment charges of $ 80.4 million during the year ended june 30 , 2019 related to goodwill , purchased intangibles and other assets of the specialty pharmacy business that were not sold or did not have an alternative use . we met the criteria for classifying certain assets and liabilities of the specialty pharmacy business as a discontinued operation as of june 30 , 2019 . accordingly , unless otherwise indicated , information in this annual report has been retrospectively adjusted to reflect continuing operations for all periods presented . see note 4 - discontinued operations and exit activities to the consolidated financial statements included in this annual report for further information . market and industry trends and outlook we expect that certain trends and economic or industry-wide factors will continue to affect our business , both in the short-term and long-term . we have based our expectations described below on assumptions made by us and on information currently available to us . to the extent our underlying assumptions about , or interpretation of , available information prove to be incorrect our actual results may vary materially from our expected results . see `` cautionary note regarding forward-looking statements '' and `` risk factors . '' trends in the u.s. healthcare market affect our revenues and costs in the supply chain services and performance services segments . the trends we see affecting our current healthcare business include the impact of the implementation of current or future healthcare legislation , particularly the uncertainty regarding the status of the aca , its repeal , replacement or other modification , the enactment of new regulatory and reporting requirements , expansion and contraction of insurance coverage and associated costs that may impact subscriber elections , intense cost pressure , payment reform , provider consolidation , shift in care to the alternate site market and increased data availability and transparency . to meet the demands of this environment , there will be increased focus on scale and cost containment and healthcare providers will need to measure and report on and bear financial risk for outcomes . we believe these trends will result in increased demand for our supply chain services and performance services solutions in the areas of cost management , quality and safety , and population health management , however , there are uncertainties and risks that may affect the 50 actual impact of these anticipated trends or related assumptions on our business . see `` cautionary note regarding forward-looking statements '' for more information . critical accounting policies and estimates below is a discussion of our critical accounting policies and estimates . these and other significant accounting policies are set forth under note 2 - significant accounting policies in the accompanying financial statements . business combinations we account for acquisitions of a business using the acquisition method . all of the assets acquired , liabilities assumed , contractual contingencies and contingent consideration are generally recognized at their fair value on the acquisition date . any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill . acquisition-related costs are recorded as expenses in the consolidated statements of income . several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed . for intangible assets , we typically use the income method . this method starts with a forecast of all of the expected future net cash flows for each asset . story_separator_special_tag these cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams . some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows , the discount rate selected to measure the risks inherent in the future cash flows and the assessment of the asset 's life cycle and the competitive trends impacting the asset , including consideration of any technical , legal , regulatory or economic barriers to entry . determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives . goodwill goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses . goodwill is not amortized . we perform our annual goodwill impairment testing on the first day of the last fiscal quarter of its fiscal year unless impairment indicators are present which could require an interim impairment test . under accounting rules , we may elect to perform a qualitative assessment to determine if an impairment is more likely than not to have occurred . this qualitative assessment requires an evaluation of any excess of fair value over the carrying value for a reporting unit and significant judgment regarding potential changes in valuation inputs , including a review of our most recent long-range projections , analysis of operating results versus the prior year , changes in market values , changes in discount rates and changes in terminal growth rate assumptions . if it is determined that an impairment is more likely than not to exist , then we are required to perform a quantitative assessment to determine whether or not goodwill is impaired and to measure the amount of goodwill impairment , if any . we early adopted asu 2017-04 using the required prospective approach , effective april 1 , 2019. subsequent to the adoption of asu 2017-04 , a goodwill impairment charge is recognized for the amount by which the reporting unit 's carrying amount exceeds its fair value . we determine the fair value of a reporting unit using a discounted cash flow analysis that is corroborated by a market-based approach . determining fair value requires the exercise of significant judgment , including judgment about appropriate discount rates , perpetual growth rates and the amount and timing of expected future cash flows . the cash flows employed in the discounted cash flow analyses are based on the most recent budget and long-term forecast . the discount rates used in the discounted cash flow analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units . the market comparable approach estimates fair value using market multiples of various financial measures compared to a set of comparable public companies and recent comparable transactions . our most recent annual impairment testing as of april 1 , 2019 consisted of a quantitative assessment and did not result in any goodwill impairment charges . during the fourth quarter of fiscal year 2019 , we performed an interim assessment of goodwill and other long-lived assets of the specialty pharmacy business for impairment following the announcement of our commitment to sell certain assets of the specialty pharmacy business and to wind down and exit the specialty pharmacy business . see note 4 - discontinued operations and exit activities for further information . tras we record tax receivable agreement ( `` tra '' ) liabilities based on 85 % of the estimated amount of tax savings we expect to receive , generally over a 15 -year period , in connection with the additional tax benefits created in conjunction with the initial public offering ( `` ipo '' ) . tax payments under the tra will be made to the member owners as we realize tax benefits attributable to the initial purchase of class b common units from the member owners made concurrently with the ipo and any subsequent exchanges of 51 class b common units into class a common stock or cash between us and the member owners . determining the estimated amount of tax savings we expect to receive requires judgment as deductibility of goodwill amortization expense is not assured and the estimate of tax savings is dependent upon the actual realization of the tax benefit and the tax rates in effect at that time . changes in estimated tra liabilities that are the result of a change in tax accounting method are recorded in remeasurement of tax receivable agreement liabilities in the consolidated statements of income . changes in estimated tra liabilities that are related to new basis changes as a result of the exchange of class b common units for a like number of shares of class a common stock or as a result of departed member owners are recorded as an increase or decrease to additional paid-in capital in the consolidated statements of stockholders ' deficit . revenue recognition we account for a contract with a customer when the contract is committed , the rights of the parties , including payment terms , are identified , the contract has commercial substance and consideration is probable of collection . revenue is recognized when , or as , control of a promised product or service transfers to a customer , in an amount that reflects the consideration to which we expect to be entitled in exchange for transferring those products or services . if the consideration promised in a contract includes a variable amount , we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method . our contracts may include terms that could cause variability in the transaction price , including , for example , revenue share , rebates , discounts , and variable fees based on performance .
| we experience quarterly fluctuations in net administrative fees revenue due to periodic variability associated with the receipt of supplier member purchasing reports and administrative fee payments at quarter-end ; however , we expect our net administrative fees revenue to continue to grow to the extent our existing members increase the utilization of our contracts and additional members convert to our contract portfolio . due to competitive market trends , we have experienced , and expect to continue to experience , requests , at times , to provide existing and prospective members increases in revenue share on incremental or overall purchasing volume . other services and support revenue other services and support revenue increased $ 0.7 million , or 10 % , to $ 8.6 million from the year ended june 30 , 2018 to the year ended june 30 , 2019 . growth in service fees from our academic initiative of $ 5.4 million was offset by the impact of revenue recognition under the new revenue standard related to our partnership with a third party to provide pharmacy benefit management services . other services and support revenue increased $ 0.8 million , or 11 % , to $ 7.8 million from the year ended june 30 , 2017 to the year ended june 30 , 2018 . product revenue product revenue increased $ 11.8 million , or 7 % , to $ 184.2 million from the year ended june 30 , 2018 to the year ended june 30 , 2019 . the increase was primarily driven by growth in commodity products and aggregated purchasing of certain products , partially offset by the $ 3.1 million impact of revenue recognition under the new revenue standard on distributor fees , which were historically recognized on a gross basis under the previous revenue standard but are now recognized on a net basis under the new revenue standard . product revenue increased $ 24.0 million , or 16 % , to $ 172.3 million from the year ended june 30 , 2017 to
| 13,013 |
in 2017 , the company generated operating cash flow of $ 1,144.2. tax cuts and jobs act of 2017 on december 22 , 2017 , the united states federal government enacted the tax cuts and jobs act ( “ tax act ” ) , marking a change from a worldwide tax system to a modified territorial tax system in the united states . as part of this change , the tax act , among other changes , provides for a transition tax on the accumulated unremitted foreign earnings and profits of the company 's foreign subsidiaries ( “ transition tax ” ) and a reduction of the u.s. federal corporate income tax rate from 35 % to 21 % . as a result , in the fourth quarter of 2017 , the company recorded an income tax charge of $ 398.5 ( “ tax act charge ” ) that was comprised of ( i ) the transition tax of $ 259.4 , ( ii ) a charge of $ 176.6 related to changes in the company 's permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries , partially offset by ( iii ) a tax benefit of $ 37.5 associated with the remeasurement of the company 's u.s. net deferred tax liabilities due to the u.s. federal corporate tax rate reduction . as discussed under critical accounting policies and estimates within this item 7 , the three components of the tax act charge are provisional amounts recorded in accordance with staff accounting bulletin no . 118 ( “ sab 118 ” ) . sab 118 addresses the application of u.s. gaap in situations where a registrant does not have the necessary information available , prepared , or analyzed in reasonable detail to complete the accounting for certain income tax effects of the tax act . due to the timing of the tax act 's enactment and the complexity of its provisions , the company has not completed its accounting for the impact of the tax act . the company will analyze guidance and technical interpretations of the provisions of the tax act , as well as refine , analyze and update the underlying data , computations and assumptions used to prepare the tax act charge . the company will complete its accounting in 2018 once the company has obtained , prepared and fully analyzed all the necessary information . refer to note 4 of the notes to the consolidated financial statements for further discussion on the tax act . for a discussion of certain risks associated with changes to fiscal and tax policies including the tax act , refer to the risk factor titled “ changes in fiscal and tax policies , audits and examinations by taxing authorities could impact the company 's results ” in part i , item 1a herein . 22 story_separator_special_tag adjusted effective tax rate and adjusted diluted eps ( all defined in the “ non-gaap financial measures ” section below ) to the most directly comparable u.s. gaap financial measures for the years ended december 31 , 2017 and 2016 : replace_table_token_8_th ( 1 ) while the terms “ operating margin ” and “ effective tax rate ” are not considered gaap measures , for purposes of this table , we derive the reported ( gaap ) measures based on gaap results , which serve as the basis for the reconciliation to their comparable non-gaap measure . 2016 compared to 2015 net sales were $ 6,286.4 for the year ended december 31 , 2016 compared to $ 5,568.7 for the year ended december 31 , 2015 , an increase of 13 % in u.s. dollars , 14 % in constant currencies and 2 % organically ( excluding both currency and acquisition impacts ) over the prior year . net sales in the interconnect products and assemblies segment ( approximately 94 % of net sales ) increased 13 % in u.s. dollars , 14 % in constant currencies and 2 % organically in 2016 , compared to 2015. the sales growth was driven primarily by growth in the information technology and data communications , industrial , automotive , mobile networks and military markets , with contributions from both the company 's acquisitions as well as organic strength , partially offset by a decline in sales in the mobile devices market and a slight decline in the commercial aerospace market . net sales to the information technology and data communications market increased ( approximately $ 404.0 ) , reflecting the benefits of fci and other acquisitions as well as growth in products for data centers , including server , networking and storage-related applications . net sales to the industrial market increased ( approximately $ 183.9 ) reflecting the benefit of acquisitions including fci as well as sales strength in hybrid bus and truck , factory automation and heavy equipment , which was partially offset by sales declines in 25 products sold into oil and gas exploration and alternative energy applications . net sales to the automotive market increased ( approximately $ 118.3 ) , driven by both an expansion of our products across a diversified range of vehicles and new onboard electronics as well as contributions from acquisitions . net sales to the mobile networks market increased ( approximately $ 114.9 ) , primarily due to contributions from acquisitions including fci as well as increased sales to mobile network service providers and original equipment manufacturers . net sales to the military market increased ( approximately $ 24.0 ) , driven primarily by increased sales into avionics packaging and military airframe applications . net sales to the mobile devices market decreased ( approximately $ 158.8 ) primarily due to declining sales of products incorporated into tablets , smartphones and production-related products , partially offset by growth in sales of products incorporated into new wearable technologies . net sales to the commercial aerospace market slightly decreased ( approximately $ 2.5 ) due to decreases in commercial helicopter and business jet demand which offset the growth associated with new airplane platforms . story_separator_special_tag net sales in the cable products and solutions segment ( approximately 6 % of net sales ) , which is primarily in the broadband communications market , increased 10 % in u.s. dollars , 12 % in constant currencies and 9 % organically in 2016 , compared to 2015 , primarily due to the sales increase in the broadband communications market and contributions from an acquisition made during the second half of 2016. the table below reconciles constant currency net sales growth and organic net sales growth to the most directly comparable u.s. gaap financial measures , by segment and consolidated , for the years ended december 31 , 2016 and 2015 : replace_table_token_9_th ( 1 ) net sales growth in u.s. dollars is calculated based on net sales as reported in the consolidated statements of income and note 11 of the accompanying financial statements . ( 2 ) foreign currency translation impact , a non-gaap measure , represents the impact on net sales resulting from foreign currency exchange rate changes in the current year period ( s ) compared to the prior year . such amount is calculated by translating current year net sales at average foreign currency exchange rates for the respective prior year . ( 3 ) constant currency net sales growth and organic net sales growth are non-gaap financial measures as defined in the `` non-gaap financial measures '' section . ( 4 ) acquisition impact , a non-gaap measure , represents the impact on net sales resulting from acquisitions closed during the years presented , which were not included in the company 's results as of the comparable prior year and which do not reflect the underlying growth of the company on a comparative basis . geographically , net sales in the u.s. in 2016 increased approximately 3 % in u.s. dollars ( $ 1,740.7 in 2016 versus $ 1,696.3 in 2015 ) compared to 2015. international sales in 2016 increased approximately 17 % in u.s. dollars ( $ 4,545.7 in 2016 versus $ 3,872.4 in 2015 ) , 19 % in constant currencies and 5 % organically , compared to 2015 with strength in both asia and europe . the comparatively stronger u.s. dollar in 2016 had the effect of decreasing net sales by approximately $ 61.3 compared to 2015. gross profit margin as a percentage of net sales was 32.5 % in 2016 compared to 31.9 % in 2015. the increase in gross profit margin as a percentage of net sales relates primarily to higher gross profit margins in the interconnect products and assemblies segment reflecting the benefit of higher volumes and cost reduction actions as well as the impact of the fci acquisition , which had higher gross margins than the average of the company . selling , general and administrative expenses were $ 798.2 or 12.7 % of net sales for 2016 , compared to $ 669.1 or 12.0 % of net sales for 2015. the increase is driven primarily by the impact of the fci acquisition , which has higher selling , general and administrative expenses as a percentage of net sales than the average of the company . administrative expenses increased approximately $ 41.2 in 2016 primarily related to the impact of the fci acquisition and increases in the amortization of acquisition-related identified intangible assets and stock-based compensation expense and represented approximately 4.9 % of net sales in 2016 and 4.8 % of net sales in 2015. research and development expenses increased approximately $ 41.4 in 2016 primarily related to the impact of the fci acquisition and represented approximately 2.6 % of net sales in 2016 and 2.2 % of net sales in 2015. selling and marketing expenses increased approximately $ 46.5 in 2016 primarily related to the impact of the fci acquisition and an increase in sales volume and represented approximately 5.1 % of net sales in 2016 and 5.0 % of net sales in 2015 . 26 operating income was $ 1,205.2 or 19.2 % of net sales in 2016 , compared to $ 1,104.7 or 19.8 % of net sales in 2015. operating income for 2016 includes $ 36.6 of acquisition-related expenses , which included external transaction costs , amortization related to the value associated with acquired backlog and post-closing restructuring charges related to the fci acquisition , as well as transaction costs associated with other acquisitions . operating income for 2015 includes $ 5.7 of acquisition-related expenses , which includes professional and transaction-related fees and other external expenses related to acquisitions closed and announced in 2015. these acquisition-related expenses are separately presented in the consolidated statements of income . for the years ended december 31 , 2016 and 2015 , these expenses had an impact on net income of $ 33.1 , or $ 0.11 per share , and $ 5.7 , or $ 0.02 per share , respectively . excluding the effect of these acquisition-related expenses , adjusted operating income and adjusted operating margin , as defined in the “ non-gaap financial measures ” section below , were $ 1,241.8 or 19.8 % of net sales in 2016 and $ 1,110.4 or 19.9 % in 2015. the decrease in adjusted operating margin for 2016 compared to 2015 , relates to the decrease in operating margin for the interconnect products and assemblies segment . operating income for the interconnect products and assemblies segment in 2016 was $ 1,280.3 or 21.6 % of net sales , compared to $ 1,158.3 or 22.1 % of net sales in 2015. the slight decrease in operating income margin is driven by the impact of the fci acquisition , which had a lower operating margin than the average of the interconnect products and assemblies segment for the full year period .
| net sales to the military market increased ( approximately $ 77.8 ) , driven by broad strength across substantially all segments of the market including increased sales into military communications and military airframe applications , as well as missile applications . net sales to the commercial aerospace market slightly increased ( approximately $ 9.9 ) primarily due to the contributions from acquisitions as well as strength in large passenger planes , partially offset by continued weakness in demand for business jets and helicopters . net sales to the mobile networks market decreased ( approximately $ 20.3 ) , primarily due to reduced overall capital spending by mobile operators . net sales in the cable products and solutions segment ( approximately 6 % of net sales ) , which is primarily in the broadband communications market , increased 11 % in u.s. dollars and 10 % in constant currencies in 2017 , compared to 2016 , primarily due to contributions from an acquisition made during the second half of 2016 . 23 the table below reconciles constant currency net sales growth and organic net sales growth to the most directly comparable u.s. gaap financial measures , by segment and consolidated , for the years ended december 31 , 2017 and 2016 : replace_table_token_7_th ( 1 ) net sales growth in u.s. dollars is calculated based on net sales as reported in the consolidated statements of income and note 11 of the accompanying financial statements . ( 2 ) foreign currency translation impact , a non-gaap measure , represents the impact on net sales resulting from foreign currency exchange rate changes in the current year period ( s ) compared to the prior year . such amount is calculated by translating current year net sales at average foreign currency exchange rates for the respective prior year . ( 3 ) constant currency net sales growth and organic net sales growth are non-gaap financial measures as defined in the `` non-gaap financial measures '' section . ( 4 ) acquisition impact , a non-gaap measure , represents the impact on net sales resulting from acquisitions closed during the years presented , which were not included in the company 's results as of
| 13,014 |
secondary objectives are to characterize the pharmacokinetics of single doses of dcr-phxc in nhvs and patients with ph , and to evaluate the pharmacodynamic effects of single doses of dcr-phxc on biochemical markers including , but not limited to , changes in urine oxalate concentrations . patients with ph will be dosed after safety has been established at the same dose level in normal healthy volunteers . we plan to dose the first patient in group b in the second quarter of 2018 and expect to have clinical proof-of-concept ( poc ) data in the second half of 2018. we have submitted ctas in germany , france and the netherlands . additionally , we expect to initiate a multi-dose phase 2/3 study in the first quarter of 2019 , pending positive poc data and regulatory approvals . on july 15 , 2017 , in a series of presentations at the 12th international workshop on primary hyperoxaluria for professionals , patients and families in tenerife , spain ( 12th international workshop ) , we presented new preclinical data suggesting the potential utility of dcr-phxc for 80 treating all forms of ph . in particular , we presented research from animal models demonstrating how dcr-phxc inhibits the lactate dehydrogenase a ( ldha ) gene , which we have identified as potentially being an optimal therapeutic target in patients with ph . ldha inhibition was shown in animal models to reduce oxalate to normal or near-normal levels in ph types 1 , 2 and ethylene glycol-induced hyperoxaluria ( a model for idiopathic ph ) . ldha reduction has a near-linear correlation with oxalate reduction and offers a minimal metabolic intervention . these benefits of ldha inhibition may translate into consistent therapeutic activity even in the event of a missed dose . there are numerous case reports of ldha deficiency naturally occurring in humans , with no reported adverse effects due to deficiency in the liver . to facilitate dcr-phxc development , we have completed our primary hyperoxaluria observational study ( phyos ) , an international , multicenter , observational study in patients with a genetically confirmed diagnosis of ph1 . phyos collected data on key biochemical parameters implicated in the pathogenesis of ph1 . we are using the data to better understand the baseline ph1 disease state , which will help guide long-term drug development plans . at the 12th international workshop , we reported interim data from the study 's 20 enrolled patients with a median age at screening of 21 years ( range 12-61 years ) . the patients had been diagnosed at a median age of 7 years ( range 1-59 years ) , and 14 patients ( 74 % ) had a medical history of renal stones . over the six-month observation period , the variability ( coefficient of variation ) between 24-hour urine measurements of oxalate at different time points was 28 % . our clinical team is using these data to design clinical studies using 24-hour urinary oxalate excretion as a surrogate marker for clinical benefit . we expect to publish data from phyos in 2018. an undisclosed rare disease involving the liver . we are developing a galxc-based therapeutic , targeting a liver-expressed gene involved in a serious rare disease . for competitive reasons , we have not yet publicly disclosed the target gene or disease . we have selected this target gene and disease based on criteria that include having a strong therapeutic hypothesis , a readily-identifiable patient population , the availability of a potentially predictive biomarker , high unmet medical need , favorable competitive positioning and what we believe is a rapid projected path to approval . the disease is a genetic disorder , where mutations in the disease gene lead to the production of an abnormal protein . the protein causes progressive liver damage and fibrosis , in some cases leading to cirrhosis and liver failure , and we believe that silencing of the disease gene will prevent production of the abnormal protein and thereby slow or stop progression of the liver fibrosis . greater than 100,000 people in the united states ( u.s. ) are believed to be homozygous ( i.e . having identical pairs of genes for any given pair of hereditary characteristics ) for the mutation that causes the liver disease , and at least 20 % of those people , and potentially a significantly higher fraction , are believed to have liver-associated disease as a consequence . we plan to seek a risk-sharing collaborator for this program before we file an ind and or cta , which we expect to be prepared to file in the second quarter of 2018. chronic hepatitis b virus infection . we have declared a galxc rnai platform-based product candidate for the treatment of hbv , dcr-hbvs , and are conducting formal non-clinical development studies . we expect to file an ind and or a cta during the fourth quarter of 2018. current therapies for hbv rarely lead to a long-term immunological cure as measured by the clearance of hbv surface antigen ( hbsag ) and sustained hbv deoxyribonucleic acid ( dna ) suppression in patient plasma or blood . we expect to file an ind and or a cta during the fourth quarter of 2018. dcr-hbvs targets hbv messenger rna , and leads to greater than 99 % reduction in circulated hbsag in mouse models of hbv infection . based on these preclinical studies , and only if we receive appropriate regulatory approval to begin human clinical trials , we hope to determine the potential of dcr-hbvs to reduce hbsag and hbv dna levels in the blood of hbv patients in a commercially attractive subcutaneous dosing paradigm . hypercholesterolemia ( pcsk9 targeted therapy ) . we are using our galxc rnai platform to develop a therapeutic that targets the pcsk9 gene for the treatment of hypercholesterolemia . the company has selected a provisional clinical candidate for the program , but is continuing to explore 81 ways to further optimize the program . story_separator_special_tag pcsk9 is a validated target for hypercholesterolemia , and there are u.s. food and drug administration ( fda ) -approved therapies targeting pcsk9 that are based on monoclonal antibody technology . based on preclinical studies , we believe that our galxc rnai platform has the potential to produce a pcsk9-targeted therapy with attractive commercial properties , such as small subcutaneous injection volumes and less frequent dosing . additional pipeline programs . we have developed a robust portfolio of additional targets and diseases that we plan to pursue either on our own or in collaboration with partners . we have applied our galxc technology to multiple gene targets across our disease focus areas of rare diseases , chronic liver diseases and cardiovascular diseases . pursuant to our strategy , we are seeking collaborations with larger pharmaceutical companies to advance our programs in the areas of chronic liver diseases and cardiovascular diseases . both these disease areas represent large and diverse patient populations , requiring complex clinical development and commercialization paths that we believe can be more effectively pursued in collaboration with larger pharmaceutical companies . for our additional rare diseases , we are continuing to assess their potential for clinical success and market opportunity while optimizing our galxc molecules . for our additional pipeline programs ( including pcsk9 ) , we may utilize more advanced versions of our galxc technology , that further improve pharmaceutical properties of the galxc molecules , including enhancing the duration of action and potency . we have further optimized our galxc technology platform , enabling the development of next generation galxc molecules . improvements to our galxc compound include modification of the tetraloop end of the molecule , which can be applied to any target gene and program , resulting in a substantially longer duration of action in animal models across multiple targets . modification of the tetraloop only impacts the passenger strand and does not impact the guide strand . these modifications are unique to our galxc molecules and , we believe , provide a competitive advantage for the company . in addition to the galxc development programs outlined above , on october 27 , 2017 , we entered into a collaborative research and license agreement with boehringer ingelheim international gmbh , a wholly owned subsidiary of c.h . boehringer sohn ag & co. kg ( bi ) ( the bi agreement ) , pursuant to which the company and bi jointly research and develop product candidates for the treatment of chronic liver diseases , with an initial focus on nonalcoholic steatohepatitis ( nash ) using our galxc platform . nash is caused by the buildup of fat in the liver , potentially leading to liver fibrosis and cirrhosis . nash has an especially high prevalence among obese and diabetic patients and is an area of high unmet medical need . the bi agreement is for the development of product candidates against one target gene with an option for bi to add the development of product candidates that target a second gene . we are working exclusively with bi to develop the product candidates against the undisclosed target gene . we are responsible for the discovery and initial profiling of the product candidates , including primary pre-clinical studies , synthesis , and delivery . bi is responsible for evaluating and selecting the product candidates for further development . if bi selects one or more product candidates , it will be responsible for further pre-clinical development , clinical development , manufacturing and commercialization of those products . also pursuant to the bi agreement , we granted bi a worldwide license in connection with the research and development of the product candidates and will transfer to bi intellectual property rights of the product candidates selected by bi for clinical development and commercialization . we also may provide assistance to bi in order to help bi further develop selected product candidates . pursuant to the bi agreement , bi agreed to pay us a non-refundable upfront payment of $ 10.0 million for the first target . during the term of the research program , bi will reimburse us the cost of materials and third-party expenses that have been included in the preclinical studies up to an agreed-upon limit . we are eligible to receive up to $ 191.0 million in potential development and commercial milestones related to the initial target . we are also eligible to receive royalty payments on potential global net sales , subject to certain adjustments , tiered from high single digits up to low double-digits . bi 's option to add a second target would provide for an option fee payment and success-based development and commercialization milestones and royalty payments to us . we are party to a collaboration for our early generation of non-galxc dicer substrate rnai technology against two targets , the kras oncogene and an additional undisclosed gene , with the global pharmaceutical 82 company kyowa hakko kirin co. , ltd. ( khk ) , to use for development in oncology and formulated using khk 's proprietary drug delivery system . khk has provided us with notice of termination related to the non-kras program . we also have developed a wholly owned clinical candidate , dcr-bcat , targeting the ß-catenin oncogene . dcr-bcat is based on an extended version of our earlier generation non-galxc dicer substrate rnai technology and is delivered by our lipid nanoparticle tumor delivery system , encore tm . we plan to out-license or spin out the dcr-bcat opportunity , given our focus on our galxc platform-based programs . corporate developments underwritten public offering on december 18 , 2017 , we completed an underwritten follow-on public offering of 5,714,286 shares of common stock ( the 2017 offering ) .
| the increase was partially offset by a decrease in comparative clinical activities related to our non-galxc platform clinical trials , which were discontinued during 2016. platform-related expenses decreased primarily as a result of lower spending in discovery and early development programs , which advanced in 2017 into manufacturing and clinical testing . employee-related expenses decreased due to an overall decrease in headcount from 2016 , along with a decrease in non-cash stock-based compensation costs . we expect our overall research and development expenses to increase in 2018 , as compared to 2017 , as we continue spending on our development programs and related resources , including the continued advancement of our lead product candidate , dcr-phxc , through clinical trials . general and administrative expenses general and administrative expenses were $ 25.9 million and $ 18.3 million for the years ended december 31 , 2017 and 2016 , respectively . the increase of $ 7.6 million was primarily due to higher costs associated with the litigation with alnylam pharmaceuticals , inc. ( alnylam ) , in addition to higher salaries , benefits and other employee-related expenses . we expect general and administrative expenses to decrease in 2018 , as compared to 2017 , largely because we expect to incur lower legal expenses in 2018. interest income interest income is comprised primarily of interest earned from our money market accounts and held-to-maturity investments . interest income was $ 0.5 million and $ 0.2 million for the years ended december 31 , 2017 and 2016 , respectively . the increase was primarily due to higher invested amounts in 2017 primarily as a result of the receipt of net proceeds from the private placement , which closed in april 2017. dividends non-cash dividends of $ 10.1 million recorded during the year ended december 31 , 2017 represent the fair value of accrued dividends on the redeemable convertible preferred issued to the preferred holders , as well as 92 full accretion of share issuance costs . the fair value of the dividends on the dividend dates of june 30 , 2017 and september 30 , 2017 was determined using a binary lattice model that captured the intrinsic value of the underlying common
| 13,015 |
the price of crude oil has declined significantly since mid-2014 and remains depressed compared to recent historical averages primarily due to increased global supply of crude oil and a less optimistic forecast of worldwide economic growth . the decline in the price of oil has negatively impacted the cash flow of our customers and has led them to reduce capital and operational expenditures from prior levels , including reductions related to offshore exploration , development and production activities . although our customers typically base their capital expenditure budgets on their long-term commodity price expectations , many of our customers have significantly reduced capital spending plans and taken measures to reduce costs . we have experienced customer contract cancellations and decreased fleet utilization in the current environment as some of our customers have decreased the number of helicopters on contract or canceled their contract upon limited notice . moreover , even where such contractual cancellation rights may not exist , our customers have sought to cancel or renegotiate other terms and conditions in our contracts to address their current challenges . in addition , the current adverse economic conditions may increase the ongoing credit risk exposure with respect to the accounts receivable balances owed to us by our customers . based on our recent experience and discussions with our customers about their helicopter transport needs , we anticipate continued demand for our services at recently experienced levels as the oil and gas markets recover . we generate a vast majority of our operating revenue from contracts supporting our oil and gas customers ' offshore production operations , which have long-term transportation requirements . production activities are typically less cyclical than the exploration and development activities because production platforms remain in place over the long-term and are relatively unaffected by economic cycles , as the marginal cost of lifting a barrel of oil once a platform is in operation is low . if there are further declines in the price of oil and gas , or if current price levels are maintained for an extended period , there could be a delay or cancellation of planned offshore projects impacting our operations in future periods . the remainder of our oil and gas revenue primarily comes from transporting personnel to and from offshore drilling rigs . deepwater activity continues to be a significant segment of the global offshore oil and gas markets and typically involves significant capital investment and multi-year development plans . such projects are generally underwritten by the oil and gas companies using relatively conservative assumptions relating to oil and gas prices . although these projects are considered to be less susceptible to short-term fluctuations in the price of oil and gas compared to shorter cycle projects , persistently low crude oil prices have caused these companies to reevaluate their future capital expenditures in regards to deepwater projects and have resulted in the rescaling , delay or cancellation of planned offshore projects , which could impact our operations in future periods . we are exposed to foreign currency exchange risk primarily through our euro-denominated capital commitments and our brazilian operations , where we receive a portion of our revenues and incur expenses in the brazilian real . two of the large helicopter oems are headquartered in europe and price many of their helicopters in euros . fluctuations in the value of the u.s. dollar against the euro affects the amount of our unfunded commitments in u.s. dollar terms . although the strength of the u.s. dollar has made the acquisition of euro-denominated helicopter models less expensive for us in recent years , the weakness of the euro also makes such acquisitions less expensive for our competitors and potential competitors , which could lead to excess helicopter capacity and increased competition and jeopardize both pricing and utilization of our equipment . fluctuations in the value of the euro could also destabilize residual values for certain euro-denominated helicopters . additionally , the strengthening of the u.s. dollar may impact the credit risk of , and the ability to make payments to us in u.s. dollars by , our foreign customers that set rates and receive their revenues in other currencies . we believe that we are well positioned to address the near term challenges . our liquidity levels provide a stable foundation in the current market environment and will permit us to , together with operational efficiency improvements benefitting us and our customers , maintain and improve our customer relationships and competitive position . recent developments amendment to the revolving credit facility on october 27 , 2016 , we entered into a third amendment to our revolving credit facility that , among other things , revised our maintenance covenants to provide additional flexibility , reduced the aggregate principal amount of the revolving loan commitments to $ 200.0 million and added a condition to borrowing and a repayment mechanism in connection with excess cash amounts ( see “ liquidity and capital resources ” below ) . competitor bankruptcy a global competitor filed for chapter 11 bankruptcy protection in may 2016 , and it has disclosed that , to date , it has obtained court approval to reject leases resulting in the return to lessors of 78 helicopters , to abandon five owned helicopters to its lenders and to restructure the finance and lease terms with respect to numerous other helicopters . this competitor has disclosed that it intends to emerge from bankruptcy with 100 fewer helicopters in its fleet than it had prior to filing for bankruptcy protection , including the elimination of all but two owned h225 helicopters . the significant fleet reduction by this competitor could potentially 37 increase the available supply of helicopters . these changes in supply could impact helicopter rates and pricing of helicopters in the secondary market . we can not predict the extent of such an impact on us . story_separator_special_tag suspension of h225 and as332 l2 operations in april 2016 , an airbus helicopters h225 ( also known as an ec225lp ) model helicopter operated by the global competitor referenced above was involved in an accident in norway . the helicopter was carrying eleven passengers and two crew members . the accident resulted in thirteen fatalities . the accident investigation board norway ( “ aibn ” ) published preliminary reports that contained findings from the investigation into the accident in may and june 2016 and february 2017. pursuant to a safety recommendation published by the aibn , a number of regulatory authorities issued safety directives suspending operations , with limited exceptions , of all airbus h225 and as332 l2 model helicopters registered in their jurisdictions , and a number of customers and operators voluntarily suspended operations of those two helicopter models . on october 7 , 2016 , the european aviation safety agency issued an airworthiness directive which provides for additional maintenance and inspection requirements to allow these helicopters to return to service . on december 9 , 2016 , the federal aviation administration in the united states issued an alternative means of compliance ( “ amoc ” ) which also provides for additional maintenance and inspection requirements to allow these helicopters to return to service in the united states . however , the civil aviation authorities in norway and the united kingdom , the major european markets for the h225 , have not allowed the helicopters to return to service . since the accident , we believe that h225 helicopters have only returned to service in oil and gas missions in a few countries in asia . we own nine h225 helicopters , including five that are currently located in the u.s. , three that are currently located in brazil and one that was operating in norway under a lease that was rejected in the chapter 11 bankruptcy case referenced above . as of december 31 , 2016 , the net book value of our h225 helicopters and related inventory of parts and equipment was $ 160.7 million . during this suspension of h225 helicopter operations , we expect to utilize other heavy and medium helicopters to service our operations . although we do not expect the near-term impact of the suspension to be material to our financial condition or results of operations , at this time we can not predict how long the suspension of h225 helicopter operations will last , the market receptivity of the h225 helicopter for future oil and gas operations , the potential impact on residual values of these helicopters and the impact a long-term suspension could have on our operating results or financial condition . excess capacity the current excess capacity of our heavy helicopters is higher than in recent years . our fleet 's excess helicopters include those that are not otherwise under customer contracts , undergoing maintenance , dedicated for charter activity or subject to operational suspension . although we take actions to minimize excess capacity , we expect a certain level of excess capacity at any given time in an aviation logistics business as a result of the evolving nature of customers ' needs . our operating revenues were negatively impacted as a result of the higher excess capacity which continued through the end of 2016. through fleet management initiatives , participation in competitive bids and pursuit of additional opportunities , we are focused on maximizing the utilization of our fleet and mitigating the excess capacity in our heavy helicopters . if we are not successful in securing sufficient new projects , we may experience a decline in the near-term utilization of our helicopters that may impact our financial results in 2017 and beyond . fleet developments and capital commitments in recent years , we have continued to focus on the modernization of our fleet and the standardization of equipment . oil and gas companies typically require modern helicopters that offer enhanced safety features and greater performance . in response to this demand , we have transformed our fleet significantly . since the beginning of 2005 , we have added 139 helicopters , disposed of 125 helicopters and reduced the average age of our owned fleet from 17 years to 12 years . we spent $ 39.2 million , $ 60.1 million and $ 106.7 million to acquire helicopters and other equipment in the years ended december 31 , 2016 , 2015 and 2014 , respectively , primarily for heavy and medium helicopters , spare helicopter parts and building improvements . as of march 1 , 2017 , we had unfunded commitments of $ 115.6 million , primarily pursuant to agreements to purchase helicopters , consisting of five aw189 heavy helicopters , two s92 heavy helicopters and five aw169 light twin helicopters . the aw189 helicopters and s92 helicopters are scheduled to be delivered in 2017 through 2019 . delivery dates for the aw169 helicopters have not been determined . approximately $ 102.1 million of these commitments ( inclusive of deposits paid on options not yet exercised ) may be terminated without further liability other than aggregate liquidated damages of $ 2.5 million . in addition , we had outstanding options to purchase up to an additional ten aw189 helicopters . if these options were exercised , the helicopters would be delivered in 2019 and 2020 . components of revenues and expenses we derive our revenues primarily from operating and leasing our equipment , and our profits depend on our cost of capital , the acquisition costs of assets , our operating costs and our reputation . 38 operating revenues recorded under u.s. gulf of mexico , alaska and international are primarily generated from offshore oil and gas exploration , development and production activities and , in alaska , include revenues from utility services . these revenues are typically earned through a combination of fixed monthly fees plus an incremental charge based on flight hours flown .
| these increases were partially offset by a decrease of $ 5.9 million in brazil primarily due to lower utilization during the period in which aeroleo 's revenues were consolidated in both years . revenues from dry-leasing activities were $ 27.6 million lower in the current year . dry-leasing revenues decreased by $ 21.4 million due to the consolidation of aeróleo , by $ 6.4 million due to contracts that ended and by $ 1.5 million due to the bankruptcy of a customer . these decreases were partially offset by increases of $ 1.0 million due to new leases and $ 0.5 million due to lease return charges . operating revenues from sar activities were $ 2.3 million lower in the current year primarily due to fewer subscribers and reduced charter activity . operating revenues from air medical services were consistent with the prior year . revenues decreased by $ 0.7 million primarily due to a contract that ended in march 2015 , partially offset by increases of $ 0.5 million due to increased part sales and $ 0.2 million due to increased flight hours . operating revenues from flightseeing activities were $ 1.3 million lower in the current year primarily due to unfavorable weather conditions which resulted in a shorter flightseeing season and increased flight cancellations . operating revenues from our fixed base operations ( “ fbo ” ) were $ 2.8 million lower in the current year due to the sale of the fbo on may 1 , 2015 . 41 operating expenses . operating expenses were $ 1.6 million lower in the current year . repairs and maintenance expenses were $ 7.7 million lower due to a decrease of $ 4.7 million related to the timing of repairs , a net increase of $ 4.5 million in pbh buyout credits and a $ 3.2 million decrease in pbh expense resulting from reduced flight hours ; these decreases were partially offset by a $ 1.8 million increase related to the correction of immaterial accounting errors , $ 2.3 million reduction
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story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > other expenses replace_table_token_14_th depreciation and amortization was higher in 2015 than 2014 , as higher information technology ( `` it '' ) amortization was partially offset by lower store depreciation due to maturing of our stores . depreciation and amortization was consistent in 2014 and 2013 , as lower store depreciation was only partially offset by higher it amortization . net interest expense decreased $ 13 million , or 4 % , in 2015 as a result of refinancing our debt at lower interest rates during 2015. net interest expense increased $ 2 million , or 1 % , in 2014 due to higher outstanding long-term debt following the september 2013 debt issuance . during 2015 , we completed a cash tender offer and redemption for $ 1,085 million of senior unsecured debt . we recognized a $ 169 million loss on extinguishment of debt which included a $ 163 million bond tender premium paid to holders of the debt and a $ 6 million non-cash write-off of deferred financing costs and original issue discounts associated with the extinguished debt . changes in our effective tax were primarily due to favorable state audit settlements during 2014. inflation although we expect that our operations will be influenced by general economic conditions , including food , fuel and energy prices , and by costs to source our merchandise , we do not believe that inflation has had a material effect on our results of operations . however , there can be no assurance that our business will not be impacted by such factors in the future . liquidity and capital resources the following table presents the primary cash requirements and sources of funds . cash requirements sources of funds operational needs , including salaries , rent , taxes and other costs of running our business capital expenditures inventory ( seasonal and new store ) share repurchases dividend payments cash flow from operations short-term trade credit , in the form of extended payment terms line of credit under our revolving credit facility our working capital and inventory levels typically build throughout the fall , peaking during the november and december holiday selling season . 20 the following table includes cash balances and changes . replace_table_token_15_th ( a ) see the free cash flow discussion later in this liquidity and capital resources section for additional discussion of this non-gaap financial measure . operating activities cash provided by operations decreased $ 550 million , or 27 % , in 2015 to $ 1.5 billion . merchandise inventory increased $ 224 million in 2015 to $ 4.0 billion . inventory per store increased 5.7 % and units per store increased 5 % over 2014. the increases are primarily in national brands . accounts payable as a percent of inventory was 31.0 % at january 30 , 2016 , compared to 39.6 % at january 31 , 2015 . almost half of the decrease was due to the anniversary of the port strike in 2014. lower year-over-year january receipts and higher inventory levels also contributed to the decrease . cash provided by operations increased $ 140 million to $ 2.0 billion in 2014 . the increase was primarily due to decreased inventory spending in 2014. investing activities net cash used in investing activities increased $ 88 million to $ 681 million in 2015 . capital expenditures of $ 690 million in 2015 were generally consistent with 2014 as higher it spending in 2015 was offset by the purchase and build out of a call center in texas in 2014. the following table summarizes expected and actual capital expenditures by major category as a percentage of total capital expenditures : replace_table_token_16_th we expect total capital expenditures of approximately $ 825 million in fiscal 2016 . the actual amount of our future capital expenditures will depend on the number and timing of new stores and refreshes ; expansion and renovations to distribution centers ; the mix of owned , leased or acquired stores ; and it and corporate spending . we do not anticipate that our capital expenditures will be limited by any restrictive covenants in our financing agreements . capital expenditures totaled $ 682 million in 2014 , a $ 39 million increase over 2013. the increase in capital spending is primarily due to the expansion of our corporate campus , increased it spending and the purchase and build out of a call center in texas , partially offset by decreased new store spending . proceeds from sales of investments in auction rate securities were $ 82 million in 2014. all of our auction rate securities were sold in 2014. despite the non-liquid nature of these investments following market conditions that arose in 2008 , we were able to sell substantially all of our investments at par . 21 financing activities our financing activities used cash of $ 1.5 billion in 2015 and $ 1.0 billion in 2014 . the increase was primarily due to greater share repurchases and premium paid on redemption of debt . we repurchased 17 million shares of our common stock for $ 1.0 billion in 2015 and 12 million shares for $ 677 million in 2014 . share repurchases are discretionary in nature . the timing and amount of repurchases is based upon available cash balances , our stock price and other factors . during 2015 , we completed a cash tender offer and redemption for $ 1.1 billion of our higher coupon senior unsecured debt . we recognized a $ 169 million loss on extinguishment of debt which included a $ 163 million bond tender premium paid to holders of the debt and a $ 6 million non-cash write-off of deferred financing costs and original issue discounts associated with the extinguished debt . story_separator_special_tag in july 2015 , we issued $ 650 million of 4.25 % notes due in july 2025 and $ 450 million of 5.55 % notes due in july 2045. both notes include semi-annual , interest-only payments beginning january 17 , 2016. proceeds of the issuances and cash on hand were used to pay the principal , premium and accrued interest of the acquired and redeemed debt . on july 1 , 2015 , we entered into an amended and restated credit agreement with various lenders which provides for $ 1.0 billion senior unsecured five-year revolving credit facility that will mature in june 2020. among other things , the agreement includes a maximum leverage ratio financial covenant ( which is consistent with the ratio under our prior credit agreement ) and restrictions on liens and subsidiary indebtedness . as of january 30 , 2016 , our credit ratings were as follows : moody 's standard & poor 's fitch long-term debt baa1 bbb bbb+ though we have no current intentions to do so , we may again seek to retire or purchase our outstanding debt through open market cash purchases , privately negotiated transactions or otherwise . such repurchases , if any , will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved could be material . during 2015 , we paid cash dividends of $ 349 million as detailed in the following table : replace_table_token_17_th on february 24 , 2016 , our board of directors approved an 11 % increase in our dividend to $ 0.50 per common share which will be paid on march 23 , 2016 to shareholders of record as of march 9 , 2016 . 22 key financial ratios the following ratios provide additional measures of our liquidity , return on investments , and capital structure . replace_table_token_18_th ( a ) non-gaap financial measure liquidity ratios liquidity measures our ability to meet short-term cash needs . in 2015 , working capital decreased $ 359 million and our current ratio decreased 8 basis points from year-end 2014 due to a decrease in cash , which was partially offset by an increase in inventory and decrease in accounts payable . in 2014 , working capital increased $ 309 million and our current ratio increased 8 basis points over year-end 2013 due to an increase in cash , which was partially offset by a decrease in inventory and increase in accounts payable . we generated $ 671 million of free cash flow for 2015 ; a decrease of $ 563 million from 2014. as discussed above , the decrease is primarily the result of a decrease in cash provided by operating activities in 2015. free cash flow is a non-gaap financial measure which we define as net cash provided by operating activities and proceeds from financing obligations ( which generally represent landlord reimbursements of construction costs ) less capital expenditures and capital lease and financing obligation payments . free cash flow should be evaluated in addition to , and not considered a substitute for , other financial measures such as net income and cash flow provided by operations . we believe that free cash flow represents our ability to generate additional cash flow from our business operations . see the key financial ratio calculations section above . return on investment ratios lower earnings , including the loss on extinguishment of debt , caused decreases in all three of our return on investment ratios - ratio of earnings to fixed charges , return on assets and return on gross investment ( `` roi '' ) . see exhibit 12.1 to this annual report on form 10-k for the calculation of our ratio of earnings to fixed charges and the key financial ratio calculations below for the return on assets and roi calculations . we believe that roi is a useful financial measure in evaluating our operating performance . when analyzed in conjunction with our net earnings and total assets and compared with return on assets , it provides investors with a useful tool to evaluate our ongoing operations and our management of assets from period to period . roi is a non-gaap financial measure which we define as earnings before interest , taxes , depreciation , amortization and rent ( “ ebitdar ” ) divided by average gross investment . our roi calculation may not be comparable to similarly-titled measures reported by other companies . roi should be evaluated in addition to , and not considered a substitute for , other financial measures such as return on assets . capital structure ratios our debt agreements contain various covenants including limitations on additional indebtedness and a maximum permitted debt ratio . as of january 30 , 2016 , we were in compliance with all debt covenants and expect to remain in compliance during 2016 . see the key financial ratio calculations section below for our debt covenant calculation . our debt/capitalization ratio was 46.3 % at year-end 2015 and 44.3 % at year-end 2014. the increase is primarily due to treasury stock purchases in 2015 . 23 our adjusted debt to ebitdar ratio was 2.52 for 2015 , 2.45 for 2014 , and 2.42 for 2013. the increases are primarily due to lower ebitdar . adjusted debt to ebitdar is a non-gaap financial measure which we define as our adjusted outstanding debt balance divided by ebitdar . we believe that our debt levels are best analyzed using this measure . our current goals are to maintain an adjusted debt to ebitdar ratio of approximately 2.25 , to manage debt levels to maintain a bbb+ investment-grade credit rating and to operate with an efficient capital structure for our size , growth plans and industry . we are currently exceeding our target goal to take advantage of a favorable , low interest rate debt environment . we expect to manage our business and debt levels to get our overall ratio back to our target goal over the next several years .
| generally , customers purchase more items as prices decrease and fewer items as prices increase . transactions decreased in both periods , however trends have improved since the launch of the greatness agenda . from a regional perspective , including on-line originated sales , the west , southeast , and midwest outperformed the company average in 2015. the south central , mid-atlantic and northeast underperformed the company average . by line of business , footwear and home outperformed the company average in 2015. men 's and women 's were consistent with the company average while children 's and accessories both underperformed the company average . net sales per selling square foot ( which includes omni-channel sales and stores open for the full current period ) , increased 0.9 % to $ 228 in 2015 , which is consistent with the increase in comparable sales . net sales for 2014 were generally consistent with 2013 net sales . from a line of business perspective , children 's , footwear , and men 's reported sales increases . accessories was slightly above the company average . home and women 's both underperformed the company average . from a regional perspective , including on-line originated sales , the west , southeast , and midwest reported higher sales , which were offset by sales decreases in the northeast , mid-atlantic , and south central regions . gross margin replace_table_token_11_th gross margin includes the total cost of products sold , including product development costs , net of vendor payments other than reimbursement of specific , incremental and identifiable costs ; inventory shrink ; markdowns ; freight expenses associated with moving merchandise from our vendors to our distribution centers ; shipping and handling expenses of omni-channel sales ; and terms cash discount . our gross margin may not be comparable with that of other retailers because we include distribution center and buying costs in selling , general and administrative expenses while other retailers may include these expenses in cost of merchandise sold . 18 gross margin as a percentage of sales decreased
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of our goodwill , investments or other assets ; uncertainties related to our use of the proceeds from the dmg sale transaction and other available funds , including external financing and cash flow from operations , which may be or have been used in ways that we can not assure will improve our results of operations or enhance the value of our common stock ; and uncertainties associated with the other risk factors set forth in part i , item 1a . of this annual report on form 10-k , and the other risks and uncertainties discussed in any subsequent reports that we file or furnish with the sec from time to time . the forward-looking statements should be considered in light of these risks and uncertainties . all forward-looking statements in this report are based solely on information available to us on the date of this report . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of changed circumstances , new information , future events or otherwise , except as required by law . the following should be read in conjunction with our consolidated financial statements . 52 company overview our principal business is to provide dialysis and related lab services to patients in the united states , which we refer to as our u.s. dialysis business . we also operate various ancillary services and strategic initiatives including our international operations , which we collectively refer to as our ancillary services , as well as our corporate administrative support . our u.s. dialysis business is a leading provider of kidney dialysis services in the u.s. for patients suffering from chronic kidney failure , also known as end stage renal disease ( esrd ) . on june 19 , 2019 , we completed the sale of our davita medical group ( dmg ) business to collaborative care holdings , llc ( optum ) , a subsidiary of unitedhealth group inc. as a result of this transaction , dmg 's results of operations have been reported as discontinued operations for all periods presented and dmg is not included below in this management 's discussion and analysis . our overall financial performance in 2019 benefited from increased treatment volume from acquired and non-acquired growth in both our u.s. dialysis and international businesses and a corresponding increase in revenue , as well as improved operating margins due to a decrease in the cost of calcimimetics from the introduction of lower cost oral generics , a decrease in other pharmaceutical unit costs , and a decrease in advocacy costs as compared to the prior year . this was partially offset by increases in labor and benefits costs , other center related costs , a decrease in revenues from the closure of our pharmaceutical business in 2018. the year-over-year comparison was also adversely impacted by $ 36 million of additional medicare bad debt revenue recognized in 2018 due to a policy election on adoption of the new revenue recognition accounting standard . drivers of our financial performance in 2019 included the following : improved key clinical outcomes in our u.s. dialysis business , including our recognition as an industry leader for the seventh consecutive year in cms ' quality incentive program and for the last six years under the cms five-star quality rating system ; u.s. dialysis revenue growth of 2.2 % and international revenue growth of 13.6 % ; a year-over-year increase in our normalized non-acquired u.s. dialysis treatment growth of 2.2 % , which contributed to an increase of approximately 2.5 % in our overall u.s. dialysis treatment count for 2019 ; a net increase of 89 u.s. and 18 international dialysis centers ; operating cash flows of $ 2.0 billion from continuing operations ; a $ 174 million or 19.3 % reduction in routine maintenance and development capital expenditures from continuing operations , consistent with our capital efficient growth strategies ; repurchase of 41,020,232 shares of our common stock for aggregate consideration of $ 2.4 billion and reduction of our share count by approximately 24.4 % year-over-year ; and entry into a new $ 5.5 billion senior secured credit agreement and redemption of our 5.75 % senior notes . in 2020 , we expect the fundamentals of our u.s. dialysis business to generally be similar to the dynamics that we faced in 2019. on treatment volume , we continue to face pressure due to slowing industry growth as well as competitive activity . on reimbursement rate , we expect modest growth in aggregate , primarily due to the expected net market basket update for medicare treatments . on cost , we continue to expect inflationary pressure on wage rates and other costs , offset by continued savings on drug costs . we expect to continue making investments to grow our home-based dialysis services in 2020. we anticipate two notable differences in 2020 versus 2019 - we expect to generate significantly less income on calcimimetics due to expected decreases in medicare reimbursement throughout 2020 , and we plan to incur costs in 2020 , which could be significant , to counter a proposed union-backed ballot initiative in california . the discussion below includes analysis of our financial condition and results of operations for the years ended december 31 , 2019 compared to december 31 , 2018 . our annual report on form 10-k for the year ended december 31 , 2018 , includes a discussion and analysis of our financial condition and results of operations for the year ended december 31 , 2017 , in part ii item 7 , `` management 's discussion and analysis of financial condition and results of operations '' . references to the `` notes '' in the discussion below refer to the notes to the company 's consolidated financial statements included in this annual report on form 10-k at item 15 , `` exhibits , financial statement schedules '' as referred from part ii item 8 , `` financial statements and supplementary data . '' 53 story_separator_special_tag 2018 . story_separator_special_tag we are always striving for improved productivity levels , however , changes in things such as federal and state policies or regulatory billing requirements can lead to increased labor costs . improvements in the u.s. economy have stimulated additional competition for skilled clinical personnel resulting in slightly higher clinical teammate turnover over the last few years , which we believe has negatively affected productivity levels . in both 2019 and 2018 , we experienced an increase in our clinical labor rates of approximately 2.0 % and 3.0 % , respectively , consistent with general industry trends . we also continue to experience increases in the infrastructure and operating costs of our dialysis centers , primarily due to the number of new dialysis centers opened , and general increases in rent , utilities and repairs and maintenance . in 2019 , we continued to implement certain cost control initiatives to help manage our overall operating costs , including labor productivity . our u.s. dialysis general and administrative expenses represented 8.1 % of our u.s. dialysis revenues in both 2019 and 2018 . increases in general and administrative expenses over the last several years were primarily related to strengthening our dialysis business and related compliance and operational processes , responding to certain legal and compliance matters , professional fees associated with enhancing our information technology systems and more recent costs to counter union policy efforts . we expect these levels of general and administrative expenses will continue in 2020 and could possibly increase as we seek out new business opportunities and continue to invest in improving our information technology infrastructure and maintain our regulatory compliance program , among other things . in addition , our general administrative expenses could increase in 2020 as compared to the prior year due to additional anticipated advocacy costs to challenge ballot initiatives , which could be significant . u.s. dialysis results of operations revenues : replace_table_token_5_th u.s. dialysis revenues increased primarily due to volume growth from additional treatments of 2.5 % due to an increase in acquired and non-acquired treatments . our u.s. dialysis revenues were negatively impacted by a decrease in our average net patient service revenue per treatment due to a rate decline related to calcimimetics which was partially offset by an increase in medicare rates in 2019. in addition , 2018 was favorably impacted by $ 36 million of additional medicare bad debt revenue due to a policy election made in 2018 under the new revenue recognition accounting standards . 56 operating expenses and charges : replace_table_token_6_th certain columns , rows or percentages may not sum or recalculate due to the use of rounded numbers . patient care costs . u.s. dialysis patient care costs are those costs directly associated with operating and supporting our dialysis centers and consist principally of labor , benefits , pharmaceuticals , medical supplies and other operating costs of the dialysis centers . u.s. dialysis patient care costs per treatment decreased primarily due to a decrease in calcimimetics unit costs as oral generic products have entered the market lowering the cost of products we acquire , as well as decreases in other pharmaceutical unit costs . these decreases were partially offset by increases in benefits costs and other direct operating expenses associated with our dialysis centers . general and administrative expenses . u.s. dialysis general and administrative expenses in 2019 increased primarily due to increases in labor and benefit costs , and long-term incentive compensation expense driven by compensation plans based on operating income performance . these increases were partially offset by a decrease in advocacy costs to oppose certain legislative and ballot initiatives as well as a decline in asset impairments related to expected center closures . depreciation and amortization . depreciation and amortization expense is directly impacted by the number of dialysis centers we develop and acquire . u.s. dialysis depreciation and amortization expenses increased primarily due to growth in the number of dialysis centers we operate , as well as additional informational technology initiatives . equity investment income . u.s. dialysis equity investment income increased primarily due to an increase in the profitability at certain joint ventures , as well as an increase in the number of our nonconsolidated dialysis joint ventures . gain on changes in ownership interests , net . during 2018 , we acquired a controlling interest in a previously nonconsolidated dialysis partnership . as a result of this transaction , we consolidated this partnership and recognized a non-cash gain of $ 28 million on our previously held ownership interest in the partnership . operating income and adjusted operating income replace_table_token_7_th ( 1 ) for a reconciliation of adjusted operating income by reportable segment , see `` reconciliations of non-gaap measures '' section below . u.s. dialysis operating income and adjusted operating income in 2019 increased as compared to the prior year due to an increase in our margin on calcimimetics , treatment growth and medicare rates , as described above , as well as decreases in advocacy costs and other pharmaceutical unit costs . these increases were partially offset by increases in other direct operating expenses associated with our dialysis centers , labor and benefits costs and long-term compensation expense . 57 other - ancillary services our other operations include ancillary services which are primarily aligned with our core business of providing dialysis services to our network of patients . as of december 31 , 2019 , these consisted primarily of integrated care and disease management ( davita ikc ) , esrd seamless care organizations ( escos ) , clinical research programs ( davita clinical research ) , vascular access services , physician services , and comprehensive kidney care ( vively health formerly known as davita health solutions ) , as well as our international operations . these ancillary services , including our international operations , generated approximately $ 972 million of revenues in 2019 , representing approximately 8 % of our consolidated revenues . as further described in the risk factor in item 1a .
| for 2019 , approximately 69 % of our total u.s. dialysis patient services revenues were generated from government-based programs for services to approximately 90 % of our total patients . these government-based programs are principally medicare and medicare-assigned , medicaid and managed medicaid plans , and other government plans , representing approximately 59 % , 6 % and 4 % of our u.s. dialysis patient services revenues , respectively . 54 dialysis payment rates from commercial payors vary and a major portion of our commercial rates are set at contracted amounts with payors and are subject to intense negotiation pressure . on average , dialysis-related payment rates from contracted commercial payors are significantly higher than medicare , medicaid and other government program payment rates , and therefore the percentage of commercial patients in relation to total patients represents a major driver of our total average dialysis net patient service revenue per treatment . commercial payors ( including hospital dialysis services ) represent approximately 31 % of u.s. dialysis patient services revenues . over the last two years , we have seen a slight decline in the growth of our commercial patients , which has been outpaced by the growth of our government-based patients . for further discussion of government reimbursement , the medicare esrd bundled payment system and commercial reimbursement , see the discussion in item 1. business under the heading “ u.s . dialysis business – sources of revenue-concentrations and risks. ” for a discussion of operational , clinical and financial risks and uncertainties that we face in connection with the medicare esrd bundled payment system , see the risk factor in item 1a . risk factors under the heading “ changes in the structure of and payment rates under the medicare esrd program could have a material adverse effect on our business , results of operations , financial condition and cash flows. ” for a discussion of operational , clinical and financial risks and uncertainties that we face in connection with commercial payors , see the risk factors in item 1a . risk factors under the headings `` if the average rates that commercial payors pay us decline significantly
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however , certain activities that we may perform may cause us to earn income which will not be qualifying income for reit purposes . we have designated one of our subsidiaries as a taxable reit subsidiary , or trs , as defined in the code , to engage in such activities , and we may form additional trss in the future . we also operate our business in a manner that will permit us to maintain our exclusion from registration under the investment company act of 1940 , as amended , or the investment company act . our portfolio as of december 31 , 2017 , our investment portfolio consisted of 59 commercial mortgage loans and two commercial mortgage-backed securities , or cmbs , having an aggregate principal balance of $ 2.3 billion and $ 55.0 million , respectively , with an additional $ 339.2 million of potential future funding obligations , diversified across geographies , property types , structures and credits . 45 we focus on originating senior commercial mortgage loans backed by different types of commercial real estate properties located in various markets across the united states . we may , from time to time , invest in other debt and debt-like commercial real estate investments . together , we refer to these investments as our target investments . our target investments include : primary target investments senior mortgage loans . commercial mortgage loans that are secured by real estate and evidenced by a first priority mortgage . these loans may vary in term , may bear interest at a fixed or floating rate ( although our focus is floating-rate loans ) , and may amortize and typically require a balloon payment of principal at maturity . these investments may encompass a whole loan or may include pari passu participations within such a mortgage loan . these loans may finance stabilized properties or properties that are subject to a business plan that is expected to enhance the value of the property through lease-up , refurbishment , updating or repositioning . secondary target investments as part of our financing strategy , we may from time-to-time syndicate senior participations in our originated senior commercial mortgage loans to other investors and retain a subordinated debt position for our portfolio in the form of a mezzanine loan or subordinated mortgage interest , as described below . alternatively , we may opportunistically co-originate the investments described below with senior lenders , or acquire them in the secondary market . mezzanine loans . mezzanine loans are secured by a pledge of equity interests in the property . these loans are subordinate to a senior mortgage loan , but senior to the property owner 's equity . preferred equity . investments that are subordinate to any mortgage and mezzanine loans , but senior to the property owner 's common equity . subordinated mortgage interests . sometimes referred to as a b-note , a subordinated mortgage interest is an investment in a junior portion of a mortgage loan . b-notes have the same borrower and benefit from the same underlying secured obligation and collateral as the senior mortgage loan , but are subordinated in priority payments in the event of default . other real estate securities . investments in real estate that take the form of cmbs or collateralized loan obligations , or clos , that are collateralized by pools of real estate debt instruments , which are often senior mortgage loans , or other securities . these may be classified as available-for-sale , or afs , securities or held-to-maturity , or htm , securities . based on current market conditions , we expect that the majority of our investments will continue to consist of senior commercial mortgage loans directly originated by us and secured by cash-flowing properties located in the united states . these investments typically pay interest at rates that are determined periodically on the basis of a floating base lending rate , primarily libor plus a premium and have an expected term between three and five years . our manager may opportunistically adjust our capital allocation to our target investments , with the proportion and types of investments changing over time depending on our manager 's views on , among other things , the current economic and credit environment . in addition , we may invest in assets other than our target investments , in each case subject to maintaining our qualification as a reit for u.s. federal income tax purposes and our exclusion from regulation under the investment company act . overview our 2017 efforts focused on three strategic objectives that we believe have positioned us for long-term success . deploying capital efficiently . after completion of our ipo in june of 2017 , our objective was to deploy capital rapidly but prudently , focusing on assets with attractive risk-adjusted returns . we believe we have accomplished this goal . our capital was substantially fully invested midway through the fourth quarter of 2017 , at which point , in december 2017 , we successfully accessed the capital markets via the private issuance of 5 year senior unsecured convertible notes to provide us with additional growth capital . managing a portfolio of commercial real estate debt and related instruments to generate attractive returns with balanced risks . we are a long-term , fundamental value-oriented investor in floating senior commercial real estate loans and other debt related instruments . we construct our investment portfolio on a loan-by-loan basis , emphasizing rigorous credit underwriting , selectivity and diversification , and assess each investment from a fundamental value perspective relative to other opportunities available in the market . we believe this approach enables us to deliver attractive risk-adjusted returns to our stockholders while preserving our capital base through diverse business cycles . establishing controls and “ best in class ” investment , corporate governance , investor relations and disclosure practices . we have focused on building effective controls in the areas of operations , accounting , information technology and investor relations . story_separator_special_tag we have included in item 9a of this form 10-k management 's report on internal controls over financial reporting . 46 factors affecting our operating results the results of our operations are affected by a number of factors and primarily depend on , among other things , the level of our net interest income , the market value of our assets , credit performance of our assets and the supply of , and demand for , commercial mortgage loans , other commercial real estate debt instruments and other financial assets available for investment in the market . our net interest income , which reflects the amortization of origination fees and direct costs , is recognized based on the contractual rate and the outstanding principal balance of the loans we originate . the objective of the interest method is to arrive at periodic interest income that yields a level rate of return over the loan term . interest rates vary according to the type of loan or security , conditions in the financial markets , credit worthiness of our borrowers , competition and other factors , none of which can be predicted with any certainty . our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers . loan originations our business model is mainly focused on directly originating , investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments . as a result of this strategy , our operating performance is subject to overall market demand for commercial real estate loan products and other debt and debt-like commercial real estate investments . we manage originations and acquisitions of our target investments by diversifying our investment portfolio across geographical regions and local markets , property types , borrower types , loan structures and types . we do not limit our investments to any number of geographical areas or property types for our originations and will continue to develop a well-diversified investment portfolio . additionally , our cre team has extensive experience originating and acquiring commercial real estate loans and other debt and debt-like commercial real estate investments , through a network of long-standing relationships with borrowers , sponsors and industry brokers . financing availability we are subject to availability and cost of financing to successfully execute on our business strategy and generate attractive risk-adjusted returns to our stockholders . most of our financing is in the form of repurchase agreements or other types of credit facilities provided to us from our lender counterparties . we mitigate this counterparty risk by seeking to diversify our lending partners , focusing on establishing borrowing relationships with strong counterparties and continuously monitoring them through a thoughtful approach to counterparty risk oversight . during the years ended december 31 , 2017 and 2016 , a portion of our portfolio was financed through a note payable to th insurance holdings company llc , or th insurance , a captive insurance company and indirect subsidiary of two harbors and a member of the federal home loan bank of des moines , or the fhlb . in exchange for the note with th insurance , we received an allocated portion of th insurance 's advances from the fhlb and pledged to the fhlb a portion of our loans held-for-investment as collateral for th insurance 's advances . the affiliate note payable reflected terms consistent with th insurance 's fhlb advances . during the year ended december 31 , 2017 , the note payable to th insurance was in effect to assist with cash management and operational processes as the investments in our portfolio pledged to the fhlb were released and transitioned to our repurchase facilities . the affiliate note payable matured on october 27 , 2017 and was repaid in full . on december 12 , 2017 , we closed a private placement of $ 125.0 million aggregate principal amount of convertible senior notes due 2022. the notes are unsecured , pay interest semiannually at a rate of 5.625 % per annum and are convertible at the option of the holder into shares of our common stock . the notes will mature in december 2022 , unless earlier converted or repurchased in accordance with their terms . we do not have the right to redeem the notes prior to maturity , but may be required to repurchase the notes from holders under certain circumstances . as of december 31 , 2017 , the notes had a conversion rate of 50.0000 shares of common stock per $ 1,000 principal amount of the notes . the net proceeds from the offering were approximately $ 121.3 million after deducting underwriting discounts and estimated offering expenses . in addition , nearly $ 19 million in notes were issued in connection with the exercise of the initial purchaser 's option in january 2018. we intend to use these proceeds to originate and acquire our target assets and for general corporate purposes . to the extent available in the market , we may seek to finance our business through other means which may include , but not be limited to , securitizations , note sales and issuance of unsecured debt and equity instruments . we are currently actively exploring potential clo securitizations and additional types of funding facilities to further diversify our financing sources . credit risk we are subject to varying degrees of credit risk in connection with our target investments . we seek to mitigate this risk by seeking to originate or acquire assets of higher quality at appropriate rates of return given anticipated and unanticipated losses , by employing a comprehensive review and selection process and by proactively monitoring originated or acquired investments . nevertheless , unanticipated credit losses could occur that could adversely impact our operating results . 47 operating expenses - investment management and corporate overhead we incur significant general and administrative costs , including certain costs related to being a public company and costs incurred on our behalf by our manager .
| the increase in yields on first mortgages for the three and twelve months ended december 31 , 2017 , as compared to the same periods in 2016 , was driven by increases in libor , as the majority are floating-rate loans . the decrease in yields on subordinated loans for the three and twelve months ended december 31 , 2017 , as compared to the same periods in 2016 , was predominantly driven by the lower-yielding b-note acquired during the year ended december 31 , 2017 . the increase in cost of funds on both first mortgages and subordinated loans for the three and twelve months ended december 31 , 2017 , as compared to the same periods in 2016 , was primarily the result of an increase in the proportion of total borrowings financed through repurchase agreements ( relative to the note payable to th insurance ) and secondarily the result of increases in borrowing rates due to increases in libor . the increase in yields on afs and htm securities for the three and twelve months ended december 31 , 2017 , as compared to the same periods in 2016 , was driven by increases in libor , as these cmbs are floating-rate assets . the increase in cost of funds associated with the financing of afs and htm securities for the three and twelve months ended december 31 , 2017 , as compared to the same periods in 2016 , was the result of increases in borrowing rates due to increases in libor . our convertible senior notes were issued in december 2017 , are unsecured and pay interest semiannually at a rate of 5.625 % per annum . the cost of funds associated with our convertible senior notes also includes amortization of deferred debt issuance costs . management fees we do not have any employees and are externally managed by prcm under the terms of a management agreement entered into in connection
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on june 8 , 2011 , we commenced share repurchases under this program . during the year ended december 31 , 2011 , we repurchased 36.3 million shares for approximately $ 1.2 billion . these repurchases were accounted for as a reduction of ordinary shares and capital in excess of par value as they were canceled upon repurchase . in december 2011 , we announced an increase in our quarterly stock dividend from $ 0.12 per share to $ 0.16 per share beginning with our march 2012 payment . discontinued operations on december 30 , 2011 , we completed the divestiture of our security installation and service business , which was sold under the integrated systems and services brand in the united states and canada , to kratos public safety & security solutions , inc. this business , which was previously reported as part of the security technologies segment , designs , installs and services security systems . as a result of the sale , we have reported this business as a discontinued operation for all periods presented . see `` divestitures and discontinued operations '' within management 's discussion and analysis and also note 17 to the consolidated financial statements for a further discussion of our discontinued operations . divested operations on september 30 , 2011 , we completed a transaction to sell our hussmann refrigerated display case business to a newly-formed affiliate ( hussmann parent ) of private equity firm clayton dubilier & rice , llc ( cd & r ) . this transaction included the equipment business and certain of the service branches in the u.s. and canada , and the equipment , service and installation businesses in mexico , chile , australia , new zealand , and japan ( hussmann business ) . the transaction allowed hussmann parent the option to acquire the remaining north american hussmann service and installation branches ( hussmann branches ) . hussmann parent completed the acquisition of the hussmann branches on november 30 , 2011. the hussmann business and branches , which were reported as part of the climate solutions segment through their respective transaction dates , manufacture , market , distribute , install , and service refrigerated display merchandising equipment , refrigeration systems , over the counter parts , and other commercial and industrial refrigeration applications . the assets and liabilities related to the hussmann business and branches are classified as held for sale for all historical periods presented . however , the business does not qualify for treatment as a discontinued operation as the final deal terms included , among other things , an ongoing equity ownership interest by us in hussmann parent which now owns the hussmann business and branches . see `` divestitures and discontinued operations '' within management 's discussion and analysis and also note 17 to the consolidated financial statements for a further discussion of our divested operations . venezuela devaluation during the fourth quarter of 2009 , the blended consumer price index/national consumer price index of venezuela reached a cumulative three-year inflation rate in excess of 100 % . as a result , venezuela was designated as highly inflationary effective january 1 , 2010. accordingly , the u.s. dollar was determined to be the functional currency of our venezuelan subsidiaries and all foreign currency fluctuations during 2011 and 2010 have been recorded in other , net . at december 31 , 2009 , we remeasured our foreign currency receivables and payables associated with the venezuelan bolivar at the parallel rate of 6.0 bolivars for each u.s. dollar . this was based on our inability to settle certain transactions through the official government channels in an expeditious manner . previously , we remeasured all foreign currency transactions at the official rate of 2.15 bolivars to the u.s. dollar . as a result , we recorded a $ 24 million charge in the fourth quarter of 2009 associated with the devaluation . on may 17 , 2010 , the government of venezuela effectively closed down the parallel market claiming it was a significant cause of inflation in venezuela . on june 9 , 2010 , a new parallel market ( sitme ) opened under control of the central bank at which time the company began utilizing it for currency exchange , subject to any limitations under local regulations . effective august 2011 , we began utilizing the official rate ( now 4.29 bolivars to the u.s. dollar ) for re-measurement purposes due to our increased ability to settle transactions at that rate . 21 significant events in 2010 discontinued operations on december 30 , 2010 , we completed the divestiture of our gas microturbine generator business , which was sold under the energy systems brand , to flex energy , inc. the business , which was previously reported as part of the industrial technologies segment , designs , manufactures , markets , distributes , and services gas powered microturbine generators which feature energy efficient design and low emissions technology . as a result of the sale , we have reported this business as a discontinued operation for all periods presented . on october 4 , 2010 , we completed the divestiture of our european refrigerated display case business , which was sold under the koxka brand , to an affiliate of american industrial acquisition corporation ( aiac group ) . the business , which was previously reported as part of the climate solutions segment , designs , manufactures and markets commercial refrigeration equipment through sales branches and a network of distributors throughout europe , africa and the middle east . as a result of the sale , we have reported this business as a discontinued operation for all periods presented . see `` divestitures and discontinued operations '' within management 's discussion and analysis and also note 17 to the consolidated financial statements for a further discussion of our discontinued operations . healthcare reform in march 2010 , the patient protection and affordable care act and the healthcare and education reconciliation bill of 2010 ( collectively , the healthcare reform legislation ) were signed into law . story_separator_special_tag as a result , effective 2013 , the tax benefits available to us will be reduced to the extent our prescription drug expenses are reimbursed under the medicare part d retiree drug subsidy program . although the provisions of the healthcare reform legislation relating to the retiree drug subsidy program do not take effect until 2013 , we are required to recognize the full accounting impact in our financial statements in the reporting period in which the healthcare reform legislation is enacted . as retiree healthcare liabilities and related tax impacts are already reflected in our financial statements , the healthcare reform legislation resulted in a non-cash charge to income tax expense in the first quarter of 2010 of $ 40.5 million . currently , our retiree medical plans receive the retiree drug subsidy under medicare part d. no later than 2014 , a significant portion of the drug coverage will be moved to an employer group waiver plan while retaining the same benefit provisions . this change resulted in an actuarial gain which decreased our december 31 , 2010 retiree medical plan liability , as well as the net actuarial losses in other comprehensive income by $ 41.1 million . we will continue to monitor the healthcare reform legislation to review provisions which could impact our accounting for retiree medical benefits in future periods . we may consider future plan amendments , which may have accounting implications as further regulations are promulgated and interpretations of the legislation become available . additionally , we continue to monitor the individual market place for post-65 retiree medical coverage and will consider amendments to our health plans , which may have accounting implications on our plans . the healthcare reform legislation could also impact our accounting for income taxes in future periods . we will continue to assess the accounting implications of the healthcare reform legislation . significant events in 2009 in the fourth quarter of 2009 , we realigned our external reporting structure to more closely reflect our corporate and business strategies and to promote additional productivity and growth . our segments are as follows : climate solutions , residential solutions , industrial technologies and security technologies . as part of the change , we eliminated the air conditioning systems and services segment which represented the acquired trane business and created two new reportable segments , the climate solutions segment and the residential solutions segment . during 2009 , we completed a comprehensive financing program that significantly enhanced our liquidity and debt profile . significant actions included the repayment of the outstanding balance of our senior unsecured bridge loan facility with the proceeds from the issuance of $ 1.0 billion of long-term debt ( senior notes and exchangeable senior notes ) and the expansion of our trane accounts receivable purchase program to encompass originators from all four of our business segments . in addition , we reduced our quarterly stock dividend from $ 0.18 per share to $ 0.07 per share , effective with our september 2009 payment . on february 17 , 2010 , we terminated the expanded accounts receivable purchase program prior to its expiration in march 2010. in the fourth quarter of 2008 , we initiated enterprise-wide restructuring actions in order to streamline both our manufacturing footprint and our general and administrative cost base . we incurred approximately $ 109.0 million of costs associated with this program during 2009. these combined restructuring actions generated approximately $ 155 million of annual pretax savings for 2010. we continue to invest in ongoing restructuring activities in an effort to increase efficiencies across all of our businesses . 22 results of operations - for the years ended december 31 replace_table_token_5_th net revenues net revenues for the year ended december 31 , 2011 increased by 5.6 % , or $ 780.9 million , compared with the same period of 2010 , which primarily resulted from the following : volume/product mix 2.7 % pricing 2.7 % currency exchange rates 1.6 % acquisitions/divestitures 0.1 % hussmann * ( 1.5 ) % total 5.6 % * represents the impact of a partial year of operations for the hussmann business and branches in 2011 . the increase in revenues was primarily driven by higher volumes and product mix experienced within the climate solutions and industrial technologies business segments , as well as improved pricing and favorable foreign currency impacts across all segments . 23 net revenues for the year ended december 31 , 2010 increased by 7.6 % , or $ 992.0 million , compared with the same period of 2009 , which primarily resulted from the following : volume/product mix 7.5 % pricing 0.2 % currency exchange rates 0.3 % devaluation of venezuelan bolivar ( 0.5 ) % acquisitions 0.1 % total 7.6 % the increase in revenues was primarily driven by higher volumes experienced within the climate solutions , residential solutions , and industrial technologies business segments , as well as favorable foreign currency impacts . however , the devaluation of the venezuelan bolivar had a $ 70.0 million impact on reported revenues during 2010. operating income/margin operating margin for the year ended december 31 , 2011 decreased to 5.8 % from 9.0 % for the same period in 2010 . included in operating income for 2011 is a $ 646.9 million loss on sale/asset impairment charge related to the divestiture of hussmann , which had a 4.4 point impact on 2011 operating margin . excluding the loss on sale/asset impairment , operating margin increased by 1.2 points . the increase was primarily due to improved pricing across all sectors , the realization of benefits resulting from restructuring programs and productivity actions , and higher volumes . these improvements were partially offset by unfavorable revenue mix within our residential solutions and security technologies segments , as well as increased investment spending and increased material and other costs . also included in operating income for 2011 is a $ 23 million gain associated with the sale of assets from a restructured business in china .
| these charges have been excluded from segment operating income within the climate solutions segment as management excludes these charges from operating income when making operating decisions about the business . see `` divestitures and discontinued operations '' within management 's discussion and analysis and also note 17 to the consolidated financial statements for a further discussion of our divested operations . 2011 net revenues and segment operating income for the climate solutions segment includes the operating results of the hussmann business and branches for the nine months and eleven months , respectively , prior to the sale . the operating results for the hussmann business and branches are included in net revenues and segment operating income for the climate solutions segment for the years ended december 31 as follows : replace_table_token_7_th 25 on october 4 , 2010 , we completed the divestiture of our european refrigerated display case business , which was sold under the koxka brand , to an affiliate of american industrial acquisition corporation ( aiac group ) . the business , which was previously reported as part of the climate solutions segment , designs , manufactures and markets commercial refrigeration equipment through sales branches and a network of distributors throughout europe , africa and the middle east . segment information has been revised to exclude the results of this business for all periods presented . segment results for the years ended december 31 were as follows : replace_table_token_8_th 2011 vs 2010 net revenues for the year ended december 31 , 2011 increased by 6.2 % or $ 483.8 million , compared with the same period of 2010 , which primarily resulted from the following : volume/product mix 4.6 % pricing 2.3 % currency exchange rates 1.8 % acquisitions/divestitures 0.1 % hussmann * ( 2.6 ) % total 6.2 % * represents the impact of a partial year of operations for the hussmann business and branches in 2011 . trane commercial hvac revenues reflect market recovery within our equipment , systems , parts , services
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by reference schedule 14a december 4 , 2013 4.1 specimen ordinary share certificate . by reference story_separator_special_tag the following discussion of the company 's financial condition and results of operations should be read in conjunction with the company 's consolidated financial statements and notes to those statements included in this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . please see the section entitled “ forward-looking statements and introduction ” in this form 10-k. overview we are a holding company operating through our indirect , wholly-owned subsidiaries : tg , which manufactures , transforms , markets and exports a variety of glass products since 1994 and established the alutions plant in 2007 for aluminum products , and es , a leader in the production of high-end windows and architectural glass systems . we have more than 30 years ' experience in the glass and aluminum structure assembly market in colombia . we manufacture hi-specification architectural glass and windows for the global residential and commercial construction industries . currently we offer design , production , marketing , and installation of architectural systems for buildings of high , medium and low elevation size . products include windows and doors in glass and aluminum , floating façades , office partitions and interior divisions , and commercial window showcases . in recent years , we have expanded our us sales outside of the florida market , entering into high-tech markets for curtain walls , obtaining a niche market access since this product is in high demand and marks a new trend in architecture . this product is a very sophisticated product and therefore garners high margins for us . these products involve high performance materials that are produced by alutions and tg with state of the art technology . in panama , es sells products primarily to companies participating in large construction projects in the most exclusive areas of the city . for example , es products were supplied in the construction of the tallest building in central and south america , the point , as well as in the construction of the most modern hotels in the region such as megapolis and the trump . based on es 's knowledge of the construction market in central america , es has entered into one of the highest value window supply contracts in the hotel industry in central america for the soho plaza . 20 how we generate revenue tg manufactures both glass and aluminum products . its glass products include tempered glass , laminated glass , thermo-acoustic glass , curved glass , silk-screened glass , and digital print glass as well as mill finished , anodized , painted aluminum profiles and produces rods , tubes , bars and plates . window production lines are defined depending on the different types of windows : normal , impact resistant , hurricane-proof , safety , soundproof and thermal . es produces fixed body , sliding windows , projecting windows , guillotine windows , sliding doors and swinging doors . es produces façade products which include : floating facades , automatic doors , bathroom dividers and commercial display windows . tg sells to over 300 customers using several sales teams based out of colombia to specifically target regional markets in south , central and north america . tg has sales representatives in the united states to address that market specifically . in addition , tg has approximately 10 free-lance sales representatives in north america . es sells its products through four main offices/sales teams based out of colombia , panama and the us . the colombia sales team is our largest sales group , which has deep contacts throughout the construction industry . the colombia sales team markets both es 's products as well as installation services . the peruvian office is responsible for south american sales , excluding colombia . its sales forces in panama and the us are not via subsidiaries but arms-length agreements with sales representatives . es has two types of sales operations : contract sales , which are the high-dollar , specifically-tailored customer projects ; and standard form sales . liquidity and cash flow during the years ended december 31 , 2014 and 2013 , $ 4.8 million and $ 10.7 million , respectively , were used and generated from operations , respectively , and $ 9.2 million and $ 8.4 million were generated from debt . as of december 31 , 2014 and december 31 , 2013 , we had cash and cash equivalents of approximately $ 15.9 million and $ 2.9 million , respectively . the change is due to the receipt in january 2014 of approximately $ 22.5 million in proceeds from the reverse merger and stock subscription agreement in december 2013 , and receipt of $ 1.8 million in new equity investment from stock subscriptions and investors ' exercise of our warrants . we have been using these funds to finance working capital to leverage our growth in operations . we expect that cash flow from operations , proceeds from borrowings under our lines of credit , and the proceeds from the 2013 merger will be our primary sources of liquidity and will be sufficient to fund our cash requirements for the next twelve months . 21 additionally , until the redemption of certain warrants and unit purchase options or their expiration in december 2016 , we could receive up to $ 89.4 million from the exercise of warrants and unit purchase options comprised of : up to $ 40 million upon the exercise of all of the insider warrants and working capital warrants , up to $ 9.4 million upon the exercise of the unit purchaseoptions , up to $ 7.2 million upon the exercise of the warrants underlying such unit purchase options and up to $ 32.8 million upon the exercise of the warrants issued in our ipo . story_separator_special_tag as of december 31 , 2014 , 102,570 warrants have been exercised for proceeds of $ 0.8 million . capital resources we transform glass and aluminum into high specification architectural glass which requires significant investments in state of the art technology . during the years ended december 31 , 2014 and 2013 , we made investments primarily in building and construction , and machinery and equipment in the amount of $ 56.9 million and $ 37.7 million , respectively . in august 2014 , we entered into a contract to purchase equipment from magnetron sputter vacuum deposition to produce soft coated low emissivity glass as part of our improvements plan in 2015 and 2016. the investment for this project is estimated at $ 45 million for the equipment and facilities , to be financed primarily with a credit facility with an export credit guarantee by the german federal government . in june 2014 , we acquired selected assets of rc aluminum industries , inc. ( “ rc aluminum ” ) for $ 2.0 million . rc aluminum designs , manufactures and installs glass products for architects , designers , developers and general contractors . the primary assets acquired include approximately $ 70 million in rc aluminum backlog for high-rise projects in south florida , the right to complete a number of rc aluminum 's contracted projects with an estimated value of approximately $ 12 million , and miami-dade notices of acceptance ( noa ) for more than 50 products manufactured and sold by rc aluminum . in december 2014 , we acquired assets of glasswall , llc , a miami , florida-based manufacturer of impact-resistant windows and door systems used in high-rise commercial and residential buildings . as part of the transaction , we acquired a 160,000 square foot warehouse / manufacturing / office facility in miami , manufacturing and assembly equipment , and miami-dade noas for products manufactured and sold by glasswall . the company did not acquire any equity interest in glasswall . total consideration consisted of $ 4.0 million in our stock and $ 5.0 million in cash financed in part by a 15-year , $ 3.9 million term loan that we secured to acquire the facilities . at december 31 , 2014 the company is still assessing the accounting and allocation of the purchase price related to this transaction . 22 story_separator_special_tag obligations respectively , and can vary up or down in accordance with money market rates in colombia . critical accounting policies the preparation of financial statements in conformity with u.s. gaap requires that management make significant estimates and assumptions that affect the assets , liabilities , revenues and expenses , and other related amounts during the periods covered by the financial statements . management routinely makes judgments and estimates about the effect of matters that are inherently uncertain . as the number of variables and assumptions affecting the future resolution of the uncertainties increases , these judgments become more subjective and complex . we have identified the following accounting policies as the most important to the portrayal of our current financial condition and results of operations . revenue recognition our principal sources of revenue are derived from product sales of manufactured glass and aluminum products . revenues from fixed price contracts are recognized using the percentage-of-completion method , measured by the percentage of costs incurred to date to total estimated costs for each contract . revenues recognized in advance of amounts billable pursuant to contracts terms are recorded as unbilled receivables on uncompleted contracts based on work performed and costs to date . unbilled receivables on uncompleted contracts are billable upon various events , including the attainment of performance milestones , delivery of product and or services , or completion of the contract . revisions to cost estimates as contracts progress have the effect of increasing or decreasing expected profits each period . changes in contract estimates occur for a variety of reasons , including changes in contract scope , estimated revenue and cost estimates . estimation of fair value of warrant liability the best evidence of fair value is current prices in an active market for similar financial instruments . we determine the fair value of warrant liability by the company using the binomial lattice pricing model . this model is dependent upon several variables such as the instrument 's expected term , expected strike price , expected risk-free interest rate over the expected instrument term , the expected dividend yield rate over the expected instrument term and the expected volatility of the company 's stock price over the expected term . the expected term represents the period of time that the instruments granted are expected to be outstanding . the expected strike price is based upon a weighted average probability analysis of the strike price changes expected during the term as a result of the down round protection . the risk-free rates are based on u.s. treasury securities with similar maturities as the expected terms of the options at the date of valuation . expected dividend yield is based on historical trends . the company measures volatility using a blended weighted average of the volatility rates for a number of similar publicly-traded companies . the inputs to the model were stock price , dividend yield , risk-free rate , expected term and volatility . in general , the inputs used are unobservable ; therefore unless indicated otherwise , warrant liability is classified as level 3 under guidance for fair value measurements hierarchy . derivative financial instruments we conduct interest rate swap ( irs ) transaction with key non-related financial entities to reduce the effect of interest rate fluctuations as economic hedges against interest rate risk . we have designated this derivatives at fair value and the accounting for changes is recorded in income statement . the inputs used are similar to the prices for similar assets and liabilities in active markets directly or indirectly through market corroboration ; therefore unless indicated otherwise
| 23 our backlog is comprised mostly of es ' contract sales for projects that can last up to several years until completion . our backlog at december 31 , 2014 increased from december 31 , 2013 as a result of contact awards and business growth , primarily in u.s. markets . we do not believe that backlog is indicative of our future results of operations or prospects . margins sales margins increased from 30.2 % to 31.1 % between the years ended december 31 , 2013 and 2014 , respectively . cost of raw materials increased 3.1 % , significantly below the sales growth at about 7.7 % . we believe this is the result of a higher degree of vertical integration as intercompany sales increased from 22 % of total consolidated sales during the year ended december 31 , 2013 to 27 % during the year ended december 31 , 2014. improvement in margin by raw materials was offset with a spike in the cost of labor and shipping charges . the number of employees in production and installation increased by 27 % during the year ended december 31 , 2014 as we prepare to continue growing and new employees need to undergo extensive training before becoming fully productive . expenses selling , general and administrative expenses increased 21.5 % , or $ 6.0 million , from the year ended december 31 , 2013 to december 31 , 2014. a significant increase in administrative expenses arose as a result of our merger in december 2013 which has required increased spending in accounting and audit services as well as consultants and personnel for the new reporting standards . additionally , our colombian subsidiaries had to adopt international financial reporting standards ( ifrs ) and incurred significant expenses for software upgrades , personnel training and consulting services . interest expense between the years ended december 31 , 2014 and 2013 , interest expense increased by $ 1.0 million , or approximately 13 % , from $ 7.9 million to $ 8.9 million in line with the increase in total debt . change in fair value of warrants we
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operating expenses , consisting of sales and marketing , product development , general and administrative , and amortization of intangible assets , as a percentage of revenues , were 24 % in 2012 and 2011. operating expenses - 2011 vs. 2010 water operating expenses in 2011 included a goodwill impairment charge of $ 330.1 million associated with the water reporting unit . operating expenses included restructuring expenses of $ 15.3 million primarily associated with accrued severance and asset impairments . operating expenses for sales and marketing , product development , general and administrative , and amortization of intangible assets increased $ 11.1 million in 2011 , compared with 2010. operating expenses , consisting of sales and marketing , product development , general and administrative , and amortization of intangible assets , as a percentage of revenue were 24 % in 2011 , compared with 25 % in 2010. corporate unallocated : operating expenses not directly associated with an operating segment are classified as “ corporate unallocated. ” these expenses increased 2 % to $ 43.5 million in 2012 , compared with 2011 , primarily due to acquisition related expenses for the smartsynch acquisition , for management training and development costs in connection with the implementation of a new organizational structure , and for preliminary planning costs , prior to application development , for our global enterprise resource planning ( erp ) software initiative . these increases were partially offset by lower corporate it related and marketing spending . corporate unallocated expenses decreased 2 % to $ 42.6 million in 2011 , compared with 2010 , primarily due to decreased bonus and profit sharing expense . operating expenses the following table details our total operating expenses in dollars and as a percentage of revenues : replace_table_token_11_th 23 2012 vs. 2011 operating expenses decreased $ 641.6 million in 2012 , compared with 2011. the 2011 operating expenses included $ 584.8 million of goodwill impairment charges associated with the electricity and water reporting units , as well as $ 68.1 million of restructuring expenses , which represented the majority of total expected expenses under our restructuring project initiated in 2011. operating expenses for sales and marketing , product development , general and administrative , and amortization of intangible assets represented 26 % of revenues in 2012 , compared with 23 % in 2011. sales and marketing and product development expenses increased in 2012 compared with 2011 , primarily due to increased product development costs for new and enhanced products and investments in targeted geographies in anticipation of sales opportunities . the increase was partially offset by favorable foreign currency translation effects and scheduled decreases in amortization of intangible assets . 2011 vs. 2010 operating expenses in 2011 included a goodwill impairment of $ 584.8 million associated with two of our reporting units . restructuring expenses were $ 68.1 million primarily associated with accrued severance and asset impairments . operating expenses , consisting of sales and marketing , product development , general and administrative , and amortization of intangible assets , increased $ 36.2 million in 2011 , compared with 2010 , of which $ 13.1 million represented the net translation effect of foreign currencies to the u.s. dollar . operating expenses , consisting of sales and marketing , product development , general and administrative , and amortization of intangible assets , as a percentage of revenue were 23 % in 2011 and 2010. higher costs related to product development for new and enhanced products , as well as higher marketing expense associated with the pursuit of smart grid opportunities were partially offset by a scheduled decrease in amortization of intangible assets . other income ( expense ) the following table shows the components of other income ( expense ) : replace_table_token_12_th interest income : interest income is generated from our cash and cash equivalents . interest rates have continued to remain low . interest expense : interest expense declined each period as a result of our principal balance of debt outstanding , as well as lower interest rates beginning in august 2011. total debt was $ 417.5 million , $ 452.5 million , and $ 610.9 million at december 31 , 2012 , 2011 , and 2010 , respectively . in august 2011 , we refinanced our credit facility . the interest rate on our 2011 credit facility was 1.47 % at december 31 , 2012. the weighted average interest rate on the borrowings under our 2007 credit facility at the time of refinancing ( august 2011 ) was 4.75 % ( including the effect of an interest rate swap ) . amortization of prepaid debt fees : amortization of prepaid debt fees in 2012 was lower than in 2011 by $ 4.1 million , primarily driven by the write-off of $ 2.4 million of prepaid debt fees in 2011 upon the refinancing of the 2007 credit facility . in addition , we incurred lower prepaid debt fees with the 2011 credit facility . amortization of prepaid debt fees in 2011 was higher than 2010 due to the $ 2.4 million write-off of unamortized prepaid debt fees associated with our 2007 credit facility that was replaced with the 2011 credit facility . amortization of prepaid debt fees fluctuate each year as debt is repaid early . as debt is repaid early , the related portion of unamortized prepaid debt fees is written-off . refer to item 8 : “ financial statements and supplementary data , note 6 : debt ” in this annual report on form 10-k for additional details related to our long-term borrowings . other income ( expense ) , net : other expenses , net , consist primarily of unrealized and realized foreign currency gains and losses due to balances denominated in a currency other than the reporting entity 's functional currency . foreign currency losses , net of hedging , were $ 3.8 million in 2012 , compared with net foreign currency losses of $ 4.7 million in 2011 and $ 3.1 million in 2010 . story_separator_special_tag 24 financial condition cash flow information : replace_table_token_13_th cash and cash equivalents at december 31 , 2012 was comparable to the prior year due to several offsetting factors , including lower net repayments on debt in 2012 , compared with 2011 , partially offset by increases in business acquisitions and repurchases of common stock and a decrease in cash provided by operating activities in 2012. cash and cash equivalents was $ 133.1 million at december 31 , 2011 , compared with $ 169.5 million at december 31 , 2010. the decrease in the cash and cash equivalents balance during 2011 was primarily the result of repayments of debt , the repurchase of common stock , and minor business acquisitions in 2011. operating activities cash provided by operating activities in 2012 was $ 47.3 million lower compared with 2011. this decline was primarily due to : ( 1 ) a decline in operating income , exclusive of non-cash items , such as goodwill impairment , depreciation and amortization , and non-cash restructuring expense , and ( 2 ) the net increase in working capital balances of $ 23.9 million in 2012 , compared with a net decrease in working capital balances of $ 4.7 million in 2011. cash provided by operating activities in 2011 , inclusive of the impact of $ 12.8 million in cash payments made related to restructuring projects in 2011 , was relatively constant when compared with 2010. investing activities net cash used in investing activities in 2012 was $ 46.7 million higher compared with 2011. the increase in investing activities during 2012 was the result of business acquisitions of $ 79.0 million , primarily related to the smartsynch acquisition , as compared with business acquisitions of $ 20.1 million in 2011. the increase in cash used in business acquisitions in 2012 was partially offset by a decrease in acquisitions of property , plant , and equipment to $ 50.5 million in 2012 , compared with $ 60.1 million in 2011. refer to item 8 : `` financial statements and supplementary data , note 17 : business combinations '' for additional information regarding the acquisition of smartsynch . net cash used in investing activities in 2011 was $ 22.5 million higher compared with 2010. several business acquisitions totaling $ 20.1 million contributed to the increase in 2011 , while property , plant , and equipment acquisitions in 2011 were comparable with 2010. financing activities net cash used in financing activities in 2012 was $ 131.9 million lower compared with 2011. during 2012 , net repayments on borrowings were $ 35.0 million , compared with $ 178.1 million in 2011. on october 24 , 2011 , our board of directors authorized a twelve-month repurchase program of up to $ 100 million of our common stock , which , on september 13 , 2012 , was extended until february 15 , 2013. during 2012 , we repurchased $ 47.4 million of our common stock , compared with $ 29.4 million in 2011. we did not repurchase any stock from january 1 , 2013 through february 15 , 2013 , when the stock repurchase program expired . net cash used in financing activities in 2011 was $ 60.8 million higher compared with 2010. during 2011 , net repayments on borrowings were $ 178.1 million compared with $ 155.2 million in 2010. during 2011 , we repurchased $ 29.4 million of our common stock , with no repurchases occurring in 2010. refer to item 8 : “ financial statements and supplementary data , note 14 : shareholders ' equity ” in this annual report on form 10-k for additional details related to our share repurchase program . effect of exchange rates on cash and cash equivalents changes in exchange rates on the cash balances of currencies held in foreign denominations resulted in an increase of $ 1.2 million and decreases of $ 555,000 and $ 2.1 million in 2012 , 2011 , and 2010 , respectively . our primary foreign currency exposure relates to non-u.s. dollar denominated transactions in our international subsidiary operations , the most significant of which is the euro . 25 off-balance sheet arrangements : we have no off-balance sheet financing agreements or guarantees as defined by item 303 of regulation s-k at december 31 , 2012 and december 31 , 2011 that we believe are reasonably likely to have a current or future effect on our financial condition , results of operations , or cash flows . disclosures about contractual obligations and commitments : the following table summarizes our known obligations to make future payments pursuant to certain contracts as of december 31 , 2012 , as well as an estimate of the timing in which these obligations are expected to be satisfied . replace_table_token_14_th ( 1 ) borrowings are disclosed within item 8 : “ financial statements and supplementary data , note 6 : debt ” included in this annual report on form 10-k , with the addition of estimated interest expense but not including the amortization of prepaid debt fees . ( 2 ) operating lease obligations are disclosed in item 8 : “ financial statements and supplementary data , note 12 : commitments and contingencies ” included in this annual report on form 10-k and do not include common area maintenance charges , real estate taxes , and insurance charges for which we are obligated . ( 3 ) we enter into standard purchase orders in the ordinary course of business that typically obligate us to purchase materials and other items . purchase orders can vary in terms , which include open-ended agreements that provide for estimated quantities over an extended shipment period , typically up to one year at an established unit cost . our long-term executory purchase agreements that contain termination clauses have been classified as less than one year , as the commitments are the estimated amounts we would be required to pay at december 31 , 2012 if the commitments were canceled . ( 4 ) other long-term liabilities consist of warranty obligations , estimated pension benefit payments , and other obligations .
| replace_table_token_10_th energy : revenues - 2012 vs. 2011 electricity revenues for 2012 decreased by $ 215.1 million , or 17 % , compared with 2011 revenues . the decrease was primarily driven by $ 207.6 million in lower openway project revenue in north america , as four of our five largest openway projects were substantially completed during 2012. this revenue decrease in north america was partially offset by $ 21.8 million of revenue 21 increase as a result of the smartsynch acquisition in may 2012. lower prepayment meter shipments drove a decrease of $ 27.3 million in our asia/pacific region , which was partially offset by $ 23.0 million in higher revenue from increased product shipments and service in emea . the net translation effect of our operations in foreign currencies negatively impacted 2012 revenues by $ 34.4 million . gas revenues decreased by $ 45.8 million , or 7 % , in 2012 , compared to 2011 , including $ 27.7 million for the impact of unfavorable exchange rates for our revenues denominated in foreign currencies . the decrease was driven by lower communication module shipments and lower service revenue , partially offset by increased gas meter shipments , particularly smart meters . the overall decrease is due to typical period-to-period fluctuations in timing of customer projects . one customer represented 11 % of the energy operating segment revenues in 2012 , and a different customer represented 11 % of the energy operating segment revenues in 2011. revenues - 2011 vs. 2010 electricity revenues for 2011 increased by $ 53.5 million , or 5 % , compared with 2010 revenues . revenues for openway electricity projects increased by $ 12.6 million , while revenues for prepayment meters in asia/pacific and africa provided the balance of the increase . gas revenues increased by $ 57.5 million , or 9 % , in 2011 , compared to 2010 , driven by increases in smart gas modules in north america and gas meters in europe and asia , partially offset by a $ 26.1 million decrease in openway gas projects . two customers individually represented 14 % and 10 % of the energy operating
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we measure our share-based compensation at the grant date , based on the fair value of the award , and recognize expense over the requisite service period . we amortize share-based compensation expense for time-based awards under the straight-line attribution method over the vesting period . share-based compensation expense for performance-based awards is recognized when it becomes probable that the performance conditions will be met . once it becomes probable that a performance-based award will vest , we recognize compensation expense equal to the number of shares expected to vest multiplied by the fair value of the award at the grant date , which is amortized using the accelerated method . in the case of performance-based awards based on total shareholder return ( “ tsr ” ) , share-based compensation expense is amortized over the requisite service period . for stock purchase rights under the stock purchase plan , the company amortizes share-based compensation expense ratably over the two-year offering period . we estimate the fair value of time-based stock option and stock purchase awards on the date of grant using the black scholes option-pricing model . the fair value of tsr awards is estimated on the date of grant using a monte carlo simulation model since the award is indexed to the price of our common stock as set forth under the terms of the award . the value of the portion of the awards that is ultimately expected to vest is recognized as expense over the requisite service periods . the black-scholes and monte carlo models incorporate various highly subjective assumptions including expected term of awards , expected future stock price volatility , expected dividend yield and risk-free interest rate . in developing estimates used to calculate assumptions , we establish the expected term for employee stock options based on the historical settlement experience and after giving consideration to vesting schedules . assumptions for stock option exercises were stratified by two employee groups and one employee/non-employee group with sufficiently distinct behavior patterns . expected volatility was developed based on historical stock price volatility . the expected dividend yield is calculated by dividing annualized dividend payments by the closing stock price on the grant date of the option . the fair value of restricted stock units is estimated based on the market price of the company 's common shares on the date of grant less the expected dividend yield . additionally , for certain of our performance-based awards , we make subjective assumptions regarding the likelihood that the related performance metrics will be met . these forecast assumptions are based on various revenue and operating performance criteria . changes in our actual performance could cause a significant adjustment in future periods for these performance-based awards . forfeitures are recorded as they occur . previously recognized share-based compensation expense is reversed for the portion of awards forfeited prior to vesting as and when forfeitures occurred . the expense we recognize in future periods could be affected by changes in forfeitures and may differ significantly from amounts recognized in the current period and or our forecasts . accounting for income taxes . we estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual tax exposure together with assessing temporary differences resulting from the differing treatment of certain items for tax return and financial statement purposes . these differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . 31 we recognize income taxes using an asset and liability approach . this approach requires the recognition of taxes payable or refundable for the current year , and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . the measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated . evaluating the need for an amount of a valuation allowance for deferred tax assets often requires judgment and analysis of all the positive and negative evidence available , including cumulative losses in recent years and projected future taxable income , to determine whether all or some portion of the deferred tax assets will not be realized . using available evidence and judgment , we establish a valuation allowance for deferred tax assets , when it is determined that it is more likely than not that they will not be realized . valuation allowances have been provided primarily against the u.s. research and development credits . valuation allowances have also been provided against certain acquired operating losses and the deferred tax assets of foreign subsidiaries . a change in the assessment of the realization of deferred tax assets may materially impact our tax provision in the period in which a change of assessment occurs . as a multinational corporation , we conduct our business in many countries and are subject to taxation in many jurisdictions . the taxation of our business is subject to the application of various and sometimes conflicting tax laws and regulations as well as multinational tax conventions . our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses , the tax regulations and tax holidays in each geographic region , the availability of tax credits and carryforwards , and the effectiveness of our tax planning strategies . the application of tax laws and regulations is subject to legal and factual interpretation , judgment and uncertainty . tax laws themselves are subject to change as a result of changes in fiscal policy , changes in legislation , and the evolution of regulations and court rulings . consequently , taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and or our effective income tax rate . we are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which we operate . story_separator_special_tag we recognize the effect of income tax positions only if these positions are more likely than not of being sustained . recognized income tax positions are measured at the largest amount that is more than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . we record interest and penalties related to unrecognized tax benefits in income tax expense . the calculation of our tax liabilities involves the inherent uncertainty associated with the application of gaap and complex tax laws . we believe we have adequately provided for in our financial statements additional taxes that we estimate may be required to be paid as a result of such examinations . while we believe that we have adequately provided for all tax positions , amounts asserted by tax authorities could be greater or less than our accrued position . these tax liabilities , including the interest and penalties , are released pursuant to a settlement with tax authorities , completion of audit or expiration of various statutes of limitation . the material jurisdictions in which we may be subject to potential examination by tax authorities throughout the world include china , israel , singapore , switzerland and the united states . the recognition and measurement of current taxes payable or refundable , and deferred tax assets and liabilities require that we make certain estimates and judgments . changes to these estimates or a change in judgment may have a material impact on our tax provision in a future period . inventories . we value our inventory at the lower of cost or net realizable value , cost being determined under the first-in , first-out method . we regularly review inventory quantities on hand and record a reduction to the total carrying value of our inventory for any difference between cost and estimated net realizable value of inventory that is determined to be excess , obsolete or unsellable inventory based primarily on our estimated forecast of product demand and production requirements . the estimate of future demand is compared to our inventory levels , including open purchase commitments , to determine the amount , if any , of obsolete or excess inventory . demand for our products can fluctuate significantly from period to period . a significant decrease in demand could result in an increase in the amount of excess inventory on hand . in addition , our industry is characterized by rapid technological change , frequent new product development and rapid product obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand . additionally , our estimates of future product demand may prove to be inaccurate , in which case we may have understated or overstated the reduction to the total carrying value of our inventory for excess and obsolete inventory . in the future , if our inventory is determined to be overvalued , we would be required to recognize such costs in our cost of goods sold at the time of such determination . likewise , if our inventory is determined to be undervalued , we may have over-reported our cost of goods sold in previous periods and would be required to recognize additional gross margin at the time the related inventory is sold . therefore , although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our results of operations . 32 long-lived assets and intangible assets . we assess the impairment of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable . circumstances which could trigger a review include , but are not limited to the following : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset ; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life . whenever events or changes in circumstances suggest that the carrying amount of long-lived assets and intangible assets may not be recoverable , we estimate the future cash flows expected to be generated by the asset from its use or eventual disposition . if the sum of the expected future cash flows is less than the carrying amount of those assets , we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets . significant management judgment is required in the forecasts of future operating results that are used in the discounted cash flow method of valuation . goodwill . we record goodwill when the consideration paid for a business acquisition exceeds the fair value of net tangible and intangible assets acquired . we review goodwill for impairment annually on the last business day of our fiscal fourth quarter , and more frequently , if an event occurs or circumstances change that indicate the fair value of the reporting unit may be below its carrying amount . we have identified that our business operates as a single operating segment which can further be divided into two components ; storage , and networking & connectivity . management concluded that goodwill is recoverable from these two components working jointly due to a fact pattern demonstrating significant sharing of assets , corporate resources , and benefits from common research and development . the two components also exhibit similar economic characteristics . accordingly , management concluded that these two components should be aggregated into a single reporting unit for purposes of testing goodwill impairment .
| in connection with our restructuring plan , we divested three businesses during fiscal 2018. during the year ended february 3 , 2018 , we received cash proceeds of $ 165.9 million and recognized a gain on sale of $ 88.4 million from the sales of our multimedia , lte thin-modem , and broadband businesses . these businesses are classified as discontinued operations for all periods presented in our accompanying consolidated financial statements . see “ note 3 - discontinued operations ” and `` note 4 - restructuring and other related charges '' in the notes to the consolidated financial statements set forth in part ii , item 8 of this annual report on form 10-k for further information . unless noted otherwise , our discussion under part ii , item 7 , management 's discussion and analysis of financial condition and results of operations refers to our continuing operations . capital return program . our financial position is strong and we remain committed to delivering shareholder value through our share repurchase and dividend programs . including our stock repurchases , we returned $ 646.8 million to stockholders in fiscal 2018 , including $ 527.6 million through repurchases of common stock and $ 119.3 million of cash dividends . our cash , cash equivalents and short-term investments were $ 1.8 billion at february 3 , 2018 . we had cash flow provided by operations of $ 571.1 million through the fourth quarter of fiscal 2018 , primarily due to our net income of $ 520.8 million . 29 pending business combination . on november 19 , 2017 , we entered into an agreement and plan of merger ( the “ merger agreement ” ) with cavium , inc. ( `` cavium '' ) , pursuant to which one of our subsidiaries will merge with and into cavium , with cavium surviving and becoming one of our wholly-owned indirect subsidiary ( the “ merger ” ) . cavium is a provider of highly integrated semiconductor processors that enable intelligent processing for wired and wireless infrastructure and cloud for networking , communications , storage and security applications . the merger is primarily intended to create an opportunity for the combined company to emerge as a leader in infrastructure solutions . pursuant to
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operating overview and highlights we believe that we have created a leading national audio advertising platform that allows us to leverage and expand upon our strengths , market presence and programming . specifically we have an extensive radio station portfolio , including a presence in eight of the top 10 markets , and broad diversity in format , listener base , geography , advertiser base and revenue stream , designed to reduce our dependence on any single demographic , region or industry . as the largest pure-play radio broadcaster in the united states , the company provides exclusive content that is fully distributed through approximately 460 owned and operated stations in 90 u.s. media markets , approximately 8,500 radio broadcast affiliates and numerous digital channels . our nationwide platform generates premium content distributable through both broadcast and digital platforms and our scale allows larger , significant investments in the local digital media marketplace enabling us to leverage our local digital platforms and strategies , including our social commerce initiatives , across additional markets . our websites average over 11.4 million page views from approximately 10.5 million unique users on a monthly basis and stream music to approximately 4.2 million unique users each month . we believe our national platform perspective allows us to optimize our available advertising inventory while providing holistic and comprehensive solutions for our customers . 40 index to financial statements we further believe that cash expected to be generated from operations , and our capital structure provide adequate liquidity and scale for us to operate and grow our current business , as well as to pursue and finance potential strategic acquisitions in the future . liquidity considerations historically , our principal needs for funds have been for acquisitions , expenses associated with our stations , network advertising and corporate operations , capital expenditures , and interest and debt service payments . we believe that our funding needs in the future will be for substantially similar matters . our principal sources of funds have primarily been cash flow from operations and borrowings under credit facilities in existence from time to time . our cash flow from operations is subject to factors such as changes in demand due to shifts in population , station listenership , demographics , audience tastes , competition and fluctuations in preferred advertising media . in addition , customers may not be able to pay , or may delay payment of , accounts receivable that are owed to us , which risks may be exacerbated in challenging economic periods . in recent periods , management has taken steps to mitigate this risk through heightened collection efforts and enhancements to our credit approval process , although no assurances as to the longer-term success of these efforts can be provided . in addition , we believe that our national platform and extensive station portfolio representing a broad diversity in format , listener base , geography , and advertiser base helps us maintain a more stable revenue stream by reducing our dependence on any single demographic , region or industry . in addition , in even-numbered years we generally earn significant additional revenue from political candidates , political parties and special interest groups in advance of state and national elections . we continually monitor our capital structure and from time to time have evaluated , and expect that we will continue to evaluate future opportunities to obtain , other public or private capital from the divestiture of radio stations or other assets that are not a part of , or do not complement , our strategic operations , as well as the issuance of equity and or debt securities , in each case subject to market and other conditions in existence at the appropriate time . no assurances can be provided that any source of funds would be available when needed on terms acceptable to the company , or at all . in furtherance of our strategy , we have undertaken a number of transactions to further strengthen our balance sheet and improve our cash flows . on december 23 , 2013 , we entered into the amended and restated credit agreement ( the `` credit agreement '' ) . the credit agreement consists of a $ 2.025 billion term loan ( the “ term loan ” ) maturing in december 2020 and a $ 200.0 million revolving credit facility ( the `` revolving credit facility '' ) maturing in december 2018. under the revolving credit facility , up to $ 30.0 million of availability may be drawn in the form of letters of credit . upon entry into the credit agreement , we used term loan borrowings of $ 2.025 billion to repay in full all amounts outstanding under the first lien term loan and second lien term loan under our pre-existing credit agreements . in the event amounts are outstanding under the revolving credit facility or any letters of credit are outstanding that have not been collateralized by cash as of the end of each quarter , the credit agreement requires compliance with a consolidated first lien leverage ratio covenant . the required ratio at december 31 , 2014 was 5.75 to 1. as of december 31 , 2014 , we were in compliance with all of our covenants under the credit agreement . the first lien net leverage ratio covenant , however , periodically decreases until it reaches 4.0 to 1 on march 31 , 2018. at march 31 , 2015 the required ratio will be 5.50 to 1. as we currently have no borrowings outstanding under the revolving credit facility , the required ratio does not apply . however beginning in the second quarter of 2015 , we anticipate that we will lose access to the revolving credit facility as our leverage will be greater than the required ratio , and will not regain access until we again satisfy the first lien ratio requirement that would permit such borrowings . story_separator_special_tag on december 6 , 2013 , we entered into a 5-year , $ 50.0 million revolving accounts receivable securitization facility ( the “ securitization facility ” ) with general electric capital corporation , as a lender , as a swing line lender and as an administrative agent ( together with any other lenders party thereto from time to time , the “ lenders ” ) . in connection with the entry into the securitization facility , pursuant to a receivables sale and servicing agreement , dated as of december 6 , 2013 ( the “ sale agreement ” ) , certain subsidiaries of the company ( collectively , the `` originators '' ) may sell and or contribute their existing and future accounts receivable to a special purpose entity and wholly owned subsidiary of the company ( the “ spv ” ) . the spv may thereafter make borrowings from the lenders , which borrowings are secured by those receivables , pursuant to a receivables funding and administration agreement , dated as of december 6 , 2013 ( the “ funding agreement ” ) . at december 31 , 2014 , our long-term debt consisted of $ 1.9 billion outstanding under the term loan and $ 610.0 million in 7.75 % senior notes . we have assessed the current and expected business climate , our current and expected needs for funds and our current and expected sources of funds and determined , based on our financial condition as of december 31 , 2014 , that cash on hand , cash expected to be generated from operating activities , cash expected to be available from various financing sources , excluding access to the revolving credit facility , will be sufficient to satisfy our anticipated financing needs for working capital , capital 41 index to financial statements expenditures , interest and debt service payments , and any repurchases of securities and other debt obligations for at least the next twelve months . we have significant intangible assets recorded comprised primarily of broadcast licenses and goodwill acquired through acquisitions . we evaluate on an interim basis if events or circumstances indicate that broadcast licenses or goodwill may be impaired . the company performs its annual impairment testing of broadcast licenses and goodwill during the fourth quarter . this evaluation will encompass a detailed preparation of future projected operating results which will incorporate the consideration of a challenging advertising market being experienced by radio operators in our industry as well as increased macroeconomic volatility in the market that began at the end of the third quarter . although we did not record any impairment charges during the year ended december 31 , 2014 , we can not make any assurances that there will not be any impairment charges in any future periods . advertising revenue and adjusted ebitda our primary source of revenue is the sale of advertising time . our sales of advertising time are primarily affected by the demand from local , regional and national advertisers , which impacts the advertising rates charged by us . advertising demand and rates are based primarily on the ability to attract audiences in the demographic groups targeted by its advertisers , as measured principally by various ratings agencies on a periodic basis . we endeavor to develop strong listener loyalty , and we believe that the diversification of our formats and programs helps to insulate us from the effects of changes in the musical tastes of the public with respect to any particular format as a substantial portion of our revenue comes from non-music format and proprietary content . in addition , we believe that the platform that we own and operate , which has increased diversity in terms of format , listener base , geography , advertiser base and revenue stream as a result of our acquisitions and the development of our strategy to focus on radio stations in larger markets and geographically strategic regional clusters , will further reduce our revenue dependence on any single demographic , region or industry . our larger markets are also supported with content through network programming . we strive to maximize revenue by managing our on-air inventory of advertising time and adjusting prices up or down based on supply and demand . the optimal number of advertisements available for sale depends on the programming format of a particular radio program . each sales vehicle has a general target level of on-air inventory available for advertising . this target level of advertising inventory may vary at different times of the day but tends to remain stable over time . we seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across each cluster of stations , thereby providing each of our potential advertisers with an effective means of reaching a targeted demographic group . in the broadcasting industry , we sometimes utilize trade or barter agreements that exchange advertising time for goods or services such as travel or lodging , instead of for cash . trade revenue totaled $ 34.9 million , $ 31.1 million and $ 27.7 million for the years ended december 31 , 2014 , 2013 , and 2012 , respectively . our advertising contracts are generally short-term . we generate most of our revenue from local and regional advertising , which is sold primarily by a station 's sales staff . local and regional advertising typically represents a majority of our net revenues . in addition to local advertising revenues , we monetize our available inventory in both national spot and network sales marketplaces using our national platform . to effectively deliver our network advertising for our customers , we distribute content and programming through third party affiliates in order to achieve a broader national audience .
| previously contracted increases in sports rights and local talent bonuses for ratings growth in several large radio markets also contributed to year over year increases . other direct operating expenses . other direct operating expenses for the year ended december 31 , 2014 increased $ 67.1 million , or 16.6 % , to $ 470.4 million compared to $ 403.4 million for the year ended december 31 , 2013 . this increase was primarily attributable to the addition of the operations of westwoodone and the lmas in the chicago , dallas and san jose markets . we also recorded additional one-time marketing expenditures related to the launch of our new radio station in the new york market and expenses related to the rollout of our nash country brand across the platform . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2014 increased $ 2.8 million , or 2.5 % , to $ 115.3 million compared to $ 112.5 million for the year ended december 31 , 2013 . this increase was due to a $ 6.3 million increase in depreciation expense which was primarily attributable to expense related to the assets of westwoodone , offset by a $ 3.5 million decrease in amortization expense on our definite lived intangible assets , which resulted from the accelerated amortization methodology that is based on the expected pattern in which the underlying assets ' economic benefits are consumed . lma fees . lma fees for the year ended december 31 , 2014 increased $ 3.5 million , or 93.6 % , to $ 7.2 million compared to $ 3.7 million for the year ended december 31 , 2013 . this increase was related to the lmas in chicago , il and san jose , ca entered into during the year . corporate expenses , including , stock-based compensation expense . corporate expenses , including stock-based compensation expense for the year ended december 31 , 2014 increased $ 16.6 million to 27.7 % , or $ 76.4 million compared to $ 59.8 million for the year ended december 31 , 2013
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forward-looking statements are not guarantees of future performance and our actual results may differ materially from those currently anticipated and from historical results depending upon a variety of factors , including , but not limited to , those discussed in part i , item 1a of this report under the heading “ risk factors , ” which are incorporated herein by reference . overview we are a clinical-stage biopharmaceutical company committed to the advancement of innovative products for women 's reproductive health . we are driven by a mission to identify , develop and bring to market a diverse portfolio of differentiated therapies that expand treatment options , improve outcomes and facilitate convenience for women , primarily in the areas of contraception , vaginal health , sexual health and fertility . our business strategy is to license or otherwise acquire the rights to differentiated product candidates in such areas , some of which have existing clinical proof-of-concept data , and to take those candidates through advanced stages of clinical development . we have two product candidates in clinical development : ovaprene , a monthly non-hormonal contraceptive , and sst-6007 , a 5 % topical sildenafil citrate cream for female sexual arousal disorder . since 2015 , we have devoted significant resources to license and prepare for the development of ovaprene , a non-hormonal contraceptive intravaginal ring intended to provide protection over multiple weeks of use , requiring no intervention at the time of intercourse . we acquired the worldwide rights to sst-6007 , a potential treatment for fsad , in february 2018. these two product candidates and any additional future candidates will require us to spend significant cash resources to fund planned clinical development activities . we incurred losses of $ 11,521,197 for the year ended december 31 , 2017. at december 31 , 2017 , our accumulated deficit was $ 12,230,952. as of december 31 , 2017 , we had cash of approximately $ 7.6 million . as further discussed below , in at-the-market offerings and in an underwritten public offering that we closed in early 2018 , we received net proceeds of approximately $ 10.44 million in the aggregate . we will need to raise substantial additional capital to continue to fund our operations . the amount and timing of future funding requirements will depend on many factors , including the pace and results of our clinical development efforts . if we do not raise capital as and when needed , we will not be able to continue development of our product candidates or we will be required to delay , scale back or eliminate some or all of our development programs or cease operations . recent events capital raising on january 4 , 2018 , we entered into an at-the-market sales agreement with wainwright pursuant to which we may sell up to an aggregate of $ 10 million worth of shares of our common stock from time to time in “ at-the-market ” offerings ( as defined in rule 415 promulgated under the securities act of 1933 , as amended ) , including in sales made directly on nasdaq , to or through a market maker or , subject to our prior approval , in negotiated transactions . we will pay an aggregate commission rate of up to 3 % of the gross proceeds of any common stock sold under this agreement . in january and february 2018 , we generated net proceeds of an aggregate of $ 1.04 million on sales of an aggregate of 375,000 shares of our common stock under this agreement . on february 15 , 2018 , we closed an underwritten public offering of 5.0 million shares of our common stock and warrants to purchase up to 3.5 million shares of common stock . each share of common stock was sold together with a warrant to purchase up to 0.70 of a share of common stock , at an exercise price of $ 3.00 per share . we received net proceeds of approximately $ 9.4 million . the warrants are exercisable immediately and for a period of five years from the date of issuance . the warrants include a price-based anti-dilution provision , which provides that the exercise price of the warrants will be adjusted downward if we issue or sell ( or are deemed to issue or sell ) securities at a price that is less than the exercise price in effect immediately prior to such issuance or sale ( or deemed issuance or sale ) , before the expiration of the warrant term . in that case , the new exercise price of the warrants would equal the price at which the new securities are issued or sold ( or are deemed to have been issued or sold ) . in addition , if we issue , sell or enter into any agreement to issue or sell securities at a price which varies or may vary with the market price of the shares of our common stock , the holders of the warrants shall have the right to substitute such variable price for the exercise price of the warrant then in effect . the warrants are exercisable only for cash , unless the registration statement of which the prospectus registering the offering was part is not effective for the issuance of the shares underlying the warrants , in which case the warrants may be exercised on a cashless 37 basis . we granted the underwriters a 30-day option to purchase up to an additional 750,000 shares of our common stock and warrants to purchase up to 525,000 shares of our common stock directly from us at a pri ce of $ 2.05 per common share and accompanying warrant . story_separator_special_tag should the underwriter elect to cover overallotments through open market purchases , then we would be required to issue additional warrants to the underwriter at a purchase price of $ 0.001 per w arrant s hare . a portion of the o verallotment option was exercised by roth on february 15 , 2018 to purchase 220,500 warrant shares . sst-6007 license and collaboration agreement on february 11 , 2018 , we entered into the sst license agreement with strategic science . under the sst license agreement , subject to our securing an investment of at least $ 10,000,000 by march 31 , 2018 , which we secured as a result of the underwritten public offering that closed on february 15 , 2018 discussed above , we obtained a worldwide exclusive , royalty-bearing , sublicensable license to develop and commercialize in the sst field of use , the sst licensed products . we agreed to use commercially reasonable efforts to develop the sst licensed products in the sst field of use in accordance with a development plan contained in the sst license agreement , and to commercialize the sst licensed products in the sst field of use . strategic science will be eligible to receive tiered royalties based on percentages of annual net sales of the sst licensed products in the single digits to the mid-double digits , including customary provisions permitting royalty reductions and offset , and a percentage of sublicense revenue . we are responsible for all reasonable internal and external costs and expenses incurred by strategic science in its performance of the development activities it is required to perform under the sst license agreement . we are also required to make milestone payments to strategic science ranging from $ 500,000 to $ 150,000,000 contingent on achieving certain clinical , regulatory and commercial milestones . see “ item 1. business—overview—recent events—sst-6007 , ” above for additional information regarding the sst license agreement . 2017 business combination and related transactions until july 2017 , our corporate name was cerulean pharma inc. on july 19 , 2017 , cerulean and private daré completed a transaction in which the private daré stockholders sold their shares of capital stock of private daré to cerulean in exchange for newly issued shares of cerulean common stock . as a result of that transaction , private daré became a wholly owned subsidiary of cerulean . as of immediately following the closing of that transaction : ( i ) the private daré stockholders owned approximately 51 % of the outstanding common stock of cerulean , and ( ii ) the equity holders of cerulean immediately prior to the closing , collectively , owned approximately 49 % of the outstanding common stock of cerulean . we refer to the transaction described above as the cerulean/ private daré stock purchase transaction . on july 19 , 2017 , cerulean also completed the sale of its proprietary dynamic tumor targeting platform to novartis institutes for biomedical research , inc. for $ 6.0 million . following the closing of the cerulean/ private daré stock purchase transaction and the sale of the dynamic tumor targeting platform , cerulean changed its name to daré bioscience , inc. , and we refocused our business in women 's reproductive health . on july 20 , 2017 , we effected a 1-for-10 reverse stock split of our common stock . all share and per share amounts of common stock , options and warrants in this report , including those amounts included in the accompanying consolidated financial statements , have been restated for all periods to give retroactive effect to the reverse stock split . financial operations overview the results of our operations discussed in this section and the operations presented in the condensed consolidated financial statements and accompanying notes for the year ended december 31 , 2017 represent our operations after giving effect to the cerulean/ private daré stock purchase transaction . the condensed consolidated financial statements and accompanying notes for the year ended december 31 , 2016 represent the operations of private daré , making a comparison between periods difficult . revenue to date we have not generated any revenue and do not expect to generate any revenue for the foreseeable future . in the future , we may generate revenue from a combination of product sales , license fees , milestone and research and development payments in connection with strategic partnerships , and royalties resulting from the sales of products developed under licenses of intellectual property . any revenue generated is expected to fluctuate from quarter to quarter as a result of the timing and amounts of any such payments . our ability to generate product revenue will depend on the successful clinical development of our product candidates , the receipt of regulatory approvals to market such products and 38 the eventual successful commercialization of product candidates . if we fail to complete the development of products candidates in a timely manner or to obtain regulatory approval for such product candidates , our ability to generate future revenue and our results of operations would be materially adversely affected . research and development expenses research and development expenses represent costs incurred to conduct research and development of our product candidates . we recognize all research and development expenses as they are incurred . research and development expenses consist primarily of the following : expenses incurred under agreements with consultants and clinical trial sites that conduct research and development activities on our behalf ; laboratory and vendor expenses related to the execution of clinical trials ; contract manufacturing expenses , primarily for the production of clinical supplies ; and internal costs that are associated with activities performed by our research and development organization and generally benefit multiple programs .
| goodwill impairment expense we incurred an impairment loss of $ 7,490,886 for the year ended december 31 , 2017 due to our determination that the carrying amount of our goodwill exceeded its estimated fair value at december 31 , 2017. see note 2 , “ acquisition , ” of the notes to consolidated financial statements appearing in this report for a discussion of our goodwill analysis . interest income ( expense ) the increase of $ 280,533 in interest expense was due to a $ 316,805 expense associated with the beneficial conversion feature associated with our convertible promissory notes , all of which were exchanged for shares of stock in connection with the cerulean/ private daré stock purchase transaction . liquidity and capital resources we incurred losses of $ 11,521,197 and $ 672,687 for the years ended december 31 , 2017 and 2016 , respectively . at december 31 , 2017 , our accumulated deficit was $ 12,230,952. at december 31 , 2017 , we had working capital of $ 7,382,465 compared to negative working capital of $ 710,621 at december 31 , 2016. plan of operations and future funding requirements our primary uses of capital are , and we expect will continue to be , staff-related expenses , clinical trial costs , contract manufacturing services , third-party clinical research and development services , legal and other regulatory expenses and general overhead costs . we believe our existing balances of cash , including the $ 9.4 million of net proceeds we received from the underwritten public offering we completed in february 2018 , the $ 1.04 million of net proceeds we received from the at-the-market offering we completed in february 2018 , and the $ 6.0 million we received from the sale of the d ynamic tumor targeting platform to novartis institutes for biomedical research , inc. in july 2017 , will be sufficient to satisfy our working capital needs and other liquidity requirements associated with our planned operations for at least the next 12 months . based on our current plans and existing cash balances , we believe that our available funds will be sufficient for us to commence and complete a postcoital clinical trial of ovaprene during this period
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we expect that some modest , gradual upward pressure on our delinquency and write-off rates , due primarily to this seasoning of loans related to newer card members , will cause provisions to grow faster than loans in 2017. total expenses for the year declined versus the prior year , driven by the gains on the sales of the costco and jetblue portfolios , which were recognized as a reduction in other expenses , as well as a decline in rewards expense , driven by higher costco cobrand rewards expenses included in the prior year and the shift in volumes to cash rebate cards , for which the rewards costs are classified as contra-discount revenue . marketing and promotion expenses grew significantly due to higher levels of spending on growth initiatives . card member services and other expenses also increased , driven by higher levels of engagement in many of our premium services such as airport lounge access and certain cobrand card benefits . we anticipate spending less on marketing and promotion in 2017. rewards expense and card member services and other expenses , after excluding costco cobrand-related costs , should continue to grow in 2017 due to higher billings and enhancements to our card product value propositions . competition remains intense across our businesses . while our businesses are global and diversified , to remain competitive we need to continue to demonstrate the differentiated value we deliver to merchants , customers and business partners in all aspects of our relationships . more intense competition has and will continue to impact our cost of renewing and ability to win or extend cobrand and other relationships . throughout our business , we are focused on those products , services and relationships that offer the best value to our customers while also providing appropriate returns to our business and shareholders . for discussion of certain legislative and regulatory changes that could have a material adverse effect on our results of operations and financial condition , see supervision and regulation in business. 37 story_separator_special_tag valign= '' bottom '' > ( 12 ) other fees and commissions ( a ) 2,753 2,866 3,626 ( 113 ) ( 4 ) ( 760 ) ( 21 ) other 2,029 2,033 2,989 ( 4 ) ( 956 ) ( 32 ) total non-interest revenues 26,348 26,896 28,716 ( 548 ) ( 2 ) ( 1,820 ) ( 6 ) total interest income 7,475 7,545 7,179 ( 70 ) ( 1 ) 366 5 total interest expense 1,704 1,623 1,707 81 5 ( 84 ) ( 5 ) net interest income 5,771 5,922 5,472 ( 151 ) ( 3 ) 450 8 total revenues net of interest expense $ 32,119 $ 32,818 $ 34,188 $ ( 699 ) ( 2 ) % $ ( 1,370 ) ( 4 ) % ( a ) travel commissions and fees , which were previously disclosed separately on the consolidated statements of income , are now included within other fees and commissions . total revenues net of interest expense discount revenue decreased $ 617 million or 3 percent in 2016 compared to 2015 , and remained relatively flat in 2015 compared to 2014. the decrease in 2016 was primarily driven by lower costco-related revenue . both periods of comparison reflected increases in contra-discount revenues , including cash rebate rewards , which in 2015 as compared to 2014 was offset by growth in billed business . 38 overall , billed business was flat in 2016 compared to 2015. u.s. billed business decreased 3 percent , primarily driven by lower costco-related volumes and non-u.s. billed business increased 6 percent ( 10 percent on an fx-adjusted basis ) . 1 the average discount rate was 2.45 percent , 2.46 percent and 2.48 percent for 2016 , 2015 and 2014 , respectively . the decrease in the average discount rate in 2016 compared to 2015 was driven primarily by growth of the optblue program , merchant negotiations , including those resulting from the recent regulatory changes affecting competitor pricing in the european union and a prior-year benefit related to certain merchant rebate accruals , partially offset by the benefit to the discount rate from the decline in costco merchant volumes in the current year . we expect the average discount rate will likely continue to decline over time due to further expansion of optblue , merchant negotiations and competition , volume related pricing discounts and certain pricing initiatives mainly driven by pricing regulation ( including regulation of competitors ' interchange rates ) . see tables 5 and 6 for more details on billed business performance and the average discount rate . net card fees increased $ 186 million or 7 percent in 2016 compared to 2015 and remained relatively flat in 2015 compared to 2014 ( increasing 5 percent on an fx-adjusted basis ) . 1 the increase in 2016 was driven primarily by growth in the platinum , gold and delta portfolios . other fees and commissions decreased $ 113 million or 4 percent in 2016 compared to 2015 , and $ 760 million or 21 percent in 2015 compared to 2014. the decrease in 2016 was primarily driven by lower costco-related fees , partially offset by an increase in delinquency and loyalty coalition-related fees . the decrease in 2015 was primarily due to the gbt jv transaction , resulting in a lack of comparability between periods . other revenues were relatively flat in 2016 compared to 2015 , and decreased $ 956 million or 32 percent in 2015 compared to 2014. the current year included a contractual payment from a gns partner and higher revenues from our prepaid services business , offset by lower revenues related to costco , loyalty edge ( which was sold in the fourth quarter of 2016 ) , and the gbt jv transition services agreement . story_separator_special_tag the decrease in 2015 was primarily driven by gains related to the sales of investment securities in concur and industrial and commercial bank of china in 2014. interest income decreased $ 70 million or 1 percent in 2016 compared to 2015 , and increased $ 366 million or 5 percent in 2015 compared to 2014. the decrease in 2016 was primarily driven by lower costco cobrand loans and the associated interest income , partially offset by modestly higher yields and an increase in average card member loans across other lending products . the increase in 2015 primarily reflects higher average card member loans , partially offset by decreases in interest and dividends on investment securities driven by lower average investment securities . interest expense increased $ 81 million or 5 percent in 2016 compared to 2015 , and decreased $ 84 million or 5 percent in 2015 compared to 2014. the increase in 2016 was primarily driven by higher average customer deposit balances , partially offset by lower average long-term debt . the decrease in 2015 was primarily driven by a lower cost of funds on debt and customer deposits , partially offset by an increase in average customer deposit balances . table 3 : provisions for losses summary years ended december 31 , change change ( millions , except percentages ) 2016 2015 2014 2016 vs. 2015 2015 vs. 2014 charge card $ 696 $ 737 $ 792 $ ( 41 ) ( 6 ) % $ ( 55 ) ( 7 ) % card member loans 1,235 1,190 1,138 45 4 52 5 other 95 61 114 34 56 ( 53 ) ( 46 ) total provisions for losses ( a ) $ 2,026 $ 1,988 $ 2,044 $ 38 2 % $ ( 56 ) ( 3 ) % ( a ) beginning december 1 , 2015 through to the sale completion dates , does not reflect the hfs portfolios . provisions for losses charge card provision for losses decreased $ 41 million or 6 percent in 2016 compared to 2015 , and $ 55 million or 7 percent in 2015 compared to 2014. the decrease in 2016 was driven by lower net write-offs and improved delinquencies . the decrease in 2015 reflects a reserve release versus a reserve build in 2014 , partially offset by higher write-offs . card member loans provision for losses increased $ 45 million or 4 percent in 2016 compared to 2015 , and $ 52 million or 5 percent in 2015 compared to 2014. the increase in 2016 was primarily driven by strong momentum in our lending growth initiatives , resulting in higher loan balances , increased net write-offs in the current year and a slight increase in delinquencies , partially offset by the impact of the hfs portfolios , as the current year does not reflect the associated credit costs , as previously mentioned . the increase in 2015 primarily reflects a reserve build versus a reserve release in 2014. the reserve build in 2015 was due to a small increase in delinquency rates combined with an increase in loan balances , partially offset by lower write-offs and the impact related to transferring the hfs portfolios to card member loans and receivables hfs in december 2015 . 1 the foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into u.s. dollars ( i.e. , assumes the foreign exchange rates used to determine results for the current period apply to the corresponding period against which such results are being compared ) . fx-adjusted revenues and expenses constitute non-gaap measures . we believe the presentation of information on a foreign currency adjusted basis is helpful to investors by making it easier to compare our performance in one period to that of another period without the variability caused by fluctuations in currency exchange rates . 39 other provision for losses increased $ 34 million or 56 percent in 2016 compared to 2015 , and decreased $ 53 million or 46 percent in 2015 compared to 2014. the increase in 2016 was primarily driven by growth in the commercial financing portfolio resulting in higher net write-offs . the decrease in 2015 was primarily due to a merchant-related charge in the fourth quarter of 2014. table 4 : expenses summary years ended december 31 , change change ( millions , except percentages ) 2016 2015 2014 2016 vs. 2015 2015 vs. 2014 marketing and promotion $ 3,650 $ 3,109 $ 3,216 $ 541 17 % $ ( 107 ) ( 3 ) % card member rewards 6,793 6,996 6,931 ( 203 ) ( 3 ) 65 1 card member services and other 1,133 1,018 822 115 11 196 24 total marketing , promotion , rewards and card member services and other 11,576 11,123 10,969 453 4 154 1 salaries and employee benefits 5,259 4,976 6,095 283 6 ( 1,119 ) ( 18 ) other , net ( a ) 5,162 6,793 6,089 ( 1,631 ) ( 24 ) 704 12 total expenses $ 21,997 $ 22,892 $ 23,153 $ ( 895 ) ( 4 ) % $ ( 261 ) ( 1 ) % ( a ) beginning december 1 , 2015 through to the sale completion dates , includes the valuation allowance adjustment associated with the hfs portfolios . expenses marketing and promotion expenses increased $ 541 million or 17 percent in 2016 compared to 2015 , and decreased $ 107 million or 3 percent in 2015 compared to 2014 ( increasing 1 percent on an fx-adjusted basis ) , with higher levels of spending on growth initiatives in both periods .
| where meaningful in describing our performance , foreign currency-adjusted amounts , which exclude the impact of changes in the foreign exchange ( fx ) rates , have been provided . table 1 : summary of financial performance years ended december 31 , change change ( millions , except percentages and per share amounts ) 2016 2015 2014 2016 vs. 2015 2015 vs. 2014 total revenues net of interest expense $ 32,119 $ 32,818 $ 34,188 $ ( 699 ) ( 2 ) % $ ( 1,370 ) ( 4 ) % provisions for losses 2,026 1,988 2,044 38 2 ( 56 ) ( 3 ) expenses 21,997 22,892 23,153 ( 895 ) ( 4 ) ( 261 ) ( 1 ) net income 5,408 5,163 5,885 245 5 ( 722 ) ( 12 ) earnings per common share diluted ( a ) $ 5.65 $ 5.05 $ 5.56 $ 0.60 12 % $ ( 0.51 ) ( 9 ) % return on average equity ( b ) 26.0 % 24.0 % 29.1 % ( a ) earnings per common share diluted was reduced by the impact of ( i ) earnings allocated to participating share awards and other items of $ 43 million , $ 38 million and $ 46 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively , and ( ii ) dividends on preferred shares of $ 80 million , $ 62 million and nil for the years ended december 31 , 2016 , 2015 and 2014 . ( b ) return on average equity ( roe ) is computed by dividing ( i ) one-year period net income ( $ 5.4 billion , $ 5.2 billion and $ 5.9 billion for 2016 , 2015 and 2014 , respectively ) by ( ii ) one-year average total shareholders ' equity ( $ 20.8 billion , $ 21.5 billion and $ 20.3 billion for 2016 , 2015 and 2014 , respectively ) . table 2 : total revenues net of interest expense summary years ended december 31 , change change ( millions , except percentages ) 2016 2015 2014 2016 vs. 2015 2015 vs. 2014 discount revenue $ 18,680 $ 19,297 $ 19,389
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impact of the natural disaster in japan and orthodontic recovery the company 's orthodontic and japanese businesses have been negatively impacted as a result of the natural disaster that occurred in japan in march of 2011. the impact for the year ended december 31 , 2012 on the company 's sales of orthodontic products was a slight increase in net sales and earnings as compared with 2011 , resulting in a positive $ 0.01 impact to the period 's year-over-year earnings per diluted share . impact of foreign currencies due to the international nature of dentsply 's business , movements in foreign exchange rates may impact the consolidated statements of operations . with 65 % to 70 % of the company 's net sales located in regions outside the u.s. , the company 's consolidated net sales are impacted negatively by the strengthening or positively by the weakening of the u.s. dollar . additionally , movements in certain foreign exchange rates may unfavorably or favorably impact the company 's results of operations , financial condition and liquidity . reclassification of prior year amounts certain reclassifications have been made to prior years ' data in order to conform to current year presentation . specifically , during the first quarter of 2012 , the company realigned reporting responsibilities for multiple locations as a result of changes to the management structure . the segment information below reflects the revised structure for all periods shown . results of operations 2012 compared to 2011 net sales the discussion below summarizes the company 's sales growth , excluding precious metal content , into the following components : ( 1 ) constant currency , which includes internal growth and acquisition growth , and ( 2 ) foreign currency 25 translation . these disclosures of net sales growth provide the reader with sales results on a comparable basis between periods . management believes that the presentation of net sales , excluding precious metal content , provides useful information to investors because a significant portion of dentsply 's net sales is comprised of sales of precious metals generated through sales of the company 's precious metal dental alloy products , which are used by third parties to construct crown and bridge materials . due to the fluctuations of precious metal prices and because the cost of the precious metal content of the company 's sales is largely passed through to customers and has minimal effect on earnings , dentsply reports net sales both with and without precious metal content to show the company 's performance independent of precious metal price volatility and to enhance comparability of performance between periods . the company uses its cost of precious metal purchased as a proxy for the precious metal content of sales , as the precious metal content of sales is not separately tracked and invoiced to customers . the company believes that it is reasonable to use the cost of precious metal content purchased in this manner since precious metal dental alloy sale prices are typically adjusted when the prices of underlying precious metals change . the presentation of net sales , excluding precious metal content , is considered a measure not calculated in accordance with us gaap , and is therefore considered a non-us gaap measure . the company provides the following reconciliation of net sales to net sales , excluding precious metal content . the company 's definitions and calculations of net sales , excluding precious metal content , and other operating measures derived using net sales , excluding precious metal content , may not necessarily be the same as those used by other companies . replace_table_token_4_th in 2012 , net sales , excluding precious metal content increased $ 382.1 million from 2011. the 16.4 % increase in net sales , excluding precious metal content , included constant currency growth of 20.2 % , and currency translation , which decreased net sales , excluding precious metal content , by 3.8 % . the constant currency sales growth was comprised of internal growth of 4.0 % and acquisition growth of 16.2 % . constant currency sales growth the following table includes growth rates for net sales , excluding precious metal content . replace_table_token_5_th internal growth excluding the japanese market and orthodontic business was substantially the same and varied by no more than one percentage point in any region . united states during 2012 , net sales , excluding precious metal content , increased by 13.8 % on a constant currency basis , including 10.2 % of acquisition growth . the internal growth rate was 3.6 % due to increased demand across all product categories . europe during 2012 , net sales , excluding precious metal content , increased by 27.5 % on a constant currency basis , including 24.9 % of acquisition growth . the internal growth rate was 2.6 % and was primarily driven by sales growth in the dental specialty , dental consumable and consumable medical device products partially offset by decreased demand for precious metal alloy products within the dental laboratory products category . 26 all other regions during 2012 , net sales , excluding precious metal content , increased 15.9 % on a constant currency basis , which includes 8.7 % of acquisition growth . the internal growth was 7.2 % , driven by sales growth in all dental product categories . gross profit replace_table_token_6_th gross profit as a percentage of net sales , excluding precious metal content , increased 2.7 % during 2012 compared to 2011. the gross profit rate was positively impacted by improved product pricing , favorable product mix primarily associated with recent acquisitions as well as a favorable rate impact from changes in foreign currency translation rates offset by higher manufacturing costs . in 2011 , the gross profit rate was negatively impacted by approximately two percentage points from expensing inventory for the fair value adjustments associated with acquisitions . expenses selling , general and administrative ( “ sg & a ” ) expenses replace_table_token_7_th sg & a expenses as a percentage of net sales , excluding precious metal content , was 2.1 % higher than in 2011. story_separator_special_tag increased sg & a expenses as a percent of net sales , excluding precious metal content , was a result of the higher expense rate of the astra tech business and $ 30.9 million of amortization primarily associated with 2011 acquisitions as well as key global marketing events . restructuring and other costs replace_table_token_8_th the company recorded net restructuring and other costs of $ 25.7 million in 2012 compared to $ 35.9 million in 2011. in 2012 , restructuring cost of $ 17.8 million were related to the implant integration activity as well as the closure and consolidation of facilities in an effort to streamline the company 's operations and better leverage the company 's resources . restructuring and other costs also include $ 5.2 million related to an impairment of previously acquired technology . in 2011 , these costs were related to expenses associated with the acquisition of astra tech of $ 18.0 million , legal settlement cost of $ 12.6 million as well as restructuring costs primarily related to the orthodontic business . also , the company recorded 27 certain other costs of $ 1.5 million related to an impairment of an intangible asset . the benefits associated with the 2011 and 2012 restructuring plans were immaterial to the current period . the company estimates the future annual savings related to these plans to be in the range of $ 10 million to $ 15 million to be realized over the next three to five years . there is no assurance that future savings will be fully achieved . other income and expenses replace_table_token_9_th net interest expense the change in net interest expense in 2012 compared to 2011 was primarily the result of higher average debt levels and lower cash levels as a result of financing the $ 1.8 billion astra tech acquisition in 2011. interest expense increased $ 13.0 million over 2011. other expense , net other expense in the 2012 period included approximately $ 2.7 million of currency transaction losses and $ 0.5 million of other non-operating expense . other expense in the 2011 period included approximately $ 1.7 million of currency transaction losses , $ 2.9 million of interest rate swap terminations , $ 3.8 million of treasury rate lock ineffectiveness , and $ 0.6 million of other non-operating expense . income taxes and net income replace_table_token_10_th provision for income taxes during 2012 , the company entered into various legal entity restructuring activities to complete the integration of the astra tech business acquired in august 2011. in addition to the specific tax integration of the astra tech subsidiaries with legacy dentsply subsidiaries , the company also realigned much of its foreign legal entity structure to better align operations and cash management activities . as a part of this restructuring , the company was able to capture an overall net benefit from anticipated tax losses of $ 57.7 million . most of the cash flow benefit from this tax matter , including utilization of an existing credit carryforward of approximately $ 49.6 million will be realized over the next several years . also , the company recognized $ 12.0 million of tax benefit from a reduction in foreign tax rates and separately recorded a valuation allowance on previously recognized assets of $ 10.4 million . during 2011 , the company recorded a tax benefit from the release of a valuation allowance on previously unrecognized tax loss carryforwards of approximately $ 46.7 million . further information regarding the details of income taxes is presented in note 12 , income taxes , to the consolidated financial statements in this form 10-k. 28 the company 's effective tax rate for 2012 and 2011 was 2.7 % and 4.3 % , respectively . in 2012 , the company 's effective tax rate included the impact of amortization of purchased intangible assets , integration and restructuring and other costs as well as various income tax adjustments which impacted income before taxes and the provisions for income taxes by $ 91.7 million and $ 90.0 million , respectively . in 2011 , the company 's effective income tax rate included the impact of acquisition related activity , restructuring and other costs , amortization on purchased intangibles from acquisitions and the release of the valuation allowance and various income tax adjustments , which impacted income before income taxes and the provision for income taxes by $ 123.8 million and $ 75.4 million , respectively . equity in net income ( loss ) of unconsolidated affiliated company the company 's 17 % ownership investment of dio corporation resulted in a net loss of $ 3.3 million on an after-tax basis for 2012. the equity earnings of dio includes the result of mark-to-market changes related to the derivative accounting for the convertible bonds issued by dio to dentsply . the company 's portion of the mark-to-market net loss incurred by dio was approximately $ 3.1 million . in 2011 , equity in net income was $ 2.4 million on an after-tax basis and the company 's portion of the mark-to-market net gain incurred by dio was approximately $ 2.2 million . net income attributable to noncontrolling interests the portion of consolidated net income attributable to noncontrolling interests increased $ 1.4 million from 2012 to 2011 due to higher earnings . net income attributable to dentsply international in addition to the results reported in accordance with us gaap , the company provides adjusted net income attributable to dentsply international and adjusted earnings per diluted common share . these adjusted amounts consist of us gaap amounts excluding , net of tax ( 1 ) acquisition related costs , ( 2 ) restructuring and other costs , ( 3 ) amortization of purchased intangible assets , ( 4 ) orthodontic business continuity costs , ( 5 ) income related to credit risk adjustments , ( 6 ) certain fair value adjustments at an unconsolidated affiliated company , and ( 7 ) income tax related adjustments . adjusted earnings per diluted common share is calculated by dividing adjusted net income attributable to dentsply international by diluted weighted-average common shares outstanding .
| excluding the japanese market and orthodontic business , internal growth was 7.8 % , driven primarily by growth in dental specialty and dental consumable products , partially offset by lower sales in dental laboratory products . gross profit replace_table_token_17_th gross profit as a percentage of net sales , excluding precious metal content , declined 1 % during 2011 compared to 2010. the gross profit rate was negatively impacted by approximately two percentage points from the expensing of inventory fair value adjustments associated with acquisitions and from foreign exchange transaction impacts . these impacts were partially offset by favorable product mix from the astra tech acquisition and product price increases . 32 expenses selling , general and administrative ( “ sg & a ” ) expenses replace_table_token_18_th the increase in sg & a expenses as a percentage of net sales , excluding precious metal content , was 3.8 % higher than in 2010. the increase included approximately a full percentage point for acquisition related expenses , legal and other charges in the year . the rate also increased by approximately two percentage points to support the higher cost structure of recent acquisitions and costs to support our orthodontic business as it experienced a significant supply disruption caused by the natural disaster in japan ( also referred to hereafter as “ orthodontic business continuity costs ” ) . the company also had higher expenses in support of its strong new product launches occurring in many key categories throughout the year . restructuring and other costs replace_table_token_19_th the company recorded net restructuring and other costs of $ 35.9 million in 2011 compared to $ 11.0 million in 2010. these costs were related to expenses associated with the acquisition of astra tech of $ 18.0 million , legal settlement cost of $ 12.6 million as well as restructuring costs primarily related to the orthodontic business . also , the company recorded certain other costs of $ 1.5 million related to an impairment of previously acquired technology . additionally in 2011 , the company incurred certain other costs of $ 5.2 million of which $ 3.7 million was related to legal matters and an impairment
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defend against any claims of infringement , misappropriation or other violation of third-party intellectual property ; · hire and retain additional clinical , quality control and scientific personnel ; · add operational , financial and management information systems and personnel , including personnel to support our drug development , any future commercialization efforts and our transition to a public company ; and · continue to operate as a public company . furthermore , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . we may be unable to raise additional funds or enter into other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as and when needed , we may have to significantly delay , scale back or discontinue the development or commercialization of one or more of our product candidates . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2019 , we had cash and cash equivalents of $ 130.1 million . we believe that our existing cash and cash equivalents , will enable us to fund our operating expenses and capital expenditure requirements into 2023. we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see “ —liquidity and capital resources. ” components of our results of operations revenue we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future . if our development efforts for apr-246 or other product candidates that we may develop in the future are successful and result in marketing approval or collaboration or license agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties . 115 operating expenses our expenses since inception have consisted solely of research and development costs and general and administrative costs . 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 , or cros , that conduct research , preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations , or cmos , that manufacture our product candidates for use in our preclinical and clinical trials ; · salaries , benefits and other related costs , including stock-based compensation expense , for personnel engaged in research and development functions ; · costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; · costs of laboratory supplies and acquiring , developing and manufacturing preclinical study and clinical trial materials ; · expenses related to compliance with regulatory requirements ; and · facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development costs as incurred . we recognize costs for certain development activities , such as clinical trials , 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 and our clinical investigative sites . 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 or accrued research and development expenses . we typically use our employee and infrastructure resources across our development programs . we track outsourced development costs and payments made to our research partners by product candidate or development program , but we do not allocate personnel costs or other internal costs to specific development programs or product candidates . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase for the foreseeable future as we initiate additional clinical trials of apr-246 , pursue later stages of clinical development of apr-246 , initiate clinical trials for product candidates other than apr-246 and continue to discover and develop additional product candidates . we can not determine with certainty the duration and costs of the current or future clinical trials of our product candidates or if , when , or to what extent we will generate revenue from the commercialization and sale of any our product candidates for which we obtain marketing approval . we may never succeed in obtaining marketing approval for any of our product candidates . story_separator_special_tag the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : · the scope , rate of progress , expense and results of our ongoing clinical trials of apr-246 , as well as of any future clinical trials of apr-246 or other product candidates and other research and development activities that we may conduct ; 116 · uncertainties in clinical trial design and patient enrollment rates ; · significant and changing government regulation and regulatory guidance ; · the timing and receipt of any marketing approvals ; and · the expense of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the u.s. food and drug administration , or fda , or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant trial delays due to patient enrollment or other reasons , we would be required to expend significant additional financial resources and time on the completion of clinical development . we are currently conducting multiple clinical trials of apr-246 : our phase 3 trial in the united states for the treatment of tp53 mutant mds with azacitidine , our phase 1b/2 trials in the united states and france for the treatment of mds and aml with azacitidine , and our phase 2 trial of post-transplant maintenance therapy with azacitidine in mds and aml . at this time , we can not reasonably estimate the cost for initiating and completing other clinical trials of apr-246 and preclinical studies of apr-246 , as it will be highly dependent on the clinical data from ongoing clinical trials as well as any target disease subpopulations chosen for further evaluation . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , corporate and business development and administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expect that our general and administrative expenses will increase in the future as we increase our general and administrative personnel headcount to support personnel in research and development and to support our operations generally as we increase our research and development activities and activities related to the potential commercialization of our product candidates . we also expect to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements ; director and officer insurance costs ; and investor and public relations costs . other income and expense interest income and expense interest income consists of income earned on our cash and cash equivalents . interest expense consists of bank charges and fees incurred on our cash and cash equivalents . our interest income will initially increase as our investment balances will be higher due to the cash proceeds received from our ipo . such interest income will then decrease as our cash balance decreases as we continue to fund our operations . foreign currency gain our consolidated financial statements are presented in u.s. dollars , which is our reporting currency . the financial position and results of operations of our subsidiaries aprea ab and aprea personal ab are measured using the foreign subsidiaries ' local currency as the functional currency . aprea ab cash accounts holding u.s. dollars are remeasured based upon the exchange rate at the date of remeasurement with the resulting gain or loss included in the consolidated statement of operations and comprehensive loss . expenses of such subsidiaries have been translated into u.s. dollars at 117 average exchange rates prevailing during the period . assets and liabilities have been translated at the rates of exchange on the consolidated balance sheet date . the resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders ' equity and as other comprehensive loss on the consolidated statement of operations and comprehensive loss . income taxes since aprea ab 's inception in 2002 , we have not recorded any u.s. federal , state or foreign income tax expense or benefits for the net losses we have incurred in any year , due to our uncertainty of realizing a benefit from those items . we have provided a valuation allowance for the full amount of the net deferred tax assets as , based on all available evidence , it is considered more likely than not that all the recorded deferred tax assets will not be realized in a future period . at december 31 , 2019 , we had $ 89.9 million , $ 7.4 million and $ 5.8 million of foreign , federal and state net operating loss carryforwards , respectively , that expire at various dates through 2037. certain of these foreign , federal and state net operating loss carryforwards may be subject to internal revenue code section 382 or similar provisions , which impose limitations on their utilization amounts . critical accounting policies and use of 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 generally accepted accounting principles in the united states .
| the increase in personnel costs was primarily related to increased non-cash stock-based compensation expense as a result of the addition of a member of senior management in august 2019. other income and expense foreign currency gain for the year ended december 31 , 2019 was $ 1.3 million compared to $ 0.9 million for the year ended december 31 , 2018. the increase of $ 0.4 million was primarily due to a strengthening of the u.s. dollar against the swedish krona during the year ended december 31 , 2019. interest income ( expense ) for the year ended december 31 , 2019 consisted primarily of interest expense associated with our facility leases and interest income on our cash and cash equivalents . interest expense for the year ended december 31 , 2018 consisted of an insignificant amount of banking charges or fees . comparison of the years ended december 31 , 2018 and 2017 replace_table_token_11_th research and development expenses replace_table_token_12_th 122 research and development expenses for the year ended december 31 , 2018 were $ 14.2 million , compared to $ 13.4 million for the year ended december 31 , 2017. the increase of $ 0.8 million was primarily related to the advancement of our clinical product candidate apr-246 . general and administrative expenses general and administrative expenses for the year ended december 31 , 2018 were $ 2.3 million , compared to $ 2.5 million for the year ended december 31 , 2018. other income and expense other income and expense for the year ended december 31 , 2018 consisted of an insignificant amount of banking fees on our cash balances and a foreign currency gain of $ 1.0 million . other income and expense for the year ended december 31 , 2017 consisted of an insignificant amount of banking charges or fees and a foreign currency gain of $ 0.7 million . liquidity and capital resources since our inception , we have incurred significant losses on an aggregate basis . we have not yet commercialized any of our product candidates , which are in various phases of preclinical and clinical development , and we do not expect to generate revenue from sales of any products for several years , if at all . to date , we have financed our operations through private placements of our preferred and common
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in addition , the bay-walton sector plan was officially adopted by bay county and walton county in may 2015 and was found in compliance with state law and is therefore in effect as of june 2015. the bay-walton sector plan is a long term master plan that includes entitlements , or legal rights , to develop over 170,000 residential units and over 22 million square feet of retail , commercial , and industrial uses on approximately 110,500 acres of our land holdings . we anticipate a wide range of residential and commercial uses on these land holdings , including some portion of these entitlements serving the active adult retirement market . we believe that there is a growing retirement demographic in northwest florida and that our development experience and the location , size and contiguous nature of our florida land holdings provide us with strategic opportunities in this demographic . as is true with all of our projects , what will actually be developed will be a function of more detailed planning , analysis , and market conditions , which will occur over time . our residential real estate segment generates revenues primarily from the sale of developed homesites ; the sale of parcels of entitled , undeveloped land ; a lot residual on homebuilder sales that provides us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold ; the sale of impact fee credits ; marketing fees and other fees on certain transactions . our residential real estate segment incurs cost of revenues primarily from costs directly associated with the land , development and construction of real estate sold and indirect costs such as development overhead , capitalized interest , marketing , project administration , and selling costs . commercial real estate in our commercial real estate segment we plan , develop and entitle our land holdings for a variety of uses including a broad range of retail , office , hotel and industrial uses . we sell land for commercial and light industrial uses . from time to time , our commercial real estate segment also evaluates opportunities to maximize value by selling some of our resorts , leisure or operating properties . 28 our commercial real estate segment generates revenues from the sale of developed and undeveloped land for retail , office , hotel and industrial uses , from the sale of undeveloped land or land with limited development and easements and the sale of commercial operating properties . our commercial real estate segment incurs costs of revenues from costs directly associated with the land , development , construction and selling costs . resorts and leisure our resorts and leisure segment generates revenues primarily from the watercolor inn and vacation rental programs , four golf courses , marina operations and other related resort activities . watercolor inn , vacation rentals and other management services - our watercolor inn and vacation rentals generate revenue from ( 1 ) the watercolor inn and resort , ( 2 ) our management of the pearl hotel , ( 3 ) our vacation rental businesses and ( 4 ) our restaurants . the watercolor inn incurs expenses from the cost of services and goods provided , personnel costs and third party management fees . revenues generated for our management services of the pearl hotel include a management fee , fifty percent of certain resort fees and a percentage of the pearl hotel 's gross operating profit . expenses include primarily internal administrative costs . our vacation rental business generates revenues from the rental of private homes and other services , which includes the entire rental fee collected from the customer , including the homeowner 's portion . a percentage of the fee is remitted to the homeowner and presented in the cost of resorts and leisure revenues . the vacation rental business also incurs expenses from standard lodging personnel , such as front desk , reservations and marketing . clubs and resorts - our clubs and resorts operations include our golf courses and resort facilities that generate revenues from memberships , daily play at those golf courses that are not part of our st. joe club & resorts , merchandise sales and food and beverage sales and incur expenses from the services provided , maintenance of the golf course facilities , personnel costs and third party management fees . st. joe club & resorts is our private membership club that provides members , participating homeowners and their rental guests access to our clubs . the focus is on creating a world class membership experience combined with the all-inclusive aspects of a four star/four diamond resort . this allows the company to provide membership and create a competitive advantage in the lodging business . marinas - our marinas generate revenues from boat slip rentals and fuel sales , and incur expenses from cost of services provided , maintenance of the marina facilities , personnel costs and third party management fees . leasing operations our leasing operations generate revenues from leasing retail and commercial property , including properties located in our consolidated joint venture at pier park north and our industrial park , venturecrossings , and incur expenses primarily from maintenance and management of these properties and personnel costs . our pier park north joint venture also incurred interest and financing expenses related to its loan . in october 2015 , our pier park north joint venture refinanced its construction loan and entered into a $ 48.2 million loan and will incur interest and financing expenses related to the loan as described in note 9 , real estate joint ventures . forestry our forestry segment focuses on the management of our timber holdings in northwest florida . we grow and sell sawtimber , wood fiber and forest products and provide land management services for conservation properties . we generate revenue from our forestry segment primarily from open market sales of timber . we sell product on site without the associated delivery costs . story_separator_special_tag our forestry segment generates revenues from the sale of wood fiber , sawtimber , standing timber and forest products and conservation land management services . our forestry segment incurs costs of revenues from internal costs of forestry management and property taxes . our forestry segment may also generate revenues from the sale of our timber holdings , undeveloped land or land with limited development and easements . costs incurred as part of a sale of these lands may include the cost of timber , land , minimal development costs and selling costs . 29 factors affecting comparability agreserves sale on march 5 , 2014 , we completed the sale to agreserves , inc. of approximately 380,000 acres of land located in northwest florida along with certain other assets , inventory and rights under certain continuing leases and contracts ( the “ agreserves sale ” ) for $ 562 million and recorded pre-tax income of $ 511.1 million for the agreserves sale , which includes $ 1.2 million of severance costs recorded in other operating and corporate expenses during 2014. as a result of certain adjustments to the purchase price , consideration received for the agreserves sale was ( 1 ) $ 358.5 million in cash , ( 2 ) a $ 200 million fifteen year installment note ( the “ timber note ” ) issued by a buyer-sponsored special purpose entity ( the “ buyer spe ” ) and ( 3 ) an irrevocable standby letter of credit ( the “ letter of credit ” ) at the request of the buyer spe , in favor of us . in april 2014 , we contributed the timber note and assigned our rights as a beneficiary under the letter of credit to northwest florida timber finance , llc , a bankruptcy-remote , qualified special purpose entity wholly owned by us ( “ nftf ” ) . nftf monetized the timber note by issuing $ 180 million aggregate principal amount of its 4.750 % senior secured notes due 2029 ( the “ senior notes ” ) at an issue price of 98.483 % of the face value to third party investors . the senior notes are payable only from the property of nftf , which consists solely of ( i ) the timber note , ( ii ) the letter of credit , ( iii ) any cash , securities and other property in certain nftf accounts , ( iv ) the rights of nftf under the contribution agreement with us ( which was solely to contribute the timber note and the letter of credit ) and ( v ) any proceeds relating to the property listed in ( i ) through ( iv ) above . the investors holding the senior notes of nftf have no recourse against us for payment of the senior notes or the related interest expense . we received $ 165.0 million in cash , net of $ 15.0 million in costs , from the monetization and expect to receive the remaining $ 20.0 million upon maturity of the timber note in 2029 and after payment of the senior notes and any other liabilities of nftf . the $ 15.0 million of costs from the monetization include ( 1 ) a total of $ 4.3 million for the discount and issuance costs for the senior notes , which will be amortized over the term of the senior notes , ( 2 ) $ 7.0 million for u.s. treasury securities and cash that we contributed to nftf to be used for interest and operating expenses over the fifteen year period and which are recorded in investments held by special purpose entities on our consolidated balance sheets and ( 3 ) $ 3.7 million of costs related to the monetization that were expensed during 2014 and are recorded in administrative costs associated with special purpose entities on our consolidated statements of operations . rivertown sale on april 2 , 2014 , we completed a sale to an affiliate of mattamy ( jacksonville ) partnership d/b/a mattamy homes ( “ mattamy ” ) of approximately 4,057 acres of real property , which constitutes the rivertown community in st. johns county , florida , along with all of the company 's related development or developer rights , founder 's rights and certain tangible and intangible personal property in exchange for $ 43.6 million , the assumption of $ 11.0 million of associated community development district assessments and the obligation to purchase certain rivertown community related impact fee credits from us as the rivertown community is developed . based on mattamy 's current development plans and st. johns county 's current costs for impact fees , we may receive approximately $ 20 million to $ 26 million for the impact fees over the five-year period following the closing of the 2014 sale to mattamy ( most of which , we expect to receive at the end of that five-year period ) . however , the actual additional consideration received for the impact fees , will be based on mattamy 's actual development of the rivertown community , the timing of mattamy 's development of the rivertown community and the impact fee rates at the time of such development ( as determined by st. johns county 's then current impact fee rate schedule ) , which are all factors beyond our control . we can not provide any assurance as to the amount or timing of any payments it may receive for the impact fees . we received $ 0.1 million for these impact fees during 2015 and 2014 . we recorded net earnings of $ 26.0 million before income taxes for the rivertown sale during the second quarter of 2014 . 30 story_separator_special_tag increased in 2014 to 67.1 % , from 60.5 % in 2013 .
| revenues from rural land and commercial real estate can vary drastically from period to period . as a result of the agreserves sale , we do not expect to have substantial revenues from sales of our timber or rural lands in the future , which typically yield higher gross profit margins than residential and commercial real estate sales . thus our gross profit margins may decrease in the future . included in revenues from real estate sales for 2014 is revenue of $ 569.7 million for the agreserves sale and revenue of $ 43.6 million for the rivertown sale . the agreserves sale included the recognition of $ 11.0 million of revenue which had been previously recorded as deferred revenue in connection with a 2006 agreement with the florida department of transportation ( the “ fdot ” ) pursuant to which we agreed to sell approximately 3,900 acres of rural land to the fdot . as part of the agreserves sale , we transferred approximately 800 acres that are subject to the 2006 agreement to agreserves who has agreed to transfer title to the fdot . 32 residential real estate sales decreased $ 15.9 million , or 47 % , to $ 17.9 million in 2014 , as compared to $ 33.8 million during 2013 . this decrease is primarily due to a decrease in available homesites for sale in our resort communities during 2014 , as compared to 2013. commercial real estate sales decreased $ 7.6 million , or 70 % , to $ 3.3 million during 2014 , as compared to $ 10.9 million during 2013 , primarily due to the sale of two commercial real estate sales in 2013 totaling $ 6.0 million for built-to-suit commercial operating properties that we constructed and were leasing under long-term leases . real estate sales gross profit . during 2015 , we recorded gross profit of $ 17.3 million , or 51.3 % , as compared to $ 547.9 million , or 86.3 % , during
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ppl prepared probability-weighted undiscounted cash flow estimates as of december 31 , 2020 and september 30 , 2020 that considered the likelihood of the possible outcomes of the sale process , including the possibility of not selling the u.k. utility business . the resulting cash flow analyses exceeded the carrying value of the assets of the u.k. utility business . a change in the possible outcomes of the sale process could result in the carrying value of the assets of the u.k. utility business not being recoverable , which could result in an impairment in future periods . the u.k. utility business will continue to be classified as held and used until it meets the criteria to be classified as held for sale , which includes management obtaining a commitment to a plan to sell from its board of directors . should the u.k. utility business meet the criteria to be classified as held for sale in a future period , ppl will be required at that time to compare the estimated fair value of its investment in the u.k. utility business , less costs to sell , to its carrying value , including accumulated other comprehensive losses related to the u.k. utility business , for impairment purposes . the resulting measurement may result in a loss . in addition , ppl will reassess its assertion of the indefinite reinvestment of the unremitted earnings of the u.k. utility business . see note 21 to the financial statements for additional information on accumulated other comprehensive income and losses . see note 6 to the financial statements for additional information on income taxes . 36 outbreak of covid-19 ( all registrants ) the continued spread of covid-19 has disrupted the u. s. and global economies and continues to present extraordinary challenges to businesses , communities , workforces and markets . the registrants have taken significant steps to mitigate the potential spread of covid-19 to our customers , suppliers and employees . ppl has successfully implemented its company-wide pandemic plan , which guides the emergency response . business continuity and other precautionary measures have been taken to ensure we can continue to safely provide reliable electricity and gas service to our customers . the registrants have implemented social distancing measures for all employees including work from home arrangements where possible and continue to implement strong physical and cyber security measures to ensure that systems function effectively to serve operational and remote workforce needs . the registrants continue to monitor developments affecting their workforces and customers and will take additional actions as appropriate to respond to changing conditions and mitigate the impacts . this rapidly evolving situation could lead to continued disruption of economic activity in the registrants ' markets for an undetermined period of time . lock-down or closure of non-essential businesses has occurred in each of the registrants ' service territories , which has resulted in reductions in commercial and industrial demand and an increase in residential demand for electricity service . the impact of this net reduction in load has not been material to the registrants ' 2020 financial condition . the impact on future periods will depend upon various factors , including the pace and extent to which the registrants ' jurisdictions reopen their economies and community response to the reopening of businesses as well as the extent that businesses continue work from home protocols . we can not predict these factors and therefore can not quantify the overall impact covid-19 will have on our future results of operations . the registrants are committed to supporting their customers and communities and have followed federal and state mandates related to suspending disconnections for non-payment and new late fees , reconnecting service for customers who had previously been disconnected and developing late payment plans with customers , where appropriate . the registrants have experienced an increase in aged accounts receivable , resulting in an increase in expected credit losses . see `` current expected credit losses '' in note 1 to the financial statements for additional information . the registrants will continue to monitor cash receipts and accounts receivable aging to determine if further increases in their allowance for uncollectible accounts are required . at december 31 , 2020 , the registrants had approximately $ 3.2 billion of combined unused credit facility capacity . in addition , ppl capital funding , ppl electric , lg & e and ku may , subject to certain conditions , increase their syndicated credit facilities in an aggregate amount of up to $ 1 billion . in april 2020 , ppl capital funding issued $ 1 billion of 4.125 % senior notes due 2030. in june 2020 , ku issued $ 500 million of first mortgage bonds due 2050. in october 2020 , ppl electric issued $ 250 million of first mortgage bonds , floating rate series due 2023. in october 2020 , wpd ( south wales ) issued £250 million of 1.625 % senior notes due 2035. based on available liquidity and access to capital markets , the registrants do not anticipate a significant impact on their financial condition or liquidity , and do not foresee difficulties in accessing the capital markets in the near-term . see note 8 to the financial statements for additional information . the registrants have assessed the fair value of their assets and liabilities and no impairment charges were required . see “ goodwill assessment ” below for additional information on the interim goodwill impairment test performed for the u.k. regulated segment reporting unit in the first quarter of 2020 and the annual goodwill impairment tests performed in the fourth quarter of 2020 for all of ppl 's reporting units . ppl 's pension plans continue to be well-funded as its liability-driven investment strategy and active management function to mitigate investment losses resulting from market volatility . in response to covid-19 , various forms of aid and relief were enacted in 2020 , including the coronavirus aid , relief , and economic security act ( the cares act ) . story_separator_special_tag the provisions of the cares act and other forms of aid and relief did not have a material impact on the registrants ' financial statements . for the year ended december 31 , 2020 the following estimated changes in revenue and incremental costs incurred resulted from the impact of covid-19 . 37 replace_table_token_11_th wpd tariffs are set to recover allowed revenues . any under-recoveries , including the estimated amounts shown above , will be added to revenue , with interest , in future years through k-factor . see discussion of k-factor in “ item 1. business. ” the impact on revenue and incremental covid-19 related costs were not significant at ppl electric . to date , there has been no material impact on the registrants ' operations , financial condition , liquidity or on their supply chain as a result of covid-19 . the ultimate severity or duration of the outbreak or its effects on the global economy , the capital markets , or the registrants ' workforce , contractors , customers and suppliers is uncertain . the registrants can not predict the ultimate impact covid-19 will have on their financial position , results of operations , cash flows or liquidity . goodwill assessment ( ppl , lke , lg & e and ku ) during the three months ended march 31 , 2020 , ppl , lke , lg & e and ku considered whether the impact of covid-19 described above , resulting volatility and decrease in ppl 's shares would more likely than not reduce the fair value of the registrants ' reporting units below their carrying amounts . based on our assessment , a quantitative impairment test was not required for the lke , lg & e and ku reporting units , but was required for the u.k. regulated segment reporting unit , the allocated goodwill of which was $ 2.5 billion at march 31 , 2020. the test did not indicate impairment of the reporting unit . no impairments were recognized in conjunction with the annual goodwill impairment tests performed in the fourth quarter of 2020. see `` long-lived and intangible assets - asset impairment ( excluding investments ) '' in note 1 to the financial statements for additional information . an impairment charge could occur in future periods if ppl 's share price or any of the assumptions used in determining fair value of the reporting units are negatively impacted . u.k. corporation tax rate change ( ppl ) the u.k. corporation tax rate was scheduled to be reduced from 19 % to 17 % , effective april 1 , 2020. on march 11 , 2020 , the u.k. finance act 2020 included a cancellation of the tax rate reduction to 17 % , thereby maintaining the corporation tax rate at 19 % . the finance act 2020 was formally enacted on july 22 , 2020. the primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $ 106 million . u.s. tax reform ( all registrants ) in july 2020 , the irs issued final and new proposed regulations relating to the limitation on interest deductibility . the final regulations do not apply to the registrants until the 2021 tax year . the new proposed regulations were finalized on january 5 , 2021 and will apply to the registrants in the 2022 tax year . the registrants are evaluating the final regulations issued in 2021 , but do not expect these regulations or the 2020 final regulations to have a material impact on the registrants ' financial condition or results of operations . u.k. withdrawal from european union ( ppl ) in march 2017 , the u.k. government invoked article 50 ( article 50 ) of the lisbon treaty , formally beginning the two-year period for the u.k. to negotiate an agreement specifying the terms of its withdrawal from the european union ( eu ) , popularly referred to as brexit . after repeated extensions , in october 2019 , the eu agreed to extend the article 50 process until january 31 , 2020. following an early general election in december 2019 , which resulted in a substantial conservative party parliamentary majority , the u.k. and eu parliaments voted to approve the eu withdrawal agreement negotiated by prime minister boris johnson . the u.k. formally left the eu on january 31 , 2020 and entered into a transition period that ended on december 31 , 2020 through which the u.k. sought to negotiate a free trade arrangement with the eu and new trade terms with countries outside of the eu . successively , the eu-uk trade and cooperation agreement was agreed on december 24 , 2020 and ratified by the 38 u.k. parliament on december 30 , 2020 and was provisionally applied by the eu beginning december 31 , 2020. while significant progress has been made , uncertainty continues to surround the economic impact of brexit . ppl believes that its greatest risks relate to any extended period of depressed value of the gbp or the potential further decline in the value of the gbp compared to the u.s. dollar . ppl can not predict the impact , in either the short-term or long-term , on foreign exchange rates or ppl 's financial condition that may be experienced as a result of the actions taken by the u.k. government to withdraw from the eu , although such impacts could be material . ppl does not expect the financial condition and results of operations of wpd , itself , to change significantly as a result of brexit . the regulatory environment and operation of wpd 's businesses are not expected to change . riio-ed1 , the current price control , with allowed revenues agreed with ofgem runs through march 2023. the impact of a slower economy or recession on wpd would be mitigated in part because u.k. regulation provides that any reduction in the volume of electricity delivered will be recovered in allowed revenues in future periods through the k-factor adjustment .
| ( b ) the decrease was primarily due to unfavorable weather . ( c ) the decrease was primarily the result of lower energy prices , unfavorable weather and lower usage , partially offset by higher volumes of non-shopping customers . ( d ) the increase was primarily due to returns on additional capital investments . ( e ) the decrease was primarily due to covid-19 . ( f ) the decrease was primarily due to lower recoveries of fuel and energy purchases due to lower commodity costs . ( g ) the decrease was primarily due to the termination of eight supply contracts with kentucky municipalities on april 30 , 2019 . ( h ) the increase was primarily due to higher base rates , inclusive of the termination of the tcja bill credit mechanism , effective may 1 , 2019 . 43 ( i ) the increase was primarily due to higher recoverable depreciation expense as a result of higher depreciation rates effective may 1 , 2019. fuel fuel decreased $ 77 million in 2020 compared with 2019 at lke , primarily due to a $ 46 million decrease in volumes driven by weather , a $ 27 million decrease in commodity costs and a $ 9 million decrease in volumes driven by the termination of eight supply contracts with kentucky municipalities on april 30 , 2019. energy purchases energy purchases decreased $ 89 million in 2020 compared with 2019 , primarily due to a $ 58 million decrease at ppl electric due to lower plr prices of $ 70 million , partially offset by higher transmission enhancement expenses of $ 13 million and a $ 31 million decrease at lke primarily due to a $ 24 million decrease in commodity costs . other operation and maintenance the increase ( decrease ) in other operation and maintenance was due to : replace_table_token_14_th depreciation the increase ( decrease ) in depreciation was due to : 2020 vs. 2019 additions to pp & e , net $ 55 depreciation rates ( a ) 26 other 7 total $ 88 ( a ) higher depreciation rates were effective may 1 , 2019
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i ncome tax expense consists of federal , state , and local income taxes incurred by the kerrow restaurant operating business , and 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 $ 401 thousand , $ 395 thousand , and $ 389 thousand , respectively , of intercompany rent paid to fcpt for the years ended december 31 , 2018 , 2017 , and 2016 , which is eliminated for financial reporting purposes . restaurant revenues increased approximately $ 0.7 million in the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , driven primarily by a 1.2 % increase in the average meal check and a 2.3 % increase in average guest counts . the increase in average meal check amounts for 2018 was primarily due to an increase in dessert sales through better offerings , meal check add-ons , and a small price increase taken in september . increased to-go orders , catering , and local marketing impacted guest count growth . total restaurant expenses increased approximately $ 0.4 million in the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to increased administrative overhead . as a percent of revenues , total restaurant expenses decreased from 98.8 % in the year ended december 31 , 2017 to 97.2 % in the year ended december 31 , 2018. food and beverage costs increased approximately $ 0.2 million in the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , primarily due to increased sales year over year , along with a 0.4 % improvement in cost of sales compared to 2017. year ended december 31 , 2017 compared to year ended december 31 , 2016 rental revenue rental revenue increased $ 8.3 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. this increase is due to recognizing a full year of revenue from the acquisitions completed in 2016 during 2017 and the acquisition of 43 restaurant properties in 2017 , which was partially offset by the sale of 3 restaurant properties , resulting in a net addition of annualized rental income of $ 5.9 million for the year ended december 31 , 2017. operating expenses general and administrative expense is comprised of costs associated with personnel , office rent , legal , accounting , information technology and other professional and administrative services in association with our real estate operations and our reit structure and public company reporting requirements . general and administrative expense increased $ 1.3 million in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily as a result of an increase in non-cash stock compensation 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 $ 1.2 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to the acquisition of 43 properties classified as depreciable assets in 2017 . 35 interest expense interest expense increased by approximately $ 4.6 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to interest expense on the $ 125 million of senior unsecured fixed rate notes issued in 2017 , which was $ 3.4 million for the year ended december 31 , 2017. additionally , amortization of deferred financing costs related to the senior unsecured fixed rate notes was $ 123 thousand for the year ended december 31 , 2017. interest expense also increased due to a one-time charge of $ 424 thousand for deferred financing costs expensed as a result of the execution of the amended and restated credit agreement on october 2 , 2017. interest expense on the $ 400 million term loan and the interest rate swaps entered into to hedge the variability associated with the term loan was $ 12.2 million and $ 11.8 million for the years ended december 31 , 2017 and 2016 , respectively . this interest expense includes hedge ineffectiveness incurred during the periods and the reclassification of other comprehensive income into interest expense . interest expense and fees on our revolving credit facility was $ 1.7 million and $ 1.4 million , for the years ended december 31 , 2017 and 2016 , respectively . amortization of deferred financing costs was $ 2.1 million and $ 1.6 million , respectively , for the years ended december 31 , 2017 and 2016. 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 $ 6.1 million for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. during the years ended december 31 , 2017 and 2016 , the company sold three and two properties , respectively , leased to darden for total consideration of $ 16.1 million and $ 24.8 million , respectively , exclusive of $ 0.2 million and $ 0.7 million costs to sell , respectively . the sales were the result of unsolicited offers and resulted in net gains of $ 10.5 million and $ 16.6 million , respectively , after costs to sell . these sales qualified as 1031 exchanges , and the consideration received was used to purchase other properties in the fourth quarter of 2017 and future periods . income taxes during the years ended december 31 , 2017 and 2016 our income tax benefit was $ 18 thousand and $ 80.4 story_separator_special_tag million , respectively . the income tax benefit for the year ended december 31 , 2017 primarily consisted of the reversal of deferred tax liabilities offset by state taxes incurred at the kerrow restaurant operating business , a taxable reit subsidiary . the income tax benefit recognized during the year ended december 31 , 2016 was principally the result of the reversal of deferred tax liabilities associated with activities no longer expected to be subject to federal taxation as a result of our satisfaction of all requirements , including payment of a earnings and profit purging distribution to our shareholders and our election to be taxed as a reit commencing with the year ending december 31 , 2016. restaurant operations restaurant revenues increased approximately $ 0.9 million in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , driven primarily by a 2.8 % increase in the average meal check and a 1.9 % increase in average guest counts . the increase in average meal check amounts for 2017 was primarily due to the addition of higher-end entrées , increased liquor sales and meal check-add-ons , and price increases . total restaurant expenses increased approximately $ 0.8 million in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to an increase in hourly wages , increased management overhead , and a change in incentive compensation structure . as a percent of revenues , total restaurant expenses decreased from 99.2 % in the year ended december 31 , 2016 to 98.8 % in the year ended december 31 , 2017. food and beverage costs increased approximately $ 0.2 million in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to increased sales year over year . other restaurant expenses decreased approximately $ 0.1 million in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to a reduction of one-time spin-off expenses . 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 36 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 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. since adoption in the fourth quarter of 2016 , 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 . 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 .
| 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 $ 2.1 million for 33 the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , 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 classified as depreciable assets in 2018. 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 $ 225 million of senior unsecured fixed rate notes . interest expense increased by approximately $ 0.5 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. this was primarily due to an increase of $ 2.9 million in interest expense for the full year on the $ 125 million of fcpt op 's 4.68 % senior unsecured fixed rate notes due 2024 and 4.93 % senior unsecured fixed rate notes due 2027 issued in june 2017 , offset by a decrease of $ 1.5 million of term loan interest expense and $ 0.9 million of revolving credit facility expense , respectively , due to amended term loan margin pricing and drawdowns and repayments of the revolving credit facility . interest expense , excluding deferred financing costs , on the $ 400 million of term loans and the interest rate swaps we entered into to hedge the variability associated with the term loans was $ 11.2 million and $ 12.2 million for the years ended december 31 , 2018 and 2017 , respectively . this interest expense includes hedge ineffectiveness incurred during the periods and the reclassification of other comprehensive income into interest expense . interest expense from term loans decreased fr om 2017 to 2018 as a result of the credit facility amendment ( defined
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the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosures of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates and judgments related to its allowance for doubtful accounts , income tax provisions , the useful lives of property and equipment , redemption rates for scholarship programs , fair value of future contractual operating lease obligations for facilities that have been closed , valuation of deferred tax assets , goodwill , and intangible assets , valuation of its interest rate swap arrangement , forfeiture rates and achievability of performance targets for stock-based compensation plans , and accrued expenses . management bases its estimates and judgments on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources . management regularly reviews its estimates and judgments for reasonableness and may modify them in the future . actual results may differ from these estimates under different assumptions or conditions . management believes that the following critical accounting policies are its more significant judgments and estimates used in the preparation of its consolidated financial statements . revenue r ecognition – our educational programs are offered on a quarterly basis , and such periods coincide with our quarterly financial reporting periods . approximately 96 % of our revenues during the year ended december 31 , 2013 , consisted of tuition revenue . tuition revenue is recognized in the quarter of instruction . tuition revenue is shown net of any refunds , withdrawals , corporate discounts , scholarships and employee tuition discounts . at the start of each academic term , a liability ( unearned tuition ) is recorded for academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid upfront in cash . any cash received prior to the start of an academic term is recorded as unearned tuition . our graduation fund is a program whereby eligible students may earn tuition credits at the end of their course of study if they successfully remain in the program . for our graduation fund , we estimate on a quarterly basis the value of awards earned that will be redeemed in a future period and adjust this estimate as necessary . this estimate is a function of the continuation rates of students with similar characteristics , and is subject to adjustment if student continuation rates vary significantly from prior experience . our continuation rates have not varied materially from our estimates to date . if student continuation rates increase , we may increase our liability as students would be earning a greater benefit than previously estimated . tuition receivable – we record estimates for our allowance for doubtful accounts for tuition receivable from students primarily based on our historical collection rates by age of receivable ( net of recoveries ) and consideration of other relevant factors . we periodically assess our methodologies for estimating bad debts in consideration of actual experience . if the financial condition of our students were to deteriorate , resulting in evidence of impairment of their ability to make required payments for tuition payable to us , additional allowances or write-offs may be required . during 2012 and 2013 , our bad debt expense was 4.2 % and 4.4 % of revenue , respectively . accrued lease and related costs – we estimate potential sublease income and vacancy periods for space that is not in use , adjusting our estimates when circumstances change . if we enter into subleases at rates that are substantially different that our current estimates , we will adjust our liability for lease and related costs . other estimates – we also record estimates for certain of our accrued expenses and income tax liabilities . we estimate the useful lives of our property and equipment . we periodically assess goodwill and intangible assets for impairment . we assess the value of our interest rate swap arrangement every quarter . we periodically review our assumed forfeiture rates and ability to achieve performance targets for stock-based awards and adjust them as necessary . should actual results differ from our estimates , revisions to our accrued expenses , carrying amount of goodwill and intangible assets , stock-based compensation expense , and income tax liabilities may be required . story_separator_special_tag courses earned are redeemable in one 's final academic year . in 2013 , as described above , we undertook some restructuring initiatives , including the closing of approximately 20 physical locations . the revenue impact of these initiatives is not known since the university is making online classes available to these students . however , we estimate these actions will save us approximately $ 50 million in expenses per year beginning in 2014. this figure is based upon various assumptions about our ability to sublease or otherwise mitigate lease costs , which may be greater or less than expected . a description of factors that may affect the contract lease costs included in the expected savings is set forth in note 3 of the consolidated financial statements under the caption “ restructuring and related charges. ” we believe these measures and others that are embedded in our strategic priorities will allow us to continue to deliver high quality , affordable education which should result in continued growth for the university over the long-term . 40 the following table sets forth certain income statement data as a percentage of revenues for the periods indicated : replace_table_token_10_th year ended december 31 , 2013 compared to year ended december 31 , 2012 enrollment . average enrollment decreased 11 % to 43,969 students for the year ended december 31 , 2013 from 49,323 students for the same period in 2012. revenues . story_separator_special_tag revenues decreased 10 % to $ 503.6 million in 2013 from $ 562.0 million in 2012 principally due to lower average enrollment . in late 2013 , we introduced a new pricing structure for new undergraduate students which could significantly reduce their cost of tuition . a shift in enrollment toward students eligible for the lower tuition will result in lower revenue per student in the future . instruction and educational support expenses . instruction and educational support expenses increased $ 10.3 million , or 3 % , to $ 310.4 million in 2013 from $ 300.1 million in 2012. this increase is primarily attributable to lease abandonments , asset write-offs , and severance charges of $ 36.2 million associated with the restructuring , partially offset by lower overall personnel-related costs due to lower average enrollment . these expenses as a percentage of revenues increased to 61.7 % in 2013 from 53.4 % in 2012. we believe instruction and educational support expenses will decline in the aggregate in the future as a result of savings expected to be achieved as a result of the restructuring , which primarily will affect instruction and educational support expenses and general and administration expenses . marketing expenses . marketing expenses increased $ 3.5 million , or 5 % , to $ 75.4 million in 2013 from $ 71.9 million in 2012. this increase is primarily due to the full year impact in 2013 of new markets opened during 2012. these expenses as a percentage of revenues increased to 15.0 % in 2013 from 12.8 % in 2012 , largely due to marketing expenses increasing while tuition revenues declined . although we implemented restructuring initiatives in 2013 , we expect to continue to invest in our marketing efforts such that marketing expense may increase as a percentage of revenue in 2014 as compared to 2013. admissions advisory expenses . admissions advisory expenses decreased by $ 6.0 million , or 23 % , to $ 20.4 million in 2013 from $ 26.4 million in 2012 , primarily as a result of lower personnel costs from consolidating global online centers in the fourth quarter of 2012. admissions advisory expenses as a percentage of revenues decreased to 4.0 % in 2013 from 4.7 % in 2012 due to these expenses declining at a higher rate than tuition revenues . general and administration expenses . general and administration expenses increased $ 14.5 million , or 29 % , to $ 64.6 million in 2013 from $ 50.1 million in 2012. the increase is primarily attributable to one-time lease abandonment , asset write-off , and severance charges of $ 18.2 million associated with the restructuring initiatives , partially offset by lower overall personnel-related costs . general and administration expenses as a percentage of revenues increased to 12.8 % in 2013 compared to 8.9 % in 2012 due to these expenses increasing while tuition revenues declined . we believe general and administration expenses will decline in the aggregate in the future as a result of savings expected to be achieved as a result of the restructuring , which primarily will affect instruction and educational support expenses and general and administration expenses . income from operations . income from operations decreased $ 80.9 million , or 71 % , to $ 32.7 million in 2013 from $ 113.6 million in 2012 , primarily due to the $ 54.7 million incurred with the restructuring and due to the aforementioned factors . investment income . investment income decreased from approximately $ 4,000 in 2012 to approximately $ 2,000 in 2013. interest expense . interest expense increased $ 0.8 million , or 17 % , to $ 5.4 million in 2013 compared to $ 4.6 million in 2012 , primarily due to higher average debt outstanding in 2013. provision for income taxes . income tax expense decreased $ 32.1 million , or 75 % , to $ 10.9 million in 2013 from $ 43.0 million in 2012 , primarily due to the decrease in income before taxes attributable to the factors discussed above . our effective tax rate was 39.8 % for 2013 as compared to 39.5 % for 2012. net income . net income decreased $ 49.5 million , or 75 % , to $ 16.4 million in 2013 from $ 65.9 million in 2012 due to the factors discussed above . 41 year ended december 31 , 2012 compared to year ended december 31 , 2011 enrollment . average enrollment decreased 8 % to 49,323 students for the year ended december 31 , 2012 from 53,901 students for the same period in 2011. revenues . revenues decreased 10 % to $ 562.0 million in 2012 from $ 627.4 million in 2011 principally due to lower average enrollment . instruction and educational support expenses . instruction and educational support expenses increased $ 8.1 million , or 3 % , to $ 300.1 million in 2012 from $ 292.0 million in 2011. this increase includes approximately $ 6.0 million of additional costs necessary to support our opening of eight new campuses during 2012 , and approximately $ 2.4 million of one-time costs associated with the consolidation of certain non-campus functions . these expenses as a percentage of revenues increased to 53.4 % in 2012 from 46.6 % in 2011 , largely due to instructional and academic staff costs growing while tuition revenues declined . marketing expenses . marketing expenses decreased $ 2.4 million , or 3 % , to $ 71.9 million in 2012 from $ 74.3 million in 2011. these expenses as a percentage of revenues increased to 12.8 % in 2012 from 11.8 % in 2011 , largely due to marketing expenses decreasing at a lower rate than tuition revenue . admissions advisory expenses .
| the company incurred the following charges associated with these activities in the fourth quarter of 2013 , and recorded them in the following line items in the statement of operations below : replace_table_token_7_th the following details the changes in the company 's restructuring liability by type of cost during the year ended december 31 , 2013 : replace_table_token_8_th ( 1 ) the current portion of our restructuring liabilities was $ 10.4 million as of december 31 , 2013 , most of which are included in accounts payable and accrued expenses , and the long-term portion is included in other long-term liabilities in the consolidated balance sheets . the gross obligation associated with restructuring liabilities as of december 31 , 2013 , is approximately $ 44.8 million , which principally represents non-cancelable leases that will be paid over the respective lease terms through 2022 . ( 2 ) a total of $ 48.5 million of non-cash charges were incurred in connection with the restructuring . non-cash adjustments for lease and related costs include $ 10.9 million of accelerated depreciation , partially offset by the release of certain deferred rent and leasehold incentive liabilities of approximately $ 5.7 million . non-cash adjustments for severance and other employee separation costs represent share-based compensation . key enrollment trends by quarter were as follows : replace_table_token_9_th although we do not know for sure why our enrollment trends and that of the proprietary higher education sector generally have been negative , we believe that sustained levels of high unemployment , the resulting lower confidence in job prospects , competition , and the high cost of a college education are all contributing factors . the 16 % decline in our new students in 2013 will have an adverse impact on 2014 enrollment since there will be fewer students from 2013 continuing their education in 2014. we believe it will take several quarters of new student growth in order to achieve overall enrollment growth . we can not predict future enrollments or whether new student enrollment will decline further , stabilize or increase in response to the economy or other factors . however , we have introduced a number of initiatives in response to these declining enrollment trends . recognizing that affordability is an important factor in a prospective student 's decision to seek a college degree , we reduced our undergraduate tuition for new students by 20 % beginning in our 2014 winter academic term . as an extra incentive to encourage our students to continue their studies through to graduation , we introduced our graduation fund in mid-2013 . under this program , qualifying students
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this ongoing clinical trial is designed to assess general safety , acceptability , and effectiveness in preventing progressively motile sperm from reaching the cervical canal following intercourse . the study will enroll approximately 50 couples , with the woman to be evaluated over the course of five menstrual cycles , with a target of having approximately 25 women complete a total of 21 visits . each woman 's cervical mucus will be measured at several points during the study , including a baseline measurement at menstrual cycle 1 that excludes the use of any product . subsequent cycles and visits will include the 51 use of a diaphragm ( menstrual cycle 2 ) and ovaprene ( menstrual cycles 3 , 4 and 5 ) . data from the pct clinical trial are expected to be available in the second half of 2019. if the clinical trial demonstrates that ovaprene is effective in preventing most sperm from progressing into the cervical canal and can be safely worn over multiple weeks , we intend to prepare and file an investigational device exemption , or ide , with the fda to commence a pivotal clinical trial to support marketing approvals of ovaprene in the united states , europe and other countries worldwide . sildenafil cream , 3.6 % sildenafil cream , 3.6 % , which incorporates sildenafil , the same active ingredient in the male erectile dysfunction drug viagra® , if approved , could be the first fda-approved fsad treatment option for women . fsad is characterized primarily by a persistent or recurrent inability to attain or maintain sufficient physical sexual arousal , frequently resulting in distress or interpersonal difficulty . sildenafil cream , 3.6 % is formulated to increase blood flow locally to the vulvar-vaginal tissue , leading to a potential improvement in genital arousal response . we plan to leverage the existing data and established safety profile of sildenafil and the viagra® brand to utilize the fda 's 505 ( b ) ( 2 ) pathway to obtain marketing approval of sildenafil cream , 3.6 % in the u.s. during the third quarter of 2018 , we had a type c meeting with the fda regarding the design of our phase 2b clinical trial for sildenafil cream , 3.6 % and the overall development program for this product candidate . based on the fda guidance we received from that meeting , we commenced phase 2b related activities during the fourth quarter of 2018 with the initiation of a non-interventional study intended to support the validity of specific patient reported outcome , or pro , measures . this content validity pro study seeks to identify and document the genital arousal symptoms that will be assessed in our planned at-home phase 2b trial , as well as our pivotal studies , and to demonstrate that these symptoms are the most important and relevant to our target population and are also acceptable endpoints for the fda . in parallel , we will continue to explore additional clinical and non-clinical work that might be valuable or required to support the overall program and the anticipated design of the phase 2b trial . because our plan is for the co-primary endpoints used in the phase 2b trial to reflect the endpoints used in the phase 3 trials , after the ongoing qualitative study is completed and before the phase 2b at-home trial is initiated , we plan to request another type c meeting to obtain the fda 's guidance on the endpoints for our phase 2b and phase 3 clinical trials , including whether the fda agrees that the pro instruments are content valid for the target population . the timing of when we initiate the phase 2b at-home trial will be influenced by such guidance . dare-hrt1 dare-hrt1 is an intravaginal ring , or ivr , containing bio-identical estradiol and bio-identical progesterone to treat the vasomotor symptoms ( vms ) associated with menopause as part of a hormone replacement therapy regimen . there are currently no fda-approved ivrs that deliver bio-identical progesterone in combination with bio-identical estradiol . the ivr technology used in dare-hrt1 was developed by dr. robert langer from the massachusetts institute of technology and dr. william crowley from massachusetts general hospital and harvard medical school . we plan to utilize the fda 's 505 ( b ) ( 2 ) pathway to obtain marketing approval of dare-hrt1 in the u.s. we intend to initiate a phase 1 clinical study for dare-hrt1 during 2019 and to report topline results in 2020. dare-hrt1 has the potential to be a first-in-class product . financial overview we incurred a loss of approximately $ 16.7 million for the year ended december 31 , 2018 . as of december 31 , 2018 , we had an accumulated deficit of approximately $ 29.0 million and cash and cash equivalents of approximately $ 6.8 million . recent events in december 2018 we announced that we acquired the global rights to a clinical-stage product candidate , dare-bv1 , for the treatment of bv , as well as the rights to utilize the underlying proprietary hydrogel drug delivery technology for any vaginal or urological application in humans . we acquired these global rights through agreements we entered into with hammock pharmaceuticals , inc. , trilogic pharma , llc and milanapharm llc . see `` item 1. business—license agreements—hammock/milanapharm assignment and license agreement , '' above , for more information regarding these agreements . 2017 business combination and related transactions until july 20 , 2017 , our corporate name was cerulean pharma inc. , or cerulean . cerulean was incorporated in delaware in december 2005. on july 19 , 2017 , cerulean and daré bioscience operations , inc. , a privately held delaware corporation , or private daré , completed a transaction in which the holders of capital stock and securities 52 convertible into capital stock of private daré , which holders are collectively referred to as the private daré stockholders , sold their shares of capital stock of private daré to cerulean in exchange for newly issued shares of cerulean common stock . story_separator_special_tag as a result of that transaction , private daré became a wholly owned subsidiary of cerulean . as of immediately following the closing of that transaction : ( i ) the private daré stockholders owned approximately 51 % of the outstanding common stock of cerulean , and ( ii ) the equity holders of cerulean immediately prior to the closing , collectively , owned approximately 49 % of the outstanding common stock of cerulean . in connection with the transaction , cerulean changed its name from “ cerulean pharma , inc. ” to “ daré bioscience , inc. ” we refer to the transaction described above as the cerulean/private daré stock purchase transaction . on july 19 , 2017 , cerulean also completed the sale of its proprietary dynamic tumor targeting platform to novartis institutes for biomedical research , inc. for $ 6.0 million . on july 20 , 2017 , we effected a 1-for-10 reverse stock split of our common stock . all share and per share amounts of common stock , options and warrants in this report , including those amounts included in the accompanying consolidated financial statements , have been restated for all periods to give retroactive effect to the reverse stock split . financial operations overview the results of our operations discussed in this section ( a ) for the full year ended december 31 , 2018 and for the period from july 19 , 2017 to december 31 , 2017 represent our operations after giving effect to the cerulean/private daré stock purchase transaction , and ( b ) for the period from january 1 , 2017 to july 18 , 2017 represent the operations of private daré , making a comparison between periods difficult . revenue to date we have not generated any revenue and do not expect to generate any revenue for the foreseeable future . in the future , we may generate revenue from product sales , license fees , milestone and research and development payments in connection with strategic partnerships , and royalties resulting from the sales of products developed under licenses of intellectual property . any revenue generated is expected to fluctuate from quarter to quarter as a result of the timing and amounts of any such payments . our ability to generate product revenue will depend on the successful clinical development of our product candidates , receiving regulatory approvals to market such products and the eventual successful commercialization of product candidates . if we fail to complete the development of products candidates in a timely manner , or to receive regulatory approval for such product candidates , our ability to generate future revenue and our results of operations would be materially adversely affected . research and development expenses research and development expenses include research and development costs for our product candidates and transaction costs related to our acquisitions . we recognize all research and development expenses as they are incurred . research and development expenses consist primarily of : expenses incurred under agreements with consultants and clinical trial sites that conduct research and development activities on our behalf ; laboratory and vendor expenses related to the execution of clinical trials ; contract manufacturing expenses , primarily for the production of clinical supplies ; transaction costs related to the acquisition of pear tree pharmaceuticals ; transaction costs related to the hydra asset acquisition ; and internal costs that are associated with activities performed by our research and development organization and generally benefit multiple programs . we expect research and development expenses to increase in the future as we invest in the development of our clinical-stage product candidates and as any other potential product candidates we may develop are advanced into and through clinical trials in the pursuit of regulatory approvals . such activities will require a significant increase in investment in regulatory support , clinical supplies , inventory build-up related costs , and the payment of success-based milestones . in addition , we continue to evaluate opportunities to acquire or in-license other product candidates and technologies , which may result in higher research and development expenses due to , among other factors , license fee and or milestone payments . conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we may not obtain regulatory approval for any product candidate on a timely and cost-effective basis or at all . the probability of 53 success of our product candidates may be affected by numerous factors , including clinical results and data , competition , intellectual property rights , manufacturing capability and commercial viability . as a result , we can not accurately determine the duration and completion costs of development projects or when and to what extent we will generate revenue from the commercialization of any of our product candidates . general and administrative expense general and administrative expenses consist of personnel costs , facility expenses , expenses for outside professional services , including legal , audit and accounting services . personnel costs consist of salaries , benefits and stock-based compensation . facility expenses consist of rent and other related costs . we expect to incur additional expenses because of additional costs associated with being a public company , including expenses related to compliance with sec and nasdaq rules and regulations , additional insurance , investor relations , and other administrative expenses and professional services . stock-based compensation the compensation cost for all stock-based awards is measured at the grant date , based on the fair value of the award ( determined using a black-scholes option pricing model ) , and is recognized as an expense over the requisite service period ( generally the vesting period of the equity award ) . determining the fair value of stock-based awards at the grant date requires significant estimates and judgments , including estimating the market price volatility of our common stock , future employee stock option exercise behavior and requisite service periods .
| research and development the increase of $ 5,429,207 in research and development expenses for the year ended december 31 , 2018 was primarily attributable to ( i ) an increase in costs related to development activities of $ 4,626,688 for ovaprene and sildenafil cream , 3.6 % , and to a lesser extent , dare-bv1 and dare hrt-1 ; ( ii ) increased personnel costs of $ 802,519 due to increased salary , benefit and bonus expenses due to staff additions ; and ( iii ) $ 507,000 of transaction costs related to the acquisition of pear tree and the acquisition of certain assets from hydra . 55 license expenses the increase of $ 625,000 in license expenses for the year ended december 31 , 2018 was related to the fees paid in connection with several new license agreements : $ 100,000 to sst , $ 250,000 to juniper , and $ 275,000 in aggregate to hammock and milanapharma . see `` item 1. business—license agreements , '' above , for more information regarding these agreements . goodwill impairment expense we incurred an impairment loss of $ 5,187,519 for the year ended december 31 , 2018 and $ 7,490,886 for the year ended december 31 , 2017 due to our determination that the carrying amount of our goodwill exceeded its estimated fair value . see note 2 , “ acquisitions , ” of the notes to consolidated financial statements appearing in this report for a discussion of our goodwill analysis . other income ( expense ) the decrease of $ 466,126 in interest expense for the year ended december 31 , 2018 primarily reflects a $ 322,629 expense for the year ended december 31 , 2017 associated with the beneficial conversion feature associated with our convertible promissory notes , all of which were exchanged for shares of stock in connection with the cerulean/private daré stock purchase transaction . no comparable expense was incurred in the current year . liquidity and capital resources and financial condition we prepared the accompanying consolidated financial statements on a going concern basis , which assumes that we will realize our assets and satisfy our liabilities in the normal course of business . for the year ended december 31 , 2018 , we
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impact of the covid-19 pandemic the covid-19 pandemic caused a significant adverse impact on our sales , net income and ebitda as defined for fiscal 2020 and is expected to continue to do so into fiscal 2021. this is under the assumption that the covid-19 pandemic will continue to adversely impact customer demand for all market channels , with commercial oem and commercial aftermarket being the most adversely impacted due to the pandemic 's impact on air travel worldwide . the defense market channel is also impacted to a lesser extent due to certain supply chain disruptions as well as the `` stay at home '' orders , quarantines , etc . impacting the government procurement workforce which has slowed production and or orders . also , government funding reprioritization such as shifting funds to efforts to combat the impact of the pandemic provides for uncertainty . the magnitude of the impact of covid-19 remains unpredictable and we , therefore , continue to anticipate potential supply chain disruptions , employee absenteeism and short-term suspensions of manufacturing facilities , and additional health and safety costs related to the covid-19 pandemic that could unfavorably impact our business . longer term , because the duration of the pandemic is unclear , it is difficult to forecast a precise impact on the company 's future results . as a result of the covid-19 pandemic , many of our businesses have taken the opportunity to explore new business opportunities by working on developing highly engineered solutions for emerging needs arising from the pandemic . product solutions currently being explored include anti-viral or antimicrobial technology , air purification , and touchless technologies , among others . the company took immediate and aggressive action to minimize the spread of covid-19 in our workplaces and reduce costs . since the early days of the pandemic , we have been following guidance from the world health organization and the u.s. center for disease control to protect employees and prevent the spread of the virus within all of our facilities globally . some of the actions implemented included : flexible work-from-home scheduling ; alternate shift schedules ; pre-shift temperature screenings , where allowed by law ; social distancing ; appropriate personal protective equipment ; facility deep cleaning ; and paid quarantine time for impacted employees . material actions to reduce costs included : ( 1 ) reducing its workforce to align operations with customer demand ; ( 2 ) implementing unpaid furloughs and salary reductions ; and ( 3 ) delaying non-essential capital projects and minimizing discretionary spending . for the fiscal year ended september 30 , 2020 , covid-19 restructuring costs incurred were approximately $ 46 million , of which $ 37 million was recorded in cost of sales and $ 9 million was recorded in selling and administrative expenses . these were costs related to the company 's actions to reduce its workforce to align with customer demand . additionally , the company incurred approximately $ 5 million in incremental costs related to the pandemic that are not expected to recur once the pandemic has subsided and are clearly separable from normal operations ( e.g. , additional cleaning and disinfecting of facilities by contractors above and beyond normal requirements , personal protective equipment , etc. ) . as of september 30 , 2020 , the restructuring accrual associated with the costs incurred in response to the covid-19 pandemic was approximately $ 13 million . the company expects to incur and pay additional restructuring costs during fiscal 2021 related to the covid-19 pandemic though at a reduced level in comparison to fiscal 2020. the company continues to analyze its cost structure and may implement additional cost reduction measures as necessary due to the ongoing business challenges resulting from the covid-19 pandemic . critical accounting policies our consolidated financial statements have been prepared in conformity with u.s. gaap , which often requires the judgment of management in the selection and application of certain accounting principles and methods . management believes that the quality and reasonableness of our most critical policies enable the fair presentation of our financial position and results of operations . however , investors are cautioned that the sensitivity of financial statements to these methods , assumptions and estimates could create materially different results under different conditions or using different assumptions . below are those policies applied in preparing our financial statements that management believes are the most dependent on the application of estimates and assumptions . for additional significant accounting policies , see note 3 , “ summary of significant accounting policies , ” in the notes to the consolidated financial statements included herein . 29 revenue recognition : revenue is recognized from the sale of products when control transfers to the customer , which is demonstrated by our right to payment , a transfer of title , a transfer of the risk and rewards of ownership , or the customer acceptance , but most frequently upon shipment where the customer obtains physical possession of the goods . the majority of the company 's revenue is recorded at a point in time . sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period . sales for service contracts generally are recognized as the services are provided . for agreements with multiple performance obligations , judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes based on the standalone selling price of each performance obligation . the primary method used to estimate a standalone selling price is the price observed in standalone sales to customers for the same product or service . we consider the contractual consideration payable by the customer and assesses variable consideration that may affect the total transaction price . story_separator_special_tag variable consideration is included in the estimated transaction price when there is a basis to reasonably estimate the amount , including whether the estimate should be constrained in order to avoid a significant reversal of revenue in a future period . these estimates are based on historical experience , anticipated performance under the terms of the contract and our best judgment at the time . inventories : inventories are stated at the lower of cost or net realizable value . cost of inventories is generally determined by the average cost and the first-in , first-out ( “ fifo ” ) methods and includes material , labor and overhead related to the manufacturing process . because the company sells products that are installed on airframes that can be in-service for 25 or more years , it must keep a supply of such products on hand while the airframes are in use . where management estimated that the net realizable value was below cost or determined that future demand was lower than current inventory levels , based on historical experience , current and projected market demand , current and projected volume trends and other relevant current and projected factors associated with the current economic conditions , a reduction in inventory cost to estimated net realizable value was made by recording a provision included in cost of sales . although management believes that the company 's estimates of excess and obsolete inventory are reasonable , actual results may differ materially from the estimates and additional provisions may be required in the future . in addition , in accordance with industry practice , all inventories are classified as current assets as all inventories are available and necessary to support current sales , even though a portion of the inventories may not be sold within one year . historically , changes in estimates in the net realizable value of inventories have not been significant . goodwill and other intangible assets : in accordance with asc 805 , “ business combinations , ” the company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition . the excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed are recognized as goodwill . the valuations of the acquired assets and liabilities will impact the determination of future operating results . determining the fair value of assets acquired and liabilities assumed requires management 's judgment and often involves the use of significant estimates and assumptions , including assumptions with respect to future cash inflows and outflows , revenue growth rates , discount rates , customer attrition rates , royalty rates , asset lives and market multiples , among other items . we determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors . fair value adjustments to the company 's assets and liabilities are recognized and the results of operations of the acquired business are included in our consolidated financial statements from the effective date of the merger or acquisition . intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other legal rights , or if the intangible asset can be sold , transferred , licensed or exchanged , regardless of the company 's intent to do so . goodwill and identifiable intangible assets are recorded at their estimated fair value on the date of acquisition and are reviewed at least annually for impairment based on cash flow projections and fair value estimates . u.s. gaap requires that the annual , and any interim , impairment assessment be performed at the reporting unit level . the reporting unit level is one level below an operating segment . substantially all goodwill was determined and recognized for each reporting unit pursuant to the accounting for the merger or acquisition as of the date of each transaction . with respect to acquisitions integrated into an existing reporting unit , any acquired goodwill is combined with the goodwill of the reporting unit . 30 at the time of goodwill impairment testing , the company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , and whether it is necessary to perform the quantitative goodwill impairment test . the quantitative test is required only if the company concludes that it is more likely than not that a reporting unit 's fair value is less than its carrying amount , or if the company elects not to perform a qualitative assessment of a reporting unit . for the quantitative test , management determines the estimated fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved for each reporting unit . if the calculated estimated fair value is less than the current carrying value , impairment of goodwill of the reporting unit may exist . the use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing . the key assumptions used in the discounted cash flow valuation model for impairment testing includes discount rates , growth rates , cash flow projections and terminal value rates . discount rates are set by using the weighted average cost of capital ( “ wacc ” ) methodology . the wacc methodology considers market and industry data as well as company specific risk factors for each reporting unit in determining the appropriate discount rates to be used . the discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business . management , considering industry and company-specific historical and projected data , develops growth rates , sales projections and cash flow projections for each reporting unit .
| cost of sales increased by $ 42 million , or 1.7 % , to $ 2,456 million for the fiscal year ended september 30 , 2020 compared to $ 2,414 million for the fiscal year ended september 30 , 2019. cost of sales and the related percentage of total sales for the fiscal years ended september 30 , 2020 and 2019 were as follows ( amounts in millions ) : replace_table_token_11_th the increase in the dollar amount of cost of sales during the fiscal year ended september 30 , 2020 was primarily due to a full fiscal year of ownership of the esterline businesses in fiscal 2020 ( compared to approximately 6.5 months of ownership in fiscal 2019 ) in addition to the other factors summarized above . gross profit as a percentage of sales decreased by 1.9 percentage points to 51.9 % for the fiscal year ended september 30 , 2020 from 53.8 % for the fiscal year ended september 30 , 2019. the decrease in the gross profit percentage is primarily driven by the sales mix , specifically , lower commercial aftermarket sales , the dilutive effect a full year of esterline sales have on the gross profit percentage ( as integration activities associated with the three core value drivers continued into fiscal 2020 ) , covid-19 restructuring charges and foreign currency losses , partially offset by a reduction in inventory acquisition accounting adjustments . also , fixed overhead costs incurred were spread over a lower production volume resulting in an adverse impact to gross profit during the second half of fiscal 2020 . 33 selling and administrative expenses . selling and administrative expenses decreased by $ 21 million to $ 727 million , or 14.2 % of sales , for the fiscal year ended september 30 , 2020 from $ 748 million , or 14.3 % of sales , for the comparable period in the prior year . selling and administrative expenses and the related percentage of total sales for the fiscal years ended september 30 , 2020 and 2019 were as follows ( amounts in millions ) : replace_table_token_12_th the decrease in total selling and administrative expenses during the fiscal year ended september 30 ,
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we will remain focused on high quality instrument placements and consumable pull through as the primary indicators of future commercial adoption and success in our business . timing and effectiveness of research and development expenses our spending on collaboration-based research and development may vary substantially from period to period due to the nature of biopharmaceutical company drug development processes and the effort involved in reaching key milestones under our companion diagnostic development agreements . costs from our collaborative development services programs , including but not limited to the quantity of htg edgeseq assay kits and instruments , third-party sequencing equipment , and third-party or internal labor required to complete development milestones , which costs are expensed to research and development expense in our consolidated statements of operations , may vary significantly from one development stage to the next . expenses associated with our ongoing proprietary product research and development efforts are carefully managed and are standardized under our stage-gate-based new product development methodology . program progress and priorities are assessed by time , quality and adherence to budgetary metrics at each phase of the product development . 59 financial operations overview and consolidated results of operations comparison of the years ended december 31 , 2018 and 2017 replace_table_token_1_th revenue we generate revenue from two primary sources : revenue from ruo profiling for biopharmaceutical companies , academic research centers and molecular testing laboratories ; and revenue from collaborative development services for biopharmaceutical companies under our companion diagnostic development programs . a developing third category of revenue is the sale of mdx products , for which our first products are in early stage commercialization in europe but are not yet generating meaningful revenue . this revenue is included in product revenue in the accompanying consolidated statements of operations for the years ended december 31 , 2018 and 2017. ruo profiling is currently made available to our customers through product sales and service offerings . customers can purchase our htg edgeseq instrument and related consumables , which consist primarily of our proprietary molecular profiling panels and other assay components . customers can also access our technology through contracted services . we perform these services using our htg edgeseq instruments and ruo consumables to process samples in our veri/o laboratory . our proprietary technology is also used to develop custom ruo panels which are expected to generate future sample processing or ruo consumables revenue . in june 2017 , we began generating revenue from collaborative development services primarily relating to our governing agreement with qml with the initiation of our first statement of work under the governing agreement ( “ sow one ” ) . in october 2017 , we entered into our second statement of work under the governing agreement ( “ sow two ” ) , and in january 2018 , we entered into our third statement of work under the governing agreement ( “ sow three ” ) . under these agreements , we and qml have combined our technological and commercial strengths to offer biopharmaceutical companies a complete ngs-based solution for the development , manufacture and commercialization of companion diagnostic assays in support of and in conjunction with , biopharmaceutical companies ' drug development programs . total revenue increased by 46 % to $ 21.5 million for the year ended december 31 , 2018 compared with total revenue of $ 14.8 million for the year ended december 31 , 2017. the increase in total revenue was driven by revenue generated from collaborative development services relating to our governing agreement , as well as increased demand for our ruo service offerings as a result of the expansion of our ruo assay menu and the continued strengthening of relationships with key biopharmaceutical company customers . product and product-related services revenue product and product-related services revenue , which includes biomarker ruo profiling revenue generated through the sale of our htg edgeseq instruments and consumables and from services performed for customers in our veri/o laboratory using our proprietary ruo technology , increased $ 2.3 million to $ 9.1 million for the year ended december 31 , 2018 compared with $ 6.8 million for the year ended december 31 , 2017 , and was comprised of the following : 60 replace_table_token_2_th product revenue generated from the sale of our instruments and ruo assay kits increased 25 % to $ 2.3 million for the year ended december 31 , 2018 compared with $ 1.8 million for the year ended december 31 , 2017 , and represented 11 % and 13 % of our total revenue for the years ended december 31 , 2018 and 2017 , respectively . the increase in product revenue in 2018 compared with 2017 is primarily attributable to increased consumables product revenue generated as a result of the expansion of the menu of ruo assays that is available for purchase by the increasing number of customers who have adopted our technology in the united states and europe . service revenue , consisting of sample processing using our htg edgeseq instruments and consumables and custom ruo assay development , increased by $ 1.9 million to $ 6.8 million for the year ended december 31 , 2018 compared with $ 4.9 million for the year ended december 31 , 2017 , and represented 32 % and 34 % of our total revenue for the years ended december 31 , 2018 and 2017 , respectively . the increase in service revenue for the year ended december 31 , 2018 compared with 2017 reflects the expansion of our biopharmaceutical sales team , the menu of ruo panels , including our htg edgeseq precision immuno-oncology panel , a focus on improvement of average per sample selling price and additional ruo programs using previously developed clinical trial assays for biopharmaceutical company customer studies . these customers continue to prefer to gain access to our technology through purchase of our services , which results in increased consumption of our ruo assay kits to process samples in our veri/o laboratory . story_separator_special_tag we expect our revenue mix to continue to contain a higher portion of biopharmaceutical service revenue in the near term until we enter the commercial clinical diagnostic market . collaborative development services revenue collaborative development services revenue includes services performed on biopharmaceutical company companion diagnostic development programs using our htg edgeseq proprietary technology to develop , validate in clinical trials , seek regulatory approvals for and commercialize cdx assays for biopharmaceutical company therapeutics . collaborative development services revenue , consisting of precision diagnostic program services performed for biopharmaceutical companies pursuant to our governing agreement with qml , increased $ 4.4 million to approximately $ 12.4 million for the year ended december 31 , 2018 compared with approximately $ 8.0 million for the year ended december 31 , 2017 , and represented 58 % and 54 % of our total revenue for the years ended december 31 , 2018 and 2017 , respectively . collaborative development services revenue for the year ended december 31 , 2018 included approximately $ 10.2 million of monthly development fees and $ 2.2 million of profit sharing payments . collaborative development services revenue for the year ended december 31 , 2017 included approximately $ 5.7 million of monthly development fees and $ 2.3 million of profit sharing payments . this variability is reflective of the number of active programs in each of these periods , the amount and timing of work to be performed under each program , the timing and number of development deliverables and the timing and amount of any profit sharing payments under these agreements . given these factors , we expect there to continue to be significant variability in the timing and amount of collaborative development services revenue recognized from one fiscal period to the next . cost of product and product-related services revenue cost of product and product-related services revenue includes product-related and services-related costs . product-related costs include the aggregate costs incurred in manufacturing , delivering , installing and servicing instruments and consumables . the components of our product-related costs of revenue include material , subcomponent and servicing costs , manufacturing costs incurred internally ( which include direct labor costs ) , and equipment and infrastructure expenses associated with the manufacturing and distribution of our products . additionally , internal service-based costs incurred in our veri/o laboratory , include direct labor , consumables and lab supplies . our cost of product and product-related services revenue includes fixed costs comprised primarily of manufacturing and service headcount , field service engineers , equipment and facilities . due to the fixed nature of certain expenses , such as overhead , equipment and infrastructure , associated with our regulated industry and our expectations for further growth in 61 customer demand , we expect our cost of product and product-related services revenue as a percentage to decrease over time as we increase product and product-related services revenue , further absorbing these fixed costs . cost of product and product-related services revenue increased by 2 % to $ 5.1 million for the year ended december 31 , 2018 compared with $ 5.0 million for the year ended december 31 , 2017. this increase reflects the increase in product and product‑related services revenue from 2017 to 2018. while cost increased year over year , it increased at a lower percentage than product and product-related services revenue , reflecting higher average prices per sample for our sample processing services as well as further absorption of our fixed operating expenses , which were incurred in the expansion of our veri/o laboratory staffing , facilities and equipment to accommodate increased demand for services . selling , general and administrative expenses selling , general and administrative expenses consist primarily of personnel costs for our sales and marketing , regulatory , legal , executive management and finance and accounting functions . the expenses also include third-party professional and consulting fees incurred by these functions , promotional expenses and facility and overhead costs for our administrative offices . selling , general and administrative expenses increased by $ 2.5 million to $ 20.0 million for the year ended december 31 , 2018 compared with $ 17.5 million for the year ended december 31 , 2017. the increase in our selling , general and administrative expenses are primarily due to compensation expenses including issuance of 259,551 shares of executive officer rsus at a grant date fair value of $ 3.84 per share , resulting in approximately $ 1.0 million of additional non-cash , stock-based compensation expense for the year ended december 31 , 2018. in addition , the hiring of additional biopharmaceutical sales personnel and commercialization efforts relating to our ce/ivd products in europe , including the formation of htg france and the buildout of an applications lab in france in the fourth quarter of 2018 , further increased in selling , general and administrative expenses for the year ended december 31 , 2018. research and development expenses research and development expenses represent amounts incurred to perform collaborative development services , costs to develop new proprietary panels and corresponding assays , to obtain fda approval for our first u.s. ivd assay and to continue to develop and improve our htg edgeseq platform . these expenses include payroll and related expenses , consulting expenses , laboratory supplies , facilities and equipment . research and development costs are expensed as incurred . research and development expenses increased by $ 2.6 million to $ 12.6 million for the year ended december 31 , 2018 compared with $ 10.0 million for the year ended december 31 , 2017. this increase is primarily due to collaborative development costs associated with biopharmaceutical customer companion diagnostic development programs initiated in 2017 under our governing agreement with qml , which costs are included in research and development expense in our consolidated statements of operations as the contracts are accounted for under the fasb 's guidance for collaborative arrangements .
| we seek to leverage key business drivers in molecular profiling for biomarker analysis and diagnostics , including the acceleration of precision medicine , the migration of molecular testing to ngs-based applications , the movement to smaller and less invasive biopsies , the need for greater diagnostic sensitivity , the need to confirm to challenging healthcare economics and the need for automation and an easily deployable workflow . for example , these capabilities enable customers to extend the use of limited biological samples for retrospective analysis , gaining further understanding of the molecular drivers of disease with the goal of developing biomarker-driven targeted therapies . we also believe our technology can be used in clinical applications that will simplify , consolidate and reduce the cost of ngs-based diagnostic workflows and in commercialized cdx tests . our products include instrumentation ( or platforms ) , consumables , including assay kits , and software analytics that , as an integrated system , automate sample processing and can quickly , robustly and simultaneously profile tens , hundreds or thousands of molecular targets from samples a fraction of the size required by many prevailing technologies . our objective is to establish our solutions as the standard in biomarker development and molecular diagnostics , and to make their benefits accessible to all molecular labs from research to the clinic . we believe that our target customers desire high quality molecular profiling information in a multiplexed panel format from increasingly smaller and less invasive samples , with the ability to test and analyze such information locally to minimize turnaround time and cost . in 2014 , we launched our htg edgeseq technology , which generates a molecular profiling library for detection of rna using ngs . our htg edgeseq assays are automated on our htg edgeseq platform . our innovative platform and menu of molecular profiling panels are being utilized in two complimentary ways in advancing precision health . biopharmaceutical companies and other translational research centers utilize our technology to discover and validate biomarkers which can identify patient populations most likely to respond to certain
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we do not intend , and undertake no obligation , to publish revised forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events . critical accounting policies and estimates our significant accounting policies are described in note 2 to the consolidated financial statements included in this annual report . we believe that our accounting policies and estimates relating to revenue recognition , accrued expenses and stock-based compensation charges are the most critical . revenue recognition . revenue is recognized in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 605-25 , revenue recognition for arrangements with multiple elements , which addresses the determination of whether an arrangement involving multiple deliverables contains more than one unit of accounting . a delivered item within an arrangement is considered a separate unit of accounting only if both of the following criteria are met : ● the delivered item has value to the customer on a stand-alone basis ; and ● if the arrangement includes a general right of return relative to the delivered item , delivery or performance of the undelivered item is considered probable and substantially in control of the vendor . under fasb asc topic 605-25 , if both of the criteria above are not met , then separate accounting for the individual deliverables is not appropriate . revenue resulting from the achievement of development milestones is recorded in accordance with the accounting guidance for the milestone method of revenue recognition . amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on the company 's consolidated balance sheet . amounts expected to be recognized as revenue in the next 12 months following the balance sheet date are classified as current liabilities . accrued expenses . third parties perform a significant portion of our development activities . we review the activities performed under significant contracts each quarter and accrue expenses and the amount of any reimbursement to be received from our collaborators based upon the estimated amount of work completed . estimating the value or stage of completion of certain services requires judgment based on available information . if we do not identify services performed for us but not billed by the service-provider , or if we underestimate or overestimate the value of services performed as of a given date , reported expenses will be understated or overstated . stock-based compensation . the fair value of stock options granted has been calculated using the black-scholes option pricing model , which requires us to make estimates of expected volatility and expected option lives . we estimate these factors at the time of grant based on our own prior experience , public sources of information and information for comparable companies . the amount of recorded compensation related to an option grant is not adjusted for subsequent changes in these estimates or for actual experience . the amount of our recorded compensation is also dependent on our estimates of future option forfeitures . if we initially over-estimate future forfeitures , our reported expenses will be understated until such time as we adjust our estimate . changes in estimated forfeitures will affect our reported expenses in the period of change and future periods . in addition , awards containing a market condition are valued using a multifactor monte carlo simulation . the amount and timing of compensation expense to be recorded in future periods related to grants of restricted stock units may be affected by employment terminations . as a result , stock-based compensation charges may vary significantly from period to period . see note 3 to the consolidated financial statements included in this annual report for a description of recent accounting pronouncements that affect us . 39 story_separator_special_tag 0px ; text-indent : 0px '' > research and development – research and development expenses were $ 43,071,051 for fiscal 2016 compared to $ 24,560,233 for fiscal 2015. these costs primarily relate to our bremelanotide phase 3 clinical trial program . research and development expenses related to our bremelanotide , pl-3994 , mc1r , mc4r and other preclinical programs were $ 39,371,908 and $ 21,879,136 in fiscal years 2016 and 2015 , respectively . spending to date has been primarily related to our bremelanotide for the treatment of hsdd program . the increase in research and development expenses is mainly attributable to the continued progress of phase 3 clinical trial and development of bremelanotide for hsdd . the amount of such spending and the nature of future development activities are dependent on a number of factors , including primarily the availability of funds to support future development activities , success of our clinical trials and preclinical and discovery programs , and our ability to progress compounds in addition to bremelanotide and pl-3994 into human clinical trials . the amounts of project spending above exclude general research and development spending , which were $ 3,699,143 and $ 2,681,097 in fiscal years 2016 and 2015 , respectively . the increase in general research and development spending is primarily attributable to additional staffing and secondarily to the recognition of stock-based compensation primarily related to the restricted stock units granted in december 2015. cumulative spending from inception to june 30 , 2016 is approximately $ 234,800,000 on our bremelanotide program and approximately $ 123,900,000 on all our other programs ( which include pl-3994 , pl-8177 , other melanocortin receptor agonists , other discovery programs and terminated programs ) . story_separator_special_tag due to various risk factors described herein under “ risk factors , ” including the difficulty in currently estimating the costs and timing of future phase 1 clinical trials and larger-scale phase 2 and phase 3 clinical trials for any product under development , we can not predict with reasonable certainty when , if ever , a program will advance to the next stage of development or be successfully completed , or when , if ever , related net cash inflows will be generated . general and administrative – general and administrative expenses , which consist mainly of compensation and related costs , were $ 6,179,084 for fiscal 2016 compared to $ 5,677,654 for fiscal 2015. the increase in general and administrative expenses is primarily attributable to the recognition of stock-based compensation primarily related to the restricted stock units granted in december 2015. other income ( expense ) – total other income expense , net was $ ( 2,462,801 ) and $ ( 910,914 ) for fiscal 2016 and fiscal 2015 , respectively . for fiscal 2016 , we recognized $ 50,226 of investment income offset by $ ( 2,513,027 ) of interest expense primarily related to our venture debt . for fiscal 2015 , we recognized $ 35,439 of investment income offset by a $ ( 284,656 ) foreign exchange transaction loss and $ ( 661,697 ) of interest expense primarily related to our venture debt . income tax benefit – for fiscal 2016 the company had no income tax expense or a tax benefit from the sale of new jersey state net operating loss carryforwards on account that it has reached the state limits on sale of new jersey state net operating loss carryforwards . for fiscal 2015 , income tax benefits recorded of $ 531,508 related to the sale of new jersey state net operating loss carryforwards and tax credits . the amount of such losses and tax credits that we were able to sell depended on annual pools and allocations established by the state of new jersey . this program enables approved , unprofitable biotechnology businesses to sell their unused net operating loss carryovers and unused research and development tax credits to unaffiliated , profitable corporate taxpayers in the state of new jersey . effects of inflation we do not believe that inflation has had a material impact on our business , revenues or operating results during the periods presented . liquidity and capital resources since inception , we have incurred net operating losses , primarily related to spending on our research and development programs . we have financed our net operating losses primarily through debt and equity financings and amounts received under collaborative agreements . our product candidates are at various stages of development and will require significant further research , development and testing and some may never be successfully developed or commercialized . we may experience uncertainties , delays , difficulties and expenses commonly experienced by early stage biopharmaceutical companies , which may include unanticipated problems and additional costs relating to : ● the development and testing of products in animals and humans ; ● product approval or clearance ; ● regulatory compliance ; ● gmp compliance ; ● intellectual property rights ; 41 ● product introduction ; ● marketing , sales and competition ; and ● obtaining sufficient capital . failure to enter into or successfully perform under collaboration agreements and obtain timely regulatory approval for our product candidates and indications would impact our ability to increase revenues and could make it more difficult to attract investment capital for funding our operations . any of these possibilities could materially and adversely affect our operations and require us to curtail or cease certain programs . during fiscal 2017 , net cash provided by operating activities was $ 12,881,527 , compared to cash used in operating activities of $ 47,363,814 in fiscal 2016 and $ 13,358,042 in fiscal 2015. the difference of cash provided by and cash used in operations in fiscal 2017 compared to fiscal 2016 was primarily the result of the receipt of the initial payment of $ 60,000,000 relating to the license agreement with amag . higher net cash outflows from operations in fiscal 2016 compared to fiscal 2015 were primarily the result of spending on our bremelanotide for the treatment of hsdd program . our periodic prepaid expenses , accounts payable and accrued expenses balances will continue to be highly dependent on the timing of our operating costs . during fiscal 2017 , net cash provided by investing activities was $ 991,596 , which consisted of $ 1,124,999 of proceeds from the maturity of investments offset by $ 133,403 used for the acquisition of equipment . during fiscal 2016 , net cash used in investing activities was $ 1,404,717 consisting primarily of the purchase of investments . we did not engage in any investing activities in fiscal 2015. during fiscal 2017 , net cash provided by financing activities was $ 18,324,533 , which consisted of net proceeds from our underwritten offerings of our units in august and december 2016 of $ 23,856,973 and proceeds from the exercise of warrants of $ 164,358 , offset by $ 5,696,798 for the payments on notes payable , capital lease payments and the payment of withholding taxes related to restricted stock units . during fiscal 2016 , net cash provided by financing activities was $ 29,471,931 , which consisted of a private placement with net proceeds of $ 19,834,278 , a loan of $ 9,853,885 , net of related debt issuance costs offset by $ 216,232 for the payment of withholding taxes related to restricted stock units and capital lease payments . during fiscal 2015 , net cash provided by financing activities was $ 28,472,705 , which consisted of a private placement with net proceeds of $ 18,556,111 , a loan of $ 9,790,634 , net of related issuance costs and $ 254,148 of proceeds from the exercise of common stock warrants offset by $
| the amount of such spending and the nature of future development activities are dependent on a number of factors , including primarily the availability of funds to support future development activities , success of our clinical trials and preclinical and discovery programs , and our ability to progress compounds in addition to bremelanotide and pl-3994 into human clinical trials . the amounts of project spending above exclude general research and development spending , which was $ 4,536,204 and $ 3,699,143 in fiscal years 2017 and 2016 , respectively . the increase in general research and development spending is primarily attributable to additional staffing and secondarily to the recognition of stock-based compensation . cumulative spending from inception to june 30 , 2017 was approximately $ 279,000,000 on our bremelanotide program and approximately $ 125,400,000 on all our other programs ( which include pl-3994 , pl-8177 , other melanocortin receptor agonists , other discovery programs and terminated programs ) . due to various risk factors described herein under “ risk factors , ” including the difficulty in currently estimating the costs and timing of future phase 1 clinical trials and larger-scale phase 2 and phase 3 clinical trials for any product under development , we can not predict with reasonable certainty when , if ever , a program will advance to the next stage of development or be successfully completed , or when , if ever , related net cash inflows will be generated . general and administrative – general and administrative expenses , which consist mainly of compensation and related costs , were $ 9,610,147 for fiscal 2017 compared to $ 6,179,084 for fiscal 2016. the increase in general and administrative expenses is primarily attributable to payment for professional services of greenhill & co. llc relating to entering into our license agreement with amag and secondarily attributable to employee related expenses recognized in the year . other income ( expense ) – total other expense , net was $ ( 2,262,039 ) and $ ( 2,462,801 ) for fiscal 2017 and fiscal 2016 , respectively . for fiscal 2017 , we recognized $ 26,270 of investment income offset by $ ( 2,288,309 ) of interest expense
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these high-barrier infill markets are characterized by a relative scarcity of available product , operating at near full occupancy , coupled with limited ability to introduce new supply due to high land and development costs and a dearth of developable land in markets experiencing a net reduction in supply as more industrial property is converted to non-industrial uses than can be delivered . consequently , available industrial supply continues to decrease in many of our target infill submarkets , landlord concessions are at cyclically low levels and construction deliveries are falling short of demand . meanwhile , underlying tenant demand within our infill target markets continues to demonstrate growth , illustrated or driven by strong re-leasing spreads , an expanding regional economy , substantial growth in e-commerce transaction and delivery volumes , as well as further compression of delivery time-frames to consumers and to businesses , increasing the significance of last-mile facilities for timely fulfillment . despite potential concerns related to global growth , tax reform and changes to trade and tariff policies and the impact of rising interest rates , we continue to observe a number of positive trends within our target infill markets . based on current observations within the infill southern california industrial property market and within our property portfolio , we expect these positive trends may continue into the upcoming year . in los angeles county , positive market trends continued through 2018 , as historically high occupancy levels persisted year-over-year and asking lease rates increased significantly during 2018. current market conditions indicate rents are likely to continue their upward trend with potential increases through 2019 , as occupancy still remains at near capacity levels and new development is limited by a lack of land availability and an increase in land and development costs . in orange county , market fundamentals remained favorable throughout 2018. with steady tenant demand and a continued low availability of industrial product in this region , average asking lease rents continued their upward trend during 2018 and vacancy remained at historically low levels . current regional market conditions indicate the potential for continued rental growth through 2019. in san diego , although there was a slight increase in vacancy year-over-year , net absorption was positive during 2018 and overall asking lease rates increased year-over-year . in ventura county , vacancy increased year-over-year and asking lease rates increased year-over year . lastly , in the inland empire , new industrial product continues to be absorbed well in the market . in the inland empire west , which contains infill markets in which we operate , vacancy remained at historically low levels and asking lease rates were unchanged year-over-year . we expect the outlook for the inland empire west to remain positive over the upcoming year . we generally do not focus on properties located within the non-infill inland empire east sub-market where the development and construction pipeline for new supply is substantial . acquisitions and value-add repositioning of properties the company 's growth strategy comprises acquiring leased , stabilized properties as well as properties with value-add opportunities to improve functionality and to deploy our value-driven asset management programs in order to increase cash flow and value . additionally , from time to time , we may acquire land parcels or properties with excess land where we may construct new buildings , although we do not anticipate this to be a substantial part of our operations . acquisitions may comprise single property investments as well as the purchase of portfolios of properties , with transaction values ranging from sub- $ 10 million dollar single-property investments to portfolios potentially valued in the billions of dollars . the company 's geographic focus remains infill southern california . however , from time-to-time , portfolios could be acquired comprising a critical mass of infill southern california industrial property that could include some assets located in markets outside of infill southern california . in general , to the extent non-infill-southern california assets were to be acquired as part of a larger portfolio , the company may underwrite such investments with the potential to dispose such assets over a certain period of time in order to maximize its core focus on infill southern california , while endeavoring to take appropriate steps to satisfy reit safe harbor requirements to avoid prohibited transactions under reit tax laws . a key component of our growth strategy is to acquire properties through off-market and lightly marketed transactions that are often operating at below-market occupancy or below-market rent at the time of acquisition or that have near-term lease roll-over or that provide opportunities to add value through functional or physical repositioning and improvements . through 51 various redevelopment , repositioning , and professional leasing and marketing strategies , we seek to increase the properties ' functionality and attractiveness to prospective tenants and , over time , to stabilize the properties at occupancy rates that meet or exceed market rates . a repositioning may consist of a range of improvements to a property . these may include a complete structural renovation of a property whereby we convert large underutilized spaces into a series of smaller and more functional spaces , or it may include the creation of additional square footage , the modernization of the property site , the elimination of functional obsolescence , the addition or enhancement of loading areas and truck access , the enhancement of fire-life-safety systems or other accretive improvements . because each repositioning effort is unique and determined based on the property , targeted tenants and overall trends in the general market and specific submarket , the timing and effect of the repositioning on our rental revenue and occupancy levels will vary , and , as a result , will affect the comparison of our results of operations from period to period with limited predictability . as of december 31 , 2018 , seven of our properties were in various stages of repositioning or development and four of our properties were in the lease-up stage . story_separator_special_tag in addition , we anticipate beginning repositioning work on two additional properties in early 2019 . the table below sets forth a summary of these properties , as well as the four projects that were stabilized during 2018 . in addition to the properties in the table below , we also have a range of smaller spaces in value-add repositioning or renovation , that due to their smaller size , are not presented below , however , in the aggregate , may be substantial . 52 replace_table_token_19_th ( 1 ) the estimated construction period is subject to change as a result of a number of factors including but not limited to permit requirements , delays in construction , changes in scope , and other unforeseen circumstances . ( 2 ) we expect to demolish the existing 49,976 rentable square feet building and construct a new 89,270 rentable square foot multi-unit building . ( 3 ) we acquired 1998 surveyor avenue as an under-construction building for $ 5.8 million and the assumed the seller 's fixed-price construction contracts with $ 4.4 million of remaining costs at acquisition . at completion , the property will be one single-tenant building containing 56,306 rentable square feet . during 2018 , we pre-leased the property and in january 2019 the tenant took possession of the property . ( 4 ) 9615 norwalk is a 10.26 acre storage-yard with three buildings totaling 38,362 rentable square feet . in january 2019 , we converted the tenant 's month to month land lease to a term lease with an expiration date of june 30 , 2020. we will 53 demolish the existing buildings and construct a new 201,808 rentable square foot building upon termination of the land lease . ( 5 ) as of december 31 , 2018 , we are repositioning space aggregating 109,129 rentable square feet at 3233 mission oaks . during the first quarter of 2018 , we completed the repositioning of a 43,927 rentable square foot unit at 3233 mission oaks . ( 6 ) we plan to reposition a 36,000 rentable square foot unit at 7110 rosecrans avenue when the current lease expires in the first quarter of 2019 . ( 7 ) we consider a repositioning property to be stabilized at the earlier of the following : ( i ) upon reaching 90 % occupancy or ( ii ) one year from the date of completion of repositioning construction work . properties that are nonoperational as a result of repositioning or redevelopment activity may qualify for varying levels of interest , insurance and real estate tax capitalization during the development and construction period . an increase in our repositioning and development activities resulting from value-add acquisitions could cause an increase in the asset balances qualifying for interest , insurance and tax capitalization in future periods . we capitalized $ 2.1 million of interest expense and $ 0.9 million of insurance and real estate tax expense during the year ended december 31 , 2018 , related to our repositioning and redevelopment projects . rental revenue our operating results depend primarily upon generating rental revenue from the properties in our consolidated portfolio . the amount of rental revenue generated by these properties is affected by our ability to maintain or increase occupancy levels and rental rates at our properties , which will depend upon our ability to lease vacant space and re-lease expiring space at favorable rates . occupancy rates as of december 31 , 2018 , our consolidated portfolio was 95.4 % occupied . we believe the opportunity to increase occupancy at our properties will be an important driver of future revenue growth . an opportunity to drive this growth will derive from the lease-up of recently completed repositioning projects and the completion and lease-up of repositioning projects that are currently under construction and planned for near-term construction . as summarized in the table above , as of december 31 , 2018 , 11 of our properties with a combined 0.5 million vacant rentable square feet , were in various stages of repositioning or lease-up . these 11 properties are concentrated in our los angeles , orange county , san diego and ventura markets , and represent 2.2 % of our total consolidated portfolio square footage as of december 31 , 2018 . including vacant repositioning and lease-up space at these 11 properties , our weighted average occupancy rate as of december 31 , 2018 , in los angeles , orange county , san diego and ventura was 96.1 % , 95.1 % , 95.2 % and 88.6 % , respectively . excluding vacant repositioning and lease-up space at these 11 properties , our weighted average occupancy rate as of december 31 , 2018 , in these markets was 97.8 % , 97.2 % , 97.4 % and 97.2 % , respectively , and our overall portfolio occupancy excluding these properties was 97.5 % . we believe that a significant portion of our long-term future growth will come from the completion of these projects currently under or scheduled for repositioning , as well as through the identification or acquisition of new opportunities for redevelopment and repositioning , whether in our existing portfolio or through new investments , which may vary from period to period subject to market conditions . the occupancy rate of properties not undergoing repositioning is affected by regional and local economic conditions in our southern california infill markets . throughout 2018 , the los angeles , orange and san diego county markets have continued to show historically low vacancy and positive absorption , resulting from high tenant demand combined with low product availability . accordingly , our properties in these markets have exhibited a similar trend . we expect general market conditions to remain positive in 2019 , and we believe the opportunity to increase occupancy and rental rates at our properties will be an important driver of future revenue growth .
| replace_table_token_22_th 60 rental revenue our same properties portfolio and total portfolio rental revenue increased by $ 10.5 million , or 9.0 % , and $ 41.4 million , or 30.4 % , respectively , for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 . the increase in our same properties portfolio rental income is primarily due to the increase in the weighted average occupancy of the portfolio for comparable periods , which was driven by the completion of repositioning and development work and subsequent lease-up of space at nine of these properties during 2017 and 2018 , as well as the increase in average rental rates on new and renewal leases . our total portfolio rental revenue was also positively impacted by the incremental revenues from the 51 properties we acquired during 2017 and 2018 , partially offset by the decrease in revenues from the 12 properties that were sold during 2017 and 2018 . tenant reimbursements our same properties portfolio and total portfolio tenant reimbursements revenue increased by $ 1.8 million , or 9.0 % , and $ 8.8 million or 37.8 % , respectively , for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 . the increase in our same properties portfolio tenant reimbursements is primarily due to an increase in recoverable operating expenses for comparable periods , an increase in the weighted average occupancy of the portfolio for comparable periods , which was driven by the completion of repositioning and development work and subsequent lease-up of space at nine of these properties during 2017 and 2018 . our total portfolio tenant reimbursements revenue was also impacted by the incremental reimbursements from the 51 properties we acquired during 2017 and 2018 , partially offset by the decrease in reimbursements from the 12 properties that were sold during 2017 and 2018 . other income our same
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based on our analysis of data from the best hf trial , we believe that gencaro 's prevention of af in hf patients is pharmacogenetically regulated . we plan to enroll approximately 200-400 patients with persistent af who have the genotype that appears to respond most favorably to gencaro . we anticipate that this trial could begin approximately 6 months after we obtain sufficient funding . af is a disorder in which the normally regular and coordinated contraction pattern of the heart 's two small upper chambers ( the atria ) becomes irregular and uncoordinated . the irregular contraction pattern associated with af causes blood to pool in the atria , predisposing the formation of clots . these clots may travel from the heart and become lodged in the arteries leading to the brain and other organs , thereby blocking necessary blood flow and potentially resulting in stroke . af is considered an epidemic cardiovascular disease that affects approximately 2-3 million americans , making it one of the most common heart rhythm disorders . the approved therapies for the treatment or prevention af have certain disadvantages , such as toxic side effects . we believe there is an unmet medical need for new af treatments that have fewer side effects than currently available therapies and are more effective , particularly in patients with hf where most of the approved drugs are contra-indicated or have warnings in their prescribing information . the planned af clinical trial is designed to be a multi-center , randomized , double-blind clinical trial to assess the safety and efficacy of gencaro in af patients with hf and or left ventricular dysfunction , with the primary endpoint being time to recurrent symptomatic af after direct current cardioversion . this af trial is designed to compare gencaro to the beta-blocker metoprolol cr/xl in the patient genotype we believe responds most favorably to gencaro . the therapeutic benefit of metoprolol cr/xl does not appear to be enhanced in patients with this genotype . we believe data from the best hf trial indicate that gencaro may have a potentially significant effect in reducing or preventing af , and this effect may be one that is genetically regulated . the entire cohort of patients in the best hf trial that were treated with gencaro had a 41 % reduction in the risk of new onset af ( time-to-event ) compared to placebo ( p = 0.0004 ) , although because there was not a predetermined af clinical endpoint in the best hf trial , the data is based on a subsequent analysis of adverse events and surveillance electrocardiograms ( ecgs ) . in the dna sub study , patients with the most favorable genotype for gencaro experienced a 74 % ( p = 0.0003 ) reduction in risk of af , based on the same analysis . this most favorable genotype was present in about 47 % of the patients in the sub study , and we estimate it is present in about 50 % of the us general population . we believe the af study would take approximately two and one half years from enrollment of the first patient through completion . we have exclusive patent rights to other product candidates that have potential indications in cardiovascular disease , oncology and other therapeutic areas , some of which are in early stages of development and others of which are in later stages of development . we are seeking development partners to assist us in the development of these product candidates or who may license rights to them . for example , we hold exclusive rights to rnapc2 , a recombinant protein that is a potent , long acting tissue factor inhibitor with a unique mechanism of action . previously , preclinical studies of rnapc2 showed evidence of potential efficacy against lethal hemorrhagic fever viruses . to support the continued development of gencaro , including the planned af clinical trial and our ongoing operations , we will need to raise substantial additional funding through public or private debt or equity transactions or a strategic combination or partnership , or government funding . we may seek additional funding that could allow us to operate while we continue to pursue strategic combination , partnering , additional financing and licensing opportunities . if we are delayed in obtaining funding or are unable to complete a strategic transaction , we may discontinue our development activities on gencaro or discontinue our operations . we believe our cash and cash equivalents balance as of december 31 , 2011 will be sufficient to fund our operations , at our current cost structure , through september 2012. we are unable to assert that our current cash and cash equivalents are sufficient to fund operations beyond that date , and as a result , there is substantial doubt about our ability to continue as a going concern beyond september 2012. changing circumstances may cause us to 45 consume capital significantly faster or slower than we currently anticipate . we have based these estimates on assumptions that may prove to be wrong , and we could exhaust our available financial resources sooner than we currently anticipate . on january 27 , 2009 , we completed a business combination ( the merger ) with arca colorado in accordance with the terms of that agreement and plan of merger and reorganization , dated september 24 , 2008 , and amended on october 28 , 2008 ( as amended , the merger agreement ) , in which a wholly-owned subsidiary of nuvelo , inc. merged with and into arca colorado , with arca colorado continuing after the merger as the surviving corporation and a wholly-owned subsidiary of nuvelo , inc. immediately following the merger , we changed our name from nuvelo , inc. to arca biopharma , inc. , and our common stock began trading on the nasdaq global market under story_separator_special_tag the symbol abio on january 28 , 2009. on march 7 , 2011 , the listing of our common stock was transferred from the nasdaq global market to the nasdaq capital market . story_separator_special_tag investing activities for the year ended december 31 , 2011 was primarily due to $ 2 million of cash received from the assignment of patent rights during 2011. net cash provided by financing activities of approximately $ 3.9 million for the year ended december 31 , 2011 is comprised of $ 4.0 million of 47 net proceeds from the sales of our common stock , less $ 146,000 in payments made on a vendor financing arrangement . for the year ended december 31 , 2010 , net cash provided by financing activities was $ 7.2 million of net proceeds from the sale of our common stock pursuant to an equity distribution agreement and $ 139,000 of proceeds received from exercises of stock options . sources and uses of capital our primary sources of liquidity to date have been capital raised from issuances of shares of our common and preferred stock , issuance of convertible promissory notes , and funds provided by the merger . the primary uses of our capital resources to date have been to fund operating activities , including research , clinical development and drug manufacturing expenses , license payments , and spending on capital items . considering the substantial additional time and costs associated with the development of gencaro and our need to raise a significant amount of capital on acceptable terms to finance the planned clinical trial and our ongoing operations , we are evaluating strategic alternatives for funding our continued operations and development programs . we will need to raise substantial additional funding through public or private debt or equity transactions or a strategic combination or partnership , or government funding to support the continued clinical development of gencaro , including planned clinical trial . in evaluating the substantial costs associated with development of rnapc2 and our limited financial resources , further development of rnapc2 will be dependent upon receipt of government or third party funding , which may not be available . on december 8 , 2009 , we entered into an equity distribution agreement , or the agreement , with wedbush securities inc. , or the agent , under which we could , from time to time , offer and sell its common stock through the agent . on april 30 , 2010 , we amended the agreement to permit us to sell up to an aggregate of $ 20 million in shares , which were registered on a registration statement on form s-3 ( file no . 333-148288 ) . in the year ended december 31 , 2010 , we sold 1,164,600 shares of our common stock under this agreement and realized $ 7.2 million of net proceeds . on may 23 , 2011 the company terminated this agreement . no shares of common stock were sold during 2011 under this agreement . on april 18 , 2011 , we entered into a placement agency agreement with roth capital partners , llc , pursuant to which it agreed to use its reasonable efforts to arrange for the sale of up to 1,680,672 shares of arca 's common stock and warrants to purchase up to 1,176,471 shares of arca 's common stock in a registered direct public offering . we paid the placement agent an aggregate fee equal to 7 % of the gross proceeds received in the offering and reimbursed the placement agent for its expenses incurred in connection with the offering , with a maximum expense reimbursement that , when aggregated with the 7 % fee , did not exceed 8 % of our gross proceeds . on april 18 , 2011 , we also entered into separate subscription agreements with certain institutional investors in connection with the offering , pursuant to which we sold an aggregate of 1,680,672 shares of our common stock and warrants to purchase a total of 1,176,471 shares of our common stock to the investors for aggregate gross proceeds , before deducting fees to the placement agent and other offering expenses payable by us , of approximately $ 3.0 million . our net proceeds after deducting placement agent fees and offering expenses were approximately $ 2.5 million and the offering closed on april 21 , 2011. the common stock and warrants were sold in units , with each unit consisting of one share of our common stock and a warrant to purchase 0.7 shares of our common stock . the purchase price per unit was $ 1.785. subject to certain ownership limitations , the warrants are exercisable as of october 21 , 2011 and will remain exercisable for five years thereafter at an exercise price of $ 2.52 per share . on december 21 , 2011 , we entered into separate subscription agreements ( the purchase agreements ) with various institutional investors in connection with a private placement of our common stock and warrants . pursuant to the purchase agreements , we agreed to sell and issue an aggregate of 1,666,666 shares of our 48 common stock and warrants to purchase up to an additional 1,250,000 shares of our common stock at a total purchase price of $ 1.05 per unit . the investors in the private placement received warrants to purchase 0.75 shares of common stock for each share of common stock purchased .
| approximately $ 433,000 of the decrease was attributable to our staff reductions completed in the first quarter of 2011 and the balance is due to our reduced operations overall . there was an increase in depreciation expense in 2011 of approximately $ 272,000 over 2010. the increase is directly related to the relocation of our corporate office to a smaller office suite during the fourth quarter of the year . the move necessitated additional depreciation of certain leasehold improvements , furniture and equipment that were not useable in the new office suite . sg & a expenses for 2012 are expected to be comparable to 2011 levels , or modestly lower but are s contingent upon our ability to raise substantial additional funding or complete a strategic transaction . should we receive funds from one or a combination of these sources , sg & a expense in 2012 could be substantially higher than 2011 as we increase activities to support initiating our planned af clinical trial . 46 gain on assignment of patent rights during the year ended december 31 , 2011 , we entered into an agreement in which we assigned certain patent rights to a large pharmaceutical company . in exchange for the patent rights we received a $ 2.0 million non-recourse payment during the second quarter of 2011. interest and other income interest and other income was $ 2,000 for the year ended december 31 , 2011 , as compared to $ 763,000 for 2010 , representing a decrease of $ 761,000. the decrease is comprised of grants totaling $ 489,000 under the qualifying therapeutic discovery project , provided under section 48d of the internal revenue code and realized gains of $ 263,000 on the sale of marketable securities . both of these events occurred in and were exclusive to 2010. interest income was nominal in 2011 due to low investment yields and declining cash balances . we expect interest income to continue to be nominal in 2012. interest and other expense interest and other expense was $ 5,000 for the year ended december 31 , 2011 ,
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we adopted asc topic 606 , revenue from contracts with customers ( `` asc 606 '' ) on december 31 , 2017 using the modified retrospective method for all contracts not completed as of the date of adoption . revenue is recognized under asc 606 when we satisfy a performance obligation by transferring services promised in a contract to a client in an amount that reflects the consideration that we expect to receive in exchange for those services . performance obligations in our contracts represent distinct or separate service streams that we provide to our clients . we evaluate our revenue contracts with clients based on the five-step model under revenue from contracts with customers : ( 1 ) identify the contract with the customer ; ( 2 ) identify the performance obligations in the contract ; ( 3 ) determine the transaction price ; ( 4 ) allocate the transaction price to separate performance obligations ; and ( 5 ) recognize revenues when ( or as ) each performance obligation is satisfied . if , at the outset of an arrangement , we determine that an enforceable contract does not exist , revenues are deferred until all criteria for an enforceable contract are met . we derive substantially all of our revenues from the performance of professional services for our clients . the contracts that we enter into and operate under specify whether the engagement will be billed on a time-and-materials basis or a fixed-price basis . these engagements generally last three to six months , although some of our engagements can be much longer in duration . each contract must be approved by one of our vice presidents . time-and-materials arrangements require the client to pay us based on the number of hours worked at contractually agreed-upon hourly rates . we recognize revenues from these arrangements based on hours incurred and contracted rates based a right-to-payment for services 30 completed to date . when a time-and-materials arrangement has a `` cap '' or `` limit '' amount , we recognize revenue up to the cap or limit amount specified by the client , based on the efforts or hours incurred and expenses incurred . thereafter , revenue is reserved pending an amendment of the cap or limit . fixed-price arrangements require the client to pay a contractually agreed-upon fee in exchange for a pre-established set of professional services . we base our fees on our estimates of the costs and timing for completing a performance obligation . we generally recognize revenues under fixed-price arrangements using a proportional performance method , which is based on the ratio of costs incurred to the total estimated costs for completing a performance obligation . our fixed-price arrangements generally have a single performance obligation . for arrangements that contain multiple performance obligations , the fixed price is allocated based on the estimated relative standalone selling prices of the promised services underlying each performance obligation . variable consideration to be included in the transaction price is estimated based on the most likely amount we expect to be entitled to if it is probable that a significant future reversal of cumulative revenue under the contract will not occur . we base our estimate of variable consideration on historical realization rates . reimbursable expenses , including those relating to travel , out-of-pocket expenses , outside consultants and other outside service costs , are generally included in revenues , and an equivalent amount of reimbursable expenses is included in costs of services in the period in which the expense is incurred . differences between the timing of billing and the recognition of revenue are recognized as either unbilled services or deferred revenues in the accompanying consolidated balance sheets . revenues recognized for services performed but not yet billed to clients are recorded as unbilled services . client prepayments and retainers are classified as deferred revenues and recognized over future periods as earned in accordance with the applicable retention agreement . prior to our adoption of asc 606 , as discussed above , we followed the revenue recognition guidance as issued in asc topic 605 , revenue recognition ( `` asc 605 '' ) . our accounting policies as they related to revenue recognition under asc 605 are discussed in note 1 `` summary of significant accounting policies '' in our notes to consolidated financial statements . deferred compensation . we account for performance-based and service-based cash awards using an accrual method where changes in estimates are accounted for prospectively over the remaining service period . to the extent the terms of an award attribute all or a portion of the expected future benefits to a period of service greater than one year , the cost of those benefits is accrued over the employee 's or non-employee 's requisite service period in a systematic and rational manner , usually on a straight-line basis . the requisite service period typically ranges from three to six years starting with the employee 's employment date or non-employee 's affiliation date . for an employee or non-employee consultant currently affiliated with us , the requisite service period generally begins at the start of the award 's measurement period . a recipient of such an award is expected to be employed by or affiliated with us for the entire measurement period . if the recipient 's employment or affiliation with us terminates during the measurement period , the amount paid will be determined in accordance with the recipient 's specific contract provisions . the terms of award agreements may include the achievement of minimum required financial targets over the award 's measurement period . these financial targets may include a measure of revenue generation , profitability or both . the amount of the liability of the award agreements is estimated based on internally generated financial projections . the process of projecting these financial targets over the measurement period is highly subjective and requires significant judgment and estimates . 31 there can be no assurance that the estimates and assumptions used in preparing these projections will prove to be accurate . story_separator_special_tag valuation of the contingent consideration liability . we account for our contingent consideration liability by remeasuring the obligation to fair value each reporting period , estimated based on a monte carlo simulation . the fair value measurement of these liabilities is based on significant inputs not observed in the market . the significant unobservable inputs used in the fair value measurements of these contingent consideration liabilities are our measures of the estimated payouts based on internally generated revenue projections , expected volatility of the revenue projections , and discount rates . the process of developing financial projections is highly subjective and requires significant judgment and estimates . there can be no assurance that the estimates and assumptions used in preparing these projections will prove to be accurate . we reassess the fair value of these contingent consideration liabilities on a quarterly basis using additional information as it becomes available . any change in the fair value estimates are recorded in the earnings of that period . accounting for income taxes . we record income taxes using the asset and liability method . deferred tax assets and liabilities are recognized based on estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases . we include in our estimate of deferred tax assets and liabilities an estimate of the realizable benefits from operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . our effective tax rate may vary from period to period based on changes in estimated taxable income or loss ; changes to the valuation allowance ; changes to federal , state , or foreign tax laws ; future expansion into areas with varying country , state , and local income tax rates ; deductibility of certain costs ; uncertain tax positions ; expenses by jurisdiction ; and results of acquisitions or dispositions . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in several different tax jurisdictions . we are periodically reviewed by domestic and foreign tax authorities . these reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions . we account for uncertainties in income tax positions in accordance with asc topic 740. the number of years with open tax audits varies depending on the tax jurisdiction . recent accounting standards adopted and not yet adopted please refer to the sections captioned `` recent accounting standards adopted '' and `` recent accounting standards not yet adopted '' in note 1 of our notes to consolidated financial statements contained in this form 10-k. 32 story_separator_special_tag compared to fiscal 2017. overall , revenues outside of the u.s. represented approximately 21 % and 20 % of total revenues for fiscal 2018 and fiscal 2017 , respectively . revenues derived from fixed-price engagements decreased to 23 % of total revenues for fiscal 2018 as compared with 25 % for fiscal 2017. these percentages of revenue derived from fixed-price engagements depend largely on the proportion of our revenues derived from our management consulting business , as the management consulting business typically has a higher concentration of fixed-price service engagements . costs of services ( exclusive of depreciation and amortization ) . costs of services ( exclusive of depreciation and amortization ) increased by $ 30.4 million , or 11.7 % , to $ 289.2 million for fiscal 2018 from $ 258.8 million for fiscal 2017. the increase in costs of services was due primarily to an increase of $ 7.7 million in employee compensation and fringe benefit costs attributable to salaries and benefits associated with our increased consulting headcount , an increase in forgivable loan amortization of $ 4.1 million , and an increase in incentive and retention compensation costs of $ 14.2 million . these increases were partially offset by a decrease in stock compensation expense of $ 1.6 million and a decrease in expense related to contingent consideration of $ 1.4 million . additionally , client reimbursable expenses increased by $ 7.4 million in fiscal 2018 compared to fiscal 2017. despite the overall increase in cost of services , as a percentage of net revenue , costs of services remained relatively flat at 69.2 % for fiscal 2018 and 69.9 % for fiscal 2017. selling , general and administrative expenses . selling , general and administrative expenses increased by $ 3.0 million , or 3.5 % , to $ 89.5 million for fiscal 2018 from $ 86.5 million for fiscal 2017. this increase was due primarily to a $ 2.4 million increase in rent expense due to additional leased space in our chicago , new york and london offices , as well as an increase in commissions to our nonemployee experts of $ 2.3 million , resulting from higher percentage of our revenue for the year sourced by our nonemployee experts , as compared to fiscal 2017. additional factors contributing to this increase were a $ 1.2 million increase in bad debt and a $ 0.7 million increase in salaries and benefits . offsetting these increases was a $ 3.4 million decrease in other operating expenses due to a $ 2.3 million increase in other professional fees offset by $ 5.7 million of consideration paid to iqvia in fiscal 2017. as a percentage of revenues , selling , general and administrative expenses decreased to 21.5 % for fiscal 2018 from 23.4 % for fiscal 2017 due primarily to the increase in revenues .
| costs of services ( exclusive of depreciation and amortization ) increased by $ 28.6 million , or 9.9 % , to $ 317.8 million for fiscal 2019 from $ 289.2 million for fiscal 2018. the increase in costs of services was due primarily to an increase of $ 8.9 million in employee compensation and fringe benefit costs attributable to salaries and benefits associated with our increased consulting headcount , an increase in expense related to contingent consideration of $ 4.3 million , an increase in forgivable loan amortization of $ 2.7 million , and an increase in incentive and retention compensation costs of $ 8.0 million . additionally , client reimbursable expenses increased by $ 6.1 million in fiscal 2019 compared to fiscal 2018. these increases were partially 33 offset by a decrease in stock compensation expense of $ 1.4 million . despite the overall increase in cost of services , as a percentage of net revenue , costs of services remained relatively flat at 70.4 % for fiscal 2019 and 69.2 % for fiscal 2018. selling , general and administrative expenses . selling , general and administrative expenses increased by $ 4.1 million , or 4.6 % , to $ 93.6 million for fiscal 2019 from $ 89.5 million for fiscal 2018. this increase was due primarily to a $ 2.7 million increase in rent expense due to additional leased space in our boston and oakland offices , as well as an increase in commissions to our nonemployee experts of $ 0.6 million , resulting from higher percentage of our revenue for the year sourced by our nonemployee experts , as compared to fiscal 2018. additional factors contributing to this increase were a $ 1.7 million increase in salaries and benefits and $ 0.2 million increase in other operating expenses . offsetting these increases was a $ 1.1 million decrease in bad debt expense . as a percentage of revenues , selling , general and administrative expenses decreased to 20.7 % for fiscal 2019 from 21.5 % for fiscal 2018 due primarily to the increase in revenues . commissions to non-employee experts decreased to 2.8 % of revenue in fiscal 2019 compared to 2.9 % of revenue in fiscal
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causes of pghd can be congenital ( children are born with the condition ) , acquired ( brain tumor , head injuries or other causes ) , iatrogenic ( induced by medical treatment ) or idiopathic ( of unknown cause ) . children with untreated pghd will have significant growth failure ( potential adult heights significantly less than five feet and may have abnormal body composition with decreased bone mineralization , decreased lean body mass and increased fat mass ) . the main therapeutic goal in pghd is to restore growth , enabling short children to achieve normal height and prevent complications that could involve metabolic abnormalities , cognitive deficiencies and reduced quality of life . current treatment of pghd is limited to daily subcutaneous injections of rhgh with a treatment cycle lasting up to an average of seven years . poor compliance with daily rhgh injections during treatment can result in an adverse impact on growth . 64 lum-201 growth hormone secretagogue our pipeline is focused on the development of an orally administered small molecule , lum-201 , which is a gh secretagogue , also called ibutamoren , for rare endocrine disorders where injectable rhgh is currently approved . lum-201 is a tablet formulation that will be administered orally once daily and potentially provides a new therapeutic approach to the 35-year old standard of care ( subcutaneous injectable rhgh ) for treating rare endocrine disorders associated with gh deficiencies . lum-201 is intended to provide an oral treatment to stimulate the release of endogenous gh in pghd patients who have a functional but reduced hypothalamic pituitary gh axis and are expected to respond to lum-201 . we believe this group represents 50 % to 60 % of pghd patients . during the fourth quarter of 2020 , we launched our oragrowth trials program to study the effects of lum-201 in pghd and initiated our phase 2b trial with the opening of the initial sites participating in this study . we anticipate data read out for the oragrowth210 trial mid-year 2022. we also plan to initiate a second concurrent trial of lum-201 in pghd during the second quarter of 2021 , exploring the effects of the mechanism of action of lum-201 in amplifying the pulsatile secretion of growth hormone . in february 2021 , we were notified of a fire at the san borja arriaran hospital in santiago , chile . this location is the clinical site for the oragrowth212 trial . this will delay the timing of the initiation of the oragrowth212 trial , however , we continue to work with our local partners to advance the trial . while estimates of the potential delay are not yet available as cleanup and restoration work continues , we antucuoate\ the trial will be initiated during the second quarter of 2021. as we have previously stated , this trial is not on the critical path for regulatory approval of lum-201 and we do not anticipate the fire will cause any delays to our previously stated regulatory approval timeline . we are exploring alternate sites to conduct the trial in the event that the original site is unable to proceed in a timely manner . we are also in the planning stages for developing lum-201 for two additional indications . depending on the outcome of data developed and identification of the most efficacious dose in the phase 2b trial and the timing of such data , we plan to initiate separate phase 2 clinical trials to study the effects of lum-201 for turner syndrome and sga in a certain subset of affected patients . on august 12 , 2020 , we entered into the lumos merck agreement amendment with merck , pursuant to which we obtained from merck a worldwide , non-exclusive , sublicensable ( subject to merck 's consent in the united states , specified major european countries and japan , such consent not to be unreasonably withheld ) license under the specified patents and know-how that are the subject of our exclusive license to develop , manufacture and commercialize lum-201 for diagnostic purposes , excluding autism spectrum disorders . additionally , we and merck agreed that , among other things , ( a ) our sublicensees have the right to grant further sublicenses ( subject to merck 's prior written consent , not to be unreasonably withheld ) , and ( b ) if we provide merck with a notice that we intend to enter into a development or commercial arrangement with a third party with respect to lum-201 for the treatment or prevention of any and all indications ( excluding autism spectrum disorders ) in the united states , specified european countries or japan , and either merck does not submit terms for such arrangement within a specified period of time or we and merck do not ( despite good faith negotiations ) enter into a definitive agreement with merck for such arrangement within a specified period of time after merck 's submission of such terms , then we have the right , for a specified period of time thereafter , to enter into a development or commercial arrangement with any third party with respect to lum-201 , without having to submit a new notice to merck with respect to such arrangement , and if any such third party agreement is entered into , such third party may hire a contract sales force for lum-201 without merck 's prior written consent . newlink 's legacy oncology candidates in connection with the merger , we acquired newlink 's small-molecule product candidates . these product candidates , indoximod , nlg802 ( a prodrug of indoximod ) and nlg919 ( a direct ido1 enzymatic inhibitor ) are indoleamine-2 , 3-dioxygenase pathway inhibitors . story_separator_special_tag we also acquired an additional small molecule product candidate , nlg207 , which is a nanoparticle-drug conjugate consisting of a cyclodextrin-based polymer backbone linked to camptothecin , a topoisomerase 1 inhibitor , which was out-licensed to ellipses pharma limited , effective december 17 , 2019. two u.s. patents covering both the salt and prodrug formulations of indoximod were issued in the united states on august 15 , 2017 and february 19 , 2019 , respectively , providing exclusivity until at least 2036. we are continuing to pursue international patent coverage for these formulations in some countries , and we are exploring the potential for further development and licensing opportunities but currently do not have any active program for these acquired small molecule product candidates . 65 ebola vaccine in november 2014 , newlink entered into the newlink merck agreement with merck to develop and potentially commercialize its ebola vaccine rvsv∆g-zebov that it licensed from phac . rvsv∆g-zebov was also eligible to receive a prv if approval was granted by the fda , with the company entitled to 60 % of the prv value obtained through sale , transfer or other disposition of the prv . on december 20 , 2019 , merck announced that the fda approved its application for ervebo® ( ebola zaire vaccine , live ) for the prevention of disease caused by zaire ebola virus in individuals 18 years of age and older . as a result of the asset purchase agreement , whereby we and merck each agreed that merck would purchase the prv from us for $ 100.0 million , entered into with merck on july 27 , 2020 ( the “ prv asset purchase agreement ” ) . merck will pay us $ 60.0 million , representing our share of the purchase price in two installments . the first installment of $ 34.0 million was received by us at the closing during the three months ended september 30 , 2020 and the second installment of $ 26.0 million was received on january 11 , 2021 and is recorded within other receivables on the consolidated balance sheets . we also have the potential to earn royalties on sales of the vaccine in certain countries , if the vaccine is successfully commercialized by merck . however , we believe that the market for the vaccine will be limited primarily to areas in the developing world that are excluded from royalty payment or where the vaccine is donated or sold at low or no margin and therefore we do not expect to receive material royalty payments from merck in the foreseeable future . financial overview revenue we have no products approved for commercial sale and have not generated any revenue from product sales . in the future , we may generate revenue from product sales , royalties on product sales , or license fees , milestones , or other upfront payments if we enter into any collaborations or license agreements . we expect that our future revenue will fluctuate from quarter to quarter for many reasons , including the uncertain timing and amount of any such payments and sales . research and development expenses research and development expenses consist primarily of costs incurred to advance our product candidate , lum-201 . our research and development expenses include internal personnel expenditures along with external research and development expenses incurred under arrangements with third parties , such as contract research and manufacturing organizations , consultants , and our scientific advisors . we expense research and development costs as incurred . nonrefundable advance payments for goods and services that will be used in future research and development activities are capitalized as an asset and expensed when the service has been performed or when the goods have been received . we expect our research and development expenses to increase for the foreseeable future as we continue to conduct our clinical trial programs for our product candidates develop our pipeline and pursue regulatory approval of our product candidates . general and administrative expenses general and administrative expenses consist primarily of professional fees for legal , auditing , tax and business consulting services , personnel expenses and travel costs . we expect that general and administrative expenses will increase in the future as we expand our operating activities . in addition , we expect to incur significant additional costs associated with being a sec registrant . these increases will likely include legal fees , costs associated with sarbanes-oxley compliance , accounting fees , directors ' and officers ' liability insurance premiums , and other expenses . covid-19 the pandemic caused by an outbreak of covid-19 has resulted , and is likely to continue to result , in significant national and global economic disruption and may adversely affect our operations . we are actively monitoring the potential impact of covid-19 , if any , on the carrying value of certain assets and its continued operations . to date , we have experienced limited delays related to clinical trials as clinical sites adapt their procedures to caring for patients during a pandemic , however , we have not incurred impairment of any assets as a result of covid-19 . the extent to which these events may impact our business , clinical development , regulatory efforts , and the value of our common stock , will depend on future developments , which are highly uncertain and can not be predicted at this time . the duration and intensity of these impacts and resulting disruption to our operations is uncertain and we will continue to evaluate the impact that these events could have on our operations , financial position , and results of operations and cash flows during fiscal year 2021 .
| million of current tax benefit related to carry back of nol under the cares act and $ 9.5 million for the tax benefit of current year tax losses and certain historical tax attributes realized as of the date of the merger , both benefited from the deferred tax liability recorded for the step up in book basis over tax basis for the net value of the prv and its subsequent sale and taxable gain . liquidity and capital resources we have historically devoted substantially all our efforts toward research and development and have never earned revenue from commercial sales of our products . we expect to continue to incur additional substantial losses in the foreseeable future as a result of our research and development programs and from general and administrative costs associated with our operations . however , we believe that our existing cash and cash equivalents of approximately $ 98.7 million as of december 31 , 2020 and the second and final installment of $ 26.0 million received on january 11 , 2021 related to sale of the prv will be sufficient to allow us to fund our operations through read out of the phase 2b trial for a subset of patients with pghd indication under our lum-201 product candidate and for at least 12 months from the filing date of this annual report . 67 we may seek to sell additional equity or debt securities or obtain a credit facility if our available cash and cash equivalents are insufficient to satisfy our liquidity requirements or if we develop additional opportunities to do so . the sale of additional equity and debt securities may result in additional ownership dilution to our stockholders . if we raise additional funds through the issuance of debt securities or preferred stock , these securities could have rights senior to those of our common stock and could contain covenants that would
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it also reflected the impacts of the 2017 tax act . pscw approval of deferral of pension and other postretirement benefit costs : as a result of lower investment returns in the fourth quarter of 2018 , pension and postretirement benefit costs increased in 2019. in august 2019 , the pscw approved mge 's request to defer the difference between estimated pension and other postretirement costs included in the 2019 and 2020 rate settlement and actual costs incurred . during 2019 , mge deferred approximately $ 6.2 million of pension and other postretirement costs . during 2020 , mge collected approximately $ 0.9 million of pension and other postretirement costs , which reduced the amount deferred in 2019. net pension and other postretirement costs deferred over the two-year period is approximately $ 5.3 million as of december 31 , 2020. the net deferred costs were factored into the 2021 rate settlement . utility solar : larger solar generation projects recently completed or under construction are shown in the following table . incurred costs are reflected in `` property , plant , and equipment , net '' for projects placed in service or `` construction work in progress '' for projects under construction on the consolidated balance sheets . mge has received specific approval to recover 100 % afudc on two creeks and badger hollow i and ii . after tax , mge recognized $ 3.4 million , $ 2.2 million , and $ 0.2 million of afudc equity on two creeks and badger hollow i and ii , respectively , during construction . 35 replace_table_token_8_th ( a ) excluding afudc . ( b ) estimated date of commercial operation . equity issuance : in may 2020 , mge energy issued 1.5 million shares of common stock in an underwritten offering . the net proceeds of $ 79.6 million are being used for general corporate purposes including funding capital expenditures by mge in projects such as two creeks , badger hollow i and ii , renewable energy rider solar projects , and other capital projects . deferred fuel costs – subject to refund : as of december 31 , 2020 , mge had deferred $ 3.2 million of 2020 fuel savings . these costs will be subject to the pscw 's annual review of 2020 fuel costs , expected to be completed during 2021. during 2021 , several items may affect us , including : 2021 rate settlement agreement : in december 2020 , the pscw approved mge ' s settlement agreement for its 2021 rate case . the settlement agreement has a zero percent increase for electric rates and an approximately 4 % increase for gas rates in 2021. see `` other matters `` below for additional information on the 2021 rate settlement agreement . 2019 annual fuel proceeding : the pscw issued a final decision in the 2019 fuel rules proceedings regarding $ 1.5 million of deferred savings giving mge the option either to use the $ 1.5 million as part of the settlement to mge 's 2021 rate case or to refund the balance to customers in october 2020. mge elected to include the savings as part of the 2021 rate settlement agreement described above , reducing electric retail rates as opposed to a one-time credit back to retail customers . there was no change to the refund in the fuel rules proceedings from the amount mge deferred in the previous year . tax reform : pursuant to the 2017 tax act , deferred income tax balances as of december 31 , 2017 , were remeasured to reflect the decrease in the corporate tax rate . a regulatory liability of approximately $ 131 million was recorded to reflect the fact that changes in income taxes are generally passed through in customer rates for the regulated utility . the amount and timing of the cash impact will depend on the period over which certain income tax benefits are provided to customers . approximately $ 117 million of the regulatory liability is a protected benefit that is being returned to customers using a normalization method of accounting . irs normalization rules limit the rate at which mge can return the benefits to customers . as determined in the rate settlement agreement for 2019 and 2020 , mge has included approximately $ 8.3 million of the protected benefit in base rates . the approved rate settlement agreement for 2021 includes approximately $ 5.3 million of the protected benefit in base rates and $ 18.2 million of the unprotected benefit in electric base rates . the collection of the remaining unprotected portion related to gas will be addressed by the pscw in a future rate case . atc return on equity : several parties have filed complaints with the ferc seeking to reduce the roe used by miso transmission owners , including atc . any change to atc 's roe could result in lower equity earnings and distributions from atc in the future . we derived approximately 8.0 % of our net income for the year ended december 31 , 2020 , from our investment in atc . see `` other matters '' below for additional information concerning atc . environmental initiatives : there are proposed legislative rules and initiatives involving matters related to air emissions , water effluent , hazardous materials , and greenhouse gases , all of which affect generation plant capital expenditures and operating costs as well as future operational planning . at present , it is unclear how the changes in the presidential , congressional , and epa administrations may affect existing , pending or new legislative or rulemaking proposals or regulatory initiatives . such legislation and rulemaking could significantly affect the costs of 36 owning and operating fossil-fueled generating plants . we would expect to seek and receive recovery of any such costs in rates . story_separator_special_tag however , it is difficult to estimate the amount of such costs due to the uncertainty as to the timing and form of the legislation and rules , and the scope and time of the recovery of costs in rates , which may lag after those costs have been incurred . epa 's affordable clean energy ( ace ) rule : in january 2021 , the u.s. court of appeals for the district of columbia circuit ( d.c. circuit ) vacated and remanded to the epa the ace rule and the repeal of the predecessor clean power plan rule , both of which regulated greenhouse gas emissions from existing electric generation units pursuant to section 111 ( d ) of the clean air act . mge is still evaluating this d.c. circuit decision for what impacts it may have to mge operations . mge will continue to evaluate the rule development and monitor ongoing and potential legal proceedings . future generation - riverside : in 2016 , mge entered into an agreement with wpl under which mge may acquire up to 50 mw of capacity in a gas-fired generating plant being constructed by wpl at its riverside energy center in beloit , wisconsin , during the five-year period following the in-service date of the plant . the plant was placed in service in may 2020. mge has not yet determined whether it will exercise its option in the riverside plant . a determination will be made based on a variety of factors during the option period . if mge acquires 50 mw of capacity , the estimated cost would be approximately $ 50 million . columbia : in february 2021 , mge , along with the co-owners , announced plans to retire the two unit coal-fired columbia generating plant near portage , wisconsin . mge currently owns 19 % of the facility . the co-owners intend to retire unit 1 by the end of 2023 and unit 2 by the end of 2024. final timing and retirement dates for units 1 and 2 are subject to pscw and regional regulatory reviews , including identification and approval of energy and capacity resources to replace columbia . mge continues to evaluate additional investments to replace the generation from columbia while maintaining electric service reliability . these investments include cost-effective , clean energy projects to help achieve mge ' s carbon reduction goals . see `` capital expenditures '' below for additional information on forecasted capital expenditures . paris solar-battery park : in february 2021 , mge , we energies , and wpsc , filed a joint application with the pscw for approval to acquire and construct the paris solar-battery park in the town of paris in kenosha county , wisconsin . if approved , mge will own 20 mw of solar generation capacity and 11mw of battery storage . mge 's share of capital costs is expected to be approximately $ 43 million and the project is anticipated to be completed by 2023. covid-19 update with the global outbreak of the coronavirus disease 2019 ( covid-19 ) and the declaration of a pandemic by the world health organization on march 11 , 2020 , u.s. governmental authorities have deemed electric and gas utilities to be critical infrastructure . mge energy therefore has an obligation to keep operating and maintaining our critical electric and gas infrastructure . since then , mge energy has been subject to , and is following , local , state and federal public health and safety regulations and guidance to control the pandemic . mge energy has operated continuously throughout the pandemic and suffered no material disruptions in service or employment . we discuss various covid-19-related events and their effects below : governmental actions . state and local governments and regulators have taken steps to address the pandemic and its effects , which have affected levels of economic activity , revenues and expense . o state and local governments : state and local governments issued orders and regulations to restrict or manage business and individual activity that continues to evolve in response to changing health metrics and safety and health guidance . a late march 2020 statewide stay at home order has given way to phased activity resumption driven by local governments and public health departments . actions by public health madison & dane county ( phmdc ) affect dane county , which comprises a majority of mge 's service area . phmdc has issued several emergency orders and the forward dane plan ( collectively , the phmdc directives ) addressing activity during the pandemic . the phmdc directives provide for scaled re-opening of businesses and increased activity for residents based upon specific health metrics and consist of guidance and regulations 37 concerning how and when residents can interact and conduct business . in general , the phmdc directives : identify `` essential '' and `` non-essential '' businesses ; regulate how those entities may conduct business safely ; restrict capacity inside businesses depending upon business type and sector ; limit the size of private and public gatherings ; and require masks for occupants of public and private buildings . the phmdc directives are subject to modification throughout the pandemic based upon current health metrics in the county . o regulatory – pscw orders : on march 24 , 2020 , the pscw ordered changes to the tariff provisions of all public utilities in wisconsin in response to the covid-19 pandemic . the order prohibited late payment charges , service disconnections , service refusals , and cash deposits as a condition of service . the order also required utilities to offer deferred payment arrangements to customers . the order resulted in increased bad debt expense and foregone revenue from late payment charges .
| commercial retail sales decreased by 7.2 % and residential sales increased by 5.9 % , when compared to the prior year . o a $ 10.3 million decrease in fuel for electric generation reflecting lower generation and market costs and a decrease in overall customer demand . o a $ 1.4 million increase in purchased power costs costs primarily due to higher market purchases as a result of lower internal generation . gas revenues and cost of gas sold o a $ 15.6 million decrease in gas revenues driven by lower customer demand resulting from milder weather in the first and fourth quarters of 2020 and lower cost of gas , which is recovered on a pass-through basis in revenues . o a $ 16.1 million decrease in cost of gas sold driven by lower cost per therm of gas . average cost per therm decreased approximately 11 % . a $ 6.9 million decrease in other operations and maintenance . see `` consolidated operations and maintenance expenses '' section below for a description of the factors contributing to the decrease . a $ 2.6 million increase in depreciation and amortization expense driven by the timing of the commercial operation of saratoga that took place in february 2019 as discussed in the `` consolidated depreciation expense '' section below . 40 electric sales and revenues the following table compares mge 's electric revenues and electric kwh sales by customer class for each of the years indicated : replace_table_token_10_th electric margin electric margin , a non-gaap measure , decreased $ 5.7 million during 2020 compared to 2019 , due to the following : replace_table_token_11_th commercial , industrial , and other retail volume . during 2020 , there was a 7.2 % reduction in commercial sales compared to the same period in the prior year driven by impacts from the covid-19 pandemic and associated governmental regulations and restrictions on activity . customer fixed and demand charges . during 2020 , fixed and demand charges decreased $
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management evaluates the performance of its operating segments based on ebit and believes that ebit is useful to investors to demonstrate the operational profitability of the company 's business segments by excluding interest and taxes , which are generally accounted for across the entire company on a consolidated basis . ebit is also one of the measures management uses to determine resource allocations and incentive compensation . the company believes that the presentation of ebit , ebit margin and eps – as adjusted provides important supplemental information to investors by facilitating comparisons with other companies , many of which use similar non-gaap financial measures to supplement their gaap results . the use of non-gaap financial measures is not intended to replace any measures of performance determined in accordance with gaap . ebit replace_table_token_5_th the reconciliation of ebit from continuing operations to a gaap financial measure is as follows : replace_table_token_6_th 20 filtration ebit increased $ 5.2 million in 2015 as compared to 2014 primarily due to the increased sales volumes at pti and a decrease in restructuring costs that were incurred at crissair in 2014 related to the exit and relocation of crissair 's palmdale , california operation into the canyon facility in valencia , california . ebit decreased $ 1.0 million in 2014 as compared to 2013 primarily due to $ 1.7 million of costs related to the exit and relocation of crissair 's palmdale , california operation into the canyon facility in valencia , california consisting mainly of a facility lease termination charge , severance expenses and manufacturing inefficiencies resulting from the disruption . this move was completed as of september 30 , 2014. test the $ 11.6 million decrease in ebit in 2015 as compared to 2014 was mainly due to the lower sales volumes from the segment 's u.s. and european operations , changes in product mix , and incremental charges related to the write-down of certain inventories and charges related to legal costs incurred in defense of patents . the $ 4.8 million increase in ebit in 2014 as compared to 2013 was due to the additional sales volumes from the segment 's u.s. operations and the cost savings achieved as a result of the 2013 domestic facility consolidation . approximately $ 3.4 million of restructuring costs were incurred in 2013 related to the domestic facility consolidation . usg the $ 3.0 million increase in ebit in 2015 as compared to 2014 was mainly due to an increase in sales volumes and the ebit contribution from the current year acquisition of enoserv . the $ 5.0 million increase in ebit in 2014 as compared to 2013 was mainly due to an increase in sales volumes and a decrease in restructuring costs that were incurred in 2013 related to the closure of the doble lemke manufacturing operation . corporate corporate operating charges included in consolidated ebit decreased to $ 23.4 million as compared to $ 25.3 million in 2014 mainly due to a decrease in professional fees and salaries expense . corporate operating charges included in consolidated ebit decreased to $ 25.3 million as compared to $ 28 million in 2013 mainly due to a decrease in professional fees and acquisition-related costs . the “ reconciliation to consolidated totals ( corporate ) ” in note 15 to the consolidated financial statements included herein represents corporate office operating charges . interest expense , net interest expense was $ 0.8 million in 2015 , $ 1.6 million in 2014 , and $ 2.7 million in 2013. the decrease in interest expense in 2015 as compared to 2014 was due to lower average interest rates ( 1.3 % vs. 1.5 % ) and lower average outstanding borrowings ( $ 68.5 million vs. $ 103 million ) . the decrease in interest expense in 2014 as compared to 2013 was due to lower average interest rates ( 1.5 % vs. 1.6 % ) and lower average outstanding borrowings ( $ 103 million vs. $ 171 million ) . income tax expense the effective tax rate from continuing operations for 2015 , 2014 and 2013 was 32.2 % , 31.5 % and 37.0 % , respectively . the increase in the 2015 effective tax rate as compared to 2014 was primarily due to : the extension of the research credit as a result of the tax increase prevention act of 2014 which reduced the 2015 effective tax rate by 0.8 % ; offset by the release of accruals related to uncertain tax positions as a result of the lapse of statute of limitations and the closing of a u.s. taxing authority 's examination of the company 's research credit claims which reduced the 2014 effective tax rate by 2.6 % . the decrease in the 2014 effective tax rate as compared to 2013 was primarily due to : the release of accruals related to uncertain tax positions as a result of the lapse of statute of limitations and the closing of a u.s. taxing authority 's examination of the company 's research credit claims which reduced the 2014 effective tax rate by 2.9 % ; the december 31 , 2013 expiration of the research tax credit which increased the 2014 effective tax rate by 1.4 % ; and an adjustment to the foreign valuation allowance which increased the 2013 effective tax rate by 3.3 % . 21 the company 's foreign subsidiaries had accumulated unremitted earnings of $ 35.3 million and cash of $ 31.5 million at september 30 , 2015. no deferred taxes have been provided on these accumulated unremitted earnings because these funds are not needed to meet the liquidity requirements of the company 's u.s. operations and it is the company 's intention to indefinitely reinvest these earnings in continuing international operations . in the event these foreign entities ' earnings were distributed , it is estimated that u.s. taxes , net of available foreign tax credits , of approximately $ 4.9 million would be due , which would correspondingly reduce the company 's net earnings . story_separator_special_tag no significant portion of the company 's foreign subsidiaries ' earnings was taxed at a very low tax rate . capital resources and liquidity the company 's overall financial position and liquidity are strong . working capital ( current assets less current liabilities ) increased to $ 155.0 million at september 30 , 2015 , from $ 148.9 million at september 30 , 2014 , mainly due to higher inventory balances . the $ 2.8 million decrease in accounts receivable at september 30 , 2015 , was mainly due to : a $ 7.4 million decrease within the usg segment due to increased collections in the fourth quarter of 2015 ; partially offset by a $ 3.4 million increase within the filtration segment and a $ 1.7 million increase in the test segment due to the timing of sales . the $ 5.5 million increase in inventory at september 30 , 2015 , was mainly due to a $ 6.7 million increase in the filtration segment due to timing of receipt of raw materials to meet increased sales volumes and new product introductions , partially offset by a $ 2.0 million decrease in the test segment . net cash provided by operating activities from continuing operations was $ 65.0 million , $ 44.9 million and $ 37.1 million in 2015 , 2014 and 2013 , respectively . the increase in 2015 as compared to the prior year periods was mainly due to lower operating working capital requirements . capital expenditures from continuing operations were $ 12.4 million , $ 12.7 million and $ 13.9 million in 2015 , 2014 and 2013 , respectively . the decrease in 2015 as compared to 2014 was not material . the decrease in 2014 as compared to 2013 was mainly due to the 2013 purchase of the ets-lindgren facility in minocqua , wisconsin for $ 1.2 million . there were no commitments outstanding that were considered material for capital expenditures at september 30 , 2015. in addition , the company incurred expenditures for capitalized software of $ 6.9 million , $ 8.6 million and $ 8.4 million in 2015 , 2014 and 2013 , respectively . the decrease in 2015 as compared to 2014 was mainly due to lower capitalized software expenditures at doble . the increase in 2014 as compared to 2013 was not material . the company made required pension contributions of $ 0.7 million , $ 2.7 million and $ 3.9 million in 2015 , 2014 and 2013 , respectively . divestiture in march 2014 , the company completed the sale of aclara technologies llc ( aclara ) to an affiliate of sun capital partners , inc. a disagreement between the parties over the calculation of the final working capital adjustment was finally resolved by arbitration on june 15 , 2015 , resulting in a cash payment to the company of $ 2.3 million in 2015. for more information about the aclara divestiture , see note 2 to the consolidated financial statements included in this report . acquisitions 2015 on january 28 , 2015 , the company acquired the assets of enoserv , llc ( enoserv ) , headquartered in tulsa , oklahoma , for $ 20.5 million in cash . enoserv provides utility customers with high quality , user-friendly multi-platform software and has annual revenues of approximately $ 8 million . since the date of acquisition the operating results for enoserv have been included as part of doble within the company 's usg segment . based on the purchase price allocation , the company recorded approximately $ 10.0 million of goodwill and $ 9.0 million of amortizable identifiable intangible assets consisting primarily of customer relationships and developed technology . all of the company 's acquisitions have been accounted for using the purchase method of accounting , and accordingly , the respective purchase prices were allocated to the assets ( including intangible assets ) acquired and liabilities assumed based on estimated fair values at the date of acquisition . the financial results from these acquisitions have been included in the company 's financial statements from the date of acquisition . 22 subsequent event on october 16 , 2015 , the company acquired the stock of fremont plastics , inc. ( “ fremont ” ) for a purchase price of $ 10.5 million in cash . the company also purchased for $ 2 million the real property located in fremont , indiana where fremont 's operations are located . fremont develops , manufactures , promotes and sells high quality sterile-ready and non-sterile thin gauge thermoformed medical plastic packaging products . immediately following the closing of the transaction , fremont was merged into teq , and since the date of acquisition the operating results for fremont have been included as part of teq . bank credit facility the company maintains a $ 450 million revolving credit facility with jpmorgan chase bank , n.a. , as administrative agent , pnc bank , n.a. , as syndication agent , and eight other participating lenders , with a maturity date of may 14 , 2017 ( the “ credit facility ” ) . through a credit facility expansion option , the company may elect to increase the size of the credit facility by entering into incremental term loans , in any agreed currency , at a minimum of $ 25 million each up to a maximum of $ 250 million aggregate ; the company 's ability to access this increase option is subject to acceptance by participating or other outside banks . at september 30 , 2015 , the company had approximately $ 392 million available to borrow under the credit facility , plus the $ 250 million increase option , in addition to $ 39.4 million cash on hand . the company classified $ 20.0 million as the current portion of short-term debt as of september 30 , 2015 , as the company intends to repay this amount within the next 12 months ; however , the company has no contractual obligation to repay such amount during the next twelve months .
| the net sales decrease of $ 4.2 million , or 2.3 % , in 2015 as compared to 2014 was due to a $ 6.2 million decrease in net sales from the segment 's u.s. operations , mainly due to overall softness in the domestic shielding market , and a $ 1.1 million decrease in net sales from the segment 's european operations , partially offset by a $ 2.9 million increase in net sales from the company 's asian operations due to timing of projects . the net sales increase of $ 15.1 million , or 9.1 % , in 2014 as compared to 2013 was due to a $ 12.9 million increase in net sales from the segment 's u.s. operations , mainly due to a large automotive chamber project and projects in the test and measurement market , and a $ 3.3 million increase in net sales from the segment 's european operations , partially offset by a $ 1.1 million decrease in net sales from the company 's asian operations due to timing of projects . usg . the net sales increase of $ 8.0 million , or 6.9 % , in 2015 as compared to 2014 was driven by a $ 4.6 million contribution from the enoserv acquisition ( acquired january 28 , 2015 ) , higher shipments of the f and m series products , and additional service revenue at doble . the net sales increase of $ 6.3 million , or 5.8 % , in 2014 as compared to 2013 was driven by an increase in service revenues at doble . orders and backlog new orders received in 2015 were $ 561.9 million as compared to $ 561.9 million in 2014 , resulting in order backlog of $ 327.5 million at september 30 , 2015 , as compared to order backlog of $ 302.9 million at september 30 , 2014. in 2015 , the company recorded $ 253.2 million of orders related to filtration products , $ 182.0 million related to test
| 13,042 |
free-to-play games are games that a player can download and play for free , but which allow players to access a variety of additional content and features for a fee and to engage with various advertisements and offers that generate revenues for us . because our games can be downloaded and played for free , we are able to more quickly build a significantly larger customer base than we could if we charged users an upfront fee for downloading our games , which was our previous feature phone business model . however , for us to continue to execute on our strategy , we must continue to improve our monetization of our players . we believe that deep monetization is one of the primary areas in which we must be proficient to succeed in the mobile gaming industry . accordingly , we have implemented a number of measures designed to improve our game monetization . these include hiring a number of new personnel with monetization expertise and including deeper meta game functionality in our games , by which we mean increasing the player 's ability to continue to create content or otherwise invest in the game outside the core gameplay loop , which we believe should result in increased player retention . in addition , part of our strategy is to continue transitioning towards becoming primarily a games-as-a-service company , in which the majority of our future games will only be playable online . this will enable us to deliver a number of additional features in our games , such as tournaments , live events and more frequent content updates , which we believe will contribute to better monetization in our games . we plan to continue to invest in our games-as-a-service technology platform and hire additional monetization , live operations , server technology , user experience and product management personnel to support our transition to becoming a games-as-a-service company . 30 we also intend to grow our revenues through our third party publishing initiative , glu publishing . glu publishing is focused on entering into relationships with developers of games , primarily in asian and eastern european markets , where glu will localize and globally publish those games . because we expect to pay these third party developers royalties , which may include upfront license fees or non-recoupable minimum guarantees , to obtain the rights to publish their games , our gross margins are expected be lower on our revenues generated from our glu publishing initiative . in addition , our revenues will continue to depend significantly on growth in the mobile games market and our ability to successfully compete against a continually increasing number of developers and the overall strength of the economy , particularly in the united states . our revenues also depend on maintaining our continued good relationship with the digital storefront operators , primarily apple and google , each of whom could unilaterally alter their terms of service in ways that could harm our business . for example , apple has during the last several years made changes to its app store developer agreement relating to privacy and our ability to include certain types of third-party advertising in our games . some of these changes have in the past , and may in the future , negatively impact our smartphone revenues . our net loss in 2013 was $ 19.9 million versus a net loss of $ 20.5 million in 2012. this decrease in our net loss was primarily due to a decrease in our operating expenses of $ 5.5 million , an increase in income tax benefit of $ 849,000 , and an increase in interest and other income of $ 357,000. the decrease in operating expenses was primarily driven by a decrease of $ 7.4 million in research and development expenses and a decrease of $ 3.6 million in our goodwill impairment charge , which was partially offset by a $ 5.2 million increase in sales and marketing expenses and an $ 806,000 increase in our general and administrative expenses . these favorable factors that contributed to a decrease in our net loss were partially offset by an increase of $ 3.6 million in cost of sales along with a $ 2.6 million decrease in revenues . see results of operationscomparison of the years ended december 31 , 2013 and 2012 below for further details . our operating results were also affected by fluctuations in foreign currency exchange rates of the currencies in which we incurred meaningful operating expenses ( principally the british pound sterling , euro , chinese renminbi , brazilian real and russian ruble ) , and our customers ' reporting currencies , which fluctuated significantly in 2012 and 2013. our ability to attain and sustain profitability depends not only on our ability to grow our revenues , but also on our ability to manage our operating expenses . the largest component of our recurring expenses is personnel costs , which consist of salaries , benefits and incentive compensation , including bonuses and stock-based compensation . we increased our spending on sales and marketing initiatives in 2013 compared to 2012 in connection with the launch and promotion of our games , and we anticipate that our sales and marketing expenditures will continue to increase in absolute dollars during 2014 , particularly since advertising costs in our industry have generally been rising . we expect that the restructuring measures we implemented in the fourth quarter of 2012 and first and second quarters of 2013 , which primarily consisted of headcount reductions and facility streamlining in our san francisco headquarters and our washington studio and the winding down of our studio in brazil , will continue to enable us to hire additional games-as-a-service personnel with monetization expertise without substantially increasing our overall research and development expenses . story_separator_special_tag cash and cash equivalents at december 31 , 2013 totaled $ 28.5 million , an increase of $ 6.2 million from the $ 22.3 million balance at december 31 , 2012. this increase was primarily due to the $ 20.6 million of aggregate proceeds we received from our september 2013 public offering of common stock , warrant exercises , option exercises , and purchases under our employee stock purchase program that occurred in 2013. these inflows were partially offset by $ 9.6 million of cash used in operations and $ 4.9 million of cash used in investing activities . the cash used in investing activities primarily related to the relocation of our san francisco headquarters and our washington development studio and the subsequent renovations of these new office locations . key operating metrics we manage our smartphone business by tracking various non-financial operating metrics that give us insight into user behavior in our free-to-play and premium smartphone games . the three metrics that we use most frequently are daily active users ( dau ) , monthly active users ( mau ) , and average revenue per daily active user ( arpdau ) . our methodology for calculating dau , mau and arpdau may differ from the methodology used by other companies to calculate similar metrics . dau is the number of individuals who played a particular smartphone game on a particular day . an individual who plays two different games on the same day is counted as two active users for that day when we aggregate dau across games . in addition , an individual who plays the same game on two different devices during the same day ( e.g. , an iphone and an ipad ) is also counted as two active users for each such day when we average or aggregate dau over time . average dau for a particular period is the average of the daus for each day during that period . we use dau as a measure of player engagement with the titles that our players have downloaded . 31 mau is the number of individuals who played a particular smartphone game in the month for which we are calculating the metric . an individual who plays two different games in the same month is counted as two active users for that month when we aggregate mau across games . in addition , an individual who plays the same game on two different devices during the same month ( e.g. , an iphone and an ipad ) is also counted as two active users for each such month when we average or aggregate mau over time . average mau for a particular period is the average of the maus for each month during that period . we use the ratio between dau and mau as a measure of player retention . arpdau is the total free-to-play smartphone revenue consisting of micro-transactions , advertisements and offers for the measurement period divided by the number of days in the measurement period divided by the dau for the measurement period . arpdau reflects game monetization . revenues for purposes of our arpdau calculation are our free-to-play revenues from micro-transactions and offers . under our revenue recognition policy , we recognize these revenues over the estimated average playing period of a user , but our methodology for calculating our dau does not align with our revenue recognition policy for micro-transactions and offers , under which we defer revenues . for example , if a title is introduced in the last month of a quarter , we defer a substantial portion of the micro-transaction and offer revenue to future months , but the entire dau for the newly released title is included in the month of launch . we calculate dau , mau and arpdau for only our primary distribution platforms , such as apple 's app store , the google play store , amazon 's appstore and the mac app store ; we are not able to calculate these metrics across all of our distribution channels . in addition , the platforms that we include for purposes of this calculation have changed over time , and we expect that they will continue to change as our business evolves , but we do not expect that we will adjust prior metrics to take any such additions or deletions of distribution platforms into account . we believe that calculating these metrics for only our primary distribution platforms at a given period is generally representative of the metrics for all of our distribution platforms . moreover , we rely on the data analytics software that we incorporate into our games to calculate and report the dau , mau and arpdau of our games , and we make certain adjustments to the analytics data to address inconsistencies between the information as reported and our dau and mau calculation methodology . the table below sets forth our aggregate dau , mau and arpdau for all of our then-active smartphone titles for the periods specified , followed by a qualitative discussion of the changes in these metrics . aggregate dau and mau include users of both our free-to-play and premium titles , whereas aggregate arpdau is calculated based only on revenues from our free-to-play games . aggregate dau and mau for each period presented represents the aggregate metric for the last month of the period . for example , dau for the three months ended december 31 , 2013 is aggregate daily dau for the month of december 2013 calculated for all active smartphone free-to-play and premium titles in that month across the distribution platforms for which we calculate the metric . replace_table_token_6_th each of our aggregate dau and mau have generally increased sequentially from quarter to quarter because we have released more free-to-play games and expanded our portfolio of titles , except during the periods between the fourth quarter of 2012 and the second quarter of 2013 , in which we released fewer titles .
| smartphone revenues replace_table_token_8_th 38 our smartphone revenues increased $ 5.3 million , or 5.5 % , from $ 95.0 million in 2012 to $ 100.3 million in 2013 , which was primarily related to an $ 11.8 million increase in micro-transactions ( in-app purchases ) . this increase was partially offset by a $ 3.7 million decrease in our revenues from offers which have been negatively impacted since the beginning of the second half of 2012 when we lost the ability to make certain types of offers available to our users on the apple platform , and a $ 2.0 million decrease in advertisements due to a reduction in our direct advertisement campaigns at the end of the fourth quarter of 2012. we generate smartphone revenues from micro-transactions , advertisements and offers , and we sometimes change the focus of our monetization efforts among methods within a given game over the life of the title in an attempt to maximize revenue . for example , we may elect to disable advertisements within a game if we believe doing so will encourage users to play the game longer and thus increase the chance that they will make micro-transactions or complete offers , which generally result in higher revenues for us than advertisements . we rely on a very small portion of our total users for nearly all of our smartphone revenues derived from in-app purchases . since the launch of our first free-to-play titles in the fourth quarter of 2010 , the percentage of unique paying users for our largest revenue-generating free-to-play games has been less than 1 % ; however , in the initial period following the launch of a game , the percentage may be higher , and the percentage of unique paying users is generally lower for our less successful titles . cost of revenues replace_table_token_9_th our cost of revenues increased $ 3.6 million , or 10.9 % , from $ 33.4 million in 2012 to $ 37.0 million in 2013. this increase was primarily due to a $ 4.0 million increase in platform commission expense due to a higher volume of revenue transactions through the digital storefronts , a $ 1.4 million increase in hosting
| 13,043 |
reported volumes in these segments reflect third-party sales of our finished products and , as such , include the sales of products derived from raw materials sourced from the agribusiness segment as well as from third-parties . the unit of measure for these volumes is metric tons as these businesses are linked to the commodity raw materials , which are their primary inputs . sugar and bioenergy the sugar and bioenergy segment is an integrated business which primarily includes the procurement and growing of sugarcane and the production of sugar , ethanol and electricity in our eight mills in brazil , global sugar trading and merchandising activities and investment interests in affiliates . profitability in this segment is affected by the availability and quality of sugarcane , which impacts our capacity utilization rates and the amount of sugar that can be extracted from the sugarcane , and by market prices of sugarcane , sugar and ethanol . availability and quality of sugarcane is affected by many factors , including weather , geographical factors such as soil quality and topography , and agricultural practices . once planted , sugarcane may be harvested for several continuous years , but the yield decreases with each subsequent harvest . as a result , the current optimum economic cycle is generally five or six consecutive harvests , depending on location . we own and or have partnership agreements to manage farmland on which we grow and harvest sugarcane . we also purchase sugarcane from third parties . prices of sugarcane in brazil are established by consecana , the são paulo state sugarcane , sugar and ethanol council , and are based on the sucrose content of the cane and the market prices of sugar and ethanol . demand for our products is affected by such factors as changes in global or regional economic conditions , the financial condition of customers and customer access to credit , worldwide consumption of food products , population growth rates , changes in per capita incomes and demand for and governmental support of renewable fuels produced from agricultural commodities , including sugarcane . we expect that these factors will continue to affect supply and demand for our sugar and bioenergy products in the foreseeable future . reported volumes in this segment reflect third-party sales of sugar and ethanol . fertilizer in the fertilizer segment , demand for our products is affected by the profitability of the agricultural sectors we serve , the availability of credit to farmers , agricultural commodity prices , the types of crops planted , the number of acres planted , the quality of the land under cultivation and weather-related issues affecting the success of the harvests . our profitability is impacted by international selling prices for fertilizers and fertilizer raw materials , such as phosphate , sulfur , ammonia and urea , ocean freight rates and other import costs , as well as import volumes at the port facilities we manage . as our operations are in south america , primarily argentina , our results in this segment are typically seasonal , with fertilizer sales normally concentrated in the third and fourth quarters of the year due to the timing of the south american agricultural cycle . reported volumes in this segment reflect third-party sales of our finished products . 35 in addition to these industry related factors which impact our business areas , our results of operations in all business areas and segments are affected by the following factors : foreign currency exchange rates due to the global nature of our operations , our operating results can be materially impacted by foreign currency exchange rates . both translation of our foreign subsidiaries ' financial statements and foreign currency transactions can affect our results . on a monthly basis , for subsidiaries whose functional currency is their local currency , subsidiary statements of income and cash flows must be translated into u.s. dollars for consolidation purposes based on weighted-average exchange rates in each monthly period . as a result , fluctuations of local currencies compared to the u.s. dollar during each monthly period impact our consolidated statements of income and cash flows for each reported period ( quarter and year-to-date ) and also affect comparisons between those reported periods . subsidiary balance sheets are translated using exchange rates as of the balance sheet date with the resulting translation adjustments reported in our consolidated balance sheets as a component of other comprehensive income ( loss ) . included in accumulated other comprehensive income for the years ended december 31 , 2016 , 2015 , and 2014 were foreign exchange net translation gains ( losses ) of $ 709 million , $ ( 2,546 ) million , and $ ( 1,411 ) million , respectively , resulting from the translation of our foreign subsidiaries ' assets and liabilities . additionally , we record transaction gains or losses on monetary assets and liabilities that are not denominated in the functional currency of the entity . these amounts are remeasured into their respective functional currencies at exchange rates as of the balance sheet date , with the resulting gains or losses included in the entity 's statement of income and , therefore , in our consolidated statements of income as foreign exchange gains ( losses ) . we primarily use a combination of equity and intercompany loans to finance our subsidiaries . intercompany loans that are of a long-term investment nature with no intention of repayment in the foreseeable future are considered permanently invested and as such are treated as analogous to equity for accounting purposes . as a result , any foreign exchange translation gains or losses on such permanently invested intercompany loans are reported in accumulated other comprehensive income ( loss ) in our consolidated balance sheets . in contrast , foreign exchange translation gains or losses on intercompany loans that are not of a permanent nature are recorded in our consolidated statements of income as foreign exchange gains ( losses ) . story_separator_special_tag income taxes as a bermuda exempted company , we are not subject to income taxes on income in our jurisdiction of incorporation . however , our subsidiaries , which operate in multiple tax jurisdictions , are subject to income taxes at various statutory rates ranging from 0 % to 39 % . the jurisdictions that significantly impact our effective tax rate are brazil , the united states , argentina and bermuda . determination of taxable income requires the interpretation of related and often complex tax laws and regulations in each jurisdiction where we operate and the use of estimates and assumptions regarding future events . story_separator_special_tag style= '' font-family : times ; '' > replace_table_token_11_th 39 replace_table_token_12_th ( 1 ) we refer to our earnings before interest and taxes as `` segment ebit '' . total segment ebit is an operating performance measure used by bunge 's management to evaluate its segments ' operating activities . total segment ebit is a non-u.s. gaap financial measure and is not intended to replace net income attributable to bunge , the most directly comparable u.s. gaap financial measure . bunge 's management believes segment ebit is a useful measure of its segments ' operating profitability , since the measure allows for an evaluation of the performance of its segments without regard to its financing methods or capital structure . in addition , ebit is a financial measure that is widely used by analysts and investors in bunge 's industries . total segment ebit is not a measure of consolidated operating results under u.s. gaap and should not be considered as an alternative to net income attributable to bunge or any other measure of consolidated operating results under u.s. gaap . a reconciliation of net income attributable to bunge to total segment ebit follows : replace_table_token_13_th 2016 compared to 2015 net income attributable to bunge for the year ended december 31 , 2016 , net income attributable to bunge of $ 745 million represents a decrease of $ 46 million from $ 791 million in 2015. this decline resulted primarily from a decrease in total segment ebit of $ 105 million and reduced income from discontinued operations of $ 44 million , partially offset by lower income tax expenses of $ 76 million , lower net interest expense of $ 24 million and higher interest income of $ 8 million . agribusiness segment ebit decreased by $ 233 million primarily due to lower gross profit driven by weaker results in our oilseed processing and grain origination businesses , trading and distribution activities and risk management contributions that were lower than the same period last year , partially offset by lower industrial and sg & a expenses . results in 2016 benefitted from $ 120 million of gains on the disposition of equity interests of port and transshipment operations in brazil and an oilseed crush facility in vietnam and 2015 results included a $ 47 million gain on the sale of grain assets in canada . the agribusiness segment ebit decline was partially offset by an increase in ebit across all other segments . edible oil products segment ebit improved $ 53 million primarily due to improved results in brazil and lower sg & a expense . milling products segment ebit improved $ 28 million primarily driven by increased gross profit in brazil from stronger demand for flour in the food service industry , the contribution to results from a wheat mill acquired in the fourth quarter of 2015 and a recovery of $ 14 million in brazilian wheat import taxes paid in prior years . sugar and bioenergy segment ebit improved $ 23 million primarily due to foreign exchange gains , partly offset by restructuring and 40 impairment charges . fertilizer segment ebit improved $ 24 million primarily due to increased gross profit because of higher fertilizer sales in argentina driven by higher fertilizer usage by farmers and the reversal of a gas tariff contingency from prior years totaling $ 11 million . income tax expense decreased $ 76 million due to the effect of reduced taxable income and a lower effective tax rate in 2016 primarily due to geographical earnings mix and the net positive impact of certain income tax benefits and charges . interest expense included the $ 26 million reversal of interest recorded in previous years in brazil and argentina . discontinued operations results declined $ 44 million primarily driven by the translation impact of a stronger brazilian real relative to the u.s. dollar in 2016. income tax expense in the year ended december 31 , 2016 , income tax expense was $ 220 million compared to $ 296 million in 2015. the effective tax rate in 2016 was 22 % compared to 28 % in 2015. the lower effective tax rate in 2016 was primarily due to the favorable impact of refund claims in north america and europe , along with favorable geographical earnings mix . agribusiness segment agribusiness segment net sales decreased 4 % to $ 30.1 billion in 2016 compared to $ 31.3 billion in 2015 , with volumes being essentially flat . volumes were lower in brazil driven by reduced farmer selling and a reduced corn crop due to drought . in asia , volumes were lower in our oilseed processing businesses driven by weaker margins and in our trading and distribution businesses . these decreases were partially offset by higher volumes in grain origination in north america and europe , which benefitted from larger crops and in argentina as a result of normalized commercialization following the elimination on grain export taxes and the devaluation of the argentine peso in december 2015. cost of goods sold decreased by 3 % to $ 28.6 billion in 2016 , compared with $ 29.4 billion last year in line with the reductions in net sales noted above .
| ebit for 2015 includes a $ 47 million gain on the sale of certain grain assets in canada to g3 canada limited ( formerly the canadian wheat board ) and a $ 30 million reversal of an export tax contingency in argentina . in addition 2015 ebit includes a $ 13 million goodwill impairment charge in our brazilian tomato products business , impairment charges in our equity method investment in a freight shipping company of $ 14 million and a $ 15 million impairment charge as a result of the announced closure of a packaged oil plant in the united states , as well as a $ 9 million charge for administrative tax assessment fees related to export activities in our argentine subsidiary . agribusiness segment ebit of $ 875 million for 2016 was $ 233 million lower compared to $ 1,108 million in 2015. the primary drivers of this decrease included weaker crush margins in our soy processing operations and lower grain origination results in brazil due to weaker farmer selling compared to a strong performance in 2015. in addition , our risk management activities contributed to a lesser extent to our results in 2016 as compared to 2015. foreign exchange results were losses of $ 7 million in 2016 as compared to gains of $ 67 million in 2015. the decrease in ebit in 2016 was partly offset by a reduction of sg & a expenses and improved results in certain of our non-consolidated equity investments in brazil and asia . edible oil products segment ebit was $ 112 million in 2016 compared to $ 59 million in 2015. gross profit increased $ 35 million driven by higher volumes and stronger margins . in brazil , results improved due to higher market share for packaged oils products , in canada demand for refined oil showed strong growth , and in india , both volumes and margins improved . gross profit was adversely impacted by weaker results in our margarines business in europe . sg & a expense was lower in the
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changes in accounting principle s in the first quarter of 2020 , we adopted new accounting standards related to the accounting for leases which requires us to recognize the assets and liabilities arising from all leases , including those classified as operating leases under previous accounting guidance , on the balance sheet and requires disclosure of key information about leasing arrangements . prior periods were not restated for this adoption . in the first quarter of 2019 , we adopted a new accounting standard related to revenue recognition which requires us to recognize the amount of revenue to which we expect to be entitled for the transfer of promised goods or services to customers . prior periods were not restated for this adoption . in the first quarter of 2019 , we also adopted a new accounting standard related to the classification of pension expense which requires us to include only the service component of pension expense in operating expenses with the other components included in non-operating expenses . we have retrospectively adjusted the consolidated statements of income for the year ended december 1 , 2018 to reflect this change . project one in december 2012 , our board of directors approved a multi-year project to replace and enhance our existing core information technology platforms . the scope for this project includes most of the basic transaction processing for the company including customer orders , procurement , manufacturing , and financial reporting . the project envisions harmonized business processes for all of our operating segments supported with one standard software configuration . the execution of this project , which we refer to as project one , is being supported by internal resources and consulting services . implementation of project one began in our north america adhesives business in 2014 and , through 2020 , we completed implementation of this system in various parts of our business including latin america ( except brazil ) , australia and various other business in north america . during 2021 and beyond , we will continue implementation in north america , eimea and asia pacific . total expenditures for project one are estimated to be $ 170 to $ 185 million , of which 50-55 % is expected to be capital expenditures . our total project-to-date expenditures are approximately $ 97 million , of which approximately $ 48 million are capital expenditures . given the complexity of the implementation , the total investment to complete the project may exceed our estimate . restructuring plans 2020 restructuring plan during the fourth quarter of 2019 , we approved a restructuring plan related to organizational changes and other actions to optimize operations in connection with the realignment of the company into three global business units ( “ 2020 restructuring plan ” ) . we have incurred costs of $ 13.8 million under this plan as of november 28 , 2020. we expect to incur total costs of approximately $ 20.0 million ( $ 15.8 million after-tax ) , which includes cash expenditures for severance and related employee costs globally , costs related to streamlining of processes , and other restructuring-related costs . the 2020 restructuring plan was implemented in the fourth quarter of 2019 and is currently expected to be completed in 2022 . 18 royal adhesives restructuring plan during the first quarter of 2018 , we approved a restructuring plan consisting of consolidation plans , organizational changes and other actions related to the integration of the operations of royal adhesives with the operations of the company ( the “ royal adhesives restructuring plan ” ) . in implementing the royal adhesives restructuring plan , we have incurred costs of approximately $ 11.4 million , which includes cash expenditures , severance and related employee costs globally and other costs related to the optimization of production facilities , streamlining of processes and accelerated depreciation of long-lived assets . approximately $ 8.7 million of the costs were cash costs . the royal adhesives restructuring plan was implemented in the first quarter of 2018 and is substantially complete . critical accounting policies and significant estimates management 's discussion and analysis of our results of operations and financial condition are based upon the consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . we believe the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements relate to pension and other postretirement plans ; goodwill impairment ; long-lived assets recoverability ; valuation of product , environmental and other litigation liabilities ; valuation of deferred tax assets and accuracy of tax contingencies ; and valuation of acquired assets and liabilities . goodwill goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase business combination . goodwill is allocated to our reporting units , which are our operating segments or one level below our operating segments ( the component level ) . reporting units are determined by the discrete financial information available for the component and whether it is regularly reviewed by segment management . components are aggregated into a single reporting unit if they share similar economic characteristics . our reporting units are as follows : hygiene , health and consumable adhesives , engineering adhesives and construction adhesives . we evaluate our goodwill for impairment annually at the beginning of the fourth quarter or earlier upon the occurrence of substantive unfavorable changes in economic conditions , industry trends , costs , cash flows , or ongoing declines in market capitalization . story_separator_special_tag the quantitative impairment test requires judgment , including the identification of reporting units , the assignment of assets , liabilities and goodwill to reporting units , and the determination of fair value of each reporting unit . the impairment test requires the comparison of the fair value of each reporting unit with its carrying amount , including goodwill . in performing the impairment test , we determined the fair value of our reporting units through the income approach by using discounted cash flow ( “ dcf ” ) analyses . determining fair value requires the company to make judgments about appropriate discount rates , perpetual growth rates and the amount and timing of expected future cash flows . the cash flows employed in the dcf analysis for each reporting unit are based on the reporting unit 's budget , long-term business plan , and recent operating performance . discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions . given the inherent uncertainty in determining the assumptions underlying a dcf analysis , actual results may differ from those used in our valuations . in assessing the reasonableness of the determined fair values , we also reconciled the aggregate determined fair value of the company to the company 's market capitalization , which , at the date of our 2020 impairment test , included a 21 percent control premium . for the 2020 impairment test , the fair value of the reporting units exceeded the respective carrying values by 9 percent to 85 percent ( `` headroom '' ) . significant assumptions used in the dcf analysis included discount rates that ranged from 7.5 percent to 9.3 percent and long-term revenue growth rates . the construction adhesives reporting unit had headroom of 9 percent . an increase in the discount rate of 55 basis points or a decrease in the long-term revenue growth rates of 45 percent would result in the fair value of the construction adhesives reporting unit falling below its carrying value . the engineering adhesives and hygiene , health and consumable adhesives reporting units had significant fair value in excess of carrying value . 19 as of november 28 , 2020 , the carrying value of goodwill assigned to the construction adhesives reporting unit was $ 311.0 million . management will continue to monitor these reporting units for changes in the business environment that could impact recoverability . the recoverability of goodwill is dependent upon the continued growth of cash flows from our business activities . if the economy or business environment falter and we are unable to achieve our assumed revenue growth rates or profit margin percentages , our projections used would need to be remeasured , which could impact the carrying value of our goodwill in one or more of our reporting units . most significantly , for our construction adhesives reporting unit , a decrease in the planned volume revenue growth would negatively impact the fair value of the reporting unit and the calculation of excess carrying value . see note 5 to the consolidated financial statements for further information regarding goodwill . pension and other postretirement plan assumptions we sponsor defined-benefit pension plans in both the u.s. and non-u.s. entities . also in the u.s. , we sponsor other postretirement plans for health care and life insurance benefits . expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated . these calculations are based on our assumptions related to the discount rate , expected return on assets , projected salary increases and health care cost trend rates . note 10 to the consolidated financial statements includes disclosure of assumptions employed in these measurements for both the non-u.s. and u.s. plans . the discount rate assumption is determined using an actuarial yield curve approach , which results in a discount rate that reflects the characteristics of the plan . the approach identifies a broad population of corporate bonds that meet the quality and size criteria for the particular plan . we use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan . a higher discount rate reduces the present value of the pension obligations . the discount rate for the u.s. pension plan was 2.53 percent at november 28 , 2020 , as compared to 3.19 percent at november 30 , 2019 and 4.51 percent at december 1 , 2018. net periodic pension cost for a given fiscal year is based on assumptions developed at the end of the previous fiscal year . a discount rate change of 0.5 percentage points at november 28 , 2020 would impact u.s. pension and other postretirement plan ( income ) expense by approximately $ 0.2 million ( pre-tax ) in fiscal 2021. discount rates for non-u.s. plans are determined in a manner consistent with the u.s. plans . the expected long-term rate of return on plan assets assumption for the u.s. pension plan was 7.50 percent in 2020 and 7.50 in 2019 and 7.75 in 2018. our expected long-term rate of return on u.s. plan assets was based on our target asset allocation assumption of 60 percent equities and 40 percent fixed-income . management , in conjunction with our external financial advisors , determines the expected long-term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward looking observations . for 2020 , the expected long-term rate of return on the target equities allocation was 8.00 percent and the expected long-term rate of return on the target fixed-income allocation was 3.60 percent . the total plan rate of return assumption included an estimate of the effect of diversification and the plan expense .
| inventory days on hand were 53 days at the end of 2020 compared to 58 days at the end of 2019 and 60 days at the end of 2018 . ● trade payables – changes in trade payables resulted in a $ 23.1 million , $ 11.5 million and $ 25.4 million source of cash in 2020 , 2019 and 2018 , respectively . changes between all years were primarily related to the timing of payments , and extension of payment terms globally . contributions to our pension and other postretirement benefit plans were $ 5.5 million , $ 8.1 million and $ 6.6 million in 2020 , 2019 and 2018 , respectively . income taxes payable resulted in a $ 5.5 million , $ 21.0 million and $ 4.0 million source of cash in 2020 , 2019 and 2018 , respectively . other assets resulted in a $ 38.4 million source of cash and an $ 18.3 million and $ 35.2 million use of cash in 2020 , 2019 and 2018 , respectively . accrued compensation was a $ 2.5 million and $ 1.3 million source of cash in 2020 and 2019 , respectively , and a $ 0.3 million use of cash in 2018. the source of cash in 2020 and 2019 relates to higher accruals for our employee incentive plans while the use of cash in 2018 relates to lower accruals . other operating activity was a $ 0.9 million use of cash in 2020 and a $ 37.5 million and an $ 81.5 million source of cash in 2019 and 2018 , respectively . this reflects the impact of a stronger u.s. dollar on certain foreign transactions in 2019 and 2018 . 32 cash flows from investing activities ( $ in millions ) 2020 2019 2018 net cash ( used in ) provided by investing activities $ ( 109.5 ) $ 7.4 $ ( 61.8 ) purchases of property , plant and equipment
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at december 31 , 2018 , we had total assets of $ 4.560 billion , including gross loans held for investment of $ 3.609 billion , compared to $ 3.499 billion of total assets and $ 2.811 billion of gross loans held for investment at december 31 , 2017. organic loan growth totaled $ 378.9 million during the year ended december 31 , 2018. our commercial finance loans increased from $ 897.5 million in aggregate as of december 31 , 2017 to $ 1.256 billion as of december 31 , 2018 , an increase of 40.0 % , and constitute 35 % of our total loan portfolio at december 31 , 2018. at december 31 , 2018 , we had total liabilities of $ 3.923 billion , including total deposits of $ 3.450 billion , compared to $ 3.107 billion of total liabilities and $ 2.621 billion of total deposits at december 31 , 2017. deposits increased $ 829.0 million during the year ended december 31 , 2018. at december 31 , 2018 , we had total stockholders ' equity of $ 636.6 million . during the year ended december 31 , 2018 , total stockholders ' equity increased $ 244.9 million , primarily due to $ 192.1 million of net proceeds from the april 12 , 2018 common stock offering discussed below and our net income for the period . capital ratios remained strong with holding company tier 1 capital and total capital to risk weighted assets ratios of 11.49 % and 13.35 % , respectively , at december 31 , 2018 . 2018 items of note first bancorp of durango , inc. and southern colorado corp. effective september 8 , 2018 , we acquired first bancorp of durango , inc. ( “ fbd ” ) and its two community banking subsidiaries , the first national bank of durango and bank of new mexico , which were merged into tbk bank upon closing , in an all-cash transaction for $ 134.7 million . on the same date , we acquired southern colorado corp. ( “ scc ” ) and its community banking subsidiary , citizens bank of pagosa springs , which was merged into tbk bank upon closing , in an all-cash transaction for $ 13.3 million . as part of the fbd and scc acquisitions , we acquired a combined $ 287.8 million of loans held for investment , assumed a combined $ 674.7 million of deposits , and recorded a combined $ 14.1 million of core deposit intangible assets and $ 72.1 million of goodwill . interstate capital corporation on june 2 , 2018 we acquired substantially all of the operating assets of , and assumed certain liabilities associated with , interstate capital corporation 's ( “ icc ” ) accounts receivable factoring business and other related financial services for total consideration of $ 180.3 million , which was comprised of $ 160.3 million in cash and contingent consideration with an initial fair value of $ 20.0 million . as part of the icc acquisition , we acquired $ 131.0 million of factored receivables and recorded $ 13.9 million of intangible assets and $ 43.0 million of goodwill . 42 common stock offering on april 12 , 2018 , we completed an underwritten common stock offering issuing 5.4 million shares of our common stock , including 0.7 million shares sold pursuant to the underwriters ' full exercise of their option to purchase additional shares , at $ 37.50 per share for total gross proceeds of $ 202.7 million . net proceeds after underwriting discounts and offering expenses were $ 192.1 million . a significant portion of the net proceeds of this offering were used to fund the fbd , scc and icc acquisitions and for general corporate purposes . triumph healthcare finance on january 19 , 2018 , we entered into an agreement to sell the assets ( the “ disposal group ” ) of triumph healthcare finance ( “ thf ” ) and exit the healthcare asset-based lending line of business . the decision to sell thf was made prior to the end of the fourth quarter of 2017 , and at december 31 , 2017 , the fair value of the disposal group exceeded its carrying amount . as a result of this decision , the $ 71.4 million carrying amount of the disposal group was transferred to assets held for sale as of december 31 , 2017. the sale was finalized on march 16 , 2018 and resulted in a net pre-tax contribution to earnings for the year ended december 31 , 2018 of $ 1.1 million , or approximately $ 0.8 million net of tax . for further information on the above acquisitions and divestitures , see note 2 – business combinations and divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report . 2017 items of note valley bancorp , inc. effective december 9 , 2017 , we acquired valley bancorp , inc. ( “ valley ” ) and its community banking subsidiary , valley bank & trust , which was merged into tbk bank upon closing , in an all-cash transaction for $ 40.1 million . as part of the valley acquisition , we acquired $ 171.2 million of loans , assumed $ 293.4 million of deposits associated with valley and recorded $ 6.1 million of core deposit intangible assets and $ 10.5 million of goodwill . independent bank – colorado branches on october 6 , 2017 , we , through our subsidiary tbk bank , completed our acquisition of nine branch locations in colorado from independent bank group , inc. 's banking subsidiary independent bank ( the “ acquired branches ” ) for an aggregate deposit premium of approximately $ 6.8 million or 4.2 % . as part of the acquisition , we acquired $ 95.8 million of loans , assumed $ 160.7 million of deposits associated with the branches and recorded $ 3.3 million of core deposit intangible assets and $ 5.8 million of goodwill . story_separator_special_tag common stock offering on august 1 , 2017 , we completed an underwritten common stock offering issuing 2.53 million shares of our common stock , including 0.33 million shares sold pursuant to the underwriters ' full exercise of their option to purchase additional shares , at $ 27.50 per share for total gross proceeds of $ 69.6 million . net proceeds after underwriting discounts and offering expenses were $ 65.5 million . we used a significant portion of the net proceeds of the offering to fund the acquisition of valley bancorp , inc. and for general corporate purposes . triumph capital advisors on march 31 , 2017 , we sold our 100 % membership interest in triumph capital advisors , llc ( “ tca ” ) . as part of the tca sale on march 31 , 2017 , we recorded a pre-tax gain on sale of $ 20.9 million , net of $ 0.4 million of direct transaction costs . in addition , we incurred other indirect transaction related costs of $ 0.3 million and recorded $ 4.8 million in incremental bonus expense for the amount paid to team members to recognize their contribution to the transaction and building the value realized in the sale of the business . the tca sale resulted in a net pre-tax contribution to earnings for the year ended december 31 , 2017 of $ 15.7 million , or approximately $ 10.0 million net of tax . consideration received included a seller financed loan receivable in the amount of $ 10.5 million . for further information on the above acquisitions and divestitures , see note 2 – business combinations and divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report . results of operations fiscal year ended december 31 , 2018 compared with year ended december 31 , 2017 net income we earned net income of $ 51.7 million for the year ended december 31 , 2018 compared to $ 36.2 million for the year ended december 31 , 2017 , an increase of $ 15.5 million . 43 the results for the year ended december 31 , 2018 include the results of operations of the acquisitions of fbd , scc , and icc since their respective acquisition dates and are inclusive of a combined $ 7.0 million of transaction costs associated with the acquisitions included in noninterest expense . the results for the year ended december 31 , 2018 were also impacted by the sale of thf , which resulted in a pre-tax gain on sale in the amount of $ 1.1 million included in noninterest income . the results for the year ended december 31 , 2017 include the results of operations of the acquired branches since the october 6 , 2017 acquisition date and the results of operations of valley since the december 9 , 2017 acquisition date . we incurred $ 1.7 million of pre-tax transaction and restructuring costs related to these acquisitions which is reported as noninterest expense . the results for the year ended december 31 , 2017 were also impacted by our sale of tca , which resulted in a pre-tax gain on sale in the amount of $ 20.9 million included in noninterest income , offset by an additional $ 4.8 million bonus accrual and $ 0.3 million of other indirect transaction related costs recorded in connection with the tca sale ; both reported as noninterest expense . excluding the tax-effected impact of the fbd , scc and icc transaction costs and the thf and tca sale transactions , we earned adjusted net income of $ 56.2 million for the year ended december 31 , 2018 compared to $ 27.3 million for the year ended december 31 , 2017 , an increase of $ 28.9 million . the adjusted increase was primarily the result of a $ 71.4 million increase in net interest income , a $ 2.1 million increase in adjusted noninterest income and a $ 3.5 million decrease in adjusted income tax expense . the adjusted increase was partially offset by a $ 4.5 million increase in the provision for loan losses and a $ 43.6 million increase in adjusted noninterest expense . adjusted income tax expense for the year ended december 31 , 2017 includes a $ 3.0 million charge related to the remeasurement of our deferred tax assets and deferred tax liabilities at our new expected effective tax rate due to the enactment of the tax cuts and jobs act ( the “ act ” ) enacted on december 22 , 2017. details of the changes in the various components of net income are further discussed below . 44 net interest income our operating results depend primarily on our net interest income , which is the difference between interest income on interest earning assets , including loans and securities , and interest expense incurred on interest bearing liabilities , including deposits and other borrowed funds . interest rate fluctuations , as well as changes in the amount and type of interest earning assets and interest bearing liabilities , combine to affect net interest income . our net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities , referred to as a “ volume change. ” it is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing deposits and other borrowed funds , referred to as a “ rate change. ” the following table presents the distribution of average assets , liabilities and equity , as well as interest income and fees earned on average interest earning assets and interest expense paid on average interest bearing liabilities : replace_table_token_8_th 1. balance totals include respective nonaccrual assets . 2. net interest spread is the yield on average interest earning assets less the rate on interest bearing liabilities . 3. net interest margin is the ratio of net interest income to average interest earning assets .
| the following tables present our primary operating results for our operating segments : replace_table_token_25_th 60 replace_table_token_26_th banking replace_table_token_27_th our banking segment 's operating income increased $ 14.1 million , or 62.4 % . interest income increased primarily as a result of increases in the average balances of our interest earning assets , primarily loans , which was attributable to the continued growth of our community banking and commercial finance products , including equipment loans , asset-based loans , and premium finance loans . during the year ended december 31 , 2017 , we acquired $ 267.0 million of loans and $ 97.7 million of investment securities in our banking segment as part of the acquired branches and valley acquisitions . average loans in our banking segment increased 45.2 % from $ 1.483 billion for the year ended december 31 , 2016 to $ 2.154 billion for the year ended december 31 , 2017. interest expense increased primarily as a result of growth in average customer deposits and other borrowings due to $ 454.1 million of customer deposits assumed in the valley and acquired branches acquisitions as well as a full-year impact of $ 653.0 million of customer deposits assumed in the coloeast acquisition . excluding the acquired customer deposits , we also experienced growth in our certificates of deposit and brokered deposits as these higher cost deposit products were used to fund our growth period over period . in addition , our use of other interest bearing borrowings , consisting primarily of fhlb advances , was also increased to fund our growth . the increase in the provision for loan losses in the year ended december 31 , 2017 was primarily due to an increase in recorded net specific reserves and net charge-offs during 2017. we recorded net specific reserves of $ 1.8 million and net charge-offs of $ 4.6 million at our banking segment during the year ended december 31 , 2017 both of which
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39 total weighted average base rent on signed shop space leases during 2018 was $ 33.45 psf and exceeds the average annual base rent of all shop space leases due to expire during the next 12 months of $ 30.62 psf . significant tenants and concentrations of risk we seek to reduce our operating and leasing risks through geographic diversification and by avoiding dependence on any single property , market , or tenant . the following table summarizes our most significant tenants , based on their percentage of annualized base rent : december 31 , 2018 anchor number of stores percentage of company- owned gla ( 1 ) percentage of annualized base rent ( 1 ) publix 70 6.5 % 3.2 % kroger co. 56 6.6 % 3.0 % albertsons companies , inc. 47 4.2 % 2.8 % whole foods 32 2.4 % 2.4 % tjx companies 59 3.0 % 2.3 % ( 1 ) includes regency 's pro-rata share of unconsolidated properties and excludes those owned by anchors . bankruptcies and credit concerns our management team devotes significant time to researching and monitoring retail trends , consumer preferences , customer shopping behaviors , changes in retail delivery methods , and changing demographics in order to anticipate the challenges and opportunities impacting the retail industry . a greater shift to e-commerce , large-scale retail business failures , unemployment , and tight credit markets could negatively impact consumer spending and have an adverse effect on our results of operations . we seek to mitigate these potential impacts through tenant diversification , re-tenanting weaker tenants with stronger operators , anchoring our centers with market leading grocery stores that drive foot traffic , and maintaining a presence in affluent suburbs and dense infill trade areas . as a result of our research and findings , we may reduce new leasing , suspend leasing , or curtail allowances for construction of leasehold improvements within a certain retail category or to a specific retailer in order to reduce our risk from bankruptcies and store closings . we closely monitor the operating performance and rent collections of tenants in our shopping centers as well as those retailers experiencing significant changes to their business models as a result of reduced customer traffic in their stores and increased competition from e-commerce sales . retailers who are unable to withstand these and other business pressures may file for bankruptcy . although base rent is supported by long-term lease contracts , tenants who file bankruptcy generally have the legal right to reject any or all of their leases and close related stores . any unsecured claim we hold against a bankrupt tenant for unpaid rent might be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims . as a result , it is likely that we would recover substantially less than the full value of any unsecured claims we hold . additionally , we may incur significant expense to recover our claim and to release the vacated space . in the event that a tenant with a significant number of leases in our shopping centers files bankruptcy and cancels its leases , we could experience a significant reduction in our revenues . tenants who have filed for bankruptcy and continue to occupy space at december 31 , 2018 in our shopping centers represent an aggregate of 0.4 % of our annual base rent on a pro-rata basis . 40 results from operations comparison of the years ended december 31 , 2018 and 2017 : results from operations for the year ended december 31 , 2017 reflect the results of our merger with equity one on march 1 , 2017 , and therefore only includes ten months of operating results for the equity one portfolio in 2017 . our total revenues increased as summarized in the following table : replace_table_token_13_th minimum rent changed as follows : $ 14.1 million increase from rent commencing at development properties ; $ 12.6 million increase from acquisitions of operating properties ; and $ 77.4 million increase at same properties , including $ 64.1 million from properties acquired through our merger with equity one which only includes ten months of 2017 operating results . the remaining increase is driven by redevelopments , rental rate growth on new and renewal leases , and rent commencements ; reduced by $ 13.7 million from the sale of operating properties . recoveries from tenants represent reimbursements to us for tenants ' pro-rata share of the operating , maintenance , and real estate tax expenses that we incur to operate our shopping centers . recoveries from tenants increased as follows : $ 4.4 million increase from rent commencing at development properties ; $ 2.9 million increase from acquisitions of operating properties ; and $ 34.4 million increase from same properties , including $ 26.7 million from properties acquired through our merger with equity one which only includes ten months of 2017 operating results . the remaining increase is associated with higher recoverable costs ; reduced by $ 3.2 million from the sale of operating properties . other income , which consists of incidental income earned at our centers , increased $ 4.5 million from same properties , including $ 2.7 million from properties acquired through our merger with equity one , primarily from termination and assignment fees . management , transaction and other fees increased $ 2.3 million due partially to an increase in development fees from active developments within unconsolidated partnerships , along with an increase in leasing and property management fees earned from unconsolidated partnerships . story_separator_special_tag 41 changes in our operating expenses are summarized in the following table : replace_table_token_14_th depreciation and amortization costs changed as follows : $ 6.4 million increase as we began depreciating costs at development properties where tenant spaces were completed and became available for occupancy ; $ 6.0 million net increase from acquisitions of operating properties ; and $ 20.4 million net increase at same properties , including $ 15.9 million from properties acquired through our merger with equity one which only includes ten months of 2017 operating results . the remaining increase is primarily attributable to redevelopment assets being placed in service ; reduced by $ 7.3 million from the sale of operating properties . operating and maintenance costs changed as follows : $ 6.3 million increase from operations commencing at development properties ; $ 2.1 million increase from acquisitions of operating properties ; and $ 18.2 million increase at same properties , including $ 15.1 million from properties acquired through our merger with equity one which only includes ten months of 2017 operating results . the remaining increase is primarily attributable to increases in recoverable costs ; reduced by $ 2.6 million from the sale of operating properties . general and administrative changed as follows : $ 4.9 million decrease in the value of participant obligations within the deferred compensation plan ; and $ 1.6 million net decrease in compensation and management consulting costs ; offset by $ 3.8 million increase from decreased leasing overhead capitalization due to the different mix of leasing transactions ; and $ 500,000 increase from lower development overhead capitalization based on the timing and size of current development and redevelopment projects . real estate taxes changed as follows : $ 2.8 million increase from development properties where capitalization ceased as tenant spaces became available for occupancy ; $ 2.3 million increase from acquisitions of operating properties ; and $ 24.4 million increase at same properties , including $ 19.9 million from properties acquired through the equity one merger which only includes ten months of 2017 operating results . the remaining increase is from increased tax assessments ; reduced by $ 1.4 million from the sale of operating properties . other operating expenses decreased $ 79.5 million , primarily attributable to transaction costs related to the equity one merger in 2017 . 42 the following table presents the components of other expense ( income ) : replace_table_token_15_th the $ 15.8 million net increase in total interest expense is due to : $ 10.0 million net increase in interest on notes payable primarily due to : ◦ $ 7.6 million increase from the issuances of $ 950 million of new unsecured debt during 2017. the debt proceeds were used as follows : ▪ $ 325 million used to redeem all of our preferred stock , ▪ $ 415 million used to fund consideration paid to equity one to repay its credit facilities not assumed by the company in the merger , and ▪ $ 210 million used to retire mortgage loans and to reduce the outstanding balance on the line ; ◦ $ 3.4 million net increase from the issuance of $ 300 million of new unsecured debt in march 2018 to redeem $ 150 million of unsecured debt in april 2018 , and to repurchase common stock ; ◦ $ 3.2 million of additional interest on notes payable assumed with the equity one merger ; and ◦ $ 725,000 increase from amortization of additional debt premiums and loan costs from above debt issuances ; offset by ◦ $ 4.9 million net decrease in mortgage interest expense primarily due to mortgage payoffs during 2018 and 2017. further increased by $ 4.3 million in interest on unsecured credit facilities related to higher average balances primarily related to the equity one merger and higher interest rates . during 2018 , we recognized $ 38.4 million of impairment losses , including $ 12.6 million of goodwill impairment , on ten operating properties and two land parcels , eight of which have been sold . of the four remaining properties , three are included in properties held for sale as of december 31 , 2018. we did not recognize any impairments during 2017. during 2018 , we early redeemed $ 150 million of 6 % senior unsecured notes resulting in $ 11.0 million of debt extinguishment costs . during 2017 , we repaid nine mortgages with a portion of the proceeds from our unsecured public debt offering , and recognized $ 12.4 million of debt extinguishment costs . net investment income decreased $ 5.1 million , driven by valuation changes in the stock market , primarily attributable to investments held within the non-qualified deferred compensation plan . 43 our equity in income of investments in real estate partnerships decreased as follows : replace_table_token_16_th the $ 367,000 decrease in total equity in income in investments in real estate partnerships is attributed to : $ 2.2 million increase within grir primarily due to an increase in minimum rent across the portfolio of properties and reduced depreciation ; $ 2.3 million decrease within columbia i due to our $ 2.4 million share of gains on the sale of real estate recognized in 2017 ; $ 3.1 million increase within columbia ii due to our $ 3.1 million share of gains on the sale of real estate recognized in 2018 ; and $ 3.5 million decrease within usaa due to our $ 3.3 million share of gains on the sale of real estate recognized in 2017. the following represents the remaining components that comprise net income attributable to the common stockholders and unit holders : replace_table_token_17_th the $ 9.7 million income tax benefit during 2017 was due to revaluing the net deferred tax liability at a trs entity acquired through the equity one merger , as a result of the change in corporate tax rates from the 2017 tax cuts and jobs act . during 2017 , we redeemed all of our outstanding preferred stock .
| 45 changes in our operating expenses are summarized in the following table : replace_table_token_19_th depreciation and amortization costs changed as follows : $ 2.8 million increase as we began depreciating costs at development properties where tenant spaces were completed and became available for occupancy ; $ 2.7 million increase from acquisitions of operating properties and corporate assets ; $ 2.2 million increase at same properties , attributable primarily to redevelopments ; and $ 165.9 million increase from properties acquired through the equity one merger ; reduced by $ 1.8 million from the sale of operating properties . operating and maintenance costs changed as follows : $ 1.4 million increase from operations commencing at development properties ; $ 1.5 million increase from acquisitions of operating properties ; $ 1.0 million net increase from claims losses within the company 's wholly-owned captive insurance program ; $ 1.0 million increase at same properties primarily attributable to recoverable costs ; and $ 45.3 million increase from properties acquired through the equity one merger ; reduced by $ 1.2 million from the sale of operating properties . general and administrative changed as follows : $ 2.2 million increase in the value of participant obligations within the deferred compensation plan ; and $ 4.6 million increase in compensation costs related to additional staffing and incentive compensation as a result of the equity one merger ; reduced by $ 4.5 million primarily from greater development overhead capitalization based on the progress and size of current development and redevelopment projects . real estate taxes changed as follows : $ 782,000 increase from development properties where capitalization ceased as tenant spaces became available for occupancy ; $ 1.3 million increase from acquisitions of operating properties ; $ 3.6 million increase at same properties from increased tax assessments ; and $ 38.6 million increase from properties acquired through the equity one merger ; reduced by $ 1.0 million from sold properties . other operating expenses increased as follows : $ 1.8 million increase
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25 individual loans are selected for review in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 310 , “ receivables. ” these are generally large balance commercial loans and commercial mortgages that are rated less than “ satisfactory ” based on our internal credit-rating process . we assess whether the loans identified for review in step one are “ impaired , ” which means that it is probable that all amounts will not be collected according to the contractual terms of the loan agreement , which generally represents loans that management has placed on nonaccrual status . for impaired loans we calculate the estimated fair value of the loans that are selected for review based on observable market prices , discounted cash flows or the value of the underlying collateral and record an allowance if needed . we then select pools of homogeneous smaller balance loans , having similar risk characteristics , as well as unimpaired larger commercial loans , that have similar risk characteristics , for evaluation collectively under the provisions of fasb asc topic 450 , “ contingencies. ” these smaller balance loans generally include residential mortgages , consumer loans , installment loans and some commercial loans . fasb asc topic 450 loans are segmented into groups with similar characteristics and an allowance for credit losses is allocated to each segment based on recent loss history and other relevant information . we then review the results to determine the appropriate balance of the allowance for credit losses . this review includes consideration of additional factors , such as the mix of loans in the portfolio , the balance of the allowance relative to total loans and nonperforming assets , trends in the overall risk profile in the portfolio , trends in delinquencies and nonaccrual loans , and local and national economic information and industry data , including trends in the industries we believe are higher risk . there are many factors affecting the allowance for credit losses ; some are quantitative , while others require qualitative judgment . these factors require the use of estimates related to the amount and timing of expected future cash flows , appraised values on impaired loans , estimated losses for each loan category based on historical loss experience by category , loss emergence periods for each loan category and consideration of current economic trends and conditions , all of which may be susceptible to significant judgment and change . to the extent that actual outcomes differ from estimates , additional provisions for credit losses could be required that could adversely affect our earnings or financial position in future periods . the loan portfolio represents the largest asset category on our consolidated statements of financial condition . fair values of financial instruments fasb asc topic 820 , “ fair value measurements and disclosures , ” establishes a framework for measuring fair value . in accordance with fasb asc topic 820 , first commonwealth groups financial assets and financial liabilities measured at fair value into three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value . level 1 valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities . level 2 valuations are for instruments that trade in less active dealer or broker markets and incorporates values obtained for identical or comparable instruments . level 3 valuations are derived from other valuation methodologies , including option pricing models , discounted cash flow models and similar techniques , and not based on market exchange , dealer or broker traded transactions . level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to each instrument . level 2 investment securities are valued by a recognized third party pricing service using observable inputs . management validates the market values provided by the third party service by having another recognized pricing service price 100 % of securities on an annual basis and a random sample of securities each quarter , monthly monitoring of variances from prior period pricing and on a monthly basis evaluating pricing changes compared to expectations based on changes in the financial markets . level 3 investments include pooled trust preferred collateralized debt obligations . the fair values of these investments are determined by a specialized third party valuation service . management validates the fair value of the pooled trust preferred collateralized debt obligations by monitoring the performance of the underlying collateral , discussing the discount rate , cash flow assumptions and general market trends with the specialized third party and by confirming changes in the underlying collateral to the trustee and underwriter reports . management 's monitoring of the underlying collateral includes deferrals of interest payments , payment defaults , cures of previously deferred interest payments , any regulatory filings or actions and general news related to the underlying collateral . management also evaluates fair value changes compared to expectations based on changes in the interest rates used in determining the discount rate and general financial markets . methodologies and estimates used by management when determining the fair value for pooled trust preferred collateralized debt obligations and testing those securities for other-than-temporary impairment are discussed in detail in management 's 26 discussion and analysis of financial condition and results of operations and in note 9 “ impairment of investment securities ” and note 18 “ fair values of assets and liabilities ” of notes to the consolidated financial statements . income taxes we estimate income tax expense based on amounts expected to be owed to the tax jurisdictions where we conduct business . on a quarterly basis , management assesses the reasonableness of its effective tax rate based upon its current estimate of the amount and components of net income , tax credits and the applicable statutory tax rates expected for the full year . story_separator_special_tag deferred income tax assets and liabilities are determined using the asset and liability method and are reported in the consolidated statements of financial condition . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . management assesses all available positive and negative evidence on a quarterly basis to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets . the amount of future taxable income used in management 's valuation is based upon management approved forecasts , evaluation of historical earnings levels , proven ability to raise capital to support growth or during times of economic stress and consideration of prudent and feasible potential tax strategies . if future events differ from our current forecasts , a valuation allowance may be required , which could have a material impact on our financial condition and results of operations . accrued taxes represent the net estimated amount due to taxing jurisdictions and are reported in other liabilities in the consolidated statements of financial condition . management evaluates and assesses the relative risks and appropriate tax treatment of transactions and filing positions after considering statutes , regulations , judicial precedent and other information and maintains tax accruals consistent with its evaluation of these relative risks and merits . changes to the estimate of accrued taxes occur periodically due to changes in tax rates , interpretations of tax laws , the status of examinations being conducted by taxing authorities and changes to statutory , judicial and regulatory guidance . these changes , when they occur , can affect deferred taxes and accrued taxes , as well as the current period 's income tax expense and can be significant to our operating results . results of operations—2016 compared to 2015 net income net income for 2016 was $ 59.6 million , or $ 0.67 per diluted share , as compared to net income of $ 50.1 million , or $ 0.56 per diluted share , in 2015 . the growth in net income is a result of an increase in net interest income of $ 10.6 million , combined with a decrease in noninterest expense of $ 3.9 million and growth in noninterest income of $ 3.3 million . our return on average equity was 8.0 % and our return on average assets was 0.89 % for 2016 , compared to 7.0 % and 0.78 % , respectively , for 2015 . average diluted shares for the year 2016 were 1 % less than the comparable period in 2015 primarily due to a $ 25.0 million common stock buyback program completed during 2015. net interest income net interest income , which is our primary source of revenue , is the difference between interest income from earning assets ( loans and securities ) and interest expense paid on liabilities ( deposits , short-term borrowings and long-term debt ) . the amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities . the net interest margin is expressed as the percentage of net interest income , on a fully taxable equivalent basis , to average interest-earning assets . to compare the tax exempt asset yields to taxable yields , amounts are adjusted to the pretax equivalent amounts based on the marginal corporate federal income tax rate of 35 % . the taxable equivalent adjustment to net interest income for 2016 was $ 3.8 million compared to $ 3.5 million in 2015 . net interest income comprises a majority of our operating revenue ( net interest income before provision expense plus noninterest income ) at 75 % for the years ended december 31 , 2016 and 2015 . net interest income , on a fully taxable equivalent basis , was $ 202.9 million for the year-ended december 31 , 2016 , a $ 10.9 million , or 6 % , increase compared to $ 191.9 million for the same period in 2015 . the net interest margin , on a fully taxable equivalent basis , increased 4 basis points to 3.32 % in 2016 from 3.28 % in 2015 . the net interest margin is affected by both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities . 27 growth in the both the level of interest-earning assets and the rates earned on those assets contributed to the increase in the net interest margin for the year ended december 31 , 2016 . yields and spreads on new loan volumes in 2016 exceeded runoff levels , specifically for variable and adjustable rate commercial loans , home equity loans and indirect auto loans . average earning assets for the year ended december 31 , 2016 increased $ 257.7 million , or 4 % , compared to the comparable period in 2015 . interest-sensitive assets totaling $ 3.3 billion will either reprice or mature over the next twelve months . although the firstmerit branch acquisition , which was completed on december 2 , 2016 , provided ending balances of $ 593.4 million in lower costing deposits , the transaction had minimal impact on average interest-earning assets , average interest-bearing liabilities or net interest income for the full year-ended december 31 , 2016. for the year-ended december 31 , 2016 , average interest-earning assets resulting from this acquisition totaled $ 6.4 million and average interest-bearing liabilities resulting from this transaction totaled $ 39.3 million .
| during the year-ended december 31 , 2015 , the net interest margin was challenged by the continuing low interest rate environment and decreasing rates earned on interest-earning assets . despite a disciplined approach to pricing , runoff of existing assets earning higher interest rates continued to provide for lower yields on earning assets . growth in earning assets helped offset the impact of runoff as average interest-earning assets increased $ 125.4 million , or 2 % , compared to the comparable period in 2014 . the taxable equivalent yield on interest-earning assets was 3.55 % for the year-ended december 31 , 2015 , a decrease of 4 basis points from the 3.59 % yield for the same period in 2014 . this decline was attributed to the repricing of our variable rate assets in a low rate environment as well as lower interest rates available on new investments and loans . reductions in the cost of interest-bearing liabilities partially offset the impact of lower yields on interest-earning assets . the cost of interest-bearing liabilities was 0.34 % for the year-ended december 31 , 2015 , compared to 0.41 % for the same period in 2014 . comparing the year-ended december 31 , 2015 with the same period in 2014 , changes in interest rates negatively impacted net interest income by $ 5.1 million . the lower yield on interest-earning assets adversely impacted net interest income by $ 4.6 million , while the decline in the cost of interest-bearing liabilities positively impacted net interest income by $ 0.5 million . we were able to partially mitigate the impact of lower interest rates and the effect on net interest income through improving the mix of deposits and borrowed funds , disciplined pricing strategies , loan growth and increasing our investment volumes within established interest rate risk
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louisiana fields known as burr ferry and south bearhead creek to texegy llc , for net proceeds of approximately $ 46.9 million including deposits received prior to the closing date ; and the company 's previous credit facility ( the `` prior first lien credit facility '' ) was terminated and a new senior secured credit facility ( the `` new credit facility '' ) with an initial $ 320 million borrowing base was established . for more information refer to note 5 of the accompanying consolidated financial statements in this form 10-k. in accordance with the plan , the post-emergence company 's new board of directors was initially to be made up of seven directors consisting of the chief executive officer , two directors appointed by strategic value partners llc ( `` svp '' ) , a former holder of the company 's senior notes , two directors appointed by other former holders of the company 's senior notes , one independent director and one independent non-executive chairman of the board . in addition , pursuant to the plan , svp and the other former holders of the company 's senior notes were given certain continuing director nomination rights subject to minimum share ownership conditions . dip credit agreement . during the bankruptcy , we had a debtor-in-possession credit facility ( the “ dip credit agreement '' ) that provided for a multi-draw term loan of up to $ 75 million , which became available to the company upon the satisfaction of certain milestones and contingencies . upon emergence from bankruptcy , the company had drawn down the entire $ 75 million available . pursuant to the plan , the borrowings under the dip credit agreement , at the option of the lenders to the dip credit agreement , converted into the post-emergence company 's common stock , which was part of the 88.5 % of the common stock distributed to the holders of the company 's senior notes and certain unsecured creditors . as such , the $ 75 million borrowed under the dip credit agreement was not required to be repaid in cash and terminated upon the company 's emergence from bankruptcy . for more information refer to note 5 the accompanying consolidated financial statements in this form 10-k. fresh start accounting . upon the company 's emergence from chapter 11 bankruptcy , the company adopted fresh start accounting in accordance with the provisions of financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) 852 , `` reorganizations `` which resulted in the company becoming a new entity for financial reporting purposes . upon adoption of fresh start accounting , our assets and liabilities were recorded at their fair values as of the effective date . the effective date fair values of our assets and liabilities differed materially from the recorded values of our assets and liabilities as reflected in our historical consolidated balance sheet . the effects of the plan and the application of fresh start accounting were reflected in our consolidated financial statements as of april 22 , 2016 and the related adjustments thereto were recorded in our consolidated statements of operations as reorganization items for the period april 1 , 2016 to april 22 , 2016 ( predecessor ) . as a result , our consolidated balance sheets and consolidated statement of operations subsequent to the effective date are not comparable to our consolidated balance sheets and statements of operations prior to the effective date . our consolidated financial statements and related footnotes are presented with a black line division which delineates the lack of comparability between amounts presented after april 22 , 2016 and dates on or prior to april 22 , 2016. our financial results for future periods following the application of fresh start accounting will be different from historical trends and the differences may be material . financial statement classification of liabilities subject to compromise . our financial statements included amounts classified as liabilities subject to compromise , a majority of which were equitized upon emergence from bankruptcy on april 22 , 2016. see note 1b of the accompanying consolidated financial statements in this form 10-k for more information . 32 significant developments during 2016 management changes : on october 7 , 2016 , the company announced that robert j. banks ( current chief operating officer ) would serve as interim chief executive officer of the company , filling the position vacated by the retirement of terry e. swift on the same date . furthermore , on august 9 , 2016 the company announced the chief financial officer of the company would also be retiring but would serve in the same capacity until a replacement is named . the company is actively engaged in finding full time replacements for both of these key positions . on september 27 , 2016 , the company announced the appointment of marcus c. rowland as the non-executive chairman of the board , a position that was previously filled on an interim basis by another member of the board since the company 's emergence from its chapter 11 restructuring . weak crude oil and natural gas prices continue to affect our business : oil and gas prices declined during 2015 and continue to remain relatively low by historical measures . while we are negatively impacted by weak commodity prices , the resulting industry downturn has created a much more competitive environment among oil field service companies , providing an opportunity for us to bring our cost structure in line with lower revenues . the recent rebound of oil and gas prices from their 2016 lows has allowed the company to enter into price and basis differential hedges for calendar year 2017 production and the first quarter of 2018 production , which could partially mitigate future commodity price weakness . story_separator_special_tag operational activity : at our fasken field in the eagle ford play , eight wells were completed and placed into the system in early 2016. seven wells were placed into the system at rates between 15 - 20 mmcf per day of natural gas and one well had mechanical issues and was placed into the system at a restricted rate of 9 mmcf per day of natural gas . the company resumed drilling operations at fasken in october 2016 and drilled eight more wells by the end of the year . 2016 changes in reserve quantities and value : our 76 % , or 54 mmboe , increase in proved reserves quantities from 2015 to 2016 was principally due to additions of undeveloped reserves which were previously not included in 2015 because of the uncertainties surrounding the availability of the financing that would be necessary to develop them , due in part to our bankruptcy filing . 2016 cost reduction initiatives : we are continuing the cost reduction efforts initiated in 2015 , and have taken additional actions during 2016 to significantly reduce our operating and overhead costs . in conjunction with our reorganization through chapter 11 bankruptcy , we have renegotiated a number of contracts with vendors and service providers to bring costs in line with current market conditions . other initiatives include field staff reductions , intermittent production of marginal properties , disposition of uneconomic and higher cost properties , full utilization of existing facilities and elimination of redundant equipment . at the corporate level we have also undergone significant staff reductions , reduced the square footage of leased office space and are taking additional steps to further reduce overhead costs . strategic dispositions : effective december 1 , 2016 , we closed our transaction with hilcorp energy i , l.p. for the sale of the company 's holdings in our lake washington field located in southeast louisiana . we received net proceeds of approximately $ 37.0 million which were used to reduce the amount of borrowings under the company 's credit facility . the buyer assumed approximately $ 30.5 million of plugging and abandonment liability . no gain or loss was recorded on the sale of the property . in addition , on december 8 , 2016 we sold the remaining 25 % working interest share of the company 's holdings in the south bearhead creek and burr ferry fields . we received net proceeds of $ 7.1 million on the sale which were used to reduce the amount of borrowings under the company 's credit facility . stock listing : trading in the company 's former common stock on the nyse was suspended on december 18 , 2015 , and the common stock was subsequently delisted from the nyse . the common stock of the company traded on the otc pink marketplace under the symbol “ sfywq ” until the former common stock was canceled on april 22 , 2016 , pursuant to the plan of reorganization confirmed by the bankruptcy court . on october 3 , 2016 , the company announced the common stock of the company issued pursuant to the plan of reorganization was approved for quoting on the otcqx market . the company is traded under the ticker `` swtf '' . effective january 25 , 2017 , the company entered into an agreement with certain purchasers of our common stock in a recent private placement offering to list on a national securities exchange by july 25 , 2017 . 33 summary of 2016 financial results 2016 revenues and net loss : the company 's oil and gas revenues were $ 43.0 million and $ 121.4 million in the period of january 1 , 2016 through april 22 , 2016 ( predecessor ) and the period of april 23 , 2016 through december 31 , 2016 ( successor ) , respectively . full year 2015 revenues were $ 246.3 million . revenues were lower primarily due to lower oil and natural gas pricing as well as overall lower production . the company 's net income of $ 851.6 million in the period of january 1 , 2016 through april 22 , 2016 ( predecessor ) was primarily due to the gain on reorganization adjustments as part of our emergence from bankruptcy while the net loss of $ 156.3 million in the period of april 23 , 2016 through december 31 , 2016 ( successor ) was primarily due to the $ 133.5 million non-cash write-down of our oil and gas properties and losses on derivative instruments of $ 19.7 million . 2016 capital expenditures : the company maintained a limited capital budget for 2016 with a focus on balancing capital expenditures with cash flows . the company 's capital expenditures on a cash basis were $ 24.5 million and $ 45.7 million in the period of january 1 , 2016 through april 22 , 2016 ( predecessor ) and the period of april 23 , 2016 through december 31 , 2016 ( successor ) , respectively . the expenditures for the period january 1 , 2016 through april 22 , 2016 , were primarily devoted to completion of wells in south texas that were drilled in 2015. these expenditures were funded by cash flows and borrowings under our dip credit facility . capital expenditures since april 23 , 2016 were focused on drilling and completion activities in our fasken field . these expenditures were primarily funded by operating cash flows and proceeds from property dispositions . working capital : working capital , as measured by current assets less current liabilities , is one of several measures the company uses to track its short-term liquidity position . the company had a working capital deficit of $ 57.6 million at december 31 , 2016 and a deficit of $ 271.2 million at december 31 , 2015 , excluding any available borrowings under the company 's credit facility . these numbers are not comparable given the company 's bankruptcy filing on december 31 , 2015 .
| crude oil production was 12 % , 19 % , 22 % and 30 % of our production volumes while crude oil sales revenues were 29 % , 38 % , 46 % and 59 % of oil and gas sales revenue for the period of april 23 , 2016 through december 31 , 2016 ( successor ) , the period of january 1 , 2016 through april 22 , 2016 ( predecessor ) , the year ended december 31 , 2015 ( predecessor ) and the year ended december 31 , 2014 ( predecessor ) , respectively . natural gas production was 76 % , 68 % , 66 % and 54 % of our production volumes while natural gas sales revenues were 61 % , 52 % , 46 % and 30 % of oil and gas sales for the period of april 23 , 2016 through december 31 , 2016 ( successor ) , the period of january 1 , 2016 through april 22 , 2016 ( predecessor ) , the year ended december 31 , 2015 ( predecessor ) and the year ended december 31 , 2014 ( predecessor ) , respectively . the following tables provide information regarding the changes in the sources of our oil and gas sales and volumes for the period of april 23 , 2016 through december 31 , 2016 ( successor ) , the period of january 1 , 2016 through april 22 , 2016 ( predecessor ) and the years ended december 31 , 2015 and 2014 ( predecessor ) : replace_table_token_17_th ( 1 ) primarily fields sold during 2016 including our former lake washington , south bearhead creek and burr ferry fields . 39 replace_table_token_18_th ( 1 ) primarily fields sold during 2016 including our former lake washington , south bearhead creek and burr ferry fields . our production decrease from 2015 to 2016 was primarily due overall decreased production due to natural declines , reduced drilling and completion activity and strategic dispositions of our non-core fields during the year . in 2016 , our $ 81.9 million , or 33 % decrease in oil , ngl , and natural gas sales resulted from : price variances that had a $ 17.0 million unfavorable impact on sales , with a decrease of $ 10.0 million due to the 16 % decrease in oil prices received and a decrease of $ 7.0 million due to the 7 % decrease
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therefore , the company believes this information is meaningful in addition to the information contained in the gaap presentation of financial information . the presentation of this additional non-gaap financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with gaap . specifically , the company believes the presentation of non-gaap financial information should exclude the following items : the unrealized gains or losses on our marketable equity securities , operating results for the newly constructed healthcare facilities not at full capacity , legal costs and charges related to the settlement of a qui tam investigation within our caris hospice partnership , any gains on the acquisition of equity method investments , gains on the sale of healthcare facilities , share-based compensation expense , and tax adjustments with the 2017 u.s. tax cuts and jobs act . 30 the operating results for the newly constructed healthcare facilities not at full capacity include the following : for the year ended december 31 , 2019 , included are facilities that began operations from 2017 to 2019 ( one skilled nursing facility , two assisted living facilities , and one memory care facility ) . for the year ended december 31 , 2018 , included are facilities that began operations from 2016 to 2018 ( two skilled nursing facilities and three assisted living facilities ) . for the year ended december 31 , 2017 , included are facilities that began operations from 2015 to 2017 ( three skilled nursing facilities and four assisted living facilities ) . the table below provides reconciliations of gaap to non-gaap items ( dollars in thousands , except per share data ) : replace_table_token_16_th story_separator_special_tag $ 14,404,000 , or 5.7 % , to $ 268,442,000 for 2019 compared to $ 254,038,000 in 2018. these costs were 26.9 % and 25.9 % of net operating revenues for 2019 and 2018 , respectively . the majority of the increase in other operating expenses in 2019 compared to a year ago is due to the january 1 , 2019 start of our i-snp insurance plan , nhc advantage . for the year ending december 31 , 2019 , the i-snp increased other operating expenses approximately $ 11,612,000 compared to the same period a year ago . the behavioral health hospital that we acquired in august 2018 increased other operating expenses $ 1,404,000 in 2019 compared to the same period a year ago . the october 2018 disposition of the madisonville , kentucky skilled nursing facility decreased other operating expenses in the amount of $ 2,974,000 in 2019 compared to 2018. facility rent expense decreased $ 405,000 , or 1.0 % , to $ 40,518,000. depreciation and amortization increased 1.3 % to $ 42,419,000. interest expense decreased $ 1,562,000 to $ 3,135,000 in 2019 from $ 4,697,000 in 2018. the decrease in interest expense is due from our long-term debt being paid down during 2019. at december 31 , 2019 , we had $ 10,000,000 outstanding on our credit facility . non–operating income in 2019 increased $ 9,077,000 , or 51.4 % to $ 26,747,000 , as further detailed in note 4 of the consolidated financial statements . the increase in non-operating income is primarily due from our equity in earnings investment in our caris hospice operations . during 2018 , caris recorded a charge to earnings of $ 8,500,000 for the settlement of a qui tam investigation , of which 75.1 % is included in the company 's earnings . in total , with the $ 8.5 million settlement and legal expenses , caris ' 2018 earnings negatively impacted nhc 's non-operating income by $ 8,364,000. there were no such charges or legal expenses in caris for 2019. there were also gains on acquisitions of equity method investments in both the 2019 and 2018 years . in june 2019 , a gain of $ 1,975,000 was recorded on the acquisition of the remaining ownership interest of a 60-bed memory care facility in st. peters , missouri . we previously held a noncontrolling interest in the facility . upon acquiring the remaining ownership interest , we valued the business and our previously held equity position based upon the facility 's fair value . in july 2018 , a gain of $ 2,050,000 was recorded on the acquisition of a controlling financial interest in a 14-bed behavioral health hospital in osage beach , missouri . we previously held a non-controlling ownership interest . upon acquiring the controlling ownership interest , we valued the business and our previously held equity position based upon the hospital 's fair value . we recorded unrealized gains in the amount of $ 12,230,000 for the increase in fair value of our marketable equity securities portfolio for the year ended december 31 , 2019. the marketable equity securities portfolio consists of publicly traded healthcare reit 's , with nhi comprising approximately 87 % of the market value of the portfolio at december 31 , 2019. the income tax provision for 2019 is $ 20,039,000 ( an effective income tax rate of 22.8 % ) . the income tax provision and effective tax rate for 2019 were also favorably impacted by statute of limitation expirations resulting in a benefit to the provision of $ 2,064,000 or 2.3 % of income before taxes in 2019. the income tax provision for 2018 is $ 16,185,000 ( an effective income tax rate of 21.6 % ) . the income tax provision and effective tax rate for 2018 were also favorably impacted by statute of limitation expirations resulting in a benefit to the provision of $ 2,222,000 or 3.0 % of income before taxes in 2018 . 33 2018 compared to 2017 results for the year ended december 31 , 2018 compared to 2017 include a 1.7 % increase in net operating revenues and a 4.9 % increase in net income attributable to nhc . story_separator_special_tag excluding the unrealized gains in our marketable equity securities portfolio and the other non-gaap adjustments , non-gaap net income for the year ended december 31 , 2018 was $ 64,373,000 compared to $ 54,179,000 for the 2017 year . the overall average census in owned and leased skilled nursing facilities for 2018 was 89.8 % compared to 90.2 % in 2017. the composite skilled nursing facility per diem increased 1.2 % in 2018 compared to 2017. medicare per diem rates increased 0.3 % in 2018 compared to 2017 and managed care per diem rates decreased 2.0 % in 2018 compared to 2017. medicaid and private pay per diem rates increased 2.9 % and 3.0 % , respectively , in 2018 compared to 2017. net patient revenues totaled $ 932,774,000 , an increase of $ 16,032,000 , or 1.7 % , compared to the prior year . the newly constructed healthcare facilities placed in service from 2016 to 2018 ( which is two skilled nursing facilities and three assisted living facilities ) continue to mature and increased net patient revenues $ 6,457,000 compared to a year ago . in august 2018 , the company acquired a controlling ownership interest in a 14-bed behavioral health hospital . for the five months since the acquisition of this entity , the hospital has generated approximately $ 2,496,000 in net patient revenue . the remaining increase in our net patient revenues is primarily due to the per diem increases in our existing skilled nursing facility operations . other revenues in 2018 were $ 47,575,000 , an increase of $ 422,000 , or 0.9 % , as further detailed in note 3 of the consolidated financial statements . other revenues in 2018 include rental revenues of $ 22,262,000 ( $ 21,957,000 in 2017 ) , management and accounting service fees of $ 15,175,000 ( $ 16,169,000 in 2017 ) , and insurance services revenue of $ 7,084,000 ( $ 8,003,000 in 2017 ) . in october 2018 , we sold a skilled nursing facility in madisonville , kentucky and recorded a gain on the sale of the transaction of $ 1,669,000. total costs and expenses for 2018 increased $ 14,488,000 , or 1.6 % , to $ 924,273,000 from $ 909,785,000 in 2017. salaries , wages and benefits , the largest operating costs of the company , increased $ 10,678,000 , or 1.9 % , to $ 582,721,000 from $ 572,043,000. our salaries and wages were 59.4 % of net operating revenues for both the 2018 and 2017 years . the newly constructed healthcare facilities placed in service during 2016 to 2018 increased salaries , wages and benefits by $ 1,453,000 compared to a year ago . the newly acquired behavioral health hospital increased in salaries and wages by $ 1,116,000 in 2018. the remaining increase in salaries , wages and benefits in 2018 is due to the increase in our existing skilled nursing facilities and the continued wage pressure in certain markets in which we operate . other operating expenses increased $ 4,205,000 , or 1.7 % , to $ 254,038,000 for 2018 compared to $ 249,833,000 in 2017. these costs were 25.9 % of net operating revenues for both the 2018 and 2017 years . the newly constructed healthcare facilities placed in service during 2016 to 2018 increased other operating expenses by $ 2,183,000 compared to a year ago . the newly acquired behavioral health hospital increased other operating expenses by $ 914,000 in 2018. facility rent expense increased $ 556,000 , or 1.4 % , to $ 40,923,000. depreciation and amortization decreased 1.8 % to $ 41,894,000. interest expense decreased $ 193,000 to $ 4,697,000 in 2018 from $ 4,890,000 in 2017. the decrease in interest expense is due from our long-term debt being paid down during 2018. at december 31 , 2018 , we had $ 55 million outstanding on our credit facility . non–operating income in 2018 decreased $ 2,769,000 , or 13.5 % to $ 17,670,000 , as further detailed in note 4 of the consolidated financial statements . the decrease in non-operating income is primarily due from : our equity in earnings investment in our caris hospice operations . during 2018 , caris recorded a charge to earnings of $ 8,500,000 for the settlement of a qui tam investigation , of which 75.1 % is included in the company 's earnings . in total , with the $ 8.5 million settlement and legal expenses , caris ' earnings negatively impacted nhc 's non-operating income by $ 8,364,000 for the year ended december 31 , 2018. for the year ended december 31 , 2017 , caris had legal expenses in connection with the qui tam investigation that negatively impacted nhc 's non-operating income by $ 2,889,000. in july 2018 , a gain of $ 2,050,000 was recorded on the acquisition of a controlling financial interest in a 14-bed behavioral health hospital in osage beach , missouri . we previously held a non-controlling ownership interest and equity method investment in this hospital . upon acquiring the controlling ownership interest , we valued the business and our previously held equity position based upon the hospital 's fair value . 34 effective january 1 , 2018 , we adopted new accounting pronouncement asu no . 2016–01 , “ financial instruments – recognition and measurement of financial assets and financial liabilities ( topic 825 ) ” . this guidance requires that the change in the fair value of our marketable equity securities be recognized in net income instead of other comprehensive income . therefore , we recorded unrealized gains in the amount of $ 1,138,000 for the increase in fair value of our marketable equity securities portfolio for the year ended december 31 , 2018. the marketable equity securities portfolio consists of publicly-traded healthcare reit 's , with nhi comprising approximately 88 % of the market value of the portfolio at december 31 , 2018. the income tax provision for 2018 is $ 16,185,000 ( an effective income tax rate of 21.6 % ) .
| beginning january 1 , 2019 , the i-snp began offering and providing insurance and healthcare services in the state of tennessee . our i-snp , which is called nhc advantage , is a managed care insurance company that enrolls medicare advantage eligible individuals who are patients in our skilled nursing facilities . we believe the i-snp benefits our patients by providing nurse practitioners and care-coordination teams that continue to enhance the patient-centered experience and our quality of care . we also believe our progressive improvement to patient care will continue to drive positive financial results for the company . for the year ended december 31 , 2019 , the i-snp increased net patient revenues approximately $ 10,867,000 compared to 2018. the company has opened one skilled nursing facility , two assisted living facilities , and a memory care facility from the years 2017 to 2019. these facilities continue to stabilize and increased net patient revenues approximately $ 3,891,000 compared to the same period a year ago . in august 2018 , the company acquired a controlling ownership interest in a 14-bed behavioral health hospital . for the 2019 year , the hospital increased net patient revenues by approximately $ 3,017,000 compared to 2018. the remaining increase in our net patient revenues is primarily due to the per diem increases in our existing skilled nursing facility and assisted living operations . our homecare operations had a decline in net patient revenues of approximately $ 5,190,000 compared to the same period a year ago . our homecare net patient revenue decline was primarily due to volume declines , as well as an unfavorable payor mix change with less medicare patients and an increase of managed care patients . in october 2018 , we sold a skilled nursing facility in madisonville , kentucky . the sale of this facility decreased net patient revenues $ 5,098,000 compared to the same period a year ago . 32 other revenues in 2019 were $ 48,511,000 , an increase of $ 936,000 , or 2.0 % , as further detailed
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this decrease was primarily due to $ 501.3 million used to repurchase shares of our common stock , $ 15.9 million used for capital expenditures , $ 13.6 million for tax withholding on restricted stock units and $ 8.3 million used for the acquisition of efflux . these decreases were partially offset by $ 294.6 million in proceeds from the issuance of long-term debt and $ 222.5 million in cash provided by operations during the fiscal year ended march 31 , 2018. use of non-gaap financial measures we supplement the united states generally accepted accounting principles ( gaap ) financial measures we report in quarterly and annual earnings announcements , investor presentations and other investor communications by reporting the following non-gaap measures : non-gaap total revenue , non-gaap product revenue , non-gaap service revenue , non-gaap gross profit , non-gaap income from operations , non-gaap operating margin , non-gaap earnings before interest and other expense , income taxes , depreciation and amortization ( ebitda ) from operations , non-gaap ebidta from operations margin , non-gaap net income , and non-gaap net income per share ( diluted ) . non-gaap revenue ( total , product and service ) eliminates the gaap effects of acquisitions by adding back revenue related to deferred revenue revaluation , as well as revenue impacted by the amortization of acquired intangible assets . non-gaap gross profit includes the foregoing adjustments and also removes expenses related to the amortization of acquired intangible assets , stock-based compensation , certain expenses relating to acquisitions including depreciation costs , compensation for post-combination services and business development and integration costs . non-gaap income from operations includes the foregoing adjustments and also removes restructuring charges and costs related to new accounting standard implementation . non-gaap operating margin is calculated based on the non-gaap financial metrics discussed above . non-gaap ebitda from operations includes the aforementioned items related to non-gaap income from operations and also removes non-acquisition-related depreciation expense . non-gaap net income includes the foregoing adjustments and also removes expenses and or benefit related to share-based compensation and certain expenses relating to acquisitions including : compensation for post-combination services , business development charges , and depreciation expense , net of related income tax effects in addition to the provisional one-time impacts of the u.s. tax cuts and jobs act . non-gaap diluted net income per share also excludes these expenses as well as the related impact of all these adjustments on the provision for income taxes . these non-gaap measures are not in accordance with gaap , should not be considered an alternative for measures prepared in accordance with gaap ( revenue , gross profit , operating profit , net income ( loss ) and diluted net income ( loss ) per share ) , and may have limitations in that they do not reflect all our results of operations as determined in accordance with gaap . these non-gaap measures should only be used to evaluate our results of operations in conjunction with the corresponding gaap measures . the presentation of non-gaap information is not meant to be considered superior to , in isolation from , or as a substitute for results prepared in accordance with gaap . management believes these non-gaap financial measures enhance the reader 's overall understanding of our current financial performance and our prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business . we believe 33 that providing these non-gaap measures affords investors a view of our operating results that may be more easily compared with our peer companies and also enables investors to consider our operating results on both a gaap and non-gaap basis during and following the integration period of our acquisitions . presenting the gaap measures on their own may not be indicative of our core operating results . furthermore , management believes that the presentation of non-gaap measures when shown in conjunction with the corresponding gaap measures provide useful information to management and investors regarding present and future business trends relating to our financial condition and results of operations . the following table reconciles revenue , gross profit , income ( loss ) from operations , net income ( loss ) and net income ( loss ) per share on a gaap and non-gaap basis for the fiscal years ended march 31 , 2018 , 2017 and 2016 : replace_table_token_6_th 34 replace_table_token_7_th critical accounting policies we consider accounting policies related to revenue recognition , marketable securities , valuation of goodwill , intangible assets and other acquisition accounting items , and share based compensation to be critical in fully understanding and evaluating our financial results . we apply significant judgment and create estimates when applying these policies . revenue recognition we exercise judgment and use estimates in connection with determining the amounts of product and services revenues to be recognized in each accounting period . we derive revenues primarily from the sale of network management tools and security solutions for service provider and enterprise customers , which include hardware , software and service offerings . the majority of our product sales consist of hardware products with embedded software that are essential to providing customers the intended functionality of the solutions . we also sell stand-alone software solutions to provide customers with enhanced functionality . in addition , we sell hardware bundled with a software license . product revenue is recognized upon shipment , provided that evidence of an arrangement exists , title and risk of loss have passed to the customer , and in the case of software products , when the customer has the rights and ability to access the software , fees are fixed or determinable and collection of the related receivable is reasonably assured . if any significant obligations to the customer remain post-delivery , typically involving obligations relating to installation and acceptance by the customer , revenue recognition is deferred until such obligations have been fulfilled . story_separator_special_tag because many of our solutions are comprised of both hardware and more than incidental software components , we recognize revenue in accordance with authoritative guidance on both hardware and software revenue recognition . our service offerings include installation , integration , extended warranty and maintenance services , post-contract customer support ( pcs ) , and other professional services including consulting and training . we generally provide software and or hardware support as part of product sales . revenue related to the initial bundled software and hardware support is recognized ratably over the support period . in addition , customers can elect to purchase extended support agreements for periods after the initial software/hardware warranty expiration . support services generally include rights to unspecified upgrades ( when and if available ) , telephone and internet-based support , updates , bug fixes and hardware repair and replacement . consulting services are recognized upon delivery or completion of performance . reimbursements of out-of-pocket expenditures incurred in 35 connection with providing consulting services are included in services revenue , with the offsetting expense recorded in cost of service revenue . training services include on-site and classroom training . training revenues are recognized upon delivery of the training . generally , our contracts are accounted for individually . however , when contracts are closely interrelated and dependent on each other , it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts . multi-element arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time . for multi-element arrangements comprised only of hardware products and related services , we allocate the total arrangement consideration to the multiple elements based on each element 's fair value compared to the total relative selling price of all the elements . each element 's selling price is based on management 's best estimate of selling price ( besp ) paid by customers based on the element 's historical pricing when vendor-specific objective evidence ( vsoe ) or third-party evidence ( tpe ) does not exist . we have established besp for product elements as the average or median selling price the element was recently sold for , whether sold alone or sold as part of a multiple element transaction . we also consider our overall pricing objectives and practices across different sales channels and geographies , and market conditions . we review sales of the product elements on a quarterly basis and update , when appropriate , our besp for such elements to ensure that it reflects recent pricing experience . we have established vsoe for a majority of our service elements based on historical standalone sales or by the renewal rate offered to the customer . however , certain business units we acquired as part of the comms transaction are unable to establish vsoe for undelivered elements . this occurs because the pricing for standalone sales does not occur in tight bands around a midpoint , and they are not contractually fixed . in these scenarios we have typically established besp by creating wider bands around a midpoint for stand-alone transactions or in some cases using cost plus a margin for the underlying services and products . if vsoe of fair value does not exist for a deliverable , we have determined that besp is the highest level of fair value that exists for those deliverables . for multi-element arrangements comprised only of software products and related services , we allocate a portion of the total arrangement consideration to the undelivered elements , primarily support agreements and professional services , using vsoe of fair value for the undelivered elements . the remaining portion of the total arrangement consideration is allocated to the delivered software , referred to as the residual method . vsoe of fair value of the undelivered elements is based on the price customers pay when the element is sold separately . we review the separate sales of the undelivered elements on a regular basis and update when appropriate , our vsoe of fair value for such elements to ensure that it reflects recent pricing experience . if we can not objectively determine the vsoe of the fair value of any undelivered software element , revenue is deferred until all elements are delivered and services have been performed , or until fair value can objectively be determined for any remaining undelivered elements . however , if the only undelivered element is maintenance and support , the entire arrangement fee is recognized over the service period . for multi-element arrangements comprised of a combination of hardware and software elements , the total arrangement consideration is bifurcated between the hardware and hardware-related deliverables and the software and software-related deliverables based on the relative selling prices of all deliverables as a group . then , arrangement consideration for the hardware and hardware-related services is recognized upon delivery or as the related services are provided as outlined above and revenue for the software and software-related services is allocated following the residual method and recognized based upon delivery or as the related services are provided . our products are distributed through our direct sales force and indirect distribution channels through alliances with resellers and distributors . revenue arrangements with resellers and distributors are recognized on a sell-in basis ; that is , when we deliver the product to the reseller or distributor . we record consideration given to a reseller or distributor as a reduction of revenue to the extent we have recorded revenue from the reseller or distributor . with limited exceptions , our return policy does not allow product returns for a refund . returns have been insignificant to date . in addition , we have a history of successfully collecting receivables from our resellers and distributors . marketable securities we measure the fair value of our marketable securities at the end of each reporting period .
| the 31 % , or $ 73.5 million , decrease in cost of product revenue was primarily due to a $ 62.3 million decrease in direct material costs due to shifts in product mix and the decrease in product revenue , a $ 3.7 million decrease in the amortization of intangibles , a $ 2.3 million decrease in expenses related to the transitional service agreements related to the comms transaction , a $ 2.3 million decrease in employee-related expenses primarily due to a decrease in variable incentive compensation and a $ 1.7 million decrease in shipping costs . the product gross profit percentage increased by two percentage points to 70 % during the fiscal year ended march 31 , 2018 as compared to the same period in the prior year . the 23 % , or $ 115.9 million decrease in product gross profit , corresponds with the 26 % , or $ 189.4 million decrease in product revenue , partially offset by the 31 % , or $ 73.5 million decrease in cost of product . average headcount in cost of product revenue was 92 and 96 for the fiscal years ended march 31 , 2018 and 2017 , respectively . service . the 1 % , or $ 0.8 million , decrease in cost of service revenue was primarily due to a $ 1.3 million decrease in employee related expenses primarily due to a decrease in variable incentive compensation and a $ 1.2 million decrease in cost of materials used to support customers under service contracts . these increases were partially offset by a $ 1.9 million increase in contractor fees . the service gross profit percentage increased by one percentage point to 76 % during the fiscal year ended march 31 , 2018 when compared to the fiscal year ended march 31 , 2017 . the 5 % , or $ 14.8 million , increase in service gross profit corresponds with the 3 % , or $ 14.1 million , increase in service revenue , and the 1 % , or $ 0.8 million , decrease in cost of
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” sale of cah on july 1 , 2016 , the sale of cah to atn vi holdings , llc ( “ buyer ” ) was completed . as a result , we no longer carry any foreclosed assets on our consolidated balance sheet . our net proceeds at closing totaled $ 109 million , which represents the purchase price of $ 144 million less agreed-upon purchase price adjustments as of the closing date . in connection with the sale , rtfc provided a loan in the amount of $ 60 million to buyer to finance a portion of the transaction . atn international , inc. , the parent corporation of buyer , has provided a guarantee on an unsecured basis of buyer 's obligations to rtfc pursuant to the financing . cfc remains subject to potential indemnification claims , as specified in the purchase agreement . upon closing , $ 16 million of the sale proceeds was deposited into escrow to fund potential indemnification claims for a period of 15 months following the closing . based on indemnification claims to date , we currently expect the return of substantially all of the $ 16 million held in escrow . the net proceeds at closing were subject to post-closing adjustments . we recorded charges related to cah of $ 2 million in fiscal year 2017 . this amount includes the combined impact of adjustments recorded at the closing date of the sale of cah , post-closing purchase price adjustments and certain legal costs incurred pertaining to cah . see “ consolidated results of operations—non-interest income—results of operations of foreclosed assets ” below in this report and “ note 5—foreclosed assets ” for additional information on the sale of cah . outlook for the next 12 months we currently expect the amount of long-term loan advances to exceed anticipated loan repayments over the next 12 months . we expect relatively flat net interest income and adjusted net interest income over the next 12 months , reflecting a slight projected increase in average total loans , which we anticipate will be offset by a projected modest decline in the net interest yield and adjusted net interest yield . long-term debt scheduled to mature over the next 12 months totaled $ 1,258 million as of may 31 , 2017 . we believe we have sufficient liquidity from the combination of existing cash and time deposits , member loan repayments , committed bank revolving lines of credit and our ability to issue debt in the capital markets , to our members and in private placements , to meet the demand for member loan advances and satisfy our obligations to repay long-term debt maturing over the next 12 months . as of may 31 , 2017 , we had access to liquidity reserves totaling $ 6,569 million , which consisted of ( i ) $ 393 million in cash and cash equivalents and time deposits , ( ii ) up to $ 725 million available under committed loan facilities under the 25 guaranteed underwriter program , ( iii ) up to $ 3,164 million available under committed bank revolving line of credit agreements , ( iv ) up to $ 300 million available under a committed revolving note purchase agreement with farmer mac , and ( v ) up to $ 1,987 million available under a revolving note purchase agreement with farmer mac , subject to market conditions . we believe we can continue to roll over the outstanding member short-term debt of $ 2,343 million as of may 31 , 2017 , based on our expectation that our members will continue to reinvest their excess cash in our commercial paper , daily liquidity fund select notes and medium-term notes . although we expect to continue accessing the dealer commercial paper market to help meet our liquidity needs , we intend to manage our short-term wholesale funding risk by maintaining outstanding dealer commercial paper at an amount below $ 1,250 million for the foreseeable future . we expect to continue to be in compliance with the covenants under our committed bank revolving line of credit agreements , which will allow us to mitigate our roll-over risk as we can draw on these facilities to repay dealer or member commercial paper that can not be rolled over . while we are not subject to bank regulatory capital rules , we generally aim to maintain an adjusted debt-to-equity ratio at approximately or below 6.00-to-1 . our adjusted debt-to-equity ratio was 5.95 as of may 31 , 2017 . we expect to maintain our adjusted debt-to-equity ratio at approximately 6.00-to-1 over the next 12 months . critical accounting policies and estimates the preparation of financial statements in accordance with gaap requires management to make a number of judgments , estimates and assumptions that affect the amount of assets , liabilities , income and expenses in the consolidated financial statements . understanding our accounting policies and the extent to which we use management 's judgment and estimates in applying these policies is integral to understanding our financial statements . we provide a discussion of our significant accounting policies under “ note 1—summary of significant accounting policies. ” we have identified certain accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters , and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition . our most critical accounting policies and estimates involve the determination of the allowance for loan losses and fair value . we evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions . there were no material changes in the assumptions used in our critical accounting policies and estimates during the current year . management has discussed significant judgments and assumptions in applying our critical accounting policies with the audit committee of our board of directors . see “ item 1a . story_separator_special_tag risk factors ” for a discussion of the risks associated with management 's judgments and estimates in applying our accounting policies and methods . allowance for loan losses we maintain an allowance for loan losses that represents management 's estimate of probable losses inherent in our loan portfolio as of each balance sheet date . our allowance for loan losses , which totaled $ 37 million and $ 33 million as of may 31 , 2017 and 2016 , respectively , includes a collective allowance for all loans in our portfolio that are not individually impaired and a specific allowance for individually impaired loans . collective allowance as part of our credit risk management process , we regularly evaluate each borrower and loan in our loan portfolio and assign an internal risk rating . we engage an independent third party to perform an annual review of a sample of loans to corroborate the internally assigned risk ratings . the collective loss reserve is calculated using an internal model to estimate incurred losses for segments within our loan portfolio that have similar risk characteristics . our loan segments , which are based on member borrower type , are stratified further into loan pools based on the borrower risk rating . we then apply loss factors to the outstanding principal balance of each of these loan pools . the loss factors reflect the probability of default , or default rate , and the loss severity , or recovery rate , over an estimated loss emergence period of five years for each loan pool . we utilize third-party industry default data to estimate default rates . we utilize our historical loss experience for each borrower type , adjusted for management 's judgment , to estimate recovery rates . management may also apply judgment to adjust the loss factors derived from our models , taking into consideration current economic and other conditions and trends 26 that may affect the collectibility of our loan portfolio but are not yet reflected in our model-generated loss factors . we determine the collective allowance by applying the default rate and recovery rate to each loan pool . specific allowance the specific allowance for individually impaired loans that are not collateral dependent is calculated based on the difference between the recorded investment in the loan and the present value of the expected future cash flows , discounted at the loan 's effective interest rate . if the loan is collateral dependent , we measure the impairment based on the current fair value of the collateral less estimated selling costs . loans are considered to be collateral dependent if repayment of the loan is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment . key assumptions determining the appropriateness of the allowance for loan losses is a complex process subject to numerous estimates and assumptions requiring significant management judgment about matters that involve a high degree of subjectivity and are difficult to predict . the key assumptions in determining our collective allowance that require significant management judgment and may have a material impact on the amount of the allowance include our evaluation of the risk profile of various loan portfolio segments and the internally assigned borrower risk ratings ; the estimated loss emergence period ; the selection of third-party proxy data to determine the probability of default ; our historical loss experience and assumptions regarding recovery rates ; and management 's judgment in the selection and evaluation of qualitative factors to assess the overall current level of exposure within our loan portfolio . the key assumptions in determining our specific allowance that require significant management judgment and may have a material impact on the amount of the allowance include estimating the amount and timing of expected cash flows from impaired loans and estimating the value of underlying collateral , each of which impacts loss severity and certain cash flow assumptions . the degree to which any particular assumption affects the allowance for loan losses depends on the severity of the change and its relationship to the other assumptions . we regularly evaluate the underlying assumptions we use in determining the allowance for loan losses and periodically update our assumptions to better reflect present conditions , including current trends in borrower risk and or general economic trends , portfolio concentration risk , changes in risk management practices , changes in the regulatory environment and other factors specific to our loan portfolio segments . we did not change the nature of the underlying assumptions and inputs used in determining our allowance for loan losses during fiscal year 2017 . sensitivity analysis as noted above , our allowance for credit losses is sensitive to numerous factors , depending on the portfolio segment . changes in our assumptions could affect our estimate of probable credit losses inherent in the portfolio at the balance sheet date , which would also impact the related provision for loan losses recognized in our consolidated results of operations . for example , changes in the inputs below , without consideration of any offsetting or correlated effects of other inputs , would have the following effects on our total allowance of loan losses as of may 31 , 2017 . a 10 % increase or decrease in the default rates for all of our portfolio segments would result in a corresponding increase or decrease of approximately $ 3 million . a 1 % increase or decrease in the recovery rates for all of our portfolio segments would result in a corresponding decrease or increase of approximately $ 4 million . a one-notch downgrade in the internal risk ratings for our entire loan portfolio would result in an increase of approximately $ 48 million , while a one-notch upgrade would result in a decrease of approximately $ 21 million . the purpose of these sensitivity analyses is to provide an indication of the isolated impacts of hypothetical alternative assumptions on modeled loss estimates .
| the increase of $ 33 million in our reported net loss of $ 52 million in fiscal year 2016 from the net loss of $ 19 million in fiscal year 2015 was driven by the significant increase in derivative losses of $ 113 million , attributable to the flattening of the swap yield curve , coupled with a reduction of $ 21 million in the benefit recorded for loan losses , a decrease in fee and other income of $ 15 million and an increase in operating expenses of $ 10 million , which together more than offset the favorable impact of the absence of an impairment charge related to caribbean asset holdings , llc ( “ cah ” ) of $ 111 million recorded in fiscal year 2015 and an increase in net interest income of $ 13 million . adjusted non-gaap results our adjusted net income totaled $ 133 million and our adjusted tier was 1.16 for fiscal year 2017 , compared with adjusted net income of $ 170 million and adjusted tier of 1.22 for fiscal year 2016 , and adjusted net income of $ 95 million and adjusted tier of 1.13 for fiscal year 2015 . our adjusted debt-to-equity ratio increased to 5.95 as of may 31 , 2017 , from 5.82 as of may 31 , 2016 , largely due to an increase in debt outstanding to fund asset growth . the decrease in adjusted net income of $ 37 million in fiscal year 2017 from the prior fiscal year was primarily driven by a decrease in adjusted net interest income of $ 32 million , resulting from a reduction in the adjusted interest yield of 19 basis points to 0.86 % , which was partially offset by the increase in average interest-earning assets of 6 % noted above . the increase in adjusted net income of $ 74 million in fiscal year 2016 from
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as such , gross margins for the cequent north america reportable segment may not be comparable to those of our other reportable segments , which primarily rely on third party distributors , for which all costs are included in cost of sales . 26 segment information and supplemental analysis the following table summarizes financial information for our six reportable segments : replace_table_token_4_th 27 replace_table_token_5_th story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > $ 11.9 million to $ 50.8 million in 2011 , from $ 38.9 million in 2010 , primarily as a result of higher sales levels year-over-year , which helped to generate $ 22.0 million increased operating profit . the $ 22.0 million increase in operating profit , plus the $ 7.4 million reduction in interest expense , primarily due to less interest expense recorded on our interest rate swaps , less the $ 4.0 million charge in 2011 for debt extinguishment costs incurred in connection with our u.s. bank debt refinancing , less the $ 2.1 million increase in other expense , net , primarily due to the 2011 charges for the indemnification asset amortization and non-operating fixed asset abandonment , less the $ 11.4 million increase in income taxes , primarily related to higher income levels in 2011 compared to 2010 , all resulted in the increase in net income in 2011 compared to 2010 . see below for a discussion of operating results by reportable segment . packaging . net sales increased approximately $ 14.1 million , or 8.2 % , to $ 185.2 million in 2011 , as compared to $ 171.2 million in 2010 . sales increased approximately $ 15.2 million as a result of the acquisition of innovative molding in august 2011. in addition , net sales were favorably impacted by approximately $ 3.6 million of currency exchange , as our reported results in u.s. dollars were positively impacted as a result of the weaker u.s. dollar relative to foreign currencies . sales of our industrial closures , rings and levers increased approximately $ 0.4 million year-over-year , as increases in the first half of 2011 of approximately $ 6.4 million , primarily as a result of market share gains and the continued general economic recovery , were mostly offset by a decrease in sales of $ 6.0 million during the second half of 2011 , resulting from lower purchases by our north american and european chemical industry customers who slowed their production levels . sales of our specialty systems decreased by approximately $ 5.2 million , primarily due to approximately $ 4.9 million of swine flu-related product sales during the pandemic in 2010 and a pipeline fill of new product introductions at two significant personal care customers in 2010 , both of which did not recur in 2011 . 29 packaging 's gross profit increased approximately $ 4.3 million to $ 74.4 million , or 40.1 % of sales in 2011 , as compared to $ 70.1 million , or 40.9 % of sales in 2010 . although the acquisition of innovative molding added approximately $ 15.2 million of sales in 2011 , it only contributed approximately $ 2.1 million of gross profit , with the low margin primarily due to purchase accounting adjustments primarily related to step-up in value and subsequent amortization of inventory and intangible assets and to planned costs incurred and manufacturing inefficiencies related to the move to a new manufacturing facility . the inclusion of innovative molding 's results of operations , including the purchase accounting and move costs , drove the 80 basis point drop in gross profit margin for this segment . after consideration of changes in gross profit related to the innovative molding acquisition , gross profit increased $ 2.2 million , primarily driven by favorable currency exchange of $ 1.7 million . this segment was able to slightly increase gross profit dollars in its legacy business despite a $ 4.8 million reduction in legacy sales levels after consideration of currency exchange , equating to an approximate 150 basis point improvement in legacy business gross profit margin . this margin improvement was due to the continued savings and efficiencies generated by our continued capital investments , productivity projects and lean initiatives . packaging 's selling , general and administrative expenses increased approximately $ 5.8 million to $ 26.3 million , or 14.2 % of sales in 2011 , as compared to $ 20.5 million , or 11.9 % of sales in 2010 . the increase is attributable to the increase in sales-related and technical resources , travel costs and sales promotions , all of which support our sales growth initiatives , and due to the incremental operating , diligence and other transaction costs associated with acquisition activities . packaging 's operating profit decreased approximately $ 0.7 million to $ 48.1 million , or 25.9 % of sales in 2011 , as compared to $ 48.7 million , or 28.5 % of sales , in 2010 , as the increases in gross profit generated via the capital , productivity and lean projects , the innovative molding acquisition and favorable currency exchange were more than offset by lower gross profit resulting from lower legacy business sales levels and higher selling , general and administrative expenses in support of our growth initiatives and costs incurred associated with acquisition activities . in addition , this segment recorded losses on dispositions of fixed assets of $ 0.9 million in 2010 that did not recur in 2011. operating profit margins declined primarily due to the low margin percentage related to the innovative molding acquisition resulting from the purchase accounting adjustments and costs and inefficiencies related to the move to a new manufacturing facility . energy . net sales in 2011 increased approximately $ 37.7 million , or 29.2 % , to $ 166.8 million , as compared to $ 129.1 million in 2010 . story_separator_special_tag of this increase , approximately $ 18.0 million is due to the acquisition of south texas bolt & fitting in the fourth quarter of 2010 , and approximately $ 7.0 million is due to an increase in our market share of bolts , as certain existing customers have awarded us additional business due to our enhanced specialty bolt manufacturing capabilities as a result of the south texas bolt acquisition . in addition , we generated approximately $ 4.5 million incremental year-over-year sales from our new midland , mi , salt lake city , ut , edmonton , canada and grimsby , uk branch facilities . net sales were also favorably impacted by approximately $ 0.8 million of currency exchange , as our reported results in u.s. dollars were positively impacted as a result of the weaker u.s. dollar relative to foreign currencies . the remainder of the increase is primarily due to increased levels of turn-around activity at refineries and petrochemical plants and increased sales demand from the chemical industry , as customers have begun to perform maintenance work and new programs deferred from 2010 that require our replacement and specialty gaskets and bolts . gross profit within energy increased approximately $ 8.6 million to $ 45.5 million , or 27.3 % of sales , in 2011 , as compared to $ 36.9 million , or 28.6 % of sales , in 2010 , primarily due to higher sales levels between years . gross profit margins declined year-over-year mainly due to a sales mix shift . our new branch sales , which have lower margins due to aggressively pricing products to penetrate new markets in addition to incurring launch costs , including employee training of manufacturing processes , encompass a larger percentage of the total sales in 2011 than in 2010. in addition , this segment experienced a less favorable product sales mix in 2011 than in 2010 , as standard gaskets and bolts , which return lower margins than highly-engineered gaskets and bolts , comprised a larger percentage of net sales . also , gross profit was negatively impacted by the sale of higher-cost inventory in 2011 compared to 2010 , primarily due to increases in steel costs . selling , general and administrative expenses within energy increased approximately $ 3.7 million to $ 25.9 million , or 15.5 % of net sales , in 2011 , as compared to $ 22.2 million or 17.2 % of net sales , in 2010 , primarily in support of our branch facility growth initiatives . however , selling , general and administrative expenses decreased as a percentage of sales due to the continued fixed cost reductions implemented throughout 2010 and 2011 and operating leverage gained on the higher sales levels . overall , operating profit within energy increased approximately $ 5.0 million to $ 19.7 million , or 11.8 % of sales , in 2011 , as compared to $ 14.7 million , or 11.4 % of sales , in 2010 , due principally to the leverage gained by higher sales levels , which was partially offset by an unfavorable mix shift , with the increased new branch sales at lower margins as they penetrate new markets , higher cost inventory sales and higher selling , general and administrative expenses in support of our growth initiatives . operating profit margin improved 40 basis points year-over-year primarily due to the significant increase in sales levels , the majority of which required no additional fixed costs to generate . 30 aerospace & defense . net sales in 2011 increased approximately $ 4.7 million , or 6.3 % , to $ 78.6 million , as compared to $ 73.9 million in 2010 . sales in our aerospace business increased approximately $ 13.7 million , primarily due to higher sales levels in our blind bolt and temporary fastener product lines to our distribution customers , who continue to rebuild their inventory levels from lower levels in 2010 in response to higher build rates by the airplane frame manufacturers . sales in our defense business decreased approximately $ 9.0 million , due to decreases in revenue of approximately $ 6.7 million primarily associated with managing the relocation to and establishment of the new defense facility and $ 2.3 million of revenues primarily related to the maintenance contracts on the former defense facility which ended in the first quarter of 2010. gross profit within aerospace & defense increased approximately $ 2.2 million to $ 29.8 million , or 37.9 % of sales , in 2011 , from $ 27.6 million , or 37.3 % of sales , in 2010 , primarily due to the increase in sales levels year-over year . gross profit margin improved 60 basis points year-over-year , due to a combination of higher margins within our aerospace business , primarily due to productivity initiatives which focused on improving cost of quality via lean manufacturing initiatives , reducing indirect production costs and improving labor efficiencies , and reduced margins in our defense business , due to the shift of sales from a completed maintenance contract in 2010 to all sales in 2011 being generated by the lower margin relocation and establishment of the new defense facility program . selling , general and administrative expenses increased approximately $ 1.6 million to $ 11.1 million , or 14.1 % of sales , in 2011 , as compared to $ 9.5 million , or 12.9 % of sales , in 2010 , primarily due to increased wage and benefit costs incurred in support of our growth initiatives and increased sales commissions , as a higher percentage of our sales in 2011 were subject to third party commission arrangements than in 2010. operating profit within aerospace & defense increased approximately $ 0.6 million to $ 18.6 million , or 23.7 % of sales , in 2011 , as compared to $ 18.1 million , or 24.5 % of sales , in 2010 , as increases in profitability generated by our aerospace business due to productivity initiatives more than offset the reduction in profitability in the defense business and
| the remainder of the increase in sales levels between years was due to the upturn in the economic conditions compared to 2010 , generally aiding sales in all of our reportable segments , our continued market share gains , primarily in the engineered components , energy , and cequent north america reportable segments , our expansion into new markets , primarily in our energy and cequent asia pacific reportable segments and our new product introductions and related growth , primarily in our engineered components and cequent north america reportable segments . gross profit margin ( gross profit as a percentage of sales ) approximated 29.3 % and 30.0 % in 2011 and 2010 , respectively . the decrease in profit margin is attributed primarily to a mix shift , as the reportable segments with lower gross profit margins , engineered components and energy , encompassed a greater percentage of total company sales following their significant increases in sales in 2011 over 2010 compared to the other reportable segments . while we continue to generate significant savings from capital investments , productivity projects , and sourcing and lean initiatives , the savings from those projects has been more than offset by the mix shift , our investment in growth initiatives , economic cost increases and purchase accounting costs associated with acquisitions . 28 operating profit margin ( operating profit as a percentage of sales ) approximated 12.1 % in both 2011 and 2010 . operating profit increased $ 22.0 million , or 20.1 % , to $ 131.3 million in 2011 as compared to $ 109.3 million in 2010 , primarily as a result of the higher sales levels . our operating margins remained flat , as the favorable impact of fixed cost reductions implemented throughout 2010 and 2011 , savings generated by productivity , lean and sourcing initiatives , operating leverage gained on the higher sales levels and lower selling , general and administrative expenses as a percentage of sales , primarily due to the higher sales levels , was effectively offset by the unfavorable sales mix shift between our
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in making decisions regarding our operations , we take into account public and private sector policies and initiatives to reduce the transmission of covid-19 , such as the adoption of mask-wearing protocols , enhanced cleaning protocols and health monitoring , as well as the imposition of travel restrictions , the promotion of social distancing , and the adoption of work-from-home requirements for employees where practicable . all of these policies and initiatives could impact our operations . due to the evolving nature of the covid-19 pandemic , corresponding u.s. government policies and the uncertainty relating to the rollout and timing of vaccines , we are not able at this time to estimate its full impact on our financial results and operations . major customers the principal end user customers of our products and technology are primarily agencies of the u.s. government . since a majority of our sales are , directly or indirectly , to the u.s. government , funding for the purchase of our products and services generally follows trends in u.s. aerospace and defense spending . however , individual u.s. government agencies , which include the military services , nasa , mda , and the prime contractors that serve these agencies , exercise independent purchasing power within `` budget top-line '' limits . therefore , sales to the u.s. government are not regarded as sales to one customer , but rather each contracting agency is viewed as a separate customer . the following table summarizes end user net sales to the u.s. government and its agencies , including net sales to significant customers disclosed below : replace_table_token_5_th the following table summarizes net sales by principal end user in 2020 : replace_table_token_6_th the following table summarizes the percentages of net sales for significant programs , all of which are included in the u.s. government sales and are comprised of multiple contracts : replace_table_token_7_th 23 the following table summarizes customers that represented more than 10 % of net sales , each of which involves sales of several product lines and programs : replace_table_token_8_th * less than 10 % industry update information concerning our industry appears in part i , item 1. business under the caption `` industry overview . '' environmental matters our current and former business operations are subject to , and affected by , federal , state , and local environmental laws and regulations relating to the discharge , treatment , storage , disposal , investigation , and remediation of certain materials , substances , and wastes . see notes 8 ( b ) and 8 ( c ) in the consolidated financial statements in item 8 of this report and `` environmental matters '' below for summary of our environmental reserve activity . capital structure we have a substantial amount of debt for which we are required to make interest and principal payments . interest on long-term financing is not a recoverable cost under our u.s. government contracts . as of december 31 , 2020 , we had $ 624.3 million of debt outstanding . pension plan as of the last measurement date at december 31 , 2020 , the pension assets , projected benefit obligations , and unfunded pension obligation were $ 957.0 million , $ 1,381.5 million , and $ 424.5 million , respectively . we estimate that 82 % of our unfunded pension obligation as of december 31 , 2020 , is related to our u.s. government contracting business , aerojet rocketdyne . we expect to make cash contributions of approximately $ 94 million to our tax-qualified defined benefit pension plan in 2021. we generally are able to recover contributions related to our tax-qualified defined benefit pension plan as allowable costs on our u.s. government contracts , but there are differences between when we contribute to our tax-qualified defined benefit pension plan under pension funding rules and when it is recoverable under cas . accordingly , in 2021 , we expect to recover approximately $ 43 million of our tax-qualified defined benefit pension plan contributions as allowable costs on our u.s. government contracts . the covid-19 pandemic and resulting global disruptions have continued to cause significant economic uncertainty and volatility in financial markets which could adversely impact the funded status of our tax-qualified defined benefit pension plan . the funded status of our pension plan is impacted by the investment experience of the plan assets , by any changes in u.s. law , and by changes in the statutory interest rates used by the tax-qualified pension plan in the u.s. to calculate funding requirements . accordingly , if the performance of our plan assets does not meet our assumptions , if there are changes to the internal revenue service regulations or other applicable law or if other actuarial assumptions are modified , our future contributions to our underfunded pension plan could be higher than we expect . cyber security we routinely defend against various cyber and other security threats against our defenses to protect the confidentiality , integrity and availability of our information technology infrastructure , supply chain , business or customer information and other threats . we are also subject to similar security threats at customer sites that we operate and manage as a contractual requirement . the threats we face range from attacks common to most industries to more advanced and persistent , highly organized adversaries , insider threats and other threat vectors targeting us and other defense and aerospace companies ; because we protect national security information . in addition , cyber threats are evolving , growing in their frequency and include , but are not limited to , malicious software , destructive malware , attempts to gain unauthorized access to data , disruption or denial of service attacks , and other electronic security breaches that could lead to disruptions in mission critical systems , unauthorized release of confidential , personal or otherwise protected information ( ours or that of our employees , customers or partners ) , and corruption of data , networks or systems . story_separator_special_tag we also could be impacted by cyber threats or other disruptions or vulnerabilities found in products we use or in our partners ' or customers ' systems that are used in connection with our business . in response to the covid-19 pandemic , where practicable , we have required employees to work remotely , and expanded our information technology and communication support to enhance their connectivity . we continue to assess our information technology systems and are engaged in cooperative efforts with our customers , suppliers , and subcontractors to seek to minimize the impact of cyber threats , other security threats or business disruptions . 24 story_separator_special_tag standard missile program in 2020 ; ( ii ) cost growth and performance issues in 2020 on the commercial crew development program ; ( iii ) the reserve release upon the final aj-60 solid rocket motor delivery in 2019 ; and ( iv ) higher retirement benefit expense . these factors were partially offset by ( i ) improved performance and risk retirements on the rs-68 , mrbm , and thaad programs and ( ii ) lower depreciation expense . during 2020 , we had $ 45.1 million of net favorable changes in contract estimates on operating results before income taxes compared with net favorable changes of $ 38.4 million during 2019. real estate segment replace_table_token_18_th primary reason for change . net sales consist primarily of rental property operations . the decrease in net sales and segment performance were driven primarily by delays in new tenant starts as a result of the covid-19 pandemic . backlog : as of december 31 , 2020 , our total remaining performance obligations , also referred to as backlog , totaled $ 6.7 billion , compared with $ 5.4 billion as of december 31 , 2019. the increase in backlog was due to a $ 1.8 billion contract modification for the production of an additional 18 rs-25 engines to support future deep space exploration missions . we expect to recognize approximately 32 % , or $ 2.2 billion , of the remaining performance obligations as sales over the next twelve months , an additional 27 24 % the following twelve months , and 44 % thereafter . the following table summarizes backlog : replace_table_token_19_th total backlog includes both funded backlog ( unfilled orders for which funding is authorized , appropriated and contractually obligated by the customer ) and unfunded backlog ( firm orders for which funding has not been appropriated ) . indefinite delivery and quantity contracts and unexercised options are not reported in total backlog . backlog is subject to funding delays or program restructurings/cancellations which are beyond our control . use of non-gaap financial measures : adjusted ebitdap , adjusted net income , and adjusted eps we provide the non-gaap financial measures of our performance called adjusted ebitdap , adjusted net income , and adjusted eps . we use these metrics to measure our operating and total company performance . we believe that for management and investors to effectively compare core performance from period to period , the metrics should exclude items that are not indicative of , or are unrelated to , results from our ongoing business operations such as retirement benefits ( pension and postretirement benefits ) , significant non-cash expenses , the impacts of financing decisions on earnings , and items incurred outside the ordinary , ongoing and customary course of our business . accordingly , we define adjusted ebitdap as gaap net income adjusted to exclude interest expense , interest income , income taxes , depreciation and amortization , retirement benefits net of amounts that are recoverable under our u.s. government contracts , and unusual items which we do not believe are reflective of such ordinary , ongoing and customary activities . adjusted net income and adjusted eps exclude retirement benefits net of amounts that are recoverable under our u.s. government contracts and unusual items which we do not believe are reflective of such ordinary , ongoing and customary activities . adjusted net income and adjusted eps do not represent , and should not be considered an alternative to , net income or diluted eps as determined in accordance with gaap . replace_table_token_20_th _ ( 1 ) the income tax impact is calculated using the federal and state statutory rates in the corresponding year . 28 free cash flow we also provide the non-gaap financial measure of free cash flow . free cash flow is defined as cash flow from operating activities less capital expenditures . free cash flow should not be considered in isolation as a measure of residual cash flow available for discretionary purposes or as an alternative to cash flows from operations presented in accordance with gaap . we use free cash flow , both in presenting our results to stakeholders and the investment community , and in our internal evaluation and management of the business . management believes that this financial measure is useful to investors because it provides supplemental information to assist them in viewing the business using the same tools that management uses to evaluate progress in achieving our goals . the following table summarizes free cash flow : replace_table_token_21_th because our method for calculating these non-gaap measures may differ from other companies ' methods , the non-gaap measures presented above may not be comparable to similarly titled measures reported by other companies . these measures are not recognized in accordance with gaap , and we do not intend for this information to be considered in isolation or as a substitute for gaap measures . environmental matters : our policy is to conduct our businesses with due regard for the preservation and protection of the environment . we devote a significant amount of resources and management attention to environmental matters and actively manage our ongoing processes to comply with environmental laws and regulations . we are involved in the remediation of environmental conditions that resulted from generally accepted manufacturing and disposal practices at certain plants in the 1950s and 1960s .
| the increase in other expense , net was primarily due to an increase of $ 7.8 million in unusual items primarily related to merger costs . for detailed information about unusual expenses refer to note 13 in the consolidated financial statements in item 8 of this report . interest income : replace_table_token_13_th primary reason for change . the decrease in interest income was primarily due to lower market rates partially offset by higher average cash balances . replace_table_token_14_th primary reason for change . the decrease in interest expense was primarily due to lower variable interest rates and average obligations on our senior credit facility . income tax provision : replace_table_token_15_th in 2020 , our effective tax rate was 23.6 % . our effective tax rate differed from the 21 % statutory federal income tax rate primarily due to state income taxes , uncertain tax positions , and certain expenditures which are permanently not deductible for tax purposes , offset by r & d credits and excess tax benefits related to our stock-based compensation . during the fourth quarter of 2020 , the irs released final regulations regarding the timing of income and inclusion under an accrual method of accounting . in accordance with the applicable financial statement cost offset method described within the regulations , we recorded a $ 41.1 million reduction to our uncertain tax positions . as of december 31 , 2020 , the liability for uncertain income tax positions was $ 14.6 million . due to the uncertainty regarding the timing of potential future cash flows associated with these liabilities , we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid . in 2019 , our effective tax rate was 26.5 % . our effective tax rate is higher than the 21 % statutory federal income tax rate primarily due to state income taxes and uncertain tax positions , offset by r & d credits and excess tax benefits related to our stock-based compensation . 26 retirement benefits expense : replace_table_token_16_th primary reason for change . the increase in retirement benefits expense was primarily due to higher actuarial losses in the current period for the
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unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of accumulated other comprehensive income ( loss story_separator_special_tag operations forward-looking statements information included in this annual report on form 10-k may contain forward-looking statements within the meaning of the private securities litigation reform act of 1995. forward-looking statements are not statements of historical facts , but rather reflect our current expectations concerning future events and results . we generally use the words believes , expects , intends , plans , anticipates , likely , will and similar expressions to identify forward-looking statements . such forward-looking statements , including those concerning our expectations , involve risks , uncertainties and other factors , some of which are beyond our control , which may cause our actual results , performance or achievements , or industry results , to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and factors include , but are not limited to , those factors set forth in this annual report on form 10-k under item 1a . risk factors above . except as required by applicable law , including the securities laws of the united states , we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this annual report on form 10-k . in reviewing management 's discussion and analysis of financial condition and results of operations , you should refer to our consolidated financial statements and the notes related thereto . 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 . 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 is 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 and are marked to market quarterly using the black-scholes option valuation 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 . 25 story_separator_special_tag base ( w222 ) , became available in dealer showrooms . certain license fees , which are paid to the company in advance of the accounting period in which they are earned resulting in the recognition of deferred revenue for the current accounting period , which will be recognized as fee income in future periods . also , licensees may offset some or all of their royalty payments on sales of licensed products for a given period by applying these advance payments towards such earned royalty payments . story_separator_special_tag 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 decreased by $ 1,611,074 for the year ended december 31 , 2014 to $ 4,425,718 from $ 6,036,792 for the year ended december 31 , 2013. this decrease was principally the result of lower payroll and related costs ( $ 864,000 ) , plus lower director 's fees and expenses ( $ 569,000 ) and lower marketing costs ( $ 142,000 ) . included in operating expenses are approximately $ 824,000 and $ 2,267,000 of non-cash compensation charges for the years ended december 31 , 2014 and 2013 , respectively . the reduction of non-cash compensation charges for the year ended december 31 , 2014 versus the year ended december 31 , 2013 relates principally to the timing of the company 's annual grant of common stock and options granted to directors , employees and consultants . research and development expenditures decreased by $ 581,362 to $ 1,621,964 for the year ended december 31 , 2014 from $ 2,203,326 for the year ended december 31 , 2013. this decrease was principally the result of lower payroll and related costs ( $ 436,000 ) as well as lower materials and project costs ( $ 94,000 ) . included in research and development expenses are approximately $ 219,000 and $ 648,000 of non-cash compensation charges for the years ended december 31 , 2014 and 2013 , respectively . the reduction of non-cash compensation charges for the year ended december 31 , 2014 versus the year ended december 31 , 2013 relates principally to the timing of the company 's annual grant of common stock and options granted to employees . the company 's net investment income for the year ended december 31 , 2014 was $ 35,161 as compared to $ 38,148 for the year ended december 31 , 2013. the difference was primarily due to interest from lower cash balances available for investment . no income tax benefit or expense was recorded for the years ended december 31 , 2014 and 2013. as a consequence of the factors discussed above , the company 's net loss was $ 4,413,722 ( $ 0.19 per common share ) for the year ended december 31 , 2014 as compared to $ 6,040,611 ( $ 0.26 per common share ) for the year ended december 31 , 2013 . 27 financial condition , liquidity and capital resources the company has primarily utilized its cash , cash equivalents , short-term investments , and the proceeds from its investments to fund its research and development , for marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including , but not limited to , the results of research and development activities , competitive and technological developments , the timing and costs of patent filings , and the development of new licensees and changes in the company 's relationship with existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . during 2015 , the company 's cash and cash equivalents balance decreased by $ 1,857,227 principally as a result of cash used for operations of $ 3,580,812 and cash used for the purchase of property and equipment of $ 316,185 partially offset by cash proceeds from the maturity of a certificate of deposit of $ 1,491,295 as well as net proceeds of $ 548,475 from the exercise of options and warrants . at december 31 , 2015 the company had working capital of $ 8,206,022 and total shareholders ' equity of $ 9,075,805 . during 2014 , the company 's cash and cash equivalents balance increased by $ 1,703,414 principally as a result of cash proceeds from issuances of common stock and exercise of options and warrants of $ 3,583,038 as well as proceeds from sale of short-term investment of $ 5,076,930 partially offset by cash used for operations of $ 3,323,815 , net cash invested in certificates of deposits of $ 3,005,079 and cash used for the purchase of fixed assets of $ 627,660. at december 31 , 2014 , the company had working capital of $ 9,884,877 and total shareholders ' equity of $ 12,082,170. during 2013 , the company 's cash and cash equivalents balance decreased by $ 2,524,110 principally as a result of cash used for operations of $ 3,244,859 , partially offset by proceeds from the exercise of options and warrants of $ 795,294. at december 31 , 2013 , the company had working capital of $ 11,782,967 and total shareholders ' equity of $ 11,869,937. 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
| . royalty revenue levels attributable to sales of the s-class are expected to accelerate in 2016 from a full year of production of these s-class vehicles . cost reductions in the price of spd-smartglass due to production efficiencies were a significant factor enabling this higher production volume . the company expects that lower pricing per square foot of the company 's technology could expand the market opportunities , adoption rates , and revenues for its technology in automotive and non-automotive applications . certain license fees , which are paid to the company in advance of the accounting period in which they are earned resulting in the recognition of deferred revenue for the current accounting period , which will be recognized as fee income in future periods . also , licensees may offset some or all of their royalty payments on sales of licensed products for a given period by applying these advance payments towards such earned royalty payments . as of december 31 , 2015 and december 31 , 2014 , there was no material impact on revenue as a result of recognizing deferred revenue in the consolidated statement of operations . 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 $ 316,448 for the year ended december 31 ,
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after scholarships , our ground traditional students pay tuition , room , board , and fees in an amount that is often half to a third of what it costs to attend a private , traditional university in another state and an amount comparable to what it costs to attend the public universities in the state of arizona as an in-state student . net revenues increased 15.5 % over the prior year primarily due to the enrollment growth and due to an increase in ancillary revenues resulting from the increased traditional student enrollment ( e.g . housing , food , etc. ) . we did not raise tuition in any of our programs for our 2014-2015 academic year and have not raised our tuition for our traditional ground programs in six years . operating income was $ 180.8 million for the fiscal year ended december 31 , 2014 , an increase of 26.2 % over the $ 143.3 million in operating income for 2013 . 44 increased brand recognition . in 2014 , jerry colangelo agreed to have the university honor him as the namesake of its colangelo college of business in addition to our sports management program . mr. colangelo has a long history of success in business and is a well-known fixture in the sports business industry . the university commenced its first year in ncaa division i competition in the 2013/2014 school year by winning two western athletic conference ( wac ) championships ( regular-season softball , indoor track and field ) and , finishing third in the wac in both men 's and women 's basketball . in the 2014/2015 school year , with the expansion of our sports arena , we have had sell out games at maximum capacity of 7,500 at a number of our men 's basketball games . capital expenditures . our capital expenditures in 2014 of $ 168.7 million were primarily related to the expansion of our 205 acre physical campus in phoenix , arizona and significant investments in technology innovation to support our students and staff . in 2014 , we completed three new dormitories , another classroom building , a second parking garage along with two more campus eateries and a 3,000 seat upper deck arena expansion . in addition in late 2014 , we commenced construction on a classroom building for engineering and the center for worship arts , four more student dormitories that should house 3,200 students in the fall of 2015 and another parking garage . these investments are intended to support our growing on-campus student population as well as enhance the brand of the university . community involvement and the public good . in 2014 , the university announced a five-point plan to restore west phoenix through a ) a unique partnership with habitat for humanity to repair hundreds of homes in the university 's neighborhood ; b ) an ongoing initiative with the phoenix police department to improve public safety ; c ) the creation of jobs and commerce on the main campus and along the camelback road corridor in west phoenix ; d ) the development of a trained workforce in the areas of science , technology , engineering and mathematics ; and e ) the continued support of k-12 students at neighborhood schools via our outreach program . our students are serving as tutors and mentors to these high school students and the results thus far have been extremely positive . the university continues to be involved in more than 120 community events and projects throughout the year , helping organizations such as the phoenix dream center , feed my starving children , hopefest , arizona foster care , phoenix rescue mission , boy/girl scouts , goodwill arizona , muscular dystrophy association , young life and elevate phoenix . the university also puts on a fall festival in october that draws more than 5,000 people to campus , and popular gift drives at christmas and easter help brighten those seasons for many underprivileged families . our faculty , staff and students also go out into our surrounding neighborhoods to participate in university sponsored programs such as serve the city , canyon kids , 12 months of service and the run to fight children 's cancer . revenue and enrollment net revenue consists principally of tuition , room and board charges attributable to students residing on our ground campus , application and graduation fees , and fees from educational resources such as access to online materials or commissions we earn from bookstore and publication sales , less scholarships . factors affecting our net revenue include : ( i ) the number of students who are enrolled and who remain enrolled in our courses ; ( ii ) the number of credit hours per student ; ( iii ) our degree and program mix ; ( iv ) changes in our tuition rates ; ( v ) the timing of our ground traditional campus semesters ; ( vi ) the amount of the scholarships that we offer ; and ( vii ) the number of students housed in , and the rent charged for , our on-campus student apartments and dormitories . we define enrollment as individual students who attended a course during the last two months of the calendar quarter . we offer three 15-week semesters in a calendar year with one start available per semester for our traditional ground students . online and professional studies students have more frequent class starts in five- , seven , eight and sixteen-week courses through the calendar year . enrollments are a function of the number of continuing students at the beginning of each period and new enrollments during the period , which are offset by graduations , withdrawals , and inactive students during the period . inactive students for a particular period include students who are not registered in a class and , therefore , are not generating net revenue for that period , but who have not withdrawn from grand canyon university . story_separator_special_tag we believe that the principal factors that affect our enrollments and net revenue are the number and breadth of the programs we offer ; the attractiveness of our program offerings and learning experience , particularly for career-oriented adults who are seeking pay increases or job opportunities that are directly tied to higher educational attainment ; the effectiveness of our marketing , recruiting and retention efforts , which is affected by our brand strength and price point ; the quality of our academic programs and student services ; the convenience and flexibility of our online delivery platform ; the availability and cost of federal and other funding for student financial aid ; the seasonality of our net revenue , which is enrollment driven and is typically lowest in our second fiscal quarter and highest in our fourth fiscal quarter ; and general economic conditions , particularly as they might affect job prospects in our core disciplines . 45 the following is a summary of our student enrollment at december 31 , 2014 , 2013 , and 2012 by degree type and by instructional delivery method : replace_table_token_8_th replace_table_token_9_th ( 1 ) enrollment represents individual students who attended a course during the last two months of the calendar quarter . included in enrollment at december 31 , 2014 , 2013 and 2012 are students pursuing non-degree certificates of 585 , 487 , and 440 , respectively . the 2012 amounts also included high school dual credit students of 229. we are no longer including these students in our enrollment . ( 2 ) includes 5,570 , 4,285 and 3,065 students pursuing doctoral degrees at december 31 , 2014 , 2013 and 2012 , respectively . ( 3 ) as of december 31 , 2014 , 2013 and 2012 , 46.0 % , 43.5 % and 41.9 % , respectively , of our working adult students ( online and professional studies students ) were pursuing graduate or doctoral degrees . ( 4 ) includes our traditional on-campus students , as well as our professional studies students . for the 2013-14 and 2014-15 academic years ( the academic year begins in may ) , our prices per credit hour range from $ 350 to $ 465 for undergraduate online and professional studies courses , $ 325 to $ 600 for graduate online courses , $ 630 for doctoral online programs , and $ 688 for undergraduate courses for ground students . for our active duty and active reserve online and professional studies students , our prices per credit hour are $ 250 for undergraduate , $ 400 for graduate courses and $ 599 for doctoral courses . the overall price of each course varies based upon the number of credit hours per course ( with most courses representing four credit hours ) , the degree level of the program , and the discipline . in addition , we charge a fixed $ 8,250 block tuition for undergraduate ground students taking between 12 and 18 credit hours per semester , with an additional $ 688 per credit hour for credits in excess of 18. a traditional undergraduate degree typically requires a minimum of 120 credit hours . the minimum number of credit hours required for a master 's degree and overall cost for such a degree varies by program , although such programs typically require approximately 36 credit hours . the doctoral program requires approximately 60 credit hours . based on current tuition rates , tuition for a full program would generally equate to between $ 15,300 and $ 36,630 for an online master 's program , between $ 42,000 and $ 55,800 for a full four-year online bachelor 's program , $ 37,800 for a full doctoral program , and approximately $ 66,000 for a full four-year bachelor 's program taken on our ground campus . the tuition amounts referred to above assume no reductions for transfer credits or scholarships , which many of our students utilize to reduce their total program costs . for example , the average student on our ground traditional campus will pay less than $ 8,000 in tuition in the 2014-15 school year after scholarships . thus , based on the number of transfer credits and the scholarships they receive it is likely that a student will pay less than $ 30,000 in tuition for a bachelor 's degree on our ground campus . for the years ended december 31 , 2014 , 2013 and 2012 , our revenue was reduced by approximately $ 140.0 million , $ 111.8 million and $ 94.3 million , respectively , as a result of scholarships that we offered to our students . the increase in scholarships reflects our increased revenues and our resulting increased use of scholarships ( especially academic scholarships ) , to attract high performing students to our ground traditional campus . revenue per student for the year ended december 31 , 2014 increased over 2013 as a result of improved retention and the increase in traditional ground students as a percentage of our total enrollment . revenue per student for our ground traditional students is higher than our working adult students due to room and board and other fees . we did not raise tuition in any of our programs for our 2013-2014 or 2014-15 academic years and have not raised our tuition for our traditional ground program in six years . this reflects a concerted effort to control tuition pricing for students so that debt levels assumed by our students are reasonable . tuition increases have not historically been , and may not in the future be , consistent across our programs due to market conditions and differences in operating costs of individual programs . 46 we derive a majority of our net revenues from tuition financed by the title iv programs . for the years ended december 31 , 2014 , 2013 and 2012 , we derived cash receipts equal to approximately 76.5 % , 78.5 % , and 80.3 % , respectively , of our net revenues from title iv programs .
| although our online enrollment continues to grow , as the proportion of traditional colleges and universities providing alternative learning modalities increases , we will face increasing competition for working adult students from such institutions , including those with well-established reputations for excellence . the growth in revenue per student between years is primarily due to our residential traditional campus enrollment growing at a rate higher than our working adult enrollment . when factoring in room , board and fees , the revenue per student is higher for these students than for our working adult students . instructional costs and services expenses . our instructional costs and services expenses for the year ended december 31 , 2014 were $ 288.8 million , an increase of $ 34.4 million , or 13.5 % , as compared to instructional costs and services expenses of $ 254.4 million for the year ended december 31 , 2013. this increase was primarily due to increases in instructional compensation and related expenses including share-based compensation , faculty compensation , occupancy and depreciation and amortization , dues , fees , subscriptions and other instructional supplies , and other miscellaneous instructional costs and services of $ 10.4 million , $ 8.6 million , $ 8.1 million , $ 6.7 million , and $ 5.5 million . these increases were partially offset by a decrease in bad debt expense of $ 4.9 million which resulted primarily from improved student retention and improved collection efforts . the increase in employee compensation and related expenses and faculty compensation are primarily due to the increase in the number of staff to support the increasing number of students attending the university . in addition , we continue to increase our online full-time faculty between years . the increase in occupancy , depreciation and amortization is the result of us placing into service additional buildings to support the growing number of ground traditional students . the increase in dues , fees , subscriptions and other instructional supplies is primarily due to increased licensing fees related to educational resources and increased food costs associated with a higher number of residential students . our instructional costs and
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, which is referred to as “ gaap. ” the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate these estimates , including those related to stock-based compensation , customer programs and incentives , bad debts , supply inventories , intangible assets , income taxes , contingencies and litigation . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we consider the following accounting policies to be those most important to the portrayal of our financial condition and those that require the most subjective judgment : revenue recognition and deferred revenue the company derives its revenue from four sources : ( 1 ) managed print services revenue ; ( 2 ) equipment revenue ; ( 3 ) software subscription services revenue , which is comprised of subscription fees from customers accessing the company 's enterprise cloud computing services and customers purchasing additional ongoing managed services beyond the standard support that is included in the basic software subscription fees ; and ( 4 ) consulting services such as process mapping , project management and implementation services . the company commences revenue recognition when all of the following conditions are satisfied : · there is persuasive evidence of an arrangement ; · the service has been or is being provided to the customer ; · the collection of the fees is reasonably assured ; and · the amount of fees to be paid by the customer is fixed or determinable . · managed print services and mfd equipment revenue revenue is recognized pursuant to asc topic 605 , “ revenue recognition ” ( asc 605 ) . monthly service and supply revenue is earned monthly during the term of the contract , as services and supplies are provided . revenues from equipment sales transactions are earned when there is persuasive evidence of an arrangement , delivery has occurred , the sales price has been determined and collectability has been reasonably assured . for equipment that is to be placed at a customer 's location at a future date , revenue is deferred until the placement of such equipment . we enter into arrangements that include multiple deliverables , which typically consist of the sale of multi-function device ( “ mfd ” ) equipment and a support services contract . we account for each element within an arrangement with multiple deliverables as separate units of accounting . revenue is allocated to each unit of accounting under the guidance of asc topic 605-25 , multiple-deliverable revenue arrangements , which provides criteria for separating consideration in multiple-deliverable arrangements by establishing a selling price hierarchy for determining the selling price of a deliverable . the selling price used for each deliverable is based on vendor-specific objective evidence ( “ vsoe ” ) if available , third-party evidence if vsoe is not available , or estimated selling price if neither vsoe nor third-party evidence is available . we are required to determine the best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis . we generally do not separately sell mfd equipment or service on a standalone basis . 15 therefore , we do not have vsoe for the selling price of these units . as we purchase the equipment , we have third-party evidence of the cost of this element . we estimate the proceeds from the arrangement to allocate to the service unit based on historical cost experiences . based on the relative costs of each unit to the overall cost of the arrangement , we utilize the same relative percentage to allocate the total arrangement proceeds . · software subscriptions and managed services revenue software subscriptions and managed services revenues are recognized ratably over the contract terms beginning on the commencement date of each contract , which is the date the company 's service is made available to customers . amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue , depending on whether the revenue recognition criteria have been met . the company 's software subscription service arrangements are non-cancelable and do not contain refund-type provisions . · consulting service revenues the majority of the company 's consulting services contracts are on a time and material basis . when these services are not combined with subscription revenues as a single unit of accounting , these revenues are recognized as the services are rendered for time and material contracts , and when the milestones are achieved and accepted by the customer for fixed price contracts . accounts receivable valuation and related reserves we estimate the losses that may result from that portion of our accounts receivable that may not be collectible as a result of the inability of our customers to make required payments . management specifically analyzes customer concentration , customer credit-worthiness , current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts . we review past due accounts on a monthly basis and record an allowance for doubtful accounts where we deem appropriate . new customer implementation costs we ordinarily incur additional costs to implement our services for new customers . these costs are comprised primarily of additional labor and support . story_separator_special_tag these costs are expensed as incurred , and have a negative impact on our statements of operations and cash flows during the implementation phase . impairment of intangible assets the company performs an impairment test of goodwill at least annually or on an interim basis if any triggering events occur that would merit another test . the impairment test first involves assessing qualitative factors to determine if there is a possible impairment and if it is necessary to perform the first step of the two-step impairment test that compares the fair value based on market capitalization of the company with its book value of net assets , including goodwill and intangibles . we have not had to perform step 2 of the impairment test because the fair value has exceeded the carrying amount . for other intangible assets with definite lives , we compare future undiscounted cash flow forecasts prepared by management to the carrying value of the related intangible asset group to determine if there is impairment . stock-based compensation under the fair value recognition provisions of the authoritative guidance , stock-based compensation cost granted to employees is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service or performance period , which is the vesting period . stock options and warrants issued to consultants and other non-employees as compensation for services to be provided to us are accounted for based upon the fair value of the services provided or the estimated fair value of the option or warrant , whichever can be more clearly determined . we currently use the black-scholes option pricing model to determine the fair value of stock options . the determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include our expected stock price volatility over the term of the awards , the expected term of the award , the risk-free interest rate and any expected dividends . compensation cost associated with grants of restricted stock units are also measured at fair value . we evaluate the assumptions used to value restricted stock units on a quarterly basis . when factors change , including the market price of the stock , stock-based compensation expense may differ significantly from what has been recorded in the past . if there are any modifications or cancellations of the underlying unvested securities , we may be required to accelerate , increase or cancel any remaining unearned stock-based compensation expense . 16 income taxes deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting requirements and those imposed under federal and state tax laws . deferred taxes are provided for timing differences in the recognition of revenue and expenses for income tax and financial reporting purposes and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . deferred income tax expense represents the change during the period in the deferred tax assets and liabilities . the components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics . realization of the deferred tax asset is dependent on generating sufficient taxable income in future years . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap , with no need for management 's judgment in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . please see our audited financial statements and notes thereto which begin on page f-1 of this annual report on form 10-k , which contain accounting policies and other disclosures required by gaap and please refer to the disclosures in note 1 of our financial statements for a summary of our significant accounting policies . story_separator_special_tag underline '' > income tax expense income tax expense for the year ended december 31 , 2014 was $ 78,860 and was $ 78,419 for the year ended december 31 , 2013. they were relatively comparable as a result of similar taxable income outcomes for both years . liquidity and capital resources at december 31 , 2014 , our cash and cash equivalents were $ 4,743,395 and our working capital was $ 2,790,005. by comparison , our working capital was $ 253,807 as of december 31 , 2013. our principal cash requirements were for operating expenses , including equipment , supplies , employee costs , and capital expenditures and funding of the operations . our primary sources of cash were from service and equipment sale revenues . during the year ended december 31 , 2014 , cash provided by operating activities was $ 1,480,510 as compared to cash provided by operating activities of $ 2,578,804 for the same period in 2013. our cash generated from operating activities in 2014 was level with earnings while in 2013 our cash generated was greater than earnings due primarily to lowered accounts receivable balances at year end as a result of more successful collection efforts then . 18 we expect to continue to establish recurring revenue contracts to new customers throughout 2015 which we expect to have higher cost of revenues at the
| cost of revenues was $ 35,799,726 for the year ended december 31 , 2014 , as compared to $ 35,294,204 for the same period in 2013. the increase in the cost of revenues in 2014 is attributed primarily to the addition of new recurring service revenue contracts between december 2013 and october 2014. we incurred approximately $ 1,050,000 in additional staffing , approximately $ 200,000 of additional travel costs and approximately $ 1,000,000 in additional service and supply costs , primarily as a result of our new customers . equipment costs decreased by approximately $ 1,700,000 in 2014 , primarily as a result of the decrease in equipment revenues from the copier fleet refresh activities . 17 gross margin increased slightly to 19 % of revenue in 2014 as compared to 18 % in 2013. we saw an improvement in our gross margin from accounts that came on board over the last couple of years that was partially offset by the lower revenue from the drop in sales volume from the existing customers noted above . we anticipate this trend to continue but anticipate an overall increase in cost of revenues sold as a result of the expansion of our customer base . sales and marketing sales and marketing expenses include salaries , commissions and expenses of sales and marketing personnel , travel and entertainment , and other selling and marketing costs . sales and marketing expenses were $ 2,125,085 for the year ended december 31 , 2014 , as compared to $ 2,112,285 for the same period in 2013. staffing costs , including commissions , increased approximately $ 150,000 in 2014 because we increased sales staff headcount . offsetting this , our channel marketing costs decreased approximately $ 110,000 due to the termination of a marketing agreement with a channel partner in mid-2013 . general and administrative general and administrative expenses , which include personnel costs for finance , administration , information systems , and general management , as well as facilities expenses , professional fees , and other administrative costs , increased by $ 646,596 to $ 4,432,374 for the year ended december 31 , 2014. the increase is due to the professional fees incurred to acquire delphiis , inc. in july 2014
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through our online gaia subscription service our subscribers have unlimited access to a vast library of inspiring films , cutting edge documentaries , interviews , yoga classes , transformation related content , and more – 90 % of which is exclusively available to our subscribers for digital streaming on most internet-connected devices . a subscription also allows our subscribers to download and view files from our library without being actively connected to the internet . consumption of streaming video is expanding rapidly with more and more people augmenting their use of , or replacing broadcast television and turning to , streaming video to watch their favorite content on services like netflix , amazon prime , hulu plus , hbo now and gaia . gaia 's position in the streaming video landscape is firmly supported by its wide variety of exclusive and unique content , which provides a complementary offering to other entertainment-based streaming video services . our original content is developed and produced in-house in our production studios near boulder , colorado . over 90 % of our content is available for streaming exclusively on gaia . by offering exclusive and unique content through our streaming service , we believe we will be able to significantly expand our target subscriber base . our available content is currently focused on yoga , transformation , seeking truth and conscious films . this content is specifically targeted to a unique customer base which is interested in alternatives and supplements to the content provided by mainstream media . we have grown these content options both organically through our own productions and through strategic acquisitions . in addition , through our investments in our streaming video technology and our user interface , we have expanded the many ways our subscription customer base can access our unique library of media titles . our core strategy is to grow our subscription business domestically and internationally by expanding our unique and exclusive content library , enhancing our user interface , extending our streaming service to new internet-connected devices as they are developed and creating a conscious community built on our content . 18 we are a colorado corporation . our principal and executive office is located at 833 west south boulder road , suite g , louisville , co 80027-2452. our telephone number at that address is ( 303 ) 222-3600. we maintain an internet website at www.gaia.com . the website address has been included only as a textual reference . our website and the information contained on that website , or connected to that website , are not incorporated by reference into this form 10-k. sale of gaiam brand segment in may 2016 , we sold our 51.4 % interest in natural habitat to lindblad expeditions holdings , inc. ( nasdaq : lind ) for $ 12.8 million and recognized a gain of $ 10.3 million . on july 1 , 2016 , we completed the sale of our branded consumer product business to sequential brands group , inc. ( nasdaq : sqbg ) and its operating partner fit for life llc . gross consideration was $ 167 million and we recognized a gain of $ 114.5 million before taxes . we used the majority of the net proceeds to conduct a share repurchase tender offer and acquired approximately 9,637,000 shares of our class a common stock and 840,000 vested stock options at a fixed price of $ 7.75 per share . the remaining proceeds will be used to fund the continuing growth and development of our business , as well as general corporate purposes . story_separator_special_tag compared to loss from the operation of discontinued operations of $ ( 0.1 ) million during 2014. net income ( loss ) . as a result of the above factors , net income ( including discontinued operations ) was $ ( 11.7 ) million , or $ ( .48 ) per share , during 2015 compared to a net loss of $ ( 9.9 ) million , or $ ( 0.41 ) per share , during 2014. net income ( loss ) was not significantly impacted by either changing prices or inflation . 21 quarterly and seasonal fluctuations the following tables set forth our unaudited results of operations for each of the quarters in 2016 and 2015. in our opinion , this unaudited financial information includes all adjustments , consisting solely of normal recurring accruals and adjustments , necessary for a fair presentation of the results of operations for the quarters presented . you should read this financial information in conjunction with our consolidated financial statements and related notes included elsewhere in this form 10-k. the results of operations for any quarter are not necessarily indicative of future results of operations . replace_table_token_6_th replace_table_token_7_th ( a ) during the third quarter of 2015 , we focused on operating the gaia segment profitably for a quarter . excluding allocated corporate costs and transaction related items , we achieved profitability during this quarter of $ 0.2 million . our subscriber base growth reflects seasonal variations driven primarily by when consumers buy internet-connected devices and , as a result , tend to increase their viewing , similar to those of traditional tv and cable networks . our member growth is generally greatest in the fourth and first quarter ( october through march ) , and slowest in the may through august period . this drives quarterly variations in our spending on customer acquisition efforts , but does not drive a corresponding seasonality in net revenue . critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states , which require us to make judgments , estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . story_separator_special_tag note 2 to the consolidated financial statements in item 8 of this form 10-k summarizes the significant accounting policies and methods used in the preparation of our consolidated financial statements . we believe the following to be critical accounting policies whose application has a material impact on our financial presentation , and involve a higher degree of complexity , as they require us to make judgments and estimates about matters that are inherently uncertain . 22 media library media library represents the lower of unamortized cost or net realizable value of digital media content acquired through asset purchases , capitalized costs to produce our proprietary media content , and rights obtained through license arrangements and business combinations . the value of our acquired media library consists of the fair value of media assets obtained through asset acquisitions and business combinations recorded at the estimated fair value of the titles acquired , which is based on a number of factors , including the number of titles , the total hours of content , the production quality and age of the acquired media assets . our licensed media library is obtained through license arrangements . generally , we pay an advance against a percentage royalty or an upfront license fee in exchange for the distribution rights for a specific license window , but we may also obtain a license for a fixed fee for perpetuity . these payments are capitalized at the time of payment . certain agreements also include an ongoing royalty obligation , which entitles the licensor to a share of the revenues generated from the licensed works . these expenses are calculated and accrued on a monthly basis and included in costs of streaming . we pay these accrued royalties on a quarterly basis and therefore have included the related liability in accounts payable and accrued liabilities . the value of our produced media library consists of capitalized costs incurred to produce original media content , including salary and overhead costs of our in-house production team and other third-party costs . we amortize our media library in cost of streaming on a straight-line basis over the shorter of the license period or the estimated useful life of the titles , which typically ranges from 12 to 90 months . the amortization period begins with the first month of availability on our service . management reviews content viewership to determine whether viewing patterns correlate with initial estimates supporting the amortization period utilized . if current estimates indicate that viewing is significantly higher in earlier periods relative to the remaining amortization period , we will begin amortizing the respective titles on an accelerated basis over the amortization period . based on this analysis , no additional amortization was recorded during 2016 , 2015 or 2014. our media library is reviewed for impairment when an event or change in circumstances indicates that the carrying amount of the media library may not be recoverable . recoverability of the media library is measured by a comparison of the carrying amount of the media library to estimated undiscounted future cash flows expected to be generated by the media library . if the carrying amount of the media library exceeds its estimated future cash flows , an impairment charge is recognized by the amount by which the carrying value of the media library exceeds its fair value . goodwill goodwill represents the excess of the purchase consideration over the estimated fair value of assets acquired less liabilities assumed in a business acquisition . we have only one reporting unit ; therefore , goodwill is assessed at the enterprise level . we review goodwill for impairment annually as of december 31. we have the option of first assessing qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the estimated fair value of goodwill is less than its carrying amount . if it is determined that the fair value for goodwill is more likely than not greater than the carrying amount for goodwill , then the two-step impairment test is unnecessary . if it is determined that the two-step impairment test is necessary , then for step one , we compare the estimated fair value of goodwill with its carrying amount , including goodwill . if the estimated fair value of goodwill exceeds its carrying amount , we consider the goodwill to not be impaired . if the carrying amount of goodwill exceeds its estimated fair value , we perform the second step of the goodwill impairment test to measure the amount of impairment loss . we use either a comparable market approach or a traditional present value method to test for potential impairment . the process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis . application of alternative assumptions and definitions could yield significantly different results . during 2016 , 2015 and 2014 , no impairment of goodwill was indicated . 23 income taxes and deferred tax balances deferred income tax assets and liabilities are recorded with respect to temporary differences in the accounting treatment of items for financial reporting purposes and for income tax purposes . where , based on the weight of available evidence , it is more likely than not that some amount of recorded deferred tax assets will not be realized , a valuation allowance is established for the amount that , in management 's judgment , is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized . a tax position must meet a minimum probability threshold before a financial statement benefit is recognized .
| corporate , general and administration expenses decreased $ 0.5 million , or 7.3 % , to $ 6.0 million during 2016 from $ 6.5 million during 2015 and , as a percentage of net revenue , decreased to 34.9 % during 2016 from 48.3 % during 2015. the decrease was primarily due to the elimination of duplicate costs upon the sale of the gaiam brand business on july 1 , 2016 , offset by increased costs associated with legal and accounting fees . income ( loss ) from discontinued operations . the operations of the gaiam brand segment are included in income ( loss ) from discontinued operations . we completed the sale of the gaiam brand business and natural habitat during 2016 , recognizing a gain of $ 114.5 million , which was offset by transaction costs , taxes and losses from the operation of discontinued operations of $ ( 16.7 ) million , compared to losses from the operation of discontinued operations of $ ( 2.7 ) million in 2015 . 20 net income ( loss ) . as a result of the above factors , net income ( including discontinued operations ) was $ 87.1 million , or $ 4.39 per share , for 2016 compared to a net loss of $ ( 11.7 ) million , or $ ( 0.48 ) per share , for 2015. net income ( loss ) was not significantly impacted by either changing prices or inflation . year ended december 31 , 2015 compared to year ended december 31 , 2014 net revenue . net revenue increased $ 2.7 million , or 25.2 % , to $ 13.5 million during 2015 , compared to $ 10.8 million during 2014. net revenue from streaming increased $ 2.7 million , or 33.7 % , to $ 10.8 million during 2015 from $ 8.1 million during 2014. the increase in streaming revenues was primarily driven by 58 % growth in the number of paying subscribers from 2014. net revenues were not significantly impacted by either changing prices or inflation . cost of goods sold . cost of goods sold increased $ 0.6 million , or 27.6 % , to $ 2.6 million during 2015 from $ 2.0 million during 2014. cost of goods sold for streaming increased $ 0.6
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the level of our hedging activity and the duration of the instruments employed depend upon our view of market conditions , available hedge prices and our operating strategy . story_separator_special_tag haynesville shale wells aggregated approximately 39,400 mcfe per day in 2013 , or approximately 52 % of our total oil and natural gas production for the year . in 2014 , we plan to spend approximately $ 15- $ 20 million to conduct drilling operations on 1-2 gross wells in our angelina river/ shelby trough trend . core haynesville shale our core haynesville shale acreage is primarily concentrated in the bethany-longstreet and greenwood-waskom fields in caddo and desoto parishes in northwest louisiana . our core haynesville shale drilling activity includes both operated and non-operated drilling in and around our core acreage positions in northwest louisiana . we currently hold approximately 61,000 gross ( 39,000 net ) acres as of december 31 , 2013. our net production volumes from our core haynesville shale wells totaled approximately 32,700 mcfe per day in 2013 , or approximately 43 % of our total production for the year . 37 index to financial statements shelby trough / angelina river trend we operate all of our acreage in this area , which is primarily located in nacogdoches , angelina and shelby counties , texas . we held approximately 32,000 gross ( 25,000 net ) acres as of december 31 , 2013. our net production volumes from our shelby trough wells totaled approximately 4,000 mcfe per day in 2013 , or approximately 5 % of our total production for the year . results of operations for the year ended december 31 , 2013 , we reported net loss applicable to common stock of $ 113.8 million , or $ 2.99 per share ( basic and diluted ) , on operating revenues of $ 203.3 million . this compares to net loss applicable to common stock of $ 90.2 million , or $ 2.48 per share ( basic and diluted ) , for the year ended december 31 , 2012 and net loss applicable to common stock of $ 37.8 million , or $ 1.05 per share ( basic and diluted ) , for the year ended december 31 , 2011. the following table reflects our summary operating information for the periods presented in thousands except for price and volume data . because of normal production declines , increased or decreased drilling activity and the effects of acquisitions or divestitures , the historical information presented below should not be interpreted as indicative of future results . replace_table_token_15_th oil and natural gas revenue oil and natural gas revenues increased in 2013 compared to 2012 reflecting an increase in oil and condensate production and an increase in our average realized sales prices , partially offset by a decline in natural gas production . the increases in oil production and realized sales prices compared to 2012 contributed 38 index to financial statements approximately $ 39.1 million to the increase in oil and natural gas revenue partially offset by decreased natural gas production compared to 2012 of approximately $ 17.1 million . during 2013 , we focused on increasing oil production , which we are able to sell at a more favorable relative price than natural gas . in 2013 , 67 % of our oil and natural gas revenue was attributable to oil compared to 61 % in 2012. the difference between our average realized prices inclusive of hedge realizations in the years ended december 31 , 2013 and 2012 relates to our oil and natural gas swap contracts . during 2013 , we had 10,000 mmbtus per day hedged only for the fourth quarter of 2013 at a floor price of $ 4.18 per mmbtu and during the full year of 2012 we had 60,000 mmbtus per day hedged at a floor price of $ 5.78 per mmbtu . during 2013 , we had an average of 3,626 bbls per day hedged at an average fixed price of $ 94.65 per bbl . during 2012 , we had 3,500 bbls per day hedged at an average fixed price of $ 100.12 per bbl . our oil and natural gas revenues decreased in 2012 compared to 2011 reflecting a net decrease in production , partially offset by a net increase in average realized sales prices . the decrease in net production compared to 2011 contributed approximately $ 49.5 million to the decrease in oil and natural gas revenue partially offset by the increase in average realized sales price compared to 2011 of approximately $ 29.6 million . we focused on drilling oil wells in 2012 resulting in a corresponding decline in our natural gas production . the average realized sales price increase of 15 % in 2012 was led by the increased oil production which we sold at a more favorable relative price than our natural gas production . in 2012 , 61 % of our oil and natural gas revenue was attributable to oil revenue compared to 29 % in 2011. the difference between our average realized prices inclusive of the hedge realizations in the year ended december 31 , 2012 and 2011 periods relates to our natural gas and oil swap contracts . during 2012 , we had 60,000 mmbtus per day hedged at a floor price of $ 5.78 per mmbtu and during 2011 we had 40,000 mmbtus per day hedged at a floor price of $ 6.00 per mmbtu . during 2012 , we had 3,500 bbls per day hedged at an average fixed price of $ 100.12 per bbl and during 2011 we had 2,000 bbls per day hedged at an average fixed price of $ 100.20 per bbl . operating expenses our operating expenses in 2013 include $ 4.4 million of dry hole expense and lease expirations of $ 11.5 million . when eliminating these items from the operating expenses in both 2013 and 2012 , the adjusted operating expense of $ 223.7 million in 2013 decreased 3 % , or $ 8.0 million , from adjusted operating expense of $ 231.7 story_separator_special_tag million in 2012. this decrease in operating expenses is driven by decreased depreciation , depletion and amortization ( dd & a ) expense . our operating expenses in 2012 included a $ 47.8 million asset impairment , $ 12.8 million dry hole expense , other expense of $ 0.1 million and a gain on the sale of assets of $ 44.6 million . when eliminating these items from the operating expenses in both 2012 and 2011 , the adjusted operating expense of $ 228.4 million in 2012 increased 9 % , or $ 18.6 million , from adjusted operating expense of $ 209.8 million in 2011. this increase in operating expenses was driven by increased dd & a expense . replace_table_token_16_th 39 index to financial statements replace_table_token_17_th lease operating expense our lease operating expense ( loe ) during 2013 included an expense of $ 6.0 million in workover costs which added $ 0.22 per mcfe to unit expense . our loe during 2012 included $ 4.3 million in workover costs , which added $ 0.13 per mcfe to unit expense . loe excluding workover expense decreased in 2013 compared to 2012. the absence of $ 2.1 million in loe for the south henderson field , which we sold in late september 2012 , was partially by offset by increased expense related to oil production . our loe will generally trend higher as we add more oil wells to our well count which carry higher operating costs than natural gas wells . oil contributed 29 % to our equivalent production volumes in 2013 compared to 21 % in 2012. our loe during 2012 included an expense of $ 4.3 million in workover costs which added $ 0.13 per mcfe to unit expense compared to only $ 0.3 million in 2011. loe excluding workover expense decreased in 2012 compared to 2011. the absence of $ 0.6 million in loe for the south henderson field , which we sold in late september 2012 , was partially by offset by increased expense related to oil production . our loe will generally trend higher as we add more oil wells to our well count which carry higher operating costs than natural gas wells . oil contributed 21 % to our equivalent production volumes in 2012 compared to 10 % in 2011. production and other taxes our production and other taxes for the year 2013 include production tax of $ 7.4 million and ad valorem tax of $ 2.4 million . we did not earn any tax credits in 2013 attributed to tight gas sands ( tgs ) credits for our wells in the state of texas . production and other taxes for the year 2012 include production tax of $ 5.6 million and ad valorem tax of $ 2.5 million . production tax in 2012 is net of $ 1.6 million of tax credits attributed to tgs credits . production and other taxes for the year 2011 include production tax of $ 3.9 million and ad valorem tax of $ 1.6 million . production tax in 2011 is net of $ 1.6 million of tax credits attributed to tgs credits . the higher production tax for both periods relate to the increasing portion of our production coming from eagle ford shale oil wells , which are not exempt from texas severance tax , and the expiration of the louisiana tax exemption on certain of our horizontal natural gas wells . the tgs tax credits allow for reduced and in many cases the complete elimination of severance taxes in the state of texas for qualifying wells for up to ten years of production . we only accrue for such credits once we have been notified of the state 's approval . the louisiana horizontal wells are eligible for a two year severance tax exemption from the date of first production or until payout of qualified costs , whichever is first . the state of mississippi has enacted an exemption from the existing 6 % severance tax for horizontal wells drilled after july 1 , 2013 with production commencing before july 1 , 2018 , which will be partially offset by a 1.3 % local severance tax on such wells . the exemption is applicable until the earlier of ( i ) 30 months beginning on the date of first sale of production or ( ii ) until payout of the well cost is achieved . we expect the net revenues from our future wells drilled in our tuscaloosa marine shale acreage in southwestern mississippi to be favorably impacted by this exemption . transportation and processing the sale of the south henderson field in september 2012 , which contributed $ 2.3 million of expense in 2012 , and overall lower natural gas production , which carries substantially all of our transportation and processing cost , decreased our transportation and processing expense in 2013 compared to 2012 . 40 index to financial statements our transportation and processing expense increased in 2012 compared to 2011. the increase in expense was partially a result of higher gathering costs related to our gas production from the eagle ford shale trend wells but more predominately related to the renegotiation of certain natural gas gathering and processing contracts . we pay higher gathering and processing fees on our gas production from our eagle ford shale trend wells , as compared to our gas production from our haynesville shale wells , however , we also receive higher prices for our gas production from our eagle ford shale trend wells due to the presence of natural gas liquids .
| in october 2013 , we completed our underwritten public offering of 6,900,000 shares of our common stock at $ 25.25 per share . we intend to use the net proceeds from the offering of approximately $ 166.1 million to the fund the acceleration of our drilling program in the tms . 36 index to financial statements eagle ford shale trend we entered into the eagle ford shale trend in april 2010 , with our leasehold position located in la salle and frio counties , texas . we held approximately 45,000 gross ( 30,000 net ) acres as of december 31 , 2013 , all of which are either producing from or prospective for the eagle ford shale trend . during 2013 , we conducted drilling operations on approximately 16 gross ( 11 net ) eagle ford shale trend wells . in 2014 , we plan to spend approximately $ 45 million , representing approximately 12 % of our 2014 capital budget , to conduct drilling operations on eight gross ( five net ) wells in the eagle ford shale trend . tuscaloosa marine shale trend we held approximately 415,000 gross ( 306,000 net ) acres in the tms as of december 31 , 2013. our acreage is located in southeastern louisiana and southwestern mississippi . since december 31 , 2012 , we have added approximately 257,000 gross ( 172,000 net ) acres in the trend . in august 2013 , we closed on the acquisition of a 66.7 % working interest in producing assets and approximately 277,000 gross acres in the tms from devon , with an effective date of march 1 , 2013. the remaining 33.3 % working interest owner in the producing assets and leasehold has elected to retain its interest and participate with us in developing the assets . we will prioritize the acreage , with the ultimate number of retained acreage to be based on geologic location , timing and amount of lease extension payments and the overall future success of the play . the closing price after purchase price adjustments was
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to common stockholders , which i s ffo attributable to common stockholders adjusted to exclude : penalties ; written-off deferred financing costs ; non-real estate-related impairment losses ; income tax benefits or provisions associated with the application of net operating loss carryforwards ; and any other identified adjustments . revenues . substantially all of our revenues are derived from the operation of our hotels . specifically , our revenues consist of the following : · room revenue , which is the product of the number of rooms sold and the adr ; · food and beverage revenue , which is comprised of revenue realized in the hotel food and beverage outlets as well as banquet and catering events ; and · other operating revenue , which includes ancillary hotel revenue and other items primarily driven by occupancy such as telephone /internet , parking , spa , resort and other facility fees , entertainment and other guest services . additionally , this category includes , among other things , attrition revenue and tenant revenue derived from hotel space leased by third parties , as well as operating revenue from buyefficient prior to its sale in september 2015 . expenses . our expenses consist of the following : · room expense , which is primarily driven by occupancy and , therefore , has a significant correlation with room revenue ; · food and beverage expense , which is primarily driven by food and beverage sales and banquet and catering bookings and , therefore , has a significant correlation with food and beverage revenue ; · other operating expense , which includes the corresponding expense of other operating revenue , advertising and promotion , repairs and maintenance , utilities , and franchise costs ; · property tax , ground lease and insurance expense , which includes the expenses associated with property tax , ground lease and insurance payments , each of which is primarily a fixed expense , however property tax is subject to regular revaluations based on the specific tax regulations and practices of each municipality ; · property general and administrative expense , which includes our property-level general and administrative expenses , such as payroll and related costs , contract and professional fees , credit and collection expenses , employee recruitment , relocation and training expenses , management fees and other costs . additionally , this category includes general and administrative expense s , including severance , f rom buyefficient prior to its sale in september 2015 ; · corporate overhead expense , which includes our corporate-level expenses , such as payroll and related costs , amortization of deferred stock compensation , acquisition and due diligence costs , legal expenses , contract and professional fees , relocation , entity-level state franchise and minimum taxes , travel expenses , office rent and other costs ; and 38 · depreciation and amortization expense , which includes depreciation on our hotel buildings , improvements , furniture , fixtures and equipment , along with amortization on our franchise fees and certain intangibles . additionally , this category includes depreciation and amortization related to furniture , fixtures , and equipment ( “ ff & e ” ) for both our corporate office and buyefficient , as well as buyefficient 's i ntangible asset s prior to its sale in september 2015 . other revenue and expense . other revenue and expense consists of the following : · interest and other income , which includes interest we have earned on our restricted and unrestricted cash accounts and the 11.0 % equity investment we received from the buyer in conju n ction with our 2013 sale of four hotels and a laundry facility in rochester , minnesota ( the “ preferred equity investment ” ) prior to its sale in july 2015 , as well as any energy rebates we have received or any gains or losses we have recognized on sales or redemptions of assets other than real estate investments ; · interest expense , which includes interest expense incurred on our outstanding fixed and variable-rate debt and capital lease obligation , gains or losses on our derivatives , amortization and write-off of deferred financing fees , accretion of our operating partnership 's 4.6 % exchangeable senior notes ( the “ senior notes ” ) that were repurchased in 2013 , and any loan fees incurred on our debt ; · loss on extinguishment of debt , which includes loss es we recognized on amendments or early repayments of mortgages or other debt obligations , along with any fees incurred ; · gain on sale of asset s , which includes the gain s we recognized on our sale s of buyefficient and the doubletree guest suites times square , as neither of th ese sale s represent ed a strategic shift that had a major impact on our business plan or our primary markets , and therefore , neither sale qualif ied as a discontinued operation ; · income tax provision , which includes federal and state income taxes related to continuing operations charged to the company net of any refunds received , and any adjustments to unrecognized tax positions , along with any related interest and penalties incurred ; · income from discontinued operations , net of tax , which includes the results of operations for any hotels or other real estate investments sold during the reporting period , along with the gain or loss realized on the sale of these assets and any extinguishments of related debt or income tax provisions ; · income from consolidated joint venture s attributable to n oncontrolling interest s , which includes net income attributable to the outside 25.0 % interest in the joint venture that owns the hilton san diego bayfront , as well as preferred dividends , including related administrative fees , earned by preferred investors on their $ 0.1 million preferred equity interest in a subsidiary captive reit that owns the doubletree guest suites times square prior to its sale in december 2015 ; and · preferred stock dividends and redemption charges , which story_separator_special_tag includes dividends earned on our 8.0 % series a cumulative redeemable preferred stock ( “ series a preferred stock ” ) until their redemption in march 2013 , series c cumulative convertible redeemable preferred stock ( “ series c preferred stock ” ) until their redemption in may 2013 , and 8.0 % series d cumulative redeemable preferred stock ( “ series d preferred stock ” ) , as well as redemption charges for preferred stock redemptions made in excess of net carrying values . factors affecting our operating results . the primary factors affecting our operating results include overall demand for hotel rooms , the pace of new hotel development , or supply , and the relative performance of our operators in increasing revenue and controlling hotel operating expenses . · demand . the demand for lodging generally fluctuates with the overall economy . in aggregate , d emand for our hotels has improved each year since 2010. in 201 4 , our comparable portfolio revpar increased 7.6 % as compared to 201 3 , with a 2 0 0 basis point increase in portfolio occupancy and a 5.0 % increase in adr . while a portion of the improvement in our operating statistics in 2014 as compared to 2013 was due to occupancy 39 improvements at the four hotels under renovation during 2013 , this improvement was muted by the negative impact of renovations at four of our hotels during 2014. these improving d emand trends continued in 201 5 . as a result , our comparable portfolio revpar increased 5.6 % in 201 5 as compared to 201 4 , with a 40 basis point increase in portfolio occupancy and a 5.1 % increase in adr . · supply . the addition of new competitive hotels affects the ability of existing hotels to absorb demand for lodging and therefore drive revpar and profits . the development of new hotels is largely driven by construction costs and expected performance of existing hotels . in aggregate , we expect the u.s. hotel supply will remain slightly below historic levels over the near term . on a market-by-market basis , some markets may experience new hotel room openings at or greater than historic levels , including in new york city , washington dc and chicago where there are currently higher-than-average supplies of new hotel room openings . · revenues and expenses . we believe that marginal improvements in revpar index , even in the face of declining revenues , are a good indicator of the relative quality and appeal of our hotels , and our operators ' effectiveness in maximizing revenues . similarly , we also evaluate our operators ' effectiveness in minimizing incremental operating expenses in the context of increasing revenues or , conversely , in reducing operating expenses in the context of declining revenues . with respect to improving revpar index , we continue to work with our hotel operators to optimize revenue management initiatives while taking into consideration market demand trends and the pricing strategies of competitor hotels in our markets . we also develop capital investment programs designed to ensure each of our hotels is well renovated and positioned to appeal to groups and individual travelers fitting target guest profiles . increased capital investment in our properties may lead to short-term revenue disruption and negatively impact revpar index . our revenue management initiatives are generally oriented towards maximizing adr even if the result may be lower occupancy than may be achieved through lower adr . increases in revpar attributable to increases in adr may be accompanied by minimal additional expenses , while increases in revpar attributable to higher occupancy may result in higher variable expenses such as housekeeping , labor and utilities expense . in 2014 , our comparable portfolio revpar index increased by 150 basis points as compared to the same period in 2013 due in part to a reduction in renovation displacement and the effect of newly-implemented resort fees in 2014. in 2015 , our comparable portfolio revpar index increased by 50 points as compared to 2014 due in part to increased revenue at our newly renovated hotels , partially offset by renovation disruption at the boston park plaza and the wailea beach marriott resort & spa . w e continue to work with our operators to identify operational efficiencies designed to reduce expenses while m inimally affecting guest experience and hotel employee satisfaction . key asset management initiatives include optimizing hotel staffing levels , increasing the efficiency of the hotels , such as installing energy efficient management and inventory control systems , and selectively combining food and beverage outlets . our operational efficiency initiatives may be difficult to implement , as most categories of variable operating expenses , such as utilities and housekeeping labor costs , fluctuate with changes in occupancy . furthermore , our hotels operate with significant fixed costs , such as general and administrative expense , insurance , property taxes , and other expenses associated with owning hotels , over which our operators have little control . we have experienced either currently or in the past , increases in hourly wages , employee benefits ( especially health insurance ) , utility costs and property insurance , which have negatively affected our operating margins . moreover , there are limits to how far our operators can reduce expenses without affecting brand standards or the competitiveness of our hotels . operating results . the following table presents our operating results for our total portfolio for the years ended december 31 , 201 5 and 201 4 , including the amount and percentage change in the results between the two periods . the table presents the results of operations included in the consolidated statements of operations . 40 replace_table_token_6_th the following table presents our operating results for our total portfolio for the years ended december 31 , 201 4 and 201 3 , including the amount and percentage change in the results between the two periods . the table presents the results of operations included in the consolidated statements of operations .
| in may 2015 , we repaid $ 99.1 million of debt secured by four of our hotels , the marriott houston , the marriott park city , the marriott philadelphia and the marriott tysons corner . in september 2015 , we sold buyefficient for a net sale price of $ 26.4 million . we recognized a net gain on the sale of $ 11.7 million . the sale did not represent a strategic shift that had a major impact on our business plan or our primary markets , and therefore , did not qualify as a discontinued operation . coterminous with the sale of buyefficient , we wrote off $ 8.4 million of goodwill , along with net intangible assets of $ 6.2 million related to certain trademarks , customer and supplier relationships and intellectual property related to internally developed software . in addition , we recognized $ 1.6 million in severance costs related to the sale of buyefficient , which , along with the write offs of goodwill and net intangible assets , reduced the gain we recognized on the sale of buyefficient . 36 in december 2015 , we repaid the $ 30.7 million loan secured by the hilton north houston , which loan was scheduled to mature in march 2016. we funded the repayment of the loan using cash on hand . in december 2015 , we entered into a term loan agreement , which provide d us with a six month period within which we ha d the option to borrow up to $ 100.0 million . we dr e w the available $ 100.0 million in january 2016 , and use d the proceeds in february 2016 , combined with cash on hand , to repay the loan secured by the boston park plaza , wh ich had a balance of $ 114.2 million as of december 31 , 2015. the boston park plaza loan was scheduled to mature in february 2018 , but could be repaid without penalty in february 2016. the $ 100.0 million unsecured term loan matures
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the use of different estimates or assumptions could produce different provisions for loan losses . goodwill . management utilizes numerous techniques to estimate the value of various assets held by the company , including methods to determine the appropriate carrying value of goodwill as required under financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) topic 350 `` intangibles – goodwill and other . '' goodwill from purchase acquisitions is subject to ongoing periodic evaluation for impairment . mortgage servicing rights . the valuation of mortgage servicing rights is a critical accounting policy which requires significant estimates and assumptions . the bank often sells mortgage loans it originates and retains the ongoing servicing of such loans , receiving a fee for these services , generally 0.25 % of the outstanding balance of the loan per annum . mortgage servicing rights are recognized at fair value when they are acquired through the sale of loans , and are reported in other assets . they are amortized into non-interest income in proportion to , and over the period of , the estimated future net servicing income of the underlying financial assets . the rights are subsequently carried at the lower of amortized cost or fair value . management uses an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value . the most important assumption is the anticipated loan prepayment rate , and increases in prepayment speed results in lower valuations of mortgage servicing rights . the valuation also includes an evaluation for impairment based upon the fair value of the rights , which can vary depending upon current interest rates and prepayment expectations , as compared to amortized cost . impairment is determined by stratifying rights by predominant characteristics , such as interest rates and terms . the use of different assumptions could produce a different valuation . all of the assumptions are based on standards the company believes would be utilized by market participants in valuing mortgage servicing rights and are consistently derived and or benchmarked against independent public sources . other-than-temporary impairment on securities . one of the significant estimates related to investment securities is the evaluation of other-than-temporary impairments . the evaluation of securities for other-than-temporary impairments is a quantitative and qualitative process , which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings . the risks and uncertainties include changes in general economic conditions , the issuer 's financial condition and or future prospects , the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses . securities that are in an unrealized loss position are reviewed at least quarterly to determine if other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures . the primary factors considered in evaluating whether a decline in value of securities is other-than-temporary include : ( a ) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security , ( b ) the financial condition , credit rating and future prospects of the issuer , ( c ) whether the debtor is current on contractually obligated interest and principal payments , ( d ) the volatility of the securities ' market price , ( e ) the intent and ability of the company to retain the investment for a period of time sufficient to allow for recovery , which may be at maturity and ( f ) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred , including the expectation of receipt of all principal and interest when due . use of non-gaap financial measures certain information in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report contains financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . management uses these `` non-gaap '' measures in its analysis of the company 's performance and believes that these non-gaap financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period . the company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance . management believes that investors may use these non-gaap financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the company 's underlying performance . these disclosures should not be viewed as a substitute for operating results determined in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . in several places in this report , net interest income is presented on a fully taxable equivalent basis . specifically included in interest income was tax-exempt interest income from certain investment securities and loans . an amount equal to the tax benefit derived from this tax exempt income has been added back to the interest income total , which adjustments increased net interest income accordingly . management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis , and is particularly useful to investors in understanding and evaluating the changes and trends in the company 's results of operations . other financial institutions commonly present net interest income on a tax-equivalent basis . the first bancorp - 2015 form 10-k - page 26 this adjustment is considered helpful in the comparison of one financial institution 's net interest income to that of another institution , as each will have a different proportion of tax-exempt interest from its earning assets . story_separator_special_tag moreover , net interest income is a component of a second financial measure commonly used by financial institutions , net interest margin , which is the ratio of net interest income to average earning assets . for purposes of this measure as well , other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution . the company follows these practices . the following table provides a reconciliation of tax-equivalent financial information to the company 's consolidated financial statements , which have been prepared in accordance with gaap . a 35.0 % tax rate was used in 2015 , 2014 and 2013 . replace_table_token_5_th the company presents its efficiency ratio using non-gaap information which is most commonly used by financial institutions . the gaap-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the consolidated statements of income and comprehensive income . the non-gaap efficiency ratio excludes securities losses from noninterest expenses , excludes securities gains from noninterest income , and adds the tax-equivalent adjustment to net interest income . the following table provides a reconciliation between the gaap and non-gaap efficiency ratio : replace_table_token_6_th the company presents certain information based upon average tangible common shareholders ' equity instead of total average shareholders ' equity . the difference between these two measures is the company 's intangible assets , specifically goodwill from prior acquisitions , and preferred stock . management , banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets , typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions . the following table provides a reconciliation of tangible average shareholders ' equity to the company 's consolidated financial statements , which have been prepared in accordance with gaap : replace_table_token_7_th story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > was $ 9.9 million , a decrease of $ 1.6 million or 13.6 % from the $ 11.4 million posted by the company in 2014 . tax-exempt interest income amounted to $ 5.7 million for the year ended december 31 , 2015 , $ 6.4 million for the year ended december 31 , 2014 and $ 6.6 million for the year ended december 31 , 2013 . net interest income on a tax-equivalent basis increased 5.0 % or $ 2.1 million to $ 43.1 million for the year ended december 31 , 2014 from the $ 41.0 million reported for the year ended december 31 , 2013 . higher levels of earning assets were responsible for $ 1.7 million of the increase and $ 407,000 resulted from an improved net interest margin . the company benefi the first bancorp - 2015 form 10-k - page 28 ted from a $ 1.1 million drop in funding costs , and after a prolonged period of margin compression which lasted more than five years , our net interest margin climbed from a recent-year low of 3.05 % in 2013 to 3.10 % in 2014 and 2015. total interest income in 2014 was $ 51.0 million , an increase of $ 1.1 million or 2.2 % from the $ 49.9 million posted by the company in 2013. the following tables present changes in interest income and expense attributable to changes in interest rates , volume , and rate/volume 1 for interest-earning assets and interest-bearing liabilities . tax-exempt income is calculated on a tax-equivalent basis , using a 35.0 % tax rate . replace_table_token_8_th replace_table_token_9_th 1 represents the change attributable to a combination of change in rate and change in volume . the first bancorp - 2015 form 10-k - page 29 the following table presents the interest earned on or paid for each major asset and liability category , respectively , for the years ended december 31 , 2015 , 2014 , and 2013 , as well as the average yield for each major asset and liability category , and the net yield between assets and liabilities . tax-exempt income has been calculated on a tax-equivalent basis using a 35 % rate . unrecognized interest on non-accrual loans is not included in the amount presented , but the average balance of non-accrual loans is included in the denominator when calculating yields . replace_table_token_10_th the first bancorp - 2015 form 10-k - page 30 average daily balance sheets the following table shows the company 's average daily balance sheets for the years ended december 31 , 2015 , 2014 and 2013 . replace_table_token_11_th the first bancorp - 2015 form 10-k - page 31 non-interest income non-interest income in 2015 was $ 12.2 million , an increase of $ 1.2 million or 10.7 % from the $ 11.0 million reported in 2014 . this was primarily due to increases in securities gains and mortgage origination and servicing income . non-interest income in 2014 was $ 11.0 million , an decrease of $ 1.0 million or 8.6 % from the $ 12.1 million reported in 2013. this was attributable primarily to a decrease in income from the origination and sale of refinanced mortgage loans into the secondary market . non-interest expense non-interest expense in 2015 was $ 29.9 million , a decrease of $ 324,000 or 1.1 % from the $ 30.2 million reported in 2014 , primarily due to a decrease in other credit-related costs - including expenses for collections , foreclosure and foreclosed properties . non-interest expense in 2014 was $ 30.2 million , an increase of $ 1.3 million or 4.4 % from the $ 28.9 million reported in 2013. the increase was primarily due to higher salaries and employee benefits , and other operating expense . provision to the allowance for loan losses the company 's provision to the allowance for loan losses was $ 1.6 million in 2015 compared to $ 1.2 million in 2014 .
| this was primarily due to increases in securities gains and mortgage origination and servicing income . non-interest expense for the year ended december 31 , 2015 was $ 29.9 million or 1.1 % lower than non-interest expense posted for the year ended december 31 , 2014 , primarily due to a decrease in other credit-related costs including expenses for collections , foreclosure and foreclosed properties . during 2015 , total assets increased $ 82.7 million or 5.6 % . loan demand was the healthiest the company has seen in several years , with the loan portfolio increasing $ 71.1 million or 7.7 % in 2015 . the investment portfolio was up $ 2.2 million or 0.5 % for the year . on the liability side of the balance sheet , low-cost deposits increased $ 100.5 million or 21.0 % for the year , replacing higher-cost certificates of deposit which decreased $ 76.5 million or 17.1 % from 2014 . local certificates of deposit ( cds ) decreased $ 3.6 million and wholesale cds decreased $ 72.9 million over the past year . credit quality continued to improve significantly in 2015 . non-performing loans stood at 0.75 % of total loans on december 31 , 2015 compared to 1.15 % of total loans on december 31 , 2014 . this compares to non-performing loans at 0.70 % for our uniform bank performance report peer group ( `` ubpr peer group '' ) as of december 31 , 2015 . net chargeoffs were $ 2.0 million or 0.21 % of average loans in 2015 compared to net chargeoffs of $ 2.3 million or 0.26 % of average loans in 2014 . net chargeoffs for the ubpr peer group in 2015 were 0.09 % of average loans . the provision for loan losses in 2015 was $ 1.6 million , $ 400,000 or 34.8 % higher than in 2014 . the allowance as a percentage of loans outstanding stood at 1.00 % in 2015 down from 1.13 %
| 13,061 |
with business operations in ten countries , we distribute more than 1,100 chemical compounds used principally as finished products or raw materials in the pharmaceutical , nutraceutical , agricultural , coatings and industrial chemical consuming industries . we believe that we are currently one of the largest merchant buyers of pharmaceutical and specialty chemicals for export from china , purchasing from over 500 different manufacturers . in this md & a , we explain our general financial condition and results of operations , including , among other things , the following : ● factors that affect our business ● our earnings and costs in the periods presented ● changes in earnings and costs between periods ● sources of earnings ● the impact of these factors on our overall financial condition as you read this md & a , refer to the accompanying consolidated statements of income , which present the results of our operations for the three years ended june 30 , 2011. we analyze and explain the differences between periods in the specific line items of the consolidated statements of income . critical accounting estimates and policies this discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . in preparing these financial statements , we were required to make estimates and assumptions that affect the amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we regularly evaluate our estimates including those related to allowances for bad debts , inventories , goodwill and indefinite-life intangible assets , long-lived assets , environmental and other contingencies , income taxes and stock-based compensation . we base our estimates on various factors , including historical experience , advice from outside subject-matter experts , and various assumptions that we believe to be reasonable under the circumstances , which together form the basis for our making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . we believe the following critical accounting policies affected our more significant judgments and estimates used in preparing these consolidated financial statements . 20 revenue recognition we recognize revenue from sales of any product when it is shipped and title and risk of loss pass to the customer . we have no acceptance or other post-shipment obligations and we do not offer product warranties or services to our customers . sales are recorded net of returns of damaged goods from customers , which historically have been immaterial , and sales incentives offered to customers . sales incentives include volume incentive rebates . we record volume incentive rebates based on the underlying revenue transactions that result in progress by the customer in earning the rebate . in addition , upon each sale , estimates of rebates , chargebacks , returns , government reimbursed rebates , and other adjustments are made . these estimates are recorded as reductions to gross revenues , with corresponding adjustments to either accounts receivable reserves or reserve for price concessions . we have the experience and access to relevant information that we believe are necessary to reasonably estimate the amounts of such deductions from gross revenues . we regularly review the information related to these estimates and adjust our reserves accordingly , if and when actual experience differs from previous estimates . allowance for doubtful accounts we maintain allowances for doubtful accounts relating to estimated losses resulting from customers being unable to make required payments . allowances for doubtful accounts are based on historical experience and known factors regarding specific customers and the industries in which those customers operate . if the financial condition of our customers were to deteriorate , resulting in their ability to make payments being impaired , additional allowances would be required . royalty income we have royalty agreements on certain products where third party pharmaceutical companies market such products . we earn and collect royalty income based on percentages of net profits as defined in those agreements . partnered products we have various products which we have entered into collaborative arrangements with certain pharmaceutical companies . as a result of these arrangements , we share profits on sales of these products , which are included in cost of sales . the shared profits are settled on a quarterly basis . inventories inventories , which consist principally of finished goods , are stated at the lower of cost ( first-in first-out method ) or market . we write down our inventories for estimated excess and obsolete goods by an amount equal to the difference between the carrying cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions . a significant sudden increase in demand for our products could result in a short-term increase in the cost of inventory purchases , while a significant decrease in demand could result in an increase in the excess inventory quantities on-hand . additionally , we may overestimate or underestimate the demand for our products which would result in our understating or overstating , respectively , the write-down required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand could have a significant impact on the value of our inventory and reported operating results . goodwill and other indefinite-lived intangible assets goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets . other indefinite-lived intangible assets principally consist of trademarks . goodwill and other indefinite-lived intangible assets are not amortized . in accordance with gaap , we test goodwill and other indefinite-lived intangible assets for impairment on at least an annual basis . to determine the fair value of these intangible assets , we use many assumptions and estimates that directly impact the results of the testing . story_separator_special_tag in making these assumptions and estimates , we use industry-accepted valuation models and appropriate market participant assumptions that are reviewed and approved by various levels of management . if our estimates or our related assumptions change in the future , we may be required to record impairment charges for these assets . 21 long-lived assets in accordance with gaap , long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . identifiable intangible assets principally consist of customer relationships , product rights and related intangibles , epa registrations and related data , patent license , and technology-based intangibles . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . recoverability of assets held for sale is measured by comparing the carrying amount of the assets to their estimated fair value . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . environmental and other contingencies we establish accrued liabilities for environmental matters and other contingencies when it is probable that a liability has been incurred and the amount of the liability can reasonably be estimated . if the contingency is resolved for an amount greater or less than the accrual , or our share of the contingency increases or decreases , or other assumptions relevant to the development of the estimate were to change , we would recognize an additional expense or benefit in income in the period that the determination was made . taxes we account for income taxes in accordance with gaap . gaap establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise 's activities during the current and preceding years . it requires an asset-and-liability approach to financial accounting and reporting of income taxes . as of june 30 , 2011 , we had current net deferred tax assets of $ 441 and non-current net deferred tax assets of $ 3,426. these net deferred tax assets have been recorded based on our projecting that we will have sufficient future earnings to realize these assets , and the net deferred tax assets have been provided for at currently enacted income tax rates . if we determine that we will not be able to realize a deferred tax asset , an adjustment to the deferred tax asset could result in a reduction of net income at that time . deferred taxes have not been provided for on the majority of undistributed earnings of foreign subsidiaries since substantially all of these earnings are expected to be permanently reinvested in our foreign operations . a deferred tax liability is recognized when we expect that we will recover those undistributed earnings in a taxable manner , such as through receipt of dividends or sale of the investments . in connection with the rising acquisition , the company repatriated approximately $ 15,000 of cash from certain foreign subsidiaries , resulting in a tax charge of approximately $ 2,600 recorded during the year ended june 30 , 2011. the company intends to permanently reinvest any undistributed earnings and has no plan for further repatriation . determination of the amount of the unrecognized u.s. income tax liability on undistributed earnings is not practical because of the complexities of the hypothetical calculation . in addition , unrecognized foreign tax credit carryforwards would be available to reduce a portion of such u.s. tax liability . stock-based compensation in accordance with gaap , we are required to record the fair value of stock-based compensation awards as an expense . in order to determine the fair value of stock options on the date of grant , the company uses the black-scholes option-pricing model , including an estimate of forfeiture rates . inherent in this model are assumptions related to expected stock-price volatility , risk-free interest rate , expected life and dividend yield . the company uses an expected stock-price volatility assumption that is a combination of both historical volatility , calculated based on the daily closing prices of its common stock over a period equal to the expected life of the option and implied volatility , utilizing market data of actively traded options on aceto 's common stock , which are obtained from public data sources . the company believes that the historical volatility of the price of its common stock over the expected life of the option is a reasonable indicator of the expected future volatility and that implied volatility takes into consideration market expectations of how future volatility might differ from historical volatility . accordingly , the company believes a combination of both historical and implied volatility provides the best estimate of the future volatility of the market price of its common stock . the risk-free interest rate is based on u.s. treasury issues with a term equal to the expected life of the option . the company uses historical data to estimate expected dividend yield , expected life and forfeiture rates . 22 results of operations fiscal year ended june 30 , 2011 compared to fiscal year ended june 30 , 2010 replace_table_token_5_th 23 net sales net sales increased $ 65,797 , or 19.0 % , to $ 412,428 for the year ended june 30 , 2011 , compared with $ 346,631 for the prior year . we reported sales increases in all three of our business segments . health sciences net sales for the health sciences segment increased by $ 35,696 for the year ended june 30 , 2011 , to $ 219,196 , which represents a 19.5 % increase over net sales of $ 183,500 for the prior year .
| as previously mentioned , the index for consumer durables , which impacts the specialty chemicals segment , expanded at an annual rate of 11.1 % , resulting in increased sales of this segment . the increase in sales from this segment is attributable to increased sales of $ 2,615 in chemicals used to produce surface coatings and a $ 2,429 increase in sales of chemicals utilized in the food , beverage and cosmetic industries . in addition , we experienced an increase in sales of specialty chemicals from our foreign operations of $ 2,513. agricultural protection products net sales for the agricultural protection products segment increased to $ 39,436 for the year ended june 30 , 2010 , an increase of $ 21,265 , or 117.0 % , over net sales of $ 18,171 for the prior year . the increase over the prior year is due primarily to sales of glyphosate , which commenced in the third quarter of 2010. gross profit gross profit decreased $ 1,465 to $ 54,155 ( 15.6 % of net sales ) for the year ended june 30 , 2010 , as compared to $ 55,620 ( 17.2 % of net sales ) for the prior year . in december 2009 , we completed a review of our inventory by product line and recorded an $ 859 non-cash inventory write-down to its estimated net realizable value , included in cost of sales , relating to certain health sciences and specialty chemicals inventories . health sciences health sciences ' gross profit of $ 29,851 for the year ended june 30 , 2010 decreased by $ 3,768 , or 11.2 % , over the prior year . the gross margin declined to 16.3 % for the year ended june 30 , 2010 compared to 17.9 % for the prior period . the decrease in gross profit was partially attributable to the overall decline in sales volume . our foreign operations , specifically germany , experienced a drop in gross profit of $ 4,610 over the prior period
| 13,062 |
for 2020 , we estimate the total financial effects of covid-19 to be approximately $ 10 million pre-tax with the impact partially mitigated by regulatory deferrals and temporary cost savings measures . we incurred $ 4.8 million of covid-related costs that were deferred to a regulatory asset for recovery in a future period . these costs included ppe supplies , estimates for bad debts , and interest expense associated with financing related activities undertaken to support liquidity during the pandemic , net of direct cost savings such as lower travel and meals and entertainment expenses . in addition , we expect to recognize revenue in a future period for an additional $ 1.3 million related to forgone late fee revenue . we also experienced additional financial implications of approximately $ 3.8 million pre-tax that will not be recovered through rates primarily due to lower natural gas distribution margin from customers that stopped natural gas service and lower usage from customers that are not covered under decoupled rate schedules . the financial impacts were mitigated in part by approximately $ 3.5 million in temporary cost savings initiatives . during 2020 , nw natural increased the allowance for uncollectible accounts by $ 2.4 million to $ 3.1 million . our allowance for residential and commercial uncollectible accounts estimate increased from 0.1 % of gas sales to approximately 0.4 % of gas sales for the year ended december 31 , 2020. at the onset of the pandemic , in march 2020 as a precaution to strengthen our liquidity and guard against volatile markets as the covid-19 pandemic unfolded , we took the following steps : nw natural drew $ 227 million on its credit facility and subsequently repaid the full amount during the second quarter ; nw holdings drew $ 35 million on its credit facility and repaid $ 27 million as of december 31 , 2020 ; nw natural borrowed $ 150 million pursuant to a 364-day term loan and subsequently repaid the full amount in october 2020 ; and nw natural issued $ 150 million 30-year first mortgage bonds with an interest rate of 3.6 % , which was primarily to support its capital expenditure program . the federal cares act was signed into law on march 27 , 2020 to provide direct and indirect financial support to individuals , businesses , state and local governments , and the healthcare system in response to covid-19 . as provided for in the cares act , we deferred remittance of the employer portion of the social security payroll tax from march through december 31 , 2020 , when the provision ended . this resulted in $ 4.7 million of deferred payroll taxes that we expect to remit under the cares act guidelines , which require half of the tax liability to be paid by december 31 , 2021 and the remaining half to be paid by december 31 , 2022. we have taken additional actions in response to known issues arising from the trends related to the covid-19 pandemic . for example , we have enhanced cybersecurity monitoring in response to reports that cybersecurity attackers are more active with much of the economy utilizing work from home protocols . like others , we experienced some constraints on our ability to obtain ppe and disinfecting supplies , but currently believe that we have sufficient supplies to continue our work and continue to procure additional supplies and most efficiently utilize those supplies we have on hand . we have not experienced material disruptions in our supply chain for goods and services to date , but are continuing to actively monitor , and have formulated and continue to evaluate contingency plans as necessary . we remain vigilant in monitoring how the phased re-openings of the territories in which we operate progress and any reinstitution or possible reinstitution of restrictions , and we are actively monitoring several key metrics . while we are unable to predict the length , severity or impacts of the covid-19 pandemic and economic disruptions on our business , the potential for a resurgence or mutation of the virus , or timing , widespread availability and efficacy of vaccine implementation , we have the following expectations and beliefs currently : both nw natural and nw natural water expect their capital projects in 2021 to move forward as planned . nw natural 's customer growth rate is affected by both new meter connections and when existing customers close their accounts and disconnect their meters . customer growth from construction and conversions remained strong during 2020. a slow economic recovery could result in a decline in new meter connections , which could adversely affect margin in 2021 and the following periods . in addition , we are closely monitoring our approximately 70,000 commercial and industrial natural gas meters , as a substantial decline in these meters could materially affect margin in 2021 and the following periods . a 37 disconnection may occur if circumstances require businesses , such as restaurants , retailers , and those in the hospitality sector , to temporarily or permanently close . when we cease suspending disconnections , we may experience a higher level of disconnections . we do n't anticipate significant residential meter disconnections . nw natural has seen lower utility margin from a reduction in overall sales volumes during the year ended december 31 , 2020 attributed to covid-19 , primarily related to the loss of commercial customers as described above . due to the seasonality of our gas utility business , we may see more substantial declines in volumes as our peak heating season progresses , depending on the level of reopenings and resiliency of businesses in the communities in which we serve . however , volumes do not translate directly to earnings as the majority of our ngd margin is not dependent on volumes . story_separator_special_tag while we have begun returning to normal business practices for many commercial and industrial customers in certain jurisdictions , our residential customers ' return to normal practices may be extended based on the timing , availability and efficacy of vaccine rollout and timing of economic recovery . therefore , the recognition of late and disconnection fee revenue may be delayed beyond our current expectations . as the pandemic has continued into the 2020-2021 winter heating season , certain customers are faced with seasonally higher natural gas usage and bills . this could have a financial strain on our customers and impact their ability to pay their bills in a timely manner thus potentially increasing our working capital needs . while we deferred to a regulatory asset certain covid-related financial impacts as agreed upon with regulators , ultimate recovery of these costs and prudence review will be determined through a separate proceeding and may be subject to modification as a result of those proceedings . given the evolving nature of the pandemic and resulting economic conditions , we are continually monitoring our business operations and the larger trends and developments to take additional measures we believe are warranted to continue providing safe and reliable service to our customers and communities while protecting our employees . 38 2021 outlook we expect to make significant progress on our long-term objectives in the coming year . our natural gas distribution business is focused on providing safe , reliable , and affordable energy in an environmentally responsible way to better the lives of the public we serve . our water and wastewater utility business is committed to providing its customers with safe , clean , reliable and affordable water and wastewater services , while also continuing to grow organically and through acquisitions . in 2021 , we remain focused on the strategic pillars of our business : ensuring safe & reliable service ; providing superior customer service ; advancing constructive legislative policies and regulation ; enabling customer growth ; and leading on environmental stewardship and decarbonization . ensuring safe and reliable service . delivering our products safely and reliably to customers , while keeping our employees safe , is our first priority . at nw natural , we remain focused on safety and emergency response through hands-on , scenario-based training for employees , third-party contractors , and first responders . the reliability , resiliency and safety of our gas system is critical and to this end , we remain focused on investing in necessary upgrades and replacing key system components , preventing third-party damages , and performing regular inspections and assessments . safety for our gas infrastructure also includes maintaining and strengthening our cybersecurity defenses , upgrading key technology systems , such as our enterprise risk planning system and customer information system over the next several years , and preparing for large-scale emergency events , such as seismic hazards . our water and wastewater utilities are focused on executing on their capital expenditure plans to ensure continued safe and reliable service to customers and enhancing plans to be able to readily prioritize capital investments . providing superior customer experience . we have a legacy of providing excellent customer service and a long-standing dedication to continuous improvement , which has resulted in nw natural consistently receiving high rankings in the j.d . power and associates customer satisfaction studies and more recently in escalent 's congent trusted brand and customer engagement residential customer study , earning nw natural the designation of customer champion for the last several years . during 2020 , we also implemented several new customer facing technologies including a new website , a streamlined customer onboarding process , and new interactive voice response ( ivr ) system . in 2021 , we intend to fully optimize this new technology to enhance our natural gas customers ' experience and meet their evolving expectations . we 'll also plan for the next upgrades , which will be centered on our customers ' most frequent interactions and highest value touchpoints . advancing constructive legislative policies and regulation . nw natural has a history of working productively with lawmakers and regulators . most recently in 2020 , rulemaking was completed on the groundbreaking oregon senate bill 98 that allows gas utilities to procure and invest in renewable natural gas for their customers . in 2021 , we 'll continue to proactively communicate with policymakers and other stakeholders about what we believe is the important role of the gas system in achieving climate goals for our communities , and work with the american gas association to provide education on the role of natural gas in energy infrastructure at the national level . with regulators , we 'll strive to work productively on open proceedings , taking care of customers during the pandemic , and pursuing recovery of deferred costs related to covid-19 . nw natural will also continue working with the epa and other stakeholders on an environmentally protective and cost-effective clean-up for the portland harbor superfund site . for our water utilities , we are focused on working collaboratively with regulators , pursuing efficient approval processes for acquisitions , filing general rate cases where needed to support investments , and engaging in constructive regulatory proceedings . enabling customer growth . natural gas is a preferred energy choice in our service territory given its affordable , efficient , and reliable qualities and often preferred by homeowners for heating and cooking . we are focused on leveraging these key attributes to capitalize on our region 's continued strong housing growth . we 'll strive to continue growing our market share in the residential sector and multifamily developments , but believe commercial customer growth may be modest in 2021 as the pandemic has placed additional restrictions on small businesses , such as retail stores and restaurants , in our region . at nw natural water , we continue to be focused on supporting the fast-growing communities we currently serve and continuing our disciplined acquisition strategy . leading on decarbonization . we are deeply committed to a clean energy future and environmental stewardship .
| key financial highlights for nw holdings include : replace_table_token_5_th key financial highlights for nw natural include : replace_table_token_6_th 2020 compared to 2019. consolidated net income increased $ 1.6 million at nw natural primarily due to the following factors : a $ 15.4 million increase in ngd segment margin driven by the 2020 oregon and 2019 washington rate cases and residential customer growth ; and a $ 7.9 million decrease in other expense , net primarily related to higher 2019 pension expenses ( non-service cost component ) recognized as part of the settlement and recovery of nw natural 's pension balancing account , which was primarily offset within ngd margin and income tax benefits ( as discussed below ) and which did not recur in 2020 ; partially offset by a $ 13.6 million increase in depreciation expense and general taxes due to property , plant , and equipment additions , as we continued to invest in our gas utility system ; and a $ 7.0 million increase in income tax expense primarily due to 2019 including an income tax benefit related to the return of deferred tcja benefits to customers and the regulatory pension disallowance , and higher pre-tax income . net income from continuing operations increased $ 5.0 million at nw holdings primarily due to the following factors : a $ 1.6 million increase in consolidated net income at nw natural as discussed above ; and a $ 3.4 million increase in other net income primarily reflecting higher earnings at our water and wastewater utilities that have been acquired since 2019 . 2019 compared to 2018. nw holdings ' net income from continuing operations decreased $ 2.0 million and nw natural 's net income from continuing operations increased $ 1.0 million . in march 2019 , the opuc issued an order resolving the remaining open items from nw natural 's 2018 oregon general rate case regarding recovery of the pension balancing account and treatment of the benefits associated with the tcja . as a result of the order , in the first quarter of 2019 , nw natural recorded a disallowance and several benefits and expenses through the consolidated statements of comprehensive income as follows : 35 pension balancing account . approximately $ 12.5 million in previously deferred pension expenses were recognized of which approximately $ 4.6 million was recorded in operations and maintenance expense and $ 7.9 million was recorded in other income ( expense ) , net . these charges were offset with a corresponding increase
| 13,063 |
we had total revenues of $ 2.021 billion in 2014 , an increase of 13 % over 2013 on a reported basis and 14 % adjusted for foreign exchange impact . diluted earnings per share increased by $ .10 per share , or 5 % , to $ 2.03 per share in 2014. research revenues rose 14 % year-over-year , to $ 1.445 billion in 2014 , and the contribution margin was 69 % , the same as 2013. at december 31 , 2014 , research contract value was $ 1.603 billion , an increase of 13 % over december 31 , 2013 on a reported basis and 14 % adjusted for the impact of foreign exchange . enterprise client retention was 85 % and enterprise wallet retention was 106 % at december 31 , 2014. consulting revenues in 2014 increased 11 % when compared to 2013 , while the gross contribution margin was 34 % , the same as 2013. consultant utilization was 68 % for 2014 compared to 64 % in 2013 , and we had 535 billable consultants at december 31 , 2014 compared to 509 at year-end 2013. backlog decreased 3 % year-over-year , to $ 102.6 million at december 31 , 2014 . 17 events revenues increased 14 % year-over-year , to $ 227.7 million , and 16 % adjusted for foreign currency impact . the segment contribution margin was 49 % in 2014 , a 3 point increase over 2013. we held 61 events in 2014 compared to 64 in 2013 , while the number of attendees increased 9 % year-over-year , to over 49,000. for a more detailed discussion of our results , see the segment results section below . cash flow from our operating activities was $ 346.8 million in 2014 , an increase of 10 % compared to 2013. we continue to focus on maximizing shareholder value , and in 2014 we repurchased 5.9 million of our outstanding common shares . we ended 2014 with $ 365.3 million in cash and cash equivalents . we refinanced our existing credit facility during the fourth quarter of 2014 to take advantage of favorable market conditions , provide for additional liquidity , and extend the maturity of our debt . our total borrowing capacity under the new arrangement is $ 1.5 billion , which consists of a $ 400.0 million term loan and a $ 1.1 billion revolving credit arrangement . the new facility has a five year maturity . at december 31 , 2014 , approximately $ 1.1 billion was available for borrowing under the revolver . we believe that we have adequate liquidity to meet our currently anticipated needs . the company completed three business acquisitions in 2014 ( the `` 2014 acquisitions '' ) . these include software advice , inc. , which assists customers with software purchases ; market visio oy , a finnish company and former sales agent for gartner research in finland and russia ; and sircleit , inc. , a provider of cloud-based search technology that identifies subject-matter experts . note 2 - acquisitions in the notes to the consolidated financial statements included in this annual report on form 10-k provides additional information regarding the 2014 acquisitions . the operating results of these acquisitions have been included in our consolidated and segment operating results beginning on their respective dates of acquisition . the results of these businesses were not material to our consolidated or segment results for the year ended december 31 , 2014. fluctuations in quarterly results our quarterly and annual revenue , operating income , and cash flow fluctuate as a result of many factors , including : the timing of our symposium/itxpo series , which are normally held during the fourth calendar quarter , as well as other events ; the timing and amount of new business generated ; the mix between domestic and international business ; changes in market demand for our products and services ; changes in foreign currency rates ; the timing of the development , introduction and marketing of our new products and services ; competition in the industry ; general economic conditions ; and other factors which are beyond our control . the potential fluctuations in our operating income could cause period-to-period comparisons of operating results not to be meaningful and could provide an unreliable indication of future operating results and cash flows . critical accounting policies and estimates the preparation of financial statements requires the application of appropriate accounting policies and the use of estimates . our significant accounting policies are described in note 1 in the notes to consolidated financial statements . management considers the policies discussed below to be critical to an understanding of our financial statements because their application requires complex and subjective management judgments and estimates . specific risks for these critical accounting policies are described below . the preparation of our financial statements also requires us to make estimates and assumptions about future events . we develop our estimates using both current and historical experience , as well as other factors , including the general economic environment and actions we may take in the future . we adjust such estimates when facts and circumstances dictate . however , our estimates may involve significant uncertainties and judgments and can not be determined with precision . in addition , these estimates are based on our best judgment at a point in time and as such these estimates may ultimately differ from actual results . on-going changes in our estimates could be material and would be reflected in the company 's financial statements in future periods . our critical accounting policies are as follows : revenue recognition — revenue is recognized in accordance with the requirements of u.s. gaap and sec staff accounting bulletin no . 104 , revenue recognition ( “ sab 104 ” ) . revenue is only recognized once all required criteria for revenue recognition have been met . story_separator_special_tag revenue by significant source is accounted for as follows : research revenues are derived from subscription contracts for research products and are deferred and recognized ratably over the applicable contract term . fees from research reprints are recognized when the reprint is delivered . consulting revenues are principally generated from fixed fee and time and material engagements . revenues from fixed fee contracts are recognized on a proportional performance basis . revenues from time and materials engagements are recognized as work is delivered and or services are provided . revenues related to contract optimization contracts are contingent in nature and are only recognized upon satisfaction of all conditions related to their payment . 18 events revenues are deferred and then recognized upon the completion of the related symposium , conference or exhibition . the majority of research contracts are billable upon signing , absent special terms granted on a limited basis from time to time . all research contracts are non-cancelable and non-refundable , except for government contracts that may have cancellation or fiscal funding clauses . it is our policy to record the entire amount of the contract that is billable as a fee receivable at the time the contract is signed with a corresponding amount as deferred revenue , since the contract represents a legally enforceable claim . uncollectible fees receivable — we maintain an allowance for losses which is composed of a bad debt allowance and a sales reserve . provisions are charged against earnings , either as a reduction in revenues or an increase to expense . the measurement of likely and probable losses and the allowance for losses is based on historical loss experience , aging of outstanding receivables , an assessment of current economic conditions and the financial health of specific clients . this evaluation is inherently judgmental and requires estimates . these valuation reserves are periodically re-evaluated and adjusted as more information about the ultimate collectability of fees receivable becomes available . circumstances that could cause our valuation reserves to increase include changes in our clients ' liquidity and credit quality , other factors negatively impacting our clients ' ability to pay their obligations as they come due , and the effectiveness of our collection efforts . the following table provides our total fees receivable and the related allowance for losses ( in thousands ) : replace_table_token_3_th goodwill and other intangible assets — the company evaluates recorded goodwill in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 350 , which requires goodwill to be assessed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable . in addition , an impairment evaluation of our amortizable intangible assets may also be performed on a periodic basis should events or circumstances indicate potential impairment . if we determine that the fair value of a reporting unit is less than its related carrying amount , we must recognize an impairment charge against earnings . among the factors we consider important that could trigger an impairment review are the following : significant under-performance relative to historical or projected future operating results ; significant changes in the manner of our use of acquired assets or the strategy for our overall business ; significant negative industry or general economic trends ; significant decline in our stock price for a sustained period ; and our market capitalization relative to net book value . the annual assessment of the recoverability of recorded goodwill can be based on either a quantitative or qualitative assessment or a combination of the two . both methods require the use of estimates which in turn contain judgments and assumptions regarding future trends and events . as a result , both the precision and reliability of the resulting estimates are subject to uncertainty . in 2014 , we completed the required annual goodwill impairment test utilizing a qualitative approach . based on this assessment , the company believes the fair values of the company 's reporting units continue to exceed their respective carrying amounts . see note 1 — business and significant accounting policies in the notes to the consolidated financial statements for additional discussion . accounting for income taxes — the company uses the asset and liability method of accounting for income taxes . we estimate our income taxes in each of the jurisdictions where we operate . this process involves estimating our current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheets . in assessing the realizability of deferred tax assets , management considers if it is more likely than not that some or all of the deferred tax assets will not be realized . we consider the availability of loss carryforwards , projected reversal of deferred tax liabilities , projected future taxable income , and ongoing prudent and feasible tax planning strategies in making this assessment . the company recognizes the tax 19 benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained based on the technical merits of the position . accounting for stock-based compensation — the company accounts for stock-based compensation in accordance with fasb asc topics 505 and 718 , as interpreted by sec staff accounting bulletins no . 107 ( “ sab no . 107 ” ) and no . 110 ( “ sab no . 110 ” ) . the company recognizes stock-based compensation expense , which is based on the fair value of the award on the date of grant , over the related service period , net of estimated forfeitures ( see note 8 — stock-based compensation in the notes to the consolidated financial statements for additional information regarding stock-based compensation ) .
| the segment gross contribution margin increased by 1 point , to 69 % , driven by the operating leverage in this business . contribution margin improved in spite of an 8 % increase in segment headcount . research contract value increased 13 % in 2013 to $ 1.423 billion , and increased 12 % year-over-year adjusted for the impact of foreign currency translation . our growth in contract value was broad-based , with almost every region , industry segment , and client size growing at double-digit rates compared to 2012. enterprise client retention and wallet retention were 83 % and 104 % at december 31 , 2013 , respectively . 25 consulting the following table presents the financial results and business measurements of our consulting segment as of and for the twelve months ended december 31 : replace_table_token_11_th ( 1 ) dollars in thousands . 2014 versus 2013 consulting revenues increased 11 % year-over-year and 12 % when adjusted for the impact of foreign exchange . the increase was primarily due to higher core consulting revenues and to a lesser extent , higher contract optimization revenues . contract optimization revenues can fluctuate from period to period but are generally about 10-15 % of total annual consulting segment revenues . the gross contribution margin was 34 % for both periods . backlog decreased $ 3.5 million , or 3 % , year-over-year , to $ 102.6 million at december 31 , 2014 . 2013 versus 2012 consulting revenues increased 3 % year-over-year and 4 % when adjusted for the impact of foreign exchange . the increase was due to higher contract optimization revenue . the increased contract optimization revenues were partially offset by slightly lower core consulting and strategic advisory ( “ sas ” ) revenues . the gross contribution margin declined by 2 points due to higher payroll and benefit costs from additional headcount and merit salary increases , and to a lesser extent , lower utilization in core consulting . backlog increased $ 3.4 million , or 3 % , year-over-year , to $ 106.1 million at december 31 , 2013. events the following table presents the financial results and business measurements of our events segment as of
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vendor advertising allowances recorded as a reduction of advertising expense totaled $ 13.1 million , $ 13.0 million , and $ 14.3 million for the fiscal years ended september 24 , 2011 , september 25 , 2010 and september 26 , 2009 , respectively . if vendor advertising allowances were substantially reduced or eliminated , the company would likely consider other methods of advertising as well as the volume and frequency of the company 's product advertising , which could increase or decrease the company 's expenditures . similarly , the company is not able to assess the impact of vendor advertising allowances on creating additional revenue , as such allowances do not directly generate revenue for the company 's stores . uncertain tax positions despite the company 's belief that its tax positions are consistent with applicable tax laws , the company believes that certain positions are likely to be challenged by taxing authorities . settlement of any challenge can result in no change , a complete disallowance , or some partial adjustment reached through negotiations or litigation . significant judgment is required in evaluating the company 's tax positions . the company 's positions are evaluated in light of changing facts and circumstances , such as the progress of its tax audits as well as evolving case law . income tax expense includes the impact of provisions for and changes to uncertain tax positions as the company considers appropriate . unfavorable settlement of any particular position would require use of cash . favorable resolution would be recognized as a reduction to income tax expense at the time of resolution . story_separator_special_tag volatility in the retail price of gasoline , milk and other commodity-type food products . the company expects that improvements in its store base that enhance one-stop shopping and that contain numerous convenience and value-oriented products will also drive future sales growth . fiscal year 2012 sales growth may not benefit from increases in total store square footage to the extent it has in prior years , as the current focus of the company 's store improvement activity is more on interior store improvement . gross profit . gross profit for the year ended september 24 , 2011 increased $ 29.0 million , or 3.8 % , to $ 791.9 million compared with $ 762.9 million , for the year ended september 25 , 2010. as a percentage of sales , gross profit totaled 22.2 % for the year ended september 24 , 2011 and 22.5 % for the year ended september 25 , 2010 . 24 the increase in grocery segment gross profit dollars was primarily due to the higher sales volume . grocery segment gross profit as a percentage of total sales ( excluding gasoline ) was 25.8 % for fiscal year 2011 compared with 25.5 % for the comparable fiscal 2010 period . the company has responded to the current competitive environment by keeping prices as low as possible in order to grow sales and market share . comparative grocery segment gross margins were also affected by inflation on certain items , and changes in sales mix among product categories . none of these factors were predominant , resulting in modest gross margin growth . gross profit for the company 's milk processing subsidiary for the year ended september 24 , 2011 increased $ 0.6 million , or 2.8 % , to $ 21.3 million , compared with $ 20.7 million for the year ended september 25 , 2010. gross profit as a percentage of sales was 11.2 % for fiscal year 2011 compared with 12.1 % for fiscal year 2010. raw milk prices were higher during fiscal year 2011 compared with fiscal year 2010 , which decreased gross profit as a percentage of sales , as relatively stable per-gallon milk profit margins were applied to the higher sales price . in addition to the direct product cost , the cost of goods sold line item for the grocery segment includes inbound freight charges and the costs related to the company 's distribution network . the milk processing segment is a manufacturing process ; therefore , the costs mentioned above as well as purchasing and receiving costs , production costs , inspection costs , warehousing costs , internal transfer costs , and other costs of distribution incurred by the milk processing segment are included in the cost of sales line item , while these items are included in operating and administrative expenses for the grocery segment . the company 's gross margins may not be comparable to those of other retailers , since some retailers exclude all of the costs related to their distribution network from cost of goods sold and others , like the company , include a portion of the costs in gross profit . operating and administrative expenses . operating and administrative expenses increased $ 22.7 million , or 3.5 % , to $ 677.9 million for the year ended september 24 , 2011 , from $ 655.2 million for the year ended september 25 , 2010. as a percentage of sales , operating and administrative expenses were 19.0 % for the fiscal year ended september 24 , 2011 , compared to 19.3 % for the fiscal year ended september 25 , 2010. excluding gasoline , which does not have significant direct operating expenses , the ratio of operating expenses to sales was 22.1 % for fiscal year 2011 compared with 22.0 % for fiscal year 2010. a breakdown of the major increases in operating and administrative expenses is as follows : replace_table_token_15_th salaries and wages increased due to the addition of labor hours required for the increased sales volume . bank charges rose primarily due to increased fees for processing debit and credit cards . the increase is a result of both increased usage of cards and increased transaction fees related to the usage . at this point , it is not clear if legislation enacted in october 2011 to limit debit card swipe fees will result in a decrease in the company 's overall bank charges . story_separator_special_tag insurance expense increased due to an increased number of employees and due to higher claims under the company 's self- insurance programs . 25 depreciation and amortization expense increased as a result of the company 's capital expenditures to improve its store base . utility and fuel expenses increased due to higher market energy costs experienced during fiscal year 2011. rental income , net . rental income , net increased $ 0.1 million to $ 1.9 million for fiscal year 2011 , from $ 1.8 million for fiscal year 2010. following a period of increased vacancies attributed to the economic recession , the company 's tenant base has somewhat stabilized . gain ( loss ) from sale or disposal of assets . gain from sale or disposal of assets totaled $ 2.7 million for fiscal year 2011 compared with losses of $ 0.1 million for fiscal year 2010. during fiscal year 2011 period , the company was granted $ 3.1 million in an eminent domain proceeding related to an owned land parcel and recognized a gain of approximately $ 2.8 million . there were no other significant sale or disposal transactions during fiscal years 2011 or 2010. other income , net . other income , net totaled $ 4.2 million for both fiscal years ended september 24 , 2011 and september 25 , 2010 , respectively . other income consists primarily of sales of waste paper and packaging . interest expense . interest expense decreased $ 2.9 million for the year ended september 24 , 2011 to $ 62.0 million from $ 64.9 million for the year ended september 25 , 2010. total debt was $ 855.1 million at the end of fiscal year 2011 compared with $ 817.5 million at the end of fiscal year 2010. interest on the $ 99.7 million of recovery zone facility bonds issued in december 2010 is currently capitalized as part of the construction cost of the company 's new distribution and warehouse facility . income taxes . income tax expense as a percentage of pre-tax income decreased to 35.7 % for the 2011 fiscal year compared to 36.8 % for the 2010 fiscal year . the decrease in the effective tax rate is primarily due to additional federal tax credits available in fiscal 2011 as compared to 2010. net income . net income increased $ 8.3 million , or 26.6 % , for the fiscal year ended september 24 , 2011 to $ 39.1 million from $ 30.8 million for the fiscal year ended september 25 , 2010. basic and diluted earnings per share for class a common stock were $ 1.67 and $ 1.60 , respectively , for the fiscal year ended september 24 , 2011 compared to $ 1.32 and $ 1.26 , respectively , for the fiscal year ended september 25 , 2010. basic and diluted earnings per share for class b common stock were each $ 1.52 for the fiscal year ended september 24 , 2011 compared to $ 1.20 of basic and diluted earnings per share for the fiscal year ended september 25 , 2010. fiscal year ended september 25 , 2010 compared to the fiscal year ended september 26 , 2009 the company achieved record sales for the 46 th consecutive year for the fiscal year ended september 25 , 2010 , in the face of challenging economic and competitive conditions . total and comparable store sales increased , both with and without the inclusion of gasoline sales . net income for the fiscal year ended september 25 , 2010 was $ 30.8 million , as compared with $ 27.9 million for the fiscal year ended september 26 , 2009. as more fully detailed below , the most important positive factors contributing to this increase were gross profit increases of $ 19.8 million and a $ 10.2 million decrease in debt extinguishment costs . these positive factors were partially offset by increases in operating and interest expenses totaling $ 21.3 million and $ 5.8 million , respectively . net sales . net sales for the fiscal year ended september 25 , 2010 increased 4.3 % to $ 3.39 billion , compared to $ 3.25 billion for the fiscal year ended september 26 , 2009. excluding gasoline , net sales increased 1.9 % . for the comparative fiscal year 2010 and 2009 periods , total grocery segment sales excluding gasoline increased $ 47.6 million , or 1.7 % to $ 2.84 billion . grocery segment comparable store sales excluding gasoline 26 increased $ 31.6 million , or 1.2 % . the average retail price of gasoline increased approximately $ 0.46 per gallon during fiscal year 2010 , and the number of gallons sold increased by 1.5 % . the number of customer transactions ( excluding gasoline ) increased 8.9 % , while the average transaction size ( excluding gasoline ) decreased by approximately $ 1.51. the company believes this transaction data may reflect cost-conscious customers dining out less and changing purchasing habits towards lower priced items . sales by product category for the fiscal years ended september 25 , 2010 and september 26 , 2009 , respectively , were as follows : replace_table_token_16_th the grocery category includes grocery , dairy , and frozen foods . the non-foods category includes alcoholic beverages , tobacco , pharmacy , health and video . the perishables category includes meat , produce , deli and bakery . changes in grocery segment sales for the fiscal year ended september 25 , 2010 are summarized as follows ( in thousands ) : replace_table_token_17_th in general , grocery segment sales increases ( excluding gasoline ) during fiscal 2010 were driven by effective promotions , cost competitiveness , service execution and expanded product selections . the company believes it is important to aggressively protect market share and customer traffic during difficult economic conditions and increased unemployment in its market area . fuel stations and pharmacies have been effective in giving customers a competitive choice and allowing them to consolidate shopping trips at company supermarkets .
| for information regarding the various segments of the business , reference is made to note 10 lines of business to the consolidated financial statements . replace_table_token_12_th fiscal year ended september 24 , 2011 compared to the fiscal year ended september 25 , 2010 the company achieved record sales for the 47 th consecutive year for the fiscal year ended september 24 , 2011. total and comparable store sales increased , both with and without the inclusion of gasoline sales . customer behavior was influenced by an uncertain economic environment and by food and energy inflation . net income for the fiscal year ended september 24 , 2011 was $ 39.1 million , as compared with $ 30.8 million for the fiscal year ended september 25 , 2010. as more fully detailed below , the most important positive factors contributing to this increase were sales and gross profit increases of $ 169.9 million and $ 28.9 million , respectively . these positive factors were partially offset by increases in operating expenses totaling $ 22.7 million . net sales . net sales for the fiscal year ended september 24 , 2011 increased 5.0 % to $ 3.56 billion , compared to $ 3.39 billion for the fiscal year ended september 25 , 2010. excluding gasoline , net sales increased 3.0 % . for the comparative fiscal year 2011 and 2010 periods , total grocery segment sales excluding gasoline increased $ 75.1 million , or 2.6 % to $ 2.91 billion . grocery segment comparable store sales excluding gasoline increased $ 64.0 million , or 2.3 % . retail gasoline sales prices increased and the number of gallons sold decreased . the number of customer transactions ( excluding gasoline ) increased 0.4 % , while the average transaction size ( excluding gasoline ) increased by approximately $ 0.55 . 23 sales by product category for the fiscal years ended september 24 , 2011 and september 25 , 2010 , respectively , were as follows : replace_table_token_13_th the grocery category includes grocery , dairy , and frozen foods . the non-foods category includes alcoholic beverages , tobacco , pharmacy ,
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quarter . capital expenditures in general , our capital expenditures over the longer term are expected to be approximately equivalent to our annual depreciation costs . in 2011 and 2010 , capital expenditures of $ 7.2 million and $ 4.3 million were below our annual depreciation of $ 11.8 million and $ 11.1 million , respectively . in 2011 , we chose to focus our spending on acquisitions in lieu of capital expenditures , and in 2010 we focused our available cash on debt reduction in light of recessionary conditions . backlog backlog at june 30 , 2011 increased $ 5.2 million from $ 99.5 million to $ 104.7 million when compared to fiscal 2010 , a 5.2 % increase . backlog increased for the food service equipment , adp , and electronics and hydraulics groups , and was approximately flat for the engraving and engineering technologies groups . segment analysis ( in thousands ) food service equipment replace_table_token_7_th net sales for the year ended june 30 , 2011 increased $ 27.9 million , or 8.3 % , from the same period one year earlier , 7.2 % of which resulted from organic growth . the acquisition of tri-star contributed approximately 1.1 % of the increase in sales . the refrigerated solutions ( walk-in cooler and refrigerated cabinets ) and cooking solutions groups grew approximately 6.6 % and 7.8 % year over year , respectively , while the custom solutions group grew net sales 13.3 % . income from operations for fiscal 2011 decreased $ 1.8 million , or 4.5 % , when compared to the same period one year earlier . the positive impact of the year over year volume increase , cost reductions due to facility consolidations , supply chain cost reductions and labor productivity increases was overcome by a combination of negative product and channel mix resulting in lower margin sales , pricing pressures , and increased commodities prices , particularly for metal concentrated in our refrigerated solutions product lines . in response to these challenges , the group is implementing multiple actions to take place in 2012 , including price increases , the integration of the newly acquired tri-star manufacturing operation into our nogales facility , implementation of new growth and product diversification initiatives , and freight and metal cost reduction efforts . subsequent to year-end , we also announced the restructuring of the kool star business and additional headcount reductions to take place during the first quarter of 2012. net sales for the year ended june 30 , 2010 decreased $ 12.8 million , or 3.6 % , from the same period one year earlier . the year over year top line sales comparisons were negatively impacted by a rollout at one of the yum ! brands restaurants , which generated $ 2 million in sales in 2009. the effects of foreign exchange rates accounted for $ 0.3 million of this total , and the remainder was organic decline offset by price increases . pricing pressure offset by market share gains led to a 5 % organic sales decline in our refrigeration solutions businesses , which was impacted by the moderation in construction , and we showed a 1.7 % organic decline in our cooking solutions and custom solutions businesses . despite the decline , the segment continued to grow market share through its buying group relationships and through new product offerings . our procon business posted double-digit year over year sales growth driven by strength in the beverage customer base and increasing demand from industrial customers . income from operations for fiscal 2010 increased $ 29.8 million , or 300.8 % , when compared to the same period one year earlier . fiscal 2009 included a $ 21.3 million impairment of goodwill and intangible assets related to our 2007 acquisition of the american associated industries ( aai ) operating unit . we continued to see a recovery in the cooking solutions group as we are benefitting from improving market conditions , increased market penetration in key dealer buying groups and new products . the impact of the year over year volume decreases and market pricing pressures was more than offset by cost reductions due to facility consolidations , staffing reductions , supply chain cost reductions and labor productivity increases . with the completion of our consolidation of two cooking solutions group facilities into nogales , mexico , during the year , the beginning of 2011 marked the full run rate of our initiatives from the last two years . air distribution products replace_table_token_8_th net sales for the fiscal year ended june 30 , 2011 improved 2.8 % or $ 1.4 million , due to market share gains , increased new product sales and a market-driven price increase of 12 to 15 % during the fourth quarter of 2011. these increases were partially offset by a decrease in general sales activity resulting from a further deterioration in housing starts during the year . the price increase was not effective until the second part of the fourth quarter , and we expect to see its full benefit in 2012. adp continues to pursue market share gains through its traditional channels by increasing market penetration at existing and new wholesaler accounts , emphasizing our ability to service nationwide wholesalers and large do-it-yourself retailers through our network of factory locations , and by working in conjunction with our wholesalers to target contractor business . adp 's sales initiatives resulted in the addition of over 100 new branches of existing customers ( each branch being independent in their choice of supplier ) compared to the same period a year ago . the introduction of several new product lines also contributed to the year over year growth in volume . since december 2008 , housing starts in the u.s. , after a precipitous decline over the prior three years , have remained within a narrow band of historically low annualized starts . as such , sales continue to remain depressed with slight variances from quarter to quarter . story_separator_special_tag a slight increase in adp 's total unit volume of 0.5 % compared to 2010 despite housing start deterioration within this narrow band indicates that our efforts are successfully increasing the top line via market share . income from operations for the year ended june 30 , 2011 improved $ 0.6 million to a loss of $ 2.6 million as compared to the prior fiscal year . material costs were approximately $ 0.9 million higher than in 2010 , primarily because of increased metal costs . material increases and inflationary increases were mostly offset by lower administrative spending , improved freight costs achieved through vendor management and other cost reduction measures . improved price on manufactured products and additional sales of adjacent products provided the balance of the year over year improvement in earnings . net sales for the fiscal year ended june 30 , 2010 declined 23.4 % or $ 15.6 million from 2009. pricing declined 17.9 % and sales unit volume was lower by 7.7 % . income from operations for the year ended june 30 , 2010 decreased $ 3.9 million to a loss of $ 3.2 million as compared to 2009. pricing declines , totaling $ 12.1 million , and lower volume were the most significant reasons for the change in earnings . metal costs were $ 5.5 million less than fiscal 2009 , $ 3.5 million of which was the result of a lower of cost or market charge recorded in the third quarter of 2009. decreases in hourly and salaried workforces implemented in the third and fourth quarters of fiscal 2009 , lower workers ' compensation costs and lower distribution costs comprised the majority of the remaining offset to price and volume declines . engraving replace_table_token_9_th replace_table_token_10_th net sales in the engraving group increased 10.2 % from 2010 levels at $ 85.3 million compared to $ 77.4 million in the prior year . foreign exchange had a favorable impact on sales of $ 1.1 million in fiscal year 2011. our roll plate and machinery equipment sales continue to experience a soft market due to lower capital spending budgets at our customers . increased quotation activity has not yet translated to an increase in firm orders . we are , however , anticipating new business in 2012 related to new cigarette packaging requirements in the united states . our mold texturizing businesses continue to strengthen based on the release of new automotive programs , which also creates an improved product mix due to their generally higher margins . we expect this trend to continue into 2012 , and will continue to grow this business through further expansion into emerging markets , including a planned expansion of our pune , india , facility and the opening of an additional mold texturizing facility in china during 2012. we believe that global presence and proximity to our customers , as well as our technology and responsiveness to automotive oem customers ' needs , will allow us to remain the number one choice for their texturing services . income from operations increased by $ 4.8 million , or 51.0 % , when compared to 2010. restructuring of the business and significant cost reduction efforts implemented in 2009 , as well as headcount reductions in our european operations in 2010 , were significant in the improvement of operating income year over year . with our new lower cost structure and focus on growth , we demonstrated our ability to improve income from operations on flat sales in 2010. in 2011 , we demonstrated that we have favorably leveraged sales growth and further improved our operating performance . in addition , the group continues to expand the use of lean enterprise techniques and develop and globalize market leading technology in order to further improve profitability and responsiveness to our customers . 2010 net sales in the engraving group were flat from 2009 levels at $ 77.4 million compared to $ 77.3 million in the prior year . foreign exchange had a favorable impact on sales of $ 1.4 million in fiscal year 2010. while our roll plate and machinery equipment sales continued to experience a soft market due to tight capital spending budgets at our customers , our innovent division 's sales increased , showing the benefit of our expansion and broadening of our focus from tools to technology-driven system solutions . releases of new automotive programs continued to drive strengthening in the mold texturizing business . income from operations in 2010 increased by $ 2.4 million , or 33.7 % , when compared to 2009. restructuring the business and significant cost reduction efforts implemented in 2009 , as well as headcount reductions in our european operations , were significant in the improvement of operating income year over year . with our new lower cost structure and focus on growth , we have demonstrated our ability to improve income from operations on flat sales , and we anticipate that we will be able to favorably leverage future sales growth and further improve our operating performance . in addition , the group continues to expand the use of lean enterprise techniques and develop cutting edge technology throughout its operations in order to further improve profitability and responsiveness to our customers . engineering technologies replace_table_token_11_th net sales in the fiscal year increased $ 2.3 million or 4.0 % , when compared to the prior year . the increase is a result of the acquisition of metal spinners group , which increased sales 9.0 % . negative organic growth of 5.1 % occurred as increases in the aviation and defense segments at spincraft were more than offset by declines in the energy and aerospace markets . we expect the energy business to be down year-over-year in first half of fy12 as one of our major customers implements an inventory correction and then strengthen in the second half of the fiscal year .
| these efforts have provided us with the liquidity to pursue top-line growth initiatives , as evidenced by the $ 26.6 million expended on acquisitions during the year . the four acquisitions completed during 2011 are as follows : in march 2011 , we acquired metal spinners group , ltd. ( metal spinners ) , a u.k.-based metal fabrication supplier to the medical , general industrial , and oil and gas markets in the u.s. , u.k. , europe , and china . metal spinners ' fabrication technology is similar to that of spincraft , which it joined as part of the engineering technologies group . metal spinners provides the company with access to new end-user and geographic markets , as well as high-efficiency metal spinning capabilities and a customer base that includes global leaders in the medical device and oil and gas market sectors . in january 2011 , we purchased s.a. chemical etching in durban , south africa which we incorporated into our worldwide mold-tech texturizing operations . this acquisition has the distinction of giving our engraving group a presence on six continents , further demonstrating our global capabilities to customers . in october 2010 , we acquired the tri-star brand of high quality restaurant- and value-series range platforms and other complementary cooking products , which provide the cooking solutions unit of our food service equipment group with a more complete product offering . in july 2010 , we completed the acquisition of the assets of melco engraving india which provided our engraving group with a presence , and our other divisions with a base from which they can also benefit , in the strategic , rapidly growing , indian market . we had a net debt to capital ratio of 13.2 % at june 30 , 2011 , and our plan is to continue to leverage our balance sheet to make accretive , bolt-on acquisitions to strengthen our positions in our key end user markets and thereby enhance the profitable growth of our strategic business groups . we also
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interim chief financial officer francis j. conroy , cpa joined the company as interim chief financial officer effective november 7 , 2017. mr. conroy succeeded patrick dennis who originally joined ac in november 2015 prior to the company 's spin-off from gamco . reclassification the company has reclassified certain prior-period amounts to conform to the current-period presentation . for presentation of 2017 results , the company reported revenue from its research services agreement with affiliates in “ institutional research services revenue ” instead of “ other revenue ” . the reclassification did not impact total revenues , operating expenses , operating income/ ( loss ) , net income , or equity . overview consolidated statements of income investment advisory and incentive fees , which are based on the amount and composition of aum in our funds and accounts , represent our largest source of revenues . growth in revenues depends on good investment performance , which influences the value of existing aum as well as contributes to higher investment and lower redemption rates and facilitates the ability to attract additional investors while maintaining current fee levels . growth in aum is also dependent on being able to access various distribution channels , which is usually based on several factors , including performance and service . incentive fees generally consist of an incentive allocation on the absolute gain in a portfolio or a fee of 20 % of the economic profit , as defined in the agreements governing the investment vehicle . we recognize revenue only when the measurement period has been completed or at the time of an investor redemption . institutional research services revenues consist of brokerage commissions derived from securities transactions executed on an agency basis or direct payments on behalf of institutional clients . commission revenues vary directly with the perceived value of the research , as well as account trading activity and new account generation . compensation costs include variable and fixed compensation and related expenses paid to officers , portfolio managers , sales , trading , research and all other professional staff . variable compensation paid to sales personnel and portfolio management generally represents 40 % of revenues and is the largest component of total compensation costs . 34 index management fee is incentive-based and entirely variable compensation in the amount of 10 % of the aggregate pre-tax profits which is paid to mr. gabelli or his designee for acting as executive chairman pursuant to his employment agreement so long as he is an executive of ac . other operating expenses include general and administrative operating costs and clearing charges and fees incurred by the brokerage business . other income and expenses include net gains and losses from investments ( which include both realized and unrealized gains and losses from trading securities and equity in earnings of investments in partnerships ) , interest and dividend income , and interest expense . net gains and losses from investments are derived from our proprietary investment portfolio consisting of various public and private investments . net income/ ( loss ) attributable to noncontrolling interests represents the share of net income attributable to the minority stockholders , as reported on a separate company basis , of our consolidated majority-owned subsidiaries and net income attributable to third party limited partners of certain partnerships and offshore funds we consolidate . please refer to notes a and d in our consolidated financial statements included elsewhere in this report . consolidated statements of financial condition we ended the 2017 year with approximately $ 932 million in cash and investments , net of securities sold , not yet purchased of $ 6 million . this includes $ 347 million of cash and short term us treasuries ; $ 293 million of securities , net , including 4.4 million shares of gamco valued at $ 130 million ; and $ 292 million invested in affiliated and third party funds and partnerships . our financial resources underpin our flexibility to pursue strategic objectives that may include acquisitions , lift-outs , seeding new investment strategies , and co-investing , as well as shareholder compensation in the form of share repurchase and dividends . total shareholders ' equity was $ 918 million or $ 38.84 per share on december 31 , 2017 , compared to $ 874 million or $ 36.04 per share on december 31 , 2016. note that these shareholders ' equity per share calculations are a non-gaap measurement calculated by dividing the total equity by the number of common shares outstanding . the increase in equity from the end of 2016 was largely attributable to prepayments of the gamco note totaling $ 50 million . the company also reviews an analysis of adjusted economic book value ( “ aebv ” ) , and aebv per share , a non-gaap financial measure that management believes is useful for analyzing ac 's financial condition because it reflects the impact on book value if and when the gamco note is paid down . the gamco note that was issued as part of the spin-off transaction is not treated as an asset for gaap purposes , but as a reduction in equity , and will continue to be reflected as a reduction in equity in future periods in the amount of the principal then outstanding . as the gamco note pays down , the company 's total equity will increase , and once the gamco note is fully repaid , the company 's total equity and aebv will be the same . at december 31 , 2017 , aebv for the company was $ 968 million and the aebv per share was $ 40.96 per share . story_separator_special_tag the reconciliation of gaap book value and gaap book value per share to aebv and aebv per share at december 31 , 2017 is shown below ( in thousands , except for per share data ) : reconciliation of total equity to adjusted economic book value total per share total equity as reported $ 918,147 $ 38.84 add : gamco note 50,000 2.12 adjusted economic book value $ 968,147 $ 40.96 our primary goal is to use our liquid resources to opportunistically and strategically grow book value and net income . while this goal is a priority , if opportunities are not present with what we consider a margin of safety , we will consider alternatives to return capital to our shareholders , including stock repurchases and dividends . 35 index story_separator_special_tag associated with afs securities contributed to g.research , our broker-dealer , where they are held as trading securities . interest and dividend income : interest and dividend income declined $ 2.2 million to $ 10.5 million in 2017 from $ 12.7 million in 2016 primarily due to the reduction in the balance of the gamco note . interest expense : interest expense decreased to $ 0.2 million in 2017 from $ 0.6 million in 2016. income taxes in 2017 , we recorded an income tax benefit of $ 2.4 million resulting in a negative effective tax rate ( “ etr ” ) of -38.6 % ( i.e. , a tax benefit on positive income ) . in 2016 , we recorded an income tax expense of $ 3.9 million resulting in an etr of 27.0 % . the 2017 negative etr is below the standard corporate tax rate of 34 % primarily due to tax benefits from the dividends received deduction and the charitable contribution of appreciated securities and the revaluation of deferred tax items as a result of the reduction in the federal corporate income tax rate to 21 % under the recently-enacted tax cut and jobs act . the revaluation of deferred tax items was based on reasonable estimates but may require future adjustment for a variety of reasons including the receipt of additional information from investment funds , changes in the company 's assumptions and the availability of further guidance and interpretations . we expect that the company 's etr in future years will be slightly less than the 21 % statutory rate as a result of the continued availability of the dividend received deduction . this expectation does not , however , include the effect of significant discretionary tax-advantaged actions ( e.g. , a charitable contribution of appreciated securities ) . noncontrolling interests net income/ ( loss ) attributable to noncontrolling interests was a loss of $ 0.2 million in 2017 compared to income of $ 0.3 million in 2016. net income net income for the year ended december 31 , 2017 was $ 8.8 million compared to net income of $ 10.2 million for the prior year substantially the result of decreased incentive fee revenues and increased stock-based compensation due to the accelerated vesting of ac and gbl restricted stock offset by an income tax benefit driven by the revaluation of deferred tax items . 38 index operating results for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 revenues total revenues were $ 31.2 million for the year ended december 31 , 2016 , $ 8.4 million higher than total revenues of $ 22.8 million for the year ended december 31 , 2015. total revenues by revenue component were as follows ( dollars in thousands ) : replace_table_token_14_th investment advisory and incentive fees : investment advisory income is directly influenced by the level and mix of average aum . we earn advisory fees based on the level of average aum in our products . advisory fees were $ 8.9 million for 2016 compared to $ 8.4 million for 2015 , an increase of $ 0.5 million . this increase is a result of the increase in average aum to $ 1.19 billion in 2016 from $ 1.07 billion in 2015 , an increase of $ 12 million . incentive fees are directly related to the gains generated for our clients . we earn a percentage , usually 20 % , of the economic gains of our clients ' aum . incentive fees were $ 9.4 million in 2016 , up $ 5.1 million from $ 4.3 million in 2015 as market appreciation in our clients ' accounts were higher in 2016 as compared to 2015. institutional research services : institutional research services revenues in 2016 were $ 12.6 million , a $ 2.7 million , or 27 % , increase from $ 9.9 million in 2015 resulting from higher brokerage commissions derived from securities transactions executed on an agency basis , sales manager fees earned from at-the market offerings of certain gamco closed-end funds and an increase of $ 1.5 million due to a renegotiation of the research services fee agreements with affiliates . other revenues : other revenues were $ 0.3 million for 2016 and 2015. expenses compensation : compensation costs , which include variable compensation , salaries , bonuses and benefits , were $ 31.0 million for the year ended december 31 , 2016 , a 17 % increase from $ 26.4 million for the year ended december 31 , 2015. fixed compensation costs , which include salaries , bonuses and benefits , increased 12 % to $ 19.3 million in 2016 from $ 17.3 million in 2015 due primarily to an increase in research analyst headcount and additional administrative personnel necessary to support our reporting as a stand-alone public company . the remainder of the compensation expenses represents variable compensation that fluctuates with management fee and incentive fee revenues . for 2016 , variable payouts on revenues were $ 11.7 million , up $ 2.7 million from the $ 9.0 million in 2015. variable payouts are impacted by the mix of products upon which performance fees are earned and the extent to which they may exceed their allocated costs .
| institutional research services : institutional research services revenues in 2017 were $ 12.2 million , a $ 0.4 million decline from $ 12.6 million in 2016 resulting from lower brokerage commissions derived from securities transactions executed on an agency basis and sales manager fees earned from at-the market offerings of certain gamco closed-end funds partially offset by increased revenue from research services agreements with affiliates . other revenues : other revenues were $ 0.2 million for 2017 compared to $ 0.3 million for 2016 , a decrease of $ 0.1 million . expenses compensation : compensation costs , which include variable compensation , salaries , bonuses and benefits , were $ 30.6 million for the year ended december 31 , 2017 , a decrease from $ 31.0 million for the year ended december 31 , 2016. fixed compensation costs , which include salaries , bonuses and benefits , increased to $ 19.8 million in 2017 from $ 19.3 million in 2016. the remainder of compensation expense represents variable compensation that fluctuates with management fee and incentive fee revenues . for 2017 , variable payouts on revenues were $ 10.8 million , down $ 0.9 million from $ 11.7 million in 2016. variable payouts are impacted by the mix of products upon which performance fees are earned and the extent to which they may exceed their allocated costs . stock-based compensation : stock-based compensation was $ 5.9 million in 2017 , an increase of $ 3.4 million , as compared to $ 2.5 million in 2016. the increase was primarily due to the accelerated vesting of ac and gbl restricted stock that occurred in june and august of 2017 , respectively . management fees : management fee expense is incentive-based and entirely variable compensation equal to 10 % of the aggregate pre-tax profits , which is paid to mario j. gabelli or his designees pursuant to his employment agreement with ac . in 2017 and 2016 , ac recorded management fee expense of $ 0.7 million and $ 1.6 million , respectively , as presented in the consolidated statements of income .
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description 31.1 / 31.2 * certification of principal executive officer and principal accounting and financial officer pursuant to section 302 of the sarbanes-oxley act and rule 13a-14 ( a ) or 15d-14 ( a ) under the securities exchange act of 1934 32.1 / 32.2 * certification of principal executive officer and principal accounting and financial officer pursuant to18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 101.ins * xbrl instance document 101.sch * xbrl schema document 101.cal * xbrl calculation linkbase document 101.def * xbrl definition linkbase document 101.lab * xbrl label linkbase document 101.pre * xbrl presentation linkbase document _ * filed herewith 25 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , as amended , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . med spa vacations inc. dated : january 5 , 2021 by : ouyang xingying name : ouyang xingying title : president , treasurer , secretary pursuant to the requirements of the securities exchange act of 1934 , as amended , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicate signature title date ouyang xingying president , treasurer , secretary , director january 5 , 2021 ( principal executive officer , principal accounting and financial officer ) 26 story_separator_special_tag his section of the annual report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance . forward-looking statements are often identified by words like : “ believe , ” “ expect , ” “ estimate , ” “ anticipate , ” “ intend , ” “ project ” and similar expressions , or words that , by their nature , refer to future events . you should not place undue certainty on these forward-looking statements , which apply only as of the date of this prospectus . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions . our consolidated financial statements are stated in united states dollars ( usd or us $ ) and are prepared in accordance with united states generally accepted accounting principles . all references to “ common stock ” refer to the common shares in our capital stock . 12 overview we were incorporated in the state of nevada on october 5 , 2015 to develop a business that specializes in marketing health and wellness vacations to both individuals and corporate groups looking to revitalize and develop a fuller day-to-day life . we were not successful in our efforts and discontinued that line of business . our office address is 23-25 mangrove lane , taren point , nsw , australia . because we were not able to raise sufficient capital to execute our original business plan , we are seeking a business combination with a private entity whose business would present an opportunity for our shareholders . going forward , we intend to seek , investigate and , if such investigation warrants , engage in a business combination with a private entity whose business presents an opportunity for our shareholders . no specific assets or businesses have been definitively identified and there is no certainty that any such assets or business will be identified or that any transactions will be consummated . we may seek investors to purchase our stock to provide us with working capital to fund our operations . thereafter , we will seek to establish or acquire businesses or assets with additional funds raised either via the issuance of shares or debt . there can be no assurance that additional capital will be available to us at all or on acceptable terms . we may seek to raise the required capital by other means . we may have to issue debt or equity or enter into a strategic arrangement with a third party . we currently have no agreements , arrangements or understandings with any person to obtain funds through bank loans , lines of credit or any other sources . since we have no such arrangements or plans currently in effect , our inability to raise funds will have a severe negative impact on our ability to remain a viable company . we do not expect to generate any revenues over the next 12 months , unless we are able to enter into a business combination with an operating company . our principal business objective for the next 12 months will be to seek , investigate and , if such investigation warrants , engage in a business combination with a private entity whose business presents an opportunity for our shareholders . during the next 12 months we anticipate incurring costs related to filing of exchange act reports , and possible costs relating to consummating an acquisition or combination . we believe we will be able to meet these costs through use of funds in our treasury and additional amounts , as necessary , to be loaned by or invested in us by our stockholders , management or other investors . we currently have no debt other than advances from a shareholder of ours . we estimate that , assuming we do not complete a business combination , the level of working capital needed for general and administrative costs for the next twelve months will be approximately $ 50,000. however , this estimate is subject to change , depending on the number of transactions in which we ultimately become involved . we intend to contract out certain technical and administrative functions on an as-needed basis in order to conduct our operating activities . our management team will select and hire these contractors and manage and evaluate their work performance . we have no revenues and story_separator_special_tag description 31.1 / 31.2 * certification of principal executive officer and principal accounting and financial officer pursuant to section 302 of the sarbanes-oxley act and rule 13a-14 ( a ) or 15d-14 ( a ) under the securities exchange act of 1934 32.1 / 32.2 * certification of principal executive officer and principal accounting and financial officer pursuant to18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 101.ins * xbrl instance document 101.sch * xbrl schema document 101.cal * xbrl calculation linkbase document 101.def * xbrl definition linkbase document 101.lab * xbrl label linkbase document 101.pre * xbrl presentation linkbase document _ * filed herewith 25 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , as amended , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . med spa vacations inc. dated : january 5 , 2021 by : ouyang xingying name : ouyang xingying title : president , treasurer , secretary pursuant to the requirements of the securities exchange act of 1934 , as amended , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicate signature title date ouyang xingying president , treasurer , secretary , director january 5 , 2021 ( principal executive officer , principal accounting and financial officer ) 26 story_separator_special_tag his section of the annual report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance . forward-looking statements are often identified by words like : “ believe , ” “ expect , ” “ estimate , ” “ anticipate , ” “ intend , ” “ project ” and similar expressions , or words that , by their nature , refer to future events . you should not place undue certainty on these forward-looking statements , which apply only as of the date of this prospectus . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions . our consolidated financial statements are stated in united states dollars ( usd or us $ ) and are prepared in accordance with united states generally accepted accounting principles . all references to “ common stock ” refer to the common shares in our capital stock . 12 overview we were incorporated in the state of nevada on october 5 , 2015 to develop a business that specializes in marketing health and wellness vacations to both individuals and corporate groups looking to revitalize and develop a fuller day-to-day life . we were not successful in our efforts and discontinued that line of business . our office address is 23-25 mangrove lane , taren point , nsw , australia . because we were not able to raise sufficient capital to execute our original business plan , we are seeking a business combination with a private entity whose business would present an opportunity for our shareholders . going forward , we intend to seek , investigate and , if such investigation warrants , engage in a business combination with a private entity whose business presents an opportunity for our shareholders . no specific assets or businesses have been definitively identified and there is no certainty that any such assets or business will be identified or that any transactions will be consummated . we may seek investors to purchase our stock to provide us with working capital to fund our operations . thereafter , we will seek to establish or acquire businesses or assets with additional funds raised either via the issuance of shares or debt . there can be no assurance that additional capital will be available to us at all or on acceptable terms . we may seek to raise the required capital by other means . we may have to issue debt or equity or enter into a strategic arrangement with a third party . we currently have no agreements , arrangements or understandings with any person to obtain funds through bank loans , lines of credit or any other sources . since we have no such arrangements or plans currently in effect , our inability to raise funds will have a severe negative impact on our ability to remain a viable company . we do not expect to generate any revenues over the next 12 months , unless we are able to enter into a business combination with an operating company . our principal business objective for the next 12 months will be to seek , investigate and , if such investigation warrants , engage in a business combination with a private entity whose business presents an opportunity for our shareholders . during the next 12 months we anticipate incurring costs related to filing of exchange act reports , and possible costs relating to consummating an acquisition or combination . we believe we will be able to meet these costs through use of funds in our treasury and additional amounts , as necessary , to be loaned by or invested in us by our stockholders , management or other investors . we currently have no debt other than advances from a shareholder of ours . we estimate that , assuming we do not complete a business combination , the level of working capital needed for general and administrative costs for the next twelve months will be approximately $ 50,000. however , this estimate is subject to change , depending on the number of transactions in which we ultimately become involved . we intend to contract out certain technical and administrative functions on an as-needed basis in order to conduct our operating activities . our management team will select and hire these contractors and manage and evaluate their work performance . we have no revenues and
| second , we have been able to keep our operating expenses to a minimum by operating in space provided at no expense by one of our shareholders . we currently have no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital . our financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) , which contemplates our continuation as a going concern . we have not yet generated any revenue and have incurred losses to date of $ 228,905. in addition , our current liabilities exceed our current assets by $ 34,328. these factors raise substantial doubt about our ability to continue operating as a going concern . our ability to continue our operations as a going concern , realize the carrying value of our assets , and discharge our liabilities in the normal course of business is dependent upon our ability to raise capital sufficient to fund our commitments and ongoing losses , and ultimately generate profitable operations . 13 cash flows years ended december 31 , 2019 2018 cash used in operating activities $ ( 12,658 ) $ ( 3,500 ) cash provided by investing activities $ - $ - cash provided by financing activities $ - $ - net change in cash $ ( 12,658 ) $ ( 3,500 ) operating activities for the year ended december 31 , 2019 , net cash used in operating activities was $ 12,658 , related to our net loss of $ 228,905 , reduced by an increase in expenses paid by related party of $ 207,737 and an increase in accounts payable of $ 8,510. for the year ended december 31 , 2018 , net cash used in operating activities was $ 3,500 , related to our net loss of $ 875 , increased by a decrease in accounts payable of $ 2,625. during the years ended december 31 , 2019 and 2018 , the
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the company believes that available cash and marketable securities , cash provided by operations , and available borrowing facilities will provide adequate support for the cash needs of the business in 2013 , although there can be no assurances . off-balance sheet arrangements the company does not utilize any special purpose entities or other off-balance sheet arrangements . 21 commitments the company 's significant contractual obligations are its supplemental pension plan , its operating leases , and the contingent payments that may result from the bogs acquisition , as described above . these obligations are discussed further in the notes to consolidated financial statements . the company also has significant obligations to purchase inventory . the pension obligations and contingent consideration were recorded on the company 's consolidated balance sheets . future obligations under operating leases are disclosed in note 14 of the notes to consolidated financial statements . the table below provides summary information about these obligations as of december 31 , 2012. replace_table_token_10_th * purchase obligations relate entirely to commitments to purchase inventory . other critical accounting policies the company 's accounting policies are more fully described in note 2 of the notes to consolidated financial statements . as disclosed in note 2 , the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and such differences may be material to the consolidated financial statements . the following policies are considered by management to be the most critical in understanding the significant accounting estimates inherent in the preparation of the company 's consolidated financial statements and the uncertainties that could impact the company 's results of operations , financial position and cash flows . sales returns , sales allowances and doubtful accounts the company records reserves and allowances ( “ reserves ” ) for sales returns , sales allowances and discounts , and accounts receivable balances that it believes will ultimately not be collected . the reserves are based on such factors as specific customer situations , historical experience , a review of the current aging status of customer receivables and current and expected economic conditions . the reserve for doubtful accounts includes a specific reserve for accounts identified as potentially uncollectible , plus an additional reserve for the balance of accounts . the company evaluates the reserves and the estimation process and makes adjustments when appropriate . historically , actual write-offs against the reserves have been within the company 's expectations . changes in these reserves may be required if actual returns , discounts and bad debt activity varies from the original estimates . these changes could impact the company 's results of operations , financial position and cash flows . 22 pension plan accounting the company 's pension expense and corresponding obligation are determined on an actuarial basis and require certain actuarial assumptions . management believes the two most critical of these assumptions are the discount rate and the expected rate of return on plan assets . the company evaluates its actuarial assumptions annually on the measurement date ( december 31 ) and makes modifications based on such factors as market interest rates and historical asset performance . changes in these assumptions can result in different expense and liability amounts , and future actual experience can differ from these assumptions . discount rate – pension expense and projected benefit obligation both increase as the discount rate is reduced . see note 12 of the notes to consolidated financial statements for discount rates used in determining the net periodic pension cost for the years ended december 31 , 2012 , 2011 and 2010 and the funded status of the plans at december 31 , 2012 and 2011. the rates are based on the plan 's projected cash flows . the company utilizes the cash flow matching method , which discounts each year 's projected cash flows at the associated spot interest rate back to the measurement date . a 0.5 % decrease in the discount rate would increase annual pension expense and the projected benefit obligation by approximately $ 416,000 and $ 4,300,000 , respectively . expected rate of return – pension expense increases as the expected rate of return on pension plan assets decreases . in estimating the expected return on plan assets , the company considers the historical returns on plan assets and future expectations of asset returns . the company utilized an expected rate of return on plan assets of 7.75 % in 2012 and 8.0 % in 2011 and 2010. this rate was based on the company 's long-term investment policy of equity securities : 20 % - 80 % ; fixed income securities : 20 % - 80 % ; and other , principally cash : 0 % - 20 % . a 0.5 % decrease in the expected return on plan assets would increase annual pension expense by approximately $ 135,000. goodwill and trademarks goodwill and trademarks are tested for impairment on an annual basis and more frequently when significant events or changes in circumstances indicate that their carrying values may not be recoverable . conditions that would trigger an impairment assessment include , but are not limited to , a significant adverse change in legal factors or business climate that could affect the value of the asset . the company uses a two-step process to test goodwill for impairment . first , the applicable reporting unit 's fair value is compared to its carrying value . if the reporting unit 's carrying amount exceeds its fair value , an indication exists that the reporting unit 's goodwill may be impaired , and the second story_separator_special_tag the company believes that available cash and marketable securities , cash provided by operations , and available borrowing facilities will provide adequate support for the cash needs of the business in 2013 , although there can be no assurances . off-balance sheet arrangements the company does not utilize any special purpose entities or other off-balance sheet arrangements . 21 commitments the company 's significant contractual obligations are its supplemental pension plan , its operating leases , and the contingent payments that may result from the bogs acquisition , as described above . these obligations are discussed further in the notes to consolidated financial statements . the company also has significant obligations to purchase inventory . the pension obligations and contingent consideration were recorded on the company 's consolidated balance sheets . future obligations under operating leases are disclosed in note 14 of the notes to consolidated financial statements . the table below provides summary information about these obligations as of december 31 , 2012. replace_table_token_10_th * purchase obligations relate entirely to commitments to purchase inventory . other critical accounting policies the company 's accounting policies are more fully described in note 2 of the notes to consolidated financial statements . as disclosed in note 2 , the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and such differences may be material to the consolidated financial statements . the following policies are considered by management to be the most critical in understanding the significant accounting estimates inherent in the preparation of the company 's consolidated financial statements and the uncertainties that could impact the company 's results of operations , financial position and cash flows . sales returns , sales allowances and doubtful accounts the company records reserves and allowances ( “ reserves ” ) for sales returns , sales allowances and discounts , and accounts receivable balances that it believes will ultimately not be collected . the reserves are based on such factors as specific customer situations , historical experience , a review of the current aging status of customer receivables and current and expected economic conditions . the reserve for doubtful accounts includes a specific reserve for accounts identified as potentially uncollectible , plus an additional reserve for the balance of accounts . the company evaluates the reserves and the estimation process and makes adjustments when appropriate . historically , actual write-offs against the reserves have been within the company 's expectations . changes in these reserves may be required if actual returns , discounts and bad debt activity varies from the original estimates . these changes could impact the company 's results of operations , financial position and cash flows . 22 pension plan accounting the company 's pension expense and corresponding obligation are determined on an actuarial basis and require certain actuarial assumptions . management believes the two most critical of these assumptions are the discount rate and the expected rate of return on plan assets . the company evaluates its actuarial assumptions annually on the measurement date ( december 31 ) and makes modifications based on such factors as market interest rates and historical asset performance . changes in these assumptions can result in different expense and liability amounts , and future actual experience can differ from these assumptions . discount rate – pension expense and projected benefit obligation both increase as the discount rate is reduced . see note 12 of the notes to consolidated financial statements for discount rates used in determining the net periodic pension cost for the years ended december 31 , 2012 , 2011 and 2010 and the funded status of the plans at december 31 , 2012 and 2011. the rates are based on the plan 's projected cash flows . the company utilizes the cash flow matching method , which discounts each year 's projected cash flows at the associated spot interest rate back to the measurement date . a 0.5 % decrease in the discount rate would increase annual pension expense and the projected benefit obligation by approximately $ 416,000 and $ 4,300,000 , respectively . expected rate of return – pension expense increases as the expected rate of return on pension plan assets decreases . in estimating the expected return on plan assets , the company considers the historical returns on plan assets and future expectations of asset returns . the company utilized an expected rate of return on plan assets of 7.75 % in 2012 and 8.0 % in 2011 and 2010. this rate was based on the company 's long-term investment policy of equity securities : 20 % - 80 % ; fixed income securities : 20 % - 80 % ; and other , principally cash : 0 % - 20 % . a 0.5 % decrease in the expected return on plan assets would increase annual pension expense by approximately $ 135,000. goodwill and trademarks goodwill and trademarks are tested for impairment on an annual basis and more frequently when significant events or changes in circumstances indicate that their carrying values may not be recoverable . conditions that would trigger an impairment assessment include , but are not limited to , a significant adverse change in legal factors or business climate that could affect the value of the asset . the company uses a two-step process to test goodwill for impairment . first , the applicable reporting unit 's fair value is compared to its carrying value . if the reporting unit 's carrying amount exceeds its fair value , an indication exists that the reporting unit 's goodwill may be impaired , and the second
| 14 financial position highlights at december 31 , 2012 , cash and marketable securities totaled $ 61.5 million and outstanding debt totaled $ 45.0 million . at december 31 , 2011 , cash and marketable securities totaled $ 61.9 million and outstanding debt totaled $ 37.0 million . the company 's main sources of cash in 2012 were from operations , the maturities of marketable securities , and borrowings under the revolving line of credit . the company 's main uses of cash in 2012 were for the payment of dividends , common stock repurchases , and the payment of an indemnification holdback to the former shareholders of bogs . the company also had increased capital expenditures in 2012 due to construction to connect a new building that was acquired in 2011 to the company 's glendale , wisconsin distribution center . recent acquisitions bogs on march 2 , 2011 , the company acquired 100 % of the outstanding shares of the combs company ( “ bogs ” ) from its former shareholders for $ 29.3 million in cash plus assumed debt of approximately $ 3.8 million and contingent payments after two and five years ( in 2013 and 2016 ) , which are dependent on bogs achieving certain performance measures . in accordance with the agreement , $ 2.0 million of the cash portion of the purchase price was held back to be used to help satisfy any claims of indemnification by the company , and any amounts not used therefore were to be paid to the seller 18 months from the date of acquisition . this holdback was paid in full to the former shareholders of bogs in 2012. at the acquisition date , the company 's estimate of the fair value of the contingent payments was approximately $ 9.8 million in aggregate . at december 31 , 2012 , the company 's estimate of the fair value of the contingent payments was approximately $ 6.3 million in aggregate . the change in fair value was recognized in earnings . see note 11
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we did not evaluate any long-lived assets for impairment during 2018 because no such impairment indicators were present . goodwill - our net goodwill totaled $ 27.2 million at december 31 , 2018. we perform a goodwill impairment test annually in the third quarter of each year . goodwill is also evaluated for impairment - 36 - at other times whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . all of our net goodwill at december 31 , 201 8 is re lated to compx 's security products reporting unit . in 2018 we used the qualitative assessment of asc 350-20-35 , goodwill , for our 201 8 annual impairment test and determined it was not necessary to perform the quantitative goodwill impairment test , as we concluded it is more-likely-than-not that the fair value of compx 's security products reporting unit exceeded its carrying amount . see note 7 to our consolidated financial statements . when performing a qualitative assessment considerable management judgment is necessary to evaluate the qualitative impact of events and circumstances on the fair value of a reporting unit . events and circumstances considered in our impairment evaluations , such as historical profits and stability of the markets served , are consistent with factors utilized with our internal projections and operating plan . however , future events and circumstances could result in materially different findings which could result in the recognition of a material goodwill impairment . defined benefit pension plans - we maintain various defined benefit pension plans . the amounts recognized as defined benefit pension expense and the reported amounts of pension asset and accrued pension costs are actuarially determined based on several assumptions , including discount rates , expected rates of returns on plan assets , and expected mortality . variances from these actuarially assumed rates will result in increases or decreases , as applicable , in the recognized pension obligations , pension expense and funding requirements . these assumptions are more fully described below under the heading “ assumptions on defined benefit pension plans. ” income taxes - we recognize deferred taxes for future tax effects of temporary differences between financial and income tax reporting . deferred income tax assets and liabilities for each tax-paying jurisdiction in which we operate are netted and presented as either a noncurrent deferred income tax asset or liability , as applicable . while we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance , it is possible that in the future we may change our estimate of the amount of the deferred income tax assets that would more-likely-than-not be realized in the future resulting in an adjustment to the deferred income tax asset valuation allowance that would either increase or decrease , as applicable , reported net income in the period the change in estimate was made . we record a reserve for uncertain tax positions where we believe it is more-likely-than-not our position will not prevail with the applicable tax authorities . it is possible that in the future we may change our assessment regarding the probability that our tax positions will prevail that would require an adjustment to the amount of our reserve for uncertain tax positions that could either increase or decrease , as applicable , reported net income in the period the change in assessment was made . income from operations of compx and kronos is impacted by certain significant judgments and estimates , as summarized below : chemicals ( kronos ) - allowance for doubtful accounts , impairment of equity method investments , long-lived assets , defined benefit pension plans , loss accruals and income taxes , and component products ( compx ) - impairment of goodwill and long-lived assets , loss accruals and income taxes . in addition , general corporate and other items are impacted by the significant judgments and estimates for impairment of marketable securities and equity method investments , defined benefit pension plans , deferred income tax asset valuation allowances and loss accruals . - 37 - income ( loss ) from operat ions the following table shows the components of our income ( loss ) from operations . replace_table_token_6_th the following table shows the components of our income ( loss ) before income taxes exclusive of our income ( loss ) from operations . replace_table_token_7_th compx international inc. replace_table_token_8_th net sales - net sales increased approximately $ 6.2 million in 2018 compared to 2017 primarily due to higher marine components sales volumes to manufacturers of ski/wakeboard boats and larger center-console boats ; and to a lesser extent security products sales to certain markets , particularly transportation and office furniture . relative changes in selling prices did not have a material impact on net sales comparisons . net sales increased approximately $ 3.1 million in 2017 compared to 2016 primarily due to higher security products sales volumes to government security , electronic lock and other markets , partially offset by a decrease in sales of security products to an original equipment manufacturer of recreational transportation products . marine components also contributed with higher sales , primarily to the waterski/wakeboard boat market . relative changes in selling prices did not have a material impact on net sales comparisons . - 38 - cost of sales and gross margin – cost of sales increased from 2017 to 2018 primarily due to increased sales volumes for both compx 's security products and marine components businesses . gross margin dollars and gross profit as a percentage of sales increased from 2017 to 2018 primarily due to greater fixed cost leverage facilitated by higher production volumes for each of our business segments . cost of sales increased from 2016 to 2017 primarily due to increased sales volumes for compx 's security products and marine components businesses , and to a lesser extent higher raw material prices ( mostly zinc and brass ) and increased employee medical costs . story_separator_special_tag gross margin dollars in 2017 were comparable to 2016. as a percentage of sales , gross margin for 2017 decreased compared to 2016 due primarily to unfavorable relative changes in customer and product mix , higher raw material prices and increased employee medical costs in compx 's security products business , as well as higher manufacturing costs for the compx 's marine components business . operating costs and expenses – operating costs and expenses consist primarily of sales and administrative-related personnel costs , sales commissions and advertising expenses directly related to product sales and administrative costs relating to compx 's businesses and its corporate management activities , as well as gains and losses on plant , property and equipment . operating costs and expenses were comparable in 2016 , 2017 and 2018 as a percentage of sales . income from operations – as a percentage of net sales , operating income increased from 2017 to 2018 while operating income decreased slightly from 2016 to 2017. operating margins were primarily impacted by the factors impacting net sales , cost of sales , gross margin and operating costs discussed above . general – compx 's profitability primarily depends on our ability to utilize our production capacity effectively , which is affected by , among other things , the demand for our products and our ability to control our manufacturing costs , primarily comprised of labor costs and materials . the materials used in our products consist of purchased components and raw materials some of which are subject to fluctuations in the commodity markets such as zinc , brass and stainless steel . total material costs represented approximately 45 % of our cost of sales in 2018 , with commodity-related raw materials accounting for approximately 12 % of our cost of sales . during 2017 and 2018 , markets for the primary commodity-related raw materials used in the manufacture of our locking mechanisms , primarily zinc and brass , generally strengthened , but were moderating at the end of 2018. over that same period , the market for stainless steel , the primary raw material used for the manufacture of marine exhaust headers and pipes and wake enhancement systems , remained relatively stable . while we expect the markets for our primary commodity-related raw materials to remain stable during 2019 , we recognize that economic conditions could introduce renewed volatility on these and other manufacturing materials . compx occasionally enter into short-term commodity-related raw material supply arrangements to mitigate the impact of future increases in commodity related raw material costs . see item 1 - “ business- raw materials. ” results by reporting unit - 39 - the key per formance indicator for compx 's reporting units is the level of their income from operations ( see discussion below ) . replace_table_token_9_th security products - security products net sales increased 2 % to $ 98.4 million in 2018 compared to $ 96.6 million in 2017 , primarily due to higher sales to the transportation and office furniture markets . as a percentage of sales , gross profit for 2018 increased slightly over 2017 due to lower production costs , including headcount reductions made during the second quarter of 2017 , and improved coverage of fixed costs over increased production volumes . operating costs and expenses for 2018 were slightly lower than 2017. as a result , security products operating income as a percentage of net sales for 2018 exceeded 2017. security products net sales increased 2 % to $ 96.6 million in 2017 compared to $ 94.7 million in 2016 , as improved sales to government security , electronic lock and other markets more than offset a decrease of approximately $ 2.9 million in sales to a customer serving the recreational transportation market . as a percentage of sales , gross profit for 2017 decreased compared to 2016 primarily due to unfavorable relative changes in customer and product mix , and to a lesser extent higher raw material prices ( mostly zinc and brass ) and increased employee medical costs . operating costs and expenses for 2017 were comparable to 2016. as a result , security products operating income as a percentage of net sales for 2017 was below 2016. marine components - marine components net sales increased 29 % in 2018 as compared to 2017 as a result of continued strong demand for our products , particularly those sold to the ski/wakeboard boat market as well as to manufacturers of large center-console boats and industrial customers . gross profit margin and operating income as a percentage of net sales increased in 2018 compared to 2017 principally due to improved fixed cost leverage facilitated by higher production volumes . marine components net sales increased 8 % in 2017 as compared to 2016 as a result of continued strong demand for our products , particularly those sold to the ski/wakeboard boat market . gross profit margin and operating income as a percentage of net sales decreased in 2017 compared to 2016 principally due to unfavorable relative changes in customer and product mix and higher manufacturing costs , including the impact of personnel turnover in key manufacturing departments . - 40 - outlook – compx 's 2018 sales growth was largely attributable to high demand for our marine products , where we continue to benefit from innovation and di versification in our product offerings to the recreational boat markets . we also increased sales of security products , particularly to the transportation and office furniture markets . in 2019 , we will seek to maintain the positive momentum in each of our b usiness segments to grow sales and profitability . we will continue to monitor economic conditions and sales order rates and respond to fluctuations in customer demand through continuous evaluation of staffing levels and consistent execution of our lean man ufacturing and cost improvement initiatives .
| $ 62.3 million compared to $ 107.8 million in 2017 ; higher income from operations attributable to compx of $ 2.6 million in 2018 ; and higher litigation fees and litigation related costs of $ 2.4 million in 2018. as more fully described below , the increase in our earnings per share attributable to nl stockholders from 2016 to 2017 is primarily due to the net effects of : equity in earnings from kronos in 2017 of $ 107.8 million compared to $ 13.2 million in 2016 , lower income from operations attributable to compx in 2017 of $ .4 million , lower environmental remediation and related costs of $ 1.8 million in 2017 , higher interest and dividend income in 2017 of $ 1.8 million , and a non-cash deferred income tax benefit of $ 37.5 million recognized in 2017 related to the revaluation of our net deferred income tax liability resulting from the reduction in the u.s. federal corporate income tax rate enacted into law on december 22 , 2017. our 2018 net loss per share attributable to nl stockholders includes : - 34 - a loss of $ 1.01 per share related to the litigation settlement expense recognized in the second quarter ; and a loss , net of income taxes , included in our equity in earnings of kronos : loss of $ 0.02 per share related to kronos ' tax on global intangible low-tax income , recognized in the fourth quarter ; and loss of $ 0.01 per share related to kronos ' reserve for uncertain tax positions , recognized in the first and fourth quarters . our 2017 net income per share attributable to nl stockholders includes : income of $ .77 per share related to a non-cash deferred income tax benefit related to the revaluation of our net deferred income tax liability resulting from the reduction in the u.s. federal corporate income tax rate enacted into law on december 22 , 2017 , income
| 13,070 |
the company also provided enhanced benefits to its colleagues , including bonuses to frontline colleagues , dependent care financial assistance , paid sick leave for part-time colleagues and paid time off to colleagues who test positive or are quarantined due to exposure to covid-19 . our strong local presence and scale in communities across the country enabled us to play an indispensable role in the national response to covid-19 , as well as provide seamless support for our customers wherever they needed us : in our cvs locations , in their homes , and virtually . the covid-19 pandemic had a significant impact on the company 's operating results for the year ended december 31 , 2020 , primarily in the company 's health care benefits and retail/ltc segments . health care benefits segment beginning in mid-march , the health system experienced a significant reduction in utilization of medical services ( “ utilization ” ) that is discretionary and the cancellation of elective medical procedures . utilization remained below historical levels through april , began to recover in may and june and reached more normal levels in the third and fourth quarters , with select geographies impacted by covid-19 waves . in response to covid-19 , the company expanded benefit coverage to its members . these expanded benefits included cost-sharing waivers for covid-19 related treatments , as well as assistance to members through premium credits , telehealth cost-sharing waivers and other investments . covid-19 also resulted in a shift in the company 's medical membership during the year . the company experienced declines in commercial membership due to reductions in workforce at our existing customers , substantially offset by increases in medicaid membership primarily as a result of the suspension of eligibility redeterminations and increased unemployment . retail/ltc segment during march 2020 , the company experienced increased prescription volume due to the greater use of 90-day prescriptions and early refills of maintenance medications , as well as increased front store volume as consumers prepared for the covid-19 pandemic . beginning in the second quarter and continuing throughout the remainder of the year , the company experienced reduced customer traffic in its retail pharmacies and minuteclinic locations due to shelter-in-place orders as well as reduced new therapy prescriptions and decreased long-term care prescription volume as a result of the covid-19 pandemic . in addition , the company incurred incremental operating expenses associated with the company 's covid-19 pandemic response efforts and waived fees associated with prescription home delivery and associated front store products . during 2020 , the company also played a key role in supporting the local communities in which it operates . the company offered covid-19 diagnostic testing at more than 4,000 cvs pharmacy locations as of december 31 , 2020. in addition , the company launched critical diagnostic testing for the vulnerable senior population in long-term care facilities in partnership with three states . the company was also selected to administer covid-19 vaccines in both long-term care facilities and its retail pharmacies . the company began administering covid-19 vaccinations in long-term care facilities and in certain of its retail pharmacies during december 2020 and february 2021 , respectively , and expects to play a significant role in covid-19 vaccine administration in the future . the covid-19 pandemic continues to evolve . we believe covid-19 's impact on our businesses , operating results , cash flows and or financial condition primarily will be driven by the geographies impacted and the severity and duration of the pandemic ; the pandemic 's impact on the u.s. and global economies and consumer behavior and health care utilization patterns ; and the timing , scope and impact of stimulus legislation as well as other federal , state and local governmental responses to the pandemic . those primary drivers are beyond our knowledge and control . as a result , the impact covid-19 will have on our businesses , operating results , cash flows and or financial condition is uncertain , but the impact could be adverse and material . 68 results of operations the following information summarizes the company 's results of operations for 2020 compared to 2019. for discussion of the company 's results of operations for 2019 compared to 2018 , see “ management 's discussion and analysis of financial condition and results of operations ” included in the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019 filed with the u.s. securities and exchange commission ( the “ sec ” ) on february 18 , 2020. story_separator_special_tag other income other income increased $ 82 million in 2020 compared to 2019. other income represents pension plan asset returns in excess of interest cost on pension plan obligations . the increase in other income in 2020 was primarily due to lower discount rates in 2020 compared to 2019 when determining the interest cost on the company 's pension plan obligations as well as strong plan asset returns . income tax provision the company 's effective income tax rate remained consistent at 26.3 % in both 2020 and 2019 , with the impact of the non-deductible hif offset by the favorable resolution of certain tax matters in the year ended december 31 , 2020. loss from discontinued operations 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 and bob 's stores , each of which subsequently filed for bankruptcy . the company 's loss from discontinued operations in 2020 primarily includes lease-related costs required to satisfy these 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 . story_separator_special_tag 70 outlook for 2021 with respect to 2021 , the company believes you should consider the following important information : the pharmacy services segment is expected to benefit from continued growth in specialty pharmacy and our ability to drive further improvements in purchasing economics , partially offset by continued price compression . the retail/ltc segment is expected to benefit from increased prescription volume , diagnostic testing and improved generic drug purchasing , partially offset by continued reimbursement pressure and operating expenses associated with the company 's covid-19 pandemic response efforts . the projected adjusted prescription growth is expected to be driven by the continued successful execution of our patient care programs , the anticipated return of provider visits as we move through the year and vaccination administration . while lower front store traffic has persisted into the first quarter of 2021 , we expect front store traffic to increase as we move through the year . the health care benefits segment is expected to benefit from medicare membership growth , partially offset by membership declines in our medicaid products , the adverse impact of the covid-19 pandemic and the removal of the hif . the projected mbr is expected to increase compared to 2020 , reflecting the return to more normal levels of utilization , the removal of the hif , lower medicare risk adjustment revenue and the continued shift in business mix . the covid-19 pandemic is expected to adversely impact earnings in 2021 due to the regulatory changes included in the consolidated appropriations act of 2021 ; testing , treatment and vaccination costs ; and lower medicare risk adjustment revenue . the company is expected to benefit from the continuation of its enterprise-wide cost savings initiatives that are expected to ramp as we move through the year . key drivers include : ◦ the ongoing digitalization of our business along with technology improvements in our operations , ◦ office real estate reductions associated with workforce management changes and ◦ productivity/operational efficiency initiatives within each of the company 's segments . based upon current tax legislation , the company expects its effective income tax rate to decrease primarily due to the removal of the hif in 2021. the company expects changes to its business environment to continue 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 or impact the company 's businesses . the company 's current expectations described above are forward-looking statements . please see “ risk factors ” included in item 1a of this 10-k and the “ cautionary statement concerning forward-looking statements ” in 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 . 71 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 company 's chief operating decision maker ( “ 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 , which 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 . 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 . the following is a reconciliation of financial measures of the company 's segments to the consolidated totals : replace_table_token_4_th _ ( 1 ) total revenues of the pharmacy services segment include approximately $ 10.9 billion , $ 11.5 billion and $ 11.4 billion of retail co-payments for 2020 , 2019 and 2018 , 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 . 72 the following are reconciliations of operating income to adjusted operating income for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_5_th replace_table_token_6_th replace_table_token_7_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 .
| operating income operating income increased $ 1.9 billion or 16.1 % in 2020 compared to 2019. the increase in operating income was primarily due to : increased operating income in the health care benefits segment , primarily as a result of the covid-19 pandemic , pre-tax income of $ 307 million associated with the receipt of amounts owed to the company under the patient protection and affordable care act and the health care and education reconciliation act of 2010 ( collectively , the “ aca ” ) risk corridor program that was previously fully reserved for as payment was uncertain , and the $ 269 million pre-tax gain on the sale of the workers ' compensation business ; increased operating income in the pharmacy services segment , primarily related to improved purchasing economics ; and the favorable impact of enterprise-wide cost savings initiatives in 2020 , partially offset by : decreased operating income in the retail/ltc segment , primarily as a result of continued reimbursement pressure and the net adverse impact of the covid-19 pandemic , partially offset by the absence of $ 231 million of store rationalization charges and the $ 205 million pre-tax loss on the sale of onofre , both recorded in 2019. 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 decreased $ 128 million in 2020 compared to 2019 , primarily due to lower average debt in 2020. see “ liquidity and capital resources ” later in this report for additional information . loss on early extinguishment of debt during 2020 , the loss on early extinguishment of debt relates to the company 's repayment of $ 6.0 billion of its outstanding senior notes pursuant to its tender offers for such senior notes in august 2020 , which resulted in a loss on early extinguishment of debt of $ 766 million , and the repayment of $ 4.5 billion of its outstanding senior notes pursuant to its tender offers for such senior notes in december 2020 , which resulted in a loss on early extinguishment of debt of $ 674 million . 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
| 13,071 |
instruction and educational support expenses also include costs of educational supplies and facilities , including rent for campus facilities , certain costs of establishing and maintaining computer laboratories and all other physical plant and occupancy costs , with the exception of costs attributable to the corporate offices . bad debt expense incurred on delinquent student account balances is also included in instruction and educational support expenses . marketing expenses include the costs of advertising and production of marketing materials , and related personnel costs . admissions advisory expenses include salaries , benefits and related costs of personnel engaged in admissions . general and administration expenses include salaries and benefits of management and employees engaged in accounting , human resources , legal , regulatory compliance , and other corporate functions , along with the occupancy and other related costs attributable to such functions . investment income consists primarily of earnings and realized gains or losses on investments , and interest expense is incurred on our outstanding borrowings . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosures of contingent assets and liabilities . on an ongoing basis , management 49 evaluates its estimates and judgments related to its allowance for uncollectible accounts , income tax provisions , the useful lives of property and equipment , valuation of deferred tax assets , goodwill , and intangible assets , valuation of its interest rate swap arrangement , forfeiture rates for stock-based compensation plans , and accrued expenses . management bases its estimates and judgments on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management believes that the following critical accounting policies are its more significant judgments and estimates used in the preparation of its consolidated financial statements . tuition revenue is recognized as income , net of any refunds or withdrawals , in the respective quarter of instruction . advance registrations for the next quarter are recorded as unearned tuition at the start of each academic term . any cash received prior to the start of an academic term is recorded as unearned tuition . we record estimates for our allowance for uncollectible accounts for tuition receivable from students . if the financial condition of our students were to deteriorate , resulting in impairment of their ability to make required payments for tuition payable to us , additional allowances may be required . we record estimates for certain of our accrued expenses and income tax liabilities . we estimate the useful lives of our property and equipment . we periodically assess goodwill and intangible assets for impairment . we assess the value of our interest rate swap arrangement every quarter . we periodically review our assumed forfeiture rates for stock-based awards and adjust them as necessary . should actual results differ from our estimates , revisions to our accrued expenses , carrying amount of goodwill and intangible assets , stock-based compensation expense , and income tax liabilities may be required . new campuses our goal is to serve the demand for post-secondary adult education nationwide by opening new campuses every year . a new campus typically requires up to $ 1 million in upfront capital costs for leasehold improvements , furniture and fixtures , and computer equipment . in the first year of operation , assuming a mid-year opening , we expect to incur operating losses of approximately $ 1 million including depreciation related to the upfront capital costs . a new campus is typically expected to begin generating operating income on a quarterly basis in six quarters of operation , which is generally upon reaching an enrollment level of about 250-300 students . our new campus notional model assumes an increase of average enrollment by 100-150 students per year until reaching a level of about 1,000 students . given the potential internal rate of return achieved with each new campus opening new campuses is an important part of our strategy . although during the 2011 fall term nearly 60 % of the student body opted to take 100 % of their classes online that quarter , we believe opening new campuses and having the option to attend classes on campus is important to attracting , retaining and servicing students . we believe we have sufficient capital resources from cash , cash equivalents , marketable securities , cash generated from operating activities and availability on our credit facility ( discussed below ) to continue to open new campuses for at least the next 12 months . we plan to open eight new campuses in 2012 subject to regulatory approval . we opened eight new campuses in 2011 and 13 in 2010. see new campuses opened table in item 1 for information regarding the locations of these new campuses . global online operations centers we have two global online operations centers to accommodate the demand among students who neither live nor work near a physical campus location . one operations center is located in chantilly , virginia and the other is located in salt lake city , utah . 50 story_separator_special_tag staff salaries ( $ 15.9 million ) , campus facility costs including depreciation and it expenses ( $ 10.4 million ) , and bad debt expense ( $ 3.4 million ) . these costs as a percentage of revenues decreased to 42.3 story_separator_special_tag % in 2010 from 42.7 % in 2009 , largely due to faculty costs growing at a lower rate than tuition revenues . marketing expenses . marketing expenses increased $ 15.3 million , or 28 % , to $ 70.3 million in 2010 from $ 55.0 million in 2009. this increase was principally due to the direct costs required to build the strayer university brand , particularly in new markets , and to attract prospective students . these expenses as a percentage of revenues increased slightly to 11.0 % in 2010 from 10.7 % in 2009. admissions advisory expenses . admissions advisory expenses increased $ 2.3 million , or 10 % , to $ 25.3 million in 2010 from $ 23.0 million in 2009. this increase was principally due to the addition of admissions personnel , particularly at new campuses and at our global online operations centers . admissions advisory expenses as a percentage of revenues decreased to 4.0 % in 2010 from 4.5 % in 2009. general and administration expenses . general and administration expenses increased $ 12.8 million , or 30 % , to $ 55.9 million in 2010 from $ 43.1 million in 2009. the increase is largely attributable to increased employee compensation and related expenses ( $ 3.1 million ) , professional services expense ( $ 3.0 million ) , and other administrative expenses ( $ 4.3 million ) . these expenses as a percentage of revenues increased to 8.8 % in 2010 from 8.4 % in 2009 , largely attributable to employee compensation and other administrative expenses growing faster than tuition revenues . income from operations . income from operations increased $ 43.4 million , or 25 % , to $ 215.8 million in 2010 from $ 172.4 million in 2009 , because of the factors discussed above . 53 investment income . investment income decreased $ 0.2 million to $ 1.2 million in 2010 from $ 1.4 million in 2009. this decrease was principally due to lower yields from our investments partly offset by a higher average cash balance and a $ 0.4 million gain on the sale of marketable securities in 2010. provision for income taxes . income tax expense increased $ 17.0 million , or 25 % , to $ 85.7 million in 2010 from $ 68.7 million in 2009 , primarily due to the increase in income before taxes attributable to the factors discussed above . our effective tax rate was 39.5 % for 2010 and 2009. net income . net income increased $ 26.2 million , or 25 % , to $ 131.3 million in 2010 from $ 105.1 million in 2009 because of the factors discussed above . seasonality our quarterly results of operations tend to vary significantly within a year because of student enrollment patterns . enrollment generally is highest in the fourth quarter , or fall term , although not the case this year , and lowest in the third quarter , or summer term . in 2011 , enrollment by term was as follows : 2011 enrollment by term term enrollment winter 57,608 spring 55,974 summer 47,790 fall 54,233 average 53,901 the following table sets forth our revenues on a quarterly basis for the years ended december 31 , 2009 , 2010 and 2011 : quarterly revenues ( dollars in thousands ) replace_table_token_12_th costs generally are not affected by the seasonal factors as much as enrollment and revenue , and do not vary significantly on a quarterly basis . liquidity and capital resources at december 31 , 2011 , we had cash , cash equivalents and marketable securities of $ 57.1 million compared to $ 76.5 million at december 31 , 2010. at december 31 , 2011 , most of our excess cash was invested in both taxable and tax-exempt money market funds . on january 3 , 2011 , we entered into an unsecured new revolving credit facility with maximum amount of borrowings available of $ 100.0 million and a three year term . on april 4 , 2011 , we entered into an amended and restated revolving credit and term loan agreement , which is secured by our assets , and provides for a $ 100.0 54 million revolving credit facility and a $ 100.0 million term loan facility with a maturity date of march 31 , 2014. proceeds from the term loan were used to pay off the $ 80.0 million outstanding under the original revolving credit facility . at december 31 , 2011 , we had $ 97.5 million outstanding under the term loan and $ 20.0 million outstanding under the revolving credit facility . we repaid the $ 20.0 million outstanding under the revolving credit facility on january 20 , 2012. in 2012 , we are obligated to repay $ 27.5 million of the term loan . for the year ended december 31 , 2011 , we generated $ 154.4 million net cash from operating activities compared to $ 162.8 million for the same period in 2010. capital expenditures were $ 30.0 million for the year ended december 31 , 2011 compared to $ 46.0 million for the same period in 2010. capital expenditures for the year ending december 31 , 2012 are expected to be in the range of $ 25-30 million inclusive of the expected openings of eight new campuses . in december 2011 , we paid $ 7.0 million to acquire the operating assets of the jack welch management institute , and received a $ 2.8 million payment from mr. welch representing his economic interest in this program . for the year ended december 31 , 2011 , we paid $ 49.1 million in regular cash dividends and invested $ 202.7 million to repurchase common shares in the open market . in 2012 , we intend to maintain our annual dividend of $ 4.00 per share , or $ 1.00 per share quarterly . in 2011 , bad debt expense as a percentage of revenue was 4.0 %
| replace_table_token_10_th 51 the following table sets forth certain income statement data as a percentage of revenues for the periods indicated : replace_table_token_11_th year ended december 31 , 2011 compared to year ended december 31 , 2010 enrollment . average enrollment decreased 4 % to 53,901 students for the year ended december 31 , 2011 from 56,002 students for the same period in 2010. revenues . revenues decreased 1 % to $ 627.4 million in 2011 from $ 636.7 million in 2010 principally due to lower average enrollment , partly offset by a 5 % tuition increase implemented at the beginning of 2011. instruction and educational support expenses . instruction and educational support expenses increased $ 22.4 million , or 8 % , to $ 292.0 million in 2011 from $ 269.6 million in 2010. this increase was principally due to direct costs necessary to support students at existing and new campuses , including faculty and related academic staff compensation ( $ 14.6 million ) and campus facility costs ( $ 6.3 million ) . these costs as a percentage of revenues increased to 46.6 % in 2011 from 42.3 % in 2010 , largely due to instructional and academic staff costs growing at a higher rate than tuition revenues . marketing expenses . marketing expenses increased $ 4.0 million , or 6 % , to $ 74.3 million in 2011 from $ 70.3 million in 2010. this increase was principally due to the direct costs required to build the strayer university brand , particularly in new markets , and to attract prospective students . these expenses as a percentage of revenues increased to 11.8 % in 2011 from 11.0 % in 2010 primarily due to incremental expenditures in new markets and lower tuition revenue . admissions advisory expenses . admissions advisory expenses increased $ 1.2 million , or 5 % , to $ 26.5 million in 2011 from $ 25.3 million in 2010. this increase was principally due to the addition of admissions personnel , particularly at new campuses . admissions advisory expenses
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as a result of the amendment , recurring revenues from citibank generated in 2008 were significantly less than revenues generated in 2007 and continued to decline in 2009. the amendment also provided that we would continue to provide the hosting services historically provided to citibank until the sale of the perpetual license occurred . the license sale was completed during the second quarter of 2008 and , as a result , we recognized $ 4.5 million of revenue , the contractually-stated sales price of the license . in addition to the license sale , citibank also paid us approximately $ 1.4 million for certain costs and assets that we had purchased in the past for citibank 's benefit , which are essential to the functionality of the technology . the sale of the license , the compensation for the assets referred to above , and the hosting services are all elements of the amendment . in accordance with the financial accounting standards board ( fasb ) standards codification , as there was no vendor specific objective evidence of the fair value of the perpetual license at the effective date of the amendment , revenue associated with the hosting services was deferred until april 30 , 2008 , when the sale of the perpetual license occurred . we recognized revenue for the hosting services of $ 10.0 million in the second quarter of 2008. all costs associated with the hosting services were expensed as incurred from july 2007 through april 2008. effective january 1 , 2009 , we extended the amended and restated master agreement by and between trx technology and bcd travel ( the master agreement ) for the period january 1 , 2009 through august 31 , 2009 for reservation processing services only . the provisions of the master agreement expired on december 31 , 2008 with regard to all other services covered by that agreement . a separate three year agreement with an effective date of january 1 , 2009 was entered into between the parties for online booking services , which had previously been covered under the master agreement . in march 2009 , as part of a program to reduce our cost structure , we decided not to pay bonuses globally for 2008 performance or provide funding for the 401k program in the u.s. these expenses were accrued during 2008. the reversal of the amounts accrued for the bonuses and 401k program funding resulted in a reduction of employee related expenses of $ 1.8 million during the first quarter of 2009. industry factors impacting our operating results include the channel shifts toward online bookings and direct distribution , cost compression in the travel processing supply chain , use of corporate credit cards , reduction in airline seat capacity , changing and increasing access methods to reach supplier inventory , reduction in supplier commission rates , global distribution system ( gds ) incentive levels , and overall economic conditions . our estimates of future results are primarily affected by assumptions of transaction volumes , pricing levels , our ability to efficiently scale with our clients , and client retention and acquisition . these anticipated results may be impacted by seasonality of the travel industry and credit card volumes related to travel . sources of revenue we principally operate a transaction-based business model under long-term contracts using hosted technology applications . transaction and other revenues are derived from two principal service offerings : transaction processing : we generate transaction processing revenue from service and processing fees based primarily on the number of data records we process . also included in transaction revenue is customer care revenue , which consists of generated service fees based primarily on the number or length of telephone calls answered or the number of email responses delivered . 21 index to financial statements data reporting : we generate data reporting revenue from service and processing fees based primarily on the number of data records we consolidate , the number of users accessing the data , the number of sources from which we receive data , and the frequency of data submissions . transaction-based revenues are recognized when we perform the services . in connection with providing transaction processing and data reporting services , we generate revenues from short-term projects to customize or enhance service delivery . revenue generated from short-term project work is recognized as the services are performed , which is generally when billed . revenue from implementation or set-up fees is recognized over the life of the client contract . client reimbursements reflect pass-through items , primarily voice and data costs and items such as ticket envelopes that we bill to our clients at cost . in the future , if our clients decide to pay these items directly , our client reimbursement revenue and client reimbursement expense will decrease accordingly . historically , we have experienced sales cycles of six to eighteen months with respect to several of our larger clients . additionally , the implementation of our services can take up to one year depending on the size and complexity of the service offering and the speed at which our clients implement the service offering to their customer base . in 2006 , we began offering components of our technology solutions to clients and potential clients . this change has reduced the length of our sales cycle and has also reduced the average amount of revenue initially earned from each of our clients . costs our expenses include operating , selling , general and administrative , technology development , restructuring and depreciation and amortization . operating expenses include salaries , benefits , and related overhead of personnel directly and indirectly supporting service delivery . personnel indirectly supporting service delivery include information technology , client services , training , and business integration personnel . operating expenses also include communication costs , technology hosting , and processing errors . story_separator_special_tag operating expenses are impacted by our revenue mix , with customer care services generally having higher operating expenses as a percentage of revenue due to the labor-intensive nature of providing customer care services . our ability to efficiently manage and utilize our employees along with our ability to provide services from low-cost labor markets also impacts operating expenses . selling , general and administrative expenses include salaries , benefits and related overhead associated with the selling and marketing of our products and services , as well as other support functions , including executive , accounting , legal , centralized human resources and administration . selling , general and administrative expenses also include professional services and insurance . technology development expenses primarily include salaries , benefits and related overhead of personnel focusing on developing and maintaining our technologies . depreciation and amortization expenses relate to fixed assets , software development costs and other intangible assets . we currently purchase substantially all of our equipment . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , costs and expenses , and related disclosures . on an ongoing basis , we evaluate our estimates and assumptions . our actual results may differ from 22 index to financial statements these estimates . we believe that , of our significant accounting policies described in note 2 of the notes to our consolidated financial statements included elsewhere in this form 10-k , the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to assist investors in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition . a significant portion of our revenue is recognized based on objective criteria that do not require significant estimates or uncertainties . accordingly , revenues recognized under these methods do not require the use of significant estimates that are susceptible to change . we recognize revenue when certain other consulting or other services are combined with our transaction processing revenues and when all of the following have occurred : ( 1 ) persuasive evidence of an arrangement exists , ( 2 ) services have been performed , ( 3 ) the fee for services is fixed or determinable , and ( 4 ) collectability is reasonably assured . generally , these criteria are considered to have been met as follows : for transaction revenue , in which we perform ticketing , file-finishing , data consolidation and reporting , and customer care services , when the services are provided ; for short-term client-specific customizations , which do not generate direct on-going incremental transaction revenue , when the customization has been delivered to our client ; and for implementation and set-up fees , which generate direct on-going incremental transaction revenue , over the life of the underlying transaction service agreement . related costs are deferred and recognized as expenses over the life of the underlying transaction service agreement . with respect to the citibank amendment discussed above in the overview section , the sale of the license , the compensation for the assets referred to above , and the hosting services are all elements of the amendment . in accordance with the fasb standards codification , as there was no vendor specific objective evidence of the fair value of the perpetual license , revenue associated with the hosting services was deferred until the sale of the perpetual license , which occurred on april 30 , 2008. we recognized revenue for the hosting services of $ 10.0 million in the second quarter of 2008. all costs associated with the hosting services were expensed as incurred from july 2007 through april 2008. internal-use software development costs . we account for internal-use software development costs in accordance with the applicable guidance which specifies that software costs , including internal payroll costs , incurred in connection with the development or acquisition of software for internal use is charged to technology development expense as incurred until the project enters the application development phase . costs incurred in the application development phase are capitalized and depreciated over an estimated useful life of three years , beginning when the software is ready for use . each of our software products enters the application development phase upon completion of a detailed program in which ( 1 ) we have established that the necessary skills , hardware and software technology are available to us to produce the product , ( 2 ) the completeness of the detailed program design has been confirmed by documentation and tracing the design to product specifications , and ( 3 ) the detailed program design has been reviewed for high-risk development issues ( for example , novel , unique , unproven function and features or technological innovations ) , and any uncertainties related to identified high-risk development issues have been resolved through coding and testing . significant judgment is required in determining when the application development phase has begun . goodwill and other intangible assets . goodwill represents the excess of the purchase price over the fair value of assets acquired . we test goodwill for impairment annually as of september 30 or more frequently if an event occurs or circumstances change that more likely than not reduce the value of a reporting unit below its carrying value . we have one reporting unit as defined by the applicable guidance . for purposes of goodwill 23 index to financial statements impairment testing , we compare the fair value of the reporting unit determined on the basis of expected discounted future cash flows with its carrying amount , including goodwill .
| selling , general and administrative expenses . the decrease in selling , general and administrative expenses for 2009 compared to the prior year was primarily due to a program to reduce our cost structure primarily through reductions in personnel , contract labor and travel in preparation for expected revenues in 2009. additionally , we recorded one-time reductions in personnel-related accrued expenses of $ 0.8 million in the first quarter of 2009 , which were partially offset by severance expenses during the same period . technology development expenses . the decrease in technology development expense for 2009 compared to the prior year was primarily due to a program to reduce our cost structure primarily through reductions in personnel and contract labor in preparation for significantly lower revenues in 2009. additionally , we recorded one-time reductions in personnel-related accrued expenses of $ 0.3 million in the first quarter of 2009 , which were partially offset by severance expenses during the same period . impairment of goodwill , intangible assets and other long-lived assets . we recorded an impairment charge of $ 43.9 million during 2009 as discussed above . depreciation and amortization . the decrease for 2009 compared to the prior year was primarily due to a decrease in our capital additions and a reduction in our property and equipment balances as a result of our impairment of other long-lived assets recorded in the first quarter of 2009. interest income . the decrease for 2009 compared to the prior year was primarily due to reduced average cash balances available for investment . interest expense . the increase for 2009 compared to prior year was due to additional interest expense related to our credit facility borrowings . income tax ( benefit ) provision . income tax benefit of $ 23,000 was recorded in 2009 primarily due to $ 0.5 million of tax expense recorded as a result of an increase for uncertain
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our sales teams are organized by geography , consisting of the americas ; europe , the middle east and africa , or emea ; and asia pacific , or apac , as well as by target organization size . our highly technical sales engineers help define customer use cases , manage solution evaluations and train channel partners . in addition , we maintain a global channel partner network that complements our sales organization , particularly in emea , apac and latin america . adoption of revenue from contracts with customers ( topic 606 ) in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers ( topic 606 ) ( asc 606 ) , which replaced the revenue recognition requirements in fasb asc topic 605 , revenue recognition ( asc 605 ) . the new revenue standard outlines a single , comprehensive model for accounting for revenue from contracts with customers and requires more detailed disclosure to enable users of financial statements to understand the nature , amount , timing and uncertainty of revenue and cash flows arising from such contracts . the new revenue standard provides a five-step analysis of transactions to determine when and how revenue is recognized . the core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services . we adopted asc 606 effective on january 1 , 2018 using the modified retrospective method . under this method of adoption , we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit . see note 2 , summary of significant accounting policies , in the notes to our consolidated financial statements included in this annual report on form 10-k for additional discussion of the impact of the adoption of asc 606 and changes in accounting policies relating to revenue recognition and accounting for costs to obtain and fulfill a customer contract . for the year ended december 31 , 2018 , we recognized revenue based on asc 606 ; however , revenue for the prior years was recognized based on asc 605. therefore , the periods are not directly comparable . our business model we have offerings in four key areas : ( 1 ) vulnerability management , ( 2 ) incident detection and response , ( 3 ) application security and ( 4 ) security orchestration and automation response . we offer our products through a variety of delivery models to meet the needs of our diverse customer base , including : cloud-based subscriptions , which provide our software capabilities to our customers through cloud access and on a software as a service basis . our insightidr , insightvm , insightappsec and insightconnect products are offered as cloud-based subscriptions , generally with a one-year term . managed services , through which we operate our products and provide our capabilities on behalf of our customers . our managed vulnerability management , managed application security and managed detection and response products are offered on a managed service basis , generally pursuant to one-year agreements . licensed software , including both term and perpetual licenses , and the simultaneous sale of maintenance and support . our nexpose , metasploit and appspider products are offered through term or perpetual software licenses . our customers who purchase software licenses also purchase maintenance and support , which provides our customers with telephone and web-based support and ongoing bug fixes and repairs during the term of the maintenance and support agreement , and our customers who purchase our nexpose and metasploit products also purchase content subscriptions , which provide them with real-time access to the latest vulnerabilities and exploits . our maintenance and support and content subscription agreements are typically for one-year terms . in addition , our komand product is offered through term licenses . we also offer various professional services across all of our offerings , including deployment and training services related to our software and cloud-based products , incident response services and security advisory services . customers can purchase our professional services together with our product offerings or on a stand-alone basis pursuant to fixed fee or time-and-materials agreements . an important component of our revenue growth strategy is to have our existing customers renew their agreements with us and purchase additional products from us . to assess our performance against this objective , we monitor the renewal rates of our existing 39 customers . we calculate our renewal rate by dividing the dollar value of renewed customer agreements , including upsells and cross-sells of additional products , but excluding professional services and logentries , in a trailing 12-month period by the dollar value of the corresponding customer agreements . we also calculate an expiring renewal rate that does not take into account any upsells or cross-sells . as a result of this methodology , we would not expect our expiring renewal rate to exceed 100 % . our renewal rate was 120 % , 122 % and 120 % in 2018 , 2017 and 2016 , respectively , and our expiring renewal rate was 90 % , 89 % and 89 % in 2018 , 2017 and 2016 , respectively . our goal is to maintain strong renewal rates and continue to increase the renewal rates over time however , our renewal rates may decline or fluctuate as a result of a number of factors , including customers ' satisfaction or dissatisfaction with our products and professional services , pricing , competitive offerings , economic conditions or overall changes in our customers ' spending levels . story_separator_special_tag in 2018 , recurring revenue , defined as revenue from term software licenses , content subscriptions , managed services , cloud-based subscriptions and maintenance and support , was 81 % of total revenue under asc 606 and 79 % of total revenue under asc 605. in 2017 and 2016 , recurring revenue was 70 % and 67 % , respectively , of total revenue under asc 605. in 2018 , 56 % of our total revenue under asc 606 and 59 % of total revenue under asc 605 , respectively , came from deferred revenue on the balance sheet at the beginning of the respective period . in 2017 and 2016 , 57 % and 55 % , respectively , of our total revenue came from deferred revenue on the balance sheet at the beginning of the respective periods . key metrics we monitor the following key metrics to help us measure and evaluate the effectiveness of our operations : replace_table_token_5_th replace_table_token_6_th total revenue and growth . we are focused on driving continued revenue growth through increased sales of our products and professional services to new and existing customers . see discussion above regarding the lack of comparability for current year against historical periods given the adoption of asc 606 as of january 1 , 2018. non-gaap loss from operations . we monitor non-gaap loss from operations , a non-gaap financial measure , to analyze our financial results . we believe non-gaap loss from operations is useful to investors , as a supplement to u.s. gaap measures , in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making . see non-gaap financial results for further information on non-gaap loss from operations and a reconciliation of non-gaap loss from operations to the comparable gaap financial measure . operating cash flow . we monitor our operating cash flow as a measure of our overall business performance , which enables us to analyze our financial performance without the effects of certain non-cash items such as stock-based compensation expenses and depreciation and amortization . additionally , operating cash flow takes into account the increase in deferred revenue as a result of increases in sales of products and services , which reflects the receipt of cash payment for products before they are recognized into revenue . our operating cash flow is significantly impacted by the timing of commission and bonus payments , accounts payable payments and collections of accounts receivable . additionally , as we continue to shift from a perpetual license business model to a subscription business model , our average contract lengths may decline which may decrease our annual billings and , as a result , our cash flow from operations may be negatively impacted . number of customers . we believe that the size of our customer base is an indicator of our global market penetration and that our net customer additions are an indicator of the growth of our business . we define a customer as any entity that has 40 ( 1 ) an active rapid7 contract or a contract that expired within 90 days or less of the applicable measurement date ; and for logentries products , those customers with a contract value equal to or greater than $ 2,400 per year , or ( 2 ) purchased rapid7 professional services within the 12 months preceding the applicable measurement date . annualized recurring revenue and growth . annualized recurring revenue ( arr ) is a financial measure that we define as the annual value of all recurring revenue related to contracts in place at the end of the quarter . arr should be viewed independently of revenue and deferred revenue as arr is an operating metric and is not intended to be combined with or replace these items . arr is not a forecast of future revenue which can be impacted by contract start and end dates and renewal rates and does not include revenue reported as perpetual license or professional services revenue in our consolidated statement of operations . non-gaap financial results to supplement our consolidated financial statements , which are prepared and presented in accordance with gaap , we provide investors with certain non-gaap financial measures , including non-gaap gross profit , non-gaap loss from operations , non-gaap net loss , non-gaap net loss per share and adjusted ebitda . the presentation of the non-gaap financial measures is not intended to be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . we use these non-gaap financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons , and use certain non-gaap financial measures as performance measures under our executive bonus plan . we believe that these non-gaap financial measures provide useful information about our operating results , enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making . while our non-gaap financial measures are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time , you should review the reconciliation of our non-gaap financial measures to the comparable gaap financial measures included below , and not rely on any single financial measure to evaluate our business . the non-gaap gross profit , non-gaap loss from operations , non-gaap net loss and non-gaap net loss per share exclude all or a combination of the following : stock-based compensation expense , amortization of acquired intangible assets , amortization of debt discount and issuance costs , and certain other items such as acquisition-related expenses , secondary public offering costs and litigation-related expenses . we exclude stock-based compensation expense because of varying available valuation methodologies , subjective assumptions and the variety of equity instruments that can impact our non-cash expense .
| 47 the $ 4.0 million decrease in maintenance and support revenue in 2018 compared to 2017 was primarily due to a $ 3.5 million reduction in revenue as a result of the adoption of asc 606. the $ 4.6 million decrease in professional services revenue in 2018 compared to 2017 was primarily due to a $ 1.7 million reduction in revenue as a result of the adoption of asc 606 and a reduction in professional services bookings which drove the performance of less services . cost of revenue replace_table_token_19_th total cost of revenue increased by $ 14.2 million in 2018 compared to 2017 , primarily due to $ 6.9 million increase in cloud computing costs related to growing cloud-based subscription revenue , as well as a $ 5.0 million increase in personnel costs , inclusive of a $ 0.6 million increase in stock-based compensation expense , primarily as a result of our increase in headcount from 236 as of december 31 , 2017 to 247 as of december 31 , 2018 as well as the timing effect of when our headcount additions were hired in 2018 and 2017 , to support our growing customer base . our increase in total cost of revenue also included a $ 1.6 million increase in allocated overhead driven largely by it and facilities costs , a $ 1.3 million increase in amortization of intangible assets primarily due our acquisition of komand in july 2017 and tcell in october 2018 , a $ 0.4 million increase in amortization expense for capitalized internally-developed software , and a $ 0.3 million increase in other costs . these increases were partially offset by a $ 1.0 million decrease in third-party professional service consulting costs and a $ 0.3 million decrease in travel and entertainment expenses . total cost of revenue was not materially impacted by the adoption of asc 606. total gross margin percentage decreased in 2018 compared to 2017 . the decrease in products gross
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factors affecting warranty reserve levels include the number of units sold , anticipated cost of warranty repairs , and anticipated rates of warranty claims . warranty expense is recorded in cost of revenues . we evaluate the adequacy of this reserve each reporting period . we use the recognition criteria of asc 450-20 , “ loss contingencies ” to estimate the amount of bonuses when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period . we accrue bonus expense each quarter based on estimated year-end results , and then adjust the actual in the fourth quarter based on our final results compared to targets . deferred tax asset . we evaluate quarterly the realizability of the deferred tax assets and assess the need for a valuation allowance . we record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized . realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards . utilizing the net operating loss ( “ nol ” ) carryforwards in future years could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership or control . included in the nol carryforwards are deductions from stock options that , if recognized , will be recorded as a credit to additional paid-in capital rather than through our results of operations . in determining taxable income for financial statement reporting purposes , we must make certain estimates and judgments . these estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the ability to recover deferred tax assets . the company will continue to evaluate the ability to realize its net deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the ability to realize deferred tax assets and will adjust the valuation accordingly . recent accounting pronouncements n ew pronouncements issued for future implementation are discussed in note 3 , recent accounting pronouncements , to our consolidated financial statements . 20 segment and related information we are engaged in the design , development and commercialization of directed s ound technologies and products . we present our business as one reportable segment due to the similarity in nature of products marketed , financial performance measures ( revenue growth and gross margin ) , methods of distribution ( direct and indirect ) and customer markets ( each product is sold by the same personnel to government and commercial customers , domestically and internationally ) . our chief operating decision-making officer reviews financial information on sound products on a consolidated basis . see note 15 to our consolidated financial statements for further discussion . comparison of results of operations for fiscal years ended september 30 , 201 7 and 201 6 the following table provides for the periods indicated certain items of our consolidated statements of operations expressed in dollars and as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_2_th revenues revenues increased $ 3,9 53,173 , or 24.2 % , in the fiscal year ended september 30 , 2017. orders received in fiscal 2017 were a record $ 28.3 million , which contributed to higher revenue in fiscal 2017 and growth in the backlog at september 30 , 2017 compared to the prior year end . the larger fiscal 2017 revenues were primarily mass notification system product sales , which increased $ 3,516,549 , or 224 % over fiscal year 2016. ahd revenue in 2017 also increased $ 334,982 over the prior year . international and domestic revenues increased 24 % and 18 % respectively over the prior year . we had aggregate deferred revenue of $ 259,612 and $ 637,763 for prepayments from customers in advance of product shipment at september 30 , 2017 and 2016 , respectively . the receipt of orders will often be uneven due to the timing of approvals or budgets . gross profit gross profit for the year ended september 30 , 2017 grew $ 2,607,080 , or 34.0 % , over fiscal year 2016 , primarily due to increased revenue and higher fixed overhead absorption . in addition , we reduced our estimated warranty liability for product sales based upon favorable results experienced in the last few years , offset by increased costs related to an annual maintenance contract with a foreign navy , compared to the prior year . 21 our products have varying gross margins , so product mix may affect gross profits . in addition , our margins vary based on the sales channels through which our products are sold in a given period . we continue to implement product updates and changes , including raw material and component changes that may impact product costs . with such product updates and changes we have limited warranty cost experience and estimated future warranty costs can impact our gross margins . we do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins . selling , general and administrative expenses selling , general and administrative expenses increased by $ 1 , 709,496 , or 24.9 % , primarily due to $ 762,578 of higher incentive compensation expense , $ 519,845 of higher non-cash compensation expense , primarily due to non-recurring expense related to a separation agreement and general release related to the departure of the company 's prior chief executive officer , $ 484,898 for sales commission expense , $ 263,267 for salaries , benefits and consulting expense , primarily for business development , $ 234,266 for higher trade show , advertising and related selling and marketing expenses , and $ 212,998 for expenses related to the implementation of a new enterprise resource planning ( erp ) system . story_separator_special_tag these increases were partially offset by non-recurring expenses of $ 1,138,183 in the prior year related to our response to and settlement of a proxy contest initiated by one of our stockholders , and separation costs related to the departure of the company 's prior chief executive officer . we incurred non-cash share-based compensation expenses allocated to selling , general and administrative expenses for fiscal 2017 and 2016 of $ 998,540 and $ 478,695 , respectively . we may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities . commission expense will fluctuate based on the nature of our sales . research and development expenses r & d expenses increased by $ 112,068 , or 4.7 % , primarily due to $ 124,277 increase in incentive compensation , $ 87,938 for product development and testing , offset by $ 128,754 for decreased salaries and benefits . included in r & d expenses for the year ended september 30 , 2017 was $ 93,709 of non-cash share-based compensation expenses , compared to $ 102,639 for the year ended september 30 , 2016. other income other income increased by $ 3,089 due to an increase in interest income due to higher interest rates in fiscal 2017 compared to the prior year . net loss the net loss was lower in fiscal 2017 primarily due to higher revenue and gross profit . this was offset by increased selling and general administrative operating expenses , largely due to commissions and incentive compensation , offset by the lack of $ 1,138,183 of non-recurring expenses . in the year ended september 30 , 2017 , we recorded $ 197,600 of tax provision resulting from an increase in the valuation allowance against the deferred tax assets based on an assessment of the company 's historical and projected taxable income , along with any tax planning strategies and any other positive or negative evidence , and determined it was more likely than not that a portion of the deferred tax assets will not be realized . in the year ended september 30 , 2016 , we recorded $ 1,840 of tax provision and a $ 188,000 non-cash income tax benefit for the release of a portion of our valuation allowance against deferred tax assets based on an assessment of the company 's historical and projected taxable income , along with any tax planning strategies and any other positive or negative evidence , and determined it was more likely than not that a portion of the deferred tax assets will be realized . liquidity and capital resources cash and cash equivalents at september 30 , 2017 was $ 12,803,887 , compared to $ 13,466,711 at september 30 , 2016. other than cash and expected future cash flows from operating activities in subsequent periods , we have no other unused sources of liquidity at this time . principal factors that could affect the availability of our internally generated funds include : ability to meet sales projections ; government spending levels ; introduction of competing technologies ; product mix and effect on margins ; ability to reduce and manage inventory levels ; and 22 product acceptance in new markets . principal factors that could affect our ability to obtain cash from external sources include : volatility in the capital markets ; and market price and trading volume of our common stock . our board of directors approved a share buyback program under which the company may utilize up to $ 4 million in cash to repurchase outstanding common shares using available cash and from future cash flow from operations through december 31 , 2017. based on our current cash position , our order backlog , and assuming the accuracy of our currently planned expenditures , we believe we have sufficient capital to fund planned levels of operations for at least the next twelve months . however , we operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures . accordingly , there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from credit facilities . additional capital , if needed , may not be available on satisfactory terms , if at all . cash flows our cash flows from operating , investing and financing activities , as reflected in the consolidated statements of cash flows , are summarized in the table below : replace_table_token_3_th operating activities net loss of $ 876,754 for the fiscal year ended september 30 , 2017 was reduced by $ 1,382,002 of non-cash items including share-based compensation expense , deferred income taxes , depreciation and amortization , inventory obsolescence and a provision for warranty . cash used in operating activities reflected a $ 2,272,970 increase in accounts receivable resulting from higher current year fiscal fourth quarter shipments , increase in inventory of $ 493,325 to support higher year-end backlog and $ 416,538 less accrued and other liabilities , partially offset by $ 1,487,734 higher accrued payroll liabilities due to increased accrued bonus in fiscal 2017 , increase of $ 537,800 in accounts payable related to increased inventory and prepaid expenses and other-noncurrent expense were $ 226,937 lower , which represented the amortization of our prepaid maintenance agreement . net loss of $ 1,281,599 for the fiscal year ended september 30 , 2016 was reduced by $ 825,027 of non-cash items including share-based compensation expense , deferred income taxes , depreciation and amortization , inventory obsolescence and a provision for warranty . cash generated from operating activities reflected an increase in accrued and other liabilities primarily due to increased deferred revenues from prepayments from customers , decreased prepaid expenses and other – noncurrent , which represents the amortization of our prepaid maintenance agreement , increased payroll and related resulting primarily from increased accrued benefits , and $ 2,309 for decreased inventory .
| ● the board of directors named dennis d. klahn as the company 's chief financial officer . mr. klahn has more than 30 years of accounting , finance and operations experience , which includes serving as controller or cfo at several publicly traded companies . ● launched eight products : lrad soundsaber-x , lrad ds-60x , lrad ds-60xl , lrad 360xl , lrad 360xl-mid , lrad 360xl-mid mobile kit , lrad 950rxl and lrad 1950xl . ● announced $ 1.1 million in u.s. navy orders , which included our first order for a naval construction battalion . ● received $ 1.2 million in other ahd orders from international regions outside of southeast asia . ● announced $ 924,000 in lrad 1000x systems orders for bird protection at a canadian mining site . ● received a $ 900,000 military-grade lrad 360xt mobile mass notification systems order for u.s. army forward operating bases in the middle east . 18 business outlook our product line continues to gain worldwide awareness and recognition through product demonstrations , media exposure , trade show participation , and word of mouth as a result of positive responses and increased acceptance of our products . we believe we have a well-known global brand , market-leading technology and solid product foundation with our ahd product line , which we have expanded over the years to service new markets and customers for greater business growth . we believe our one voice product line provides advanced solutions for the large and growing mass notification market . we believe that we have strong market opportunities for our ahd and one voice product offerings throughout the world in government and military sectors as a result of continued threats to governments , commerce , law enforcement , borders and critical infrastructure . we intend to continue our international mass notification business expansion , particularly in asia , europe and the middle east where we believe there are greater market opportunities for our one voice systems . in fiscal year 2017 , we increased our global selling network , which consists
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sale of the liveperson services . because we provide our application as a service , we follow the provisions of asc 605-10-s99 , revenue recognition and asc 605-25 , revenue recognition with multiple-element arrangements. we charge a monthly fee , which varies by type of service , the level of customer usage and website traffic , and in some cases , the number of orders placed via our online engagement solutions . for certain of our larger customers , we may provide call center labor through an arrangement with one or more of several qualified vendors . for most of these customers , we pass the fee we incur with the labor provider and our fee for the hosted services through to our customers in the form of a fixed fee for each order placed via our online engagement solutions . for these pay for performance ( pfp ) arrangements , we recognize revenue net of the labor provider 's fee in accordance with asc 605-45 , principal agent considerations , due primarily to the fact that the call center labor vendor is the primary obligor with respect to the labor services provided . additionally , we perform as an agent without risk of loss for collection and do not bear inventory risk with respect to the outsourced labor services . finally , we do not provide any part of the labor services , have no latitude in establishing prices for the labor services and generally do not have discretion in selecting the vendor . the majority of our larger customers also pay a professional services fee related to implementation . we defer these implementation fees and associated direct costs and recognize them ratably over the expected term of the client relationship upon commencement of the hosting services . we may also charge professional service fees related to additional training , business consulting and analysis in support of the liveperson services . 35 we also sell certain of the liveperson services directly via internet download . these services are marketed as liveperson pro and liveperson contact center for small and mid-sized businesses ( smbs ) , and are paid for almost exclusively by credit card . credit card payments accelerate cash flow and reduce our collection risk , subject to the merchant bank 's right to hold back cash pending settlement of the transactions . sales of liveperson pro and liveperson contact center may occur with or without the assistance of an online sales representative , rather than through face-to-face or telephone contact that is typically required for traditional direct sales . we recognize monthly service revenue based upon the fee charged for the liveperson services , provided that there is persuasive evidence of an arrangement , no significant company obligations remain , collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable . our service agreements typically have twelve month terms and are terminable or may terminate upon 30 to 90 days ' notice without penalty . when professional service fees add value to the customer on a standalone basis , we recognize professional service fees upon completion and customer acceptance in accordance with fasb accounting standards update 2009-13. this guidance establishes a selling price hierarchy for determining the selling price of a deliverable , which is based on : ( a ) vendor-specific objective evidence ; ( b ) third-party evidence ; or ( c ) estimates . if a professional services arrangement does not qualify for separate accounting , we recognize the fees , and the related labor costs , ratably over a period of 48 months , representing our current estimate of the term of the client relationship . for revenue generated from online transactions between experts and users , we recognize revenue net of expert fees in accordance with asc 605-45 , principal agent considerations , due primarily to the fact that the expert is the primary obligor . additionally , we perform as an agent without any risk of loss for collection , and are not involved in selecting the expert or establishing the expert 's fee . we collect a fee from the consumer and retain a portion of the fee , and then remit the balance to the expert . revenue from these transactions is recognized when there is persuasive evidence of an arrangement , no significant company obligations remain , collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable . stock-based compensation we follow asc 718-10 , stock compensation , which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services , with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions . asc 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award ( with limited exceptions ) . incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized . as of december 31 , 2011 , there was approximately $ 26.5 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements . that cost is expected to be recognized over a weighted average period of approximately 2.2 years . accounts receivable our customers are located primarily in the united states . we perform ongoing credit evaluations of our customers ' financial condition ( except for customers who purchase the liveperson services by credit card via internet download ) and have established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers , historical trends and other information that we believe to be reasonable , although they may change in the future . if there is a deterioration of a customer 's credit worthiness or actual write-offs are higher than our historical experience , our estimates of recoverability for these receivables could be adversely affected . story_separator_special_tag our concentration of credit risk is limited due to our large number of customers ; we do have several large customers . if we experience a significant write-off from one of these large customers , it could have a material adverse impact on our consolidated financial statements . no single customer accounted for or exceeded 10 % of our total revenue in 2011 , 2010 and 2009. one customer accounted for approximately 18 % and 22 % of accounts receivable at december 31 , 2011 and 2010 , respectively . we increased our allowance for doubtful accounts by $ 290,000 to approximately $ 851,000 , principally due to an increase in accounts receivable as a result of increased sales and to a lesser extent , to an increase in the proportion of our receivables due from customers with greater credit risk . we wrote off approximately $ 163,000 of previously 36 reserved accounts , leaving a net allowance for doubtful accounts of approximately $ 688,000. a larger proportion of receivables are due from larger corporate customers that typically have longer payment cycles . goodwill in accordance with asc 350 , goodwill and other intangible assets , goodwill and indefinite-lived intangible assets are not amortized , but reviewed for impairment upon the occurrence of events or changes in circumstances that would reduce the fair value below its carrying amount . goodwill is required to be tested for impairment at least annually . in september 2011 , the fasb issued asu no . 2011-08 , intangibles goodwill and other ( topic 350 ) . asu 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in topic 350. the more-likely-than-not threshold is defined as having a likelihood of more than 50 % . if it is determined that the fair value of a reporting unit is more likely than not to be less than its carrying value ( including unrecognized intangible assets ) than it is necessary to perform the second step of the goodwill impairment test . the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions . similarly , estimates and assumptions are used in determining the fair value of other intangible assets . these estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge . we perform internal valuation analyses and consider other market information that is publicly available . estimates of fair value are primarily determined using discounted cash flows and market comparisons . these approaches use significant estimates and assumptions including projected future cash flows ( including timing ) , discount rates reflecting the risk inherent in future cash flows , perpetual growth rates , determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables . in the third quarter of 2011 , we adopted asu 2011-08 and determined that it is not more-likely that the fair value of the reporting units are less than their carrying amount . accordingly , we did not perform the two-step goodwill impairment test . impairment of long-lived assets in accordance with asc 360-10 , accounting for the impairment or disposal of long-lived assets , long-lived assets , such as property , plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying value of an asset to estimated undiscounted future cash flows expected to be generated by the asset . if the carrying value of an asset exceeds its estimated future cash flows , an impairment charge is recognized in the amount by which the carrying value of the asset exceeds the fair value of the asset . assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying value or the fair value less costs to sell , and are no longer depreciated . the assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet . use of estimates the preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the u.s. requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , and the reported amounts of revenue and expenses during the period . significant items subject to such estimates and assumptions include the carrying amount of goodwill , intangibles , stock-based compensation , valuation allowances for deferred income tax assets , accounts receivable , the expected term of a customer relationship , accruals and other factors . actual results could differ from those estimates . 37 recently issued accounting standards in december 2011 , the fasb issued asu no . 2011-11 , balance sheet ( topic 210 ) : disclosures about offsetting assets and liabilities . this asu is intended to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity 's financial position . this includes the effect or potential effect of rights of setoff associated with an entity 's recognized assets and recognized liabilities within the scope of this update .
| million in 2011 , from $ 25.9 million in 2010. this increase in expense is primarily attributable to an increase in total compensation and related costs for additional and existing customer service and network operations personnel in the amount of approximately $ 2.6 million and an increase for primary and backup server facilities and allocated overhead related to costs of supporting our server and network infrastructure of approximately $ 1.2 million as a result of increased revenue . cost of revenue consumer . cost of revenue consists of compensation costs relating to employees who provide customer service to experts and users , compensation costs relating to our network support staff , the cost of supporting our server and network infrastructure , credit card and transaction processing fees and related costs , and allocated occupancy costs and related overhead . cost of revenue decreased by 10 % to $ 3.4 million in 2011 , from $ 3.8 million in 2010. this decrease is primarily attributable to the intangible assets related to the kasamba acquisition that was fully amortized as of september 30 , 2011. product development . our product development expenses consist primarily of compensation and related expenses for product development personnel as well as allocated occupancy costs and related overhead . product development costs increased by 29 % to $ 20.2 million in 2011 , from $ 15.7 million in 2010. this increase is primarily attributable to an increase in compensation and related costs for additional and existing product development personnel of approximately $ 4.5 million as a result of our increased efforts to expand our product offerings . we are increasing our investment in new product development efforts to expand future product offerings . we are also investing in partner programs that enable third-parties to develop value-added software applications for our existing and future customers . 40 sales and marketing business . our sales and marketing expenses consist of compensation
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the funding provided by the acacia investment ( described below ) in august 2016 , by our initial public offering , or ipo , in may 2017 and by our follow-on common stock offering in november 2017 has allowed us to expand our engineering team to continue the development and expansion of the capabilities of our ai platform , as well as to expand our sales and marketing team , both of which have enabled us to grow our ai platform business significantly . we expect to continue to invest significant resources and capital into developing our ai platform business . 40 story_separator_special_tag style= '' color : # 999999 '' width= '' 100 % '' / > stock repurchases in connection with the settlement of litigation with a former employee , in january 2017 , we repurchased 7,500 shares of our common stock from such employee for a purchase price of $ 7.50 per share , for a total purchase price of less than $ 0.1 million , constituting the estimated fair value of such stock at the time . acquisition of assets in december 2017 , we acquired the advanced data analytics software and related intellectual property assets of atigeo corporation for total consideration of approximately $ 3.0 million . this acquisition adds proprietary machine learning capabilities to our growing body of technology and intellectual property in data science and will help us further refine our conducted learning . net loss carryforwards at december 31 , 2017 , we had federal and state net operating loss carryforwards ( nols ) , of approximately $ 62.0 million and $ 61.8 million , respectively . if not utilized , the federal and state nols will expire at various dates beginning in 2034. at present , we believe that it is more likely than not that the federal and state nols will not be realized . accordingly , a full valuation allowance , in the amount of $ 18.3 million , has been established against our net deferred tax assets , including our nols , as of december 31 , 2017. in general , under section 382 of the internal revenue code of 1986 , as amended , or the code , a corporation that undergoes an ownership change ( generally defined as a greater-than-50 percentage point cumulative change ( by value ) in the equity ownership of certain stockholders over a rolling three-year period ) is subject to limitations on its ability to utilize its pre-change nols to offset post-change taxable income . our existing nols may be subject to limitations arising from previous ownership changes , and our ability to utilize nols could be further limited by section 382 of the code . in addition , future changes in our stock ownership , some of which may be outside of our control , could result in an ownership change under section 382 of the code . the amount of such limitations , if any , has not been determined . there is also a risk that due to other future regulatory changes , such as suspensions on the use of nols , or other unforeseen reasons , our existing nols could expire or otherwise be unavailable to offset future income tax liabilities . for these reasons , we may not be able to realize a tax benefit from the use of our nols , even if we attain profitability . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires management to make estimates and assumptions about future events that affect amounts reported in our consolidated financial statements and related notes , as well as the related disclosure of contingent assets and liabilities at the date of the financial statements . management evaluates its accounting policies , estimates , and judgments on an on-going basis . management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions and conditions . management evaluated the development and selection of its critical accounting policies and estimates and believes that the following involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position , and are therefore discussed as critical . the following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements . with respect to critical accounting policies , even a relatively minor variance between actual and expected experience can potentially have a materially favorable or unfavorable impact on subsequent results of operations . more information on our significant accounting policies can be found in note 2 to our audited consolidated financial statements included in part ii , item 8 ( financial statements and supplementary data ) . 43 revenue recognition as described below , significant management judgment must be made and used in connection with the revenue recognized in any accounting period . material differences may result in the amount and timing of revenue recognized or deferred for any period , if management made different judgments . revenue is recognized when ( i ) persuasive evidence of an arrangement exists , ( ii ) all obligations have been performed pursuant to the terms of the agreement , ( iii ) amounts are fixed or determinable and ( iv ) collectability of amounts is reasonably assured . we make estimates and judgments when determining whether the collectibility of receivables from customers is reasonably assured . we assess the collectibility of receivables based on a number of factors , including past transaction history and the creditworthiness of customers . if it is determined that collection is not reasonably assured , the revenue is recognized when collectibility becomes reasonably assured , assuming all other revenue recognition criteria have been met , which is generally upon receipt of cash for transactions where collectibility may have been an issue . story_separator_special_tag management 's estimates regarding collectibility impact the actual revenues recognized each period and the timing of the recognition of revenues . our assumptions and judgments regarding future collectibility could differ from actual events and thus materially impact our financial position and results of operations . depending on the complexity of the underlying revenue arrangement and related terms and conditions , significant judgments , assumptions and estimates may be required to determine when substantial delivery of contract elements has occurred , whether any significant ongoing obligations exist subsequent to contract execution , whether amounts due are collectible and the appropriate period or periods in which , or during which , the completion of the earnings process occurs . depending on the magnitude of specific revenue arrangements , if different judgments , assumptions and estimates are made regarding contracts executed in any specific period , our periodic financial results may be materially affected . media agency revenue we generate revenues primarily from services performed for clients under our advertising contracts . our advertising contracts typically provide for us to receive a percentage of the total dollar amount of the advertising placements of our media agency clients , and generally may be cancelled by our clients upon 30- to 90-day prior written notice . this percentage is our commission rate , and our standard rate is 15 % , with discounts for high-volume clients . our net commission rate typically ranges between 10 % and 12 % . under the most common billing arrangements , we bill clients for the gross costs of the advertisement , which is set by the media broadcaster , less any discounts based on negotiated commission rates . we remit to the broadcaster the gross amount less the standard commission deducted by the broadcaster . we record the commission amount negotiated with the client as media agency revenue . media agency revenue is recognized when the advertisement is aired by the broadcaster in accordance with the client arrangement . pursuant to our advertising contracts , we are deemed to be an agent and , as such , under generally accepted accounting principles , we record revenues on a net basis , whereby the costs charged by the media providers for the advertisements are netted against the gross revenues received from our clients for the media placements . expenditures billable to clients are comprised primarily of production and media costs that we have incurred , and the associated fees that we have earned , but that have not yet been billed to clients . our media agency clients are sometimes required to make a deposit for or pre-pay their media advertising plan . such amounts are reflected as client advances on our consolidated balance sheets until all revenue recognition criteria have been met . 44 ai platform revenue we derive our ai platform revenues from a variety of arrangements : saas agreements : we enter into saas agreements with customers for access to and use of our aiware platform . these agreements typically have terms of one year , with renewal options and , in many cases , include the processing of a specified amount of data . the key terms of these agreements include the applications and features of the platform that will be provided , the amount of data that will be processed , the number and classes of cognitive engines that will be used to process the data , the number of licensed users , and the associated service fees . the service fees under these arrangements are generally invoiced monthly in advance . we recognize the net revenues under these arrangements ratably over the contract term . in some cases , the amount of monthly service fees payable under a saas agreement represents a percentage of the total spend for advertisements that we place on the customer 's broadcast network during the month . for these arrangements , we deduct the service fees earned from our payment due to the broadcaster , and we recognize the net revenues in the month in which the associated advertisements are aired . separate processing fees : we also provide cognitive processing through our ai platform to customers , either in addition to the amounts of processing ( if any ) included in their saas agreements or under separate agreements , as and when processing of data is required by customers . such processing is performed at agreed upon rates ( generally a rate per hour of media processed ) based on the classes and numbers of cognitive engines used in processing the data . we generally invoice processing fees on a monthly basis in arrears ; however , certain customers may purchase a specified dollar amount of processing in advance . we recognize the net revenues for processing in the period ( s ) in which the processing is performed . software licenses : the hybrid version of our aiware platform is installed on a third-party device that is sold to customers of the third party . the software is licensed for a monthly fee , and such customers generally pay the fees for processing of their data separately . we record the net revenues relating to the licenses of such software each month , commencing with the month in which the third party completes the installation of the hardware device that contains our software . in each of these arrangements , we recognize revenue only when we have evidence that an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collection is reasonably assured . our customer contracts do not contain general rights of return . however , credits may be issued to customers on a case-by-case basis . in cases in which our saas offerings , software licenses and or cognitive processing services are sold through independent third parties , such as resellers and distributors , any discounts below standard prices that are provided to such third parties are reflected as reductions in net revenue .
| pursuant to the investment agreement , we entered into a convertible secured promissory note that provided a total of $ 20 million in borrowings with an interest rate of 6.0 % per annum . the acacia note was secured by substantially all of our assets . upon the completion of our ipo in may 2017 , the outstanding $ 20 million of principal and all accrued interest under the acacia note were converted into 1,523,746 shares of our common stock at a conversion price per share of $ 13.6088. in conjunction with the acacia note , we issued to acacia three four-year warrants ( the acacia note warrants ) to purchase a number of shares of our common stock that would be determined in the future depending upon a number of factors , including whether the acacia note was converted to our common stock or repaid at maturity . upon completion of our ipo , these warrants became exercisable to purchase an aggregate of 154,311 shares of our common stock at an exercise price per share of $ 13.6088. we also entered into a five-year warrant agreement with acacia in conjunction with the acacia note ( the primary warrant ) . under the primary warrant , acacia could purchase shares of our common stock if certain 41 events occurred in the future , in an amount equal to $ 50 million less the balance of the acacia note principal and accrued interest . upon the completion of our ipo , the primary warrant was automatically exercised in full at an exercise price per share of $ 13.6088 , and we issued to acacia 2,150,335 shares of our common stock in exchange for cash proceeds of $ 29.3 million . upon the exercise in full of the primary warrant in connection with our ipo , we issued to acacia a five year warrant to purchase 809,400 shares of our common stock at an exercise price per share of $ 13.6088 ( the 10 % warrant ) , with fifty percent of the
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our royalty payment obligations ( including those on sales by sublicensees ) under the collaboration agreement with respect to a product in a country will expire on a product-by-product and country-by-country 81 basis on the later of ( i ) expiration of the last-to-expire valid claim of the aurigene patents covering the manufacture , use or sale of such product in such country and ( ii ) 10 years from the first commercial sale of such product in such country . for additional information regarding the terms and termination provisions of this agreement , see businesscollaborations and license agreementsaurigene agreement. genentech hedgehog signaling pathway collaboration collaboration overview . in 2003 , we entered into a collaborative research , development and license agreement with genentech , which we refer to as the collaboration agreement . under the terms of our collaboration agreement with genentech , we granted genentech an exclusive , global , royalty-bearing license , with the right to sublicense , to make , use , sell and import small molecule and antibody hedgehog signaling pathway inhibitors . the lead drug candidate under this program is erivedge ® . genentech subsequently granted a sublicense to roche for non-u.s. rights to erivedge , other than in japan where such rights are held by chugai . genentech and roche responsible for worldwide clinical development , regulatory affairs , manufacturing and supply , formulation , and sales and marketing . we are eligible to receive up to $ 115,000,000 in contingent cash payments for the development of erivedge or another small molecule , assuming the successful achievement by genentech and roche of specified clinical development and regulatory objectives . of this amount , we have received $ 59,000,000 to date . in addition to the contingent cash milestone payments , our wholly-owned subsidiary , curis royalty , is entitled to a royalty on net sales of erivedge . pursuant to the terms of our collaboration agreement , curis royalty is entitled to receive royalties on net sales of erivedge that range from 5 % to 7.5 % based upon global erivedge sales by roche and genentech . the royalty rate applicable to erivedge may be decreased in certain specified circumstances , including when a competing product that binds to the same molecular target as erivedge is approved by the applicable country 's regulatory authority and is being sold in such country by a third party for use in the same indication as erivedge or when there is no issued intellectual property covering erivedge in a territory in which sales are recorded . during the third quarter of 2015 , the fda and chmp approved an additional hedgehog signaling pathway inhibitor marketed by novartis , sonidegib , for the treatment of adults with locally advanced bcc . genentech has advised us that novartis recorded sales of sonidegib in the united states during the fourth quarter of 2015 and , accordingly , genentech reduced royalties to curis royalty on its net sales in the united states of erivedge by 2 % during the fourth quarter of 2015. we recognized $ 8,031,000 of royalty revenue from genentech 's net sales of erivedge during the year ended december 31 , 2015 , and have recognized an aggregate of $ 20,260,000 in royalty revenues since erivedge was approved . in connection with a $ 30,000,000 loan made to our wholly-owned subsidiary , curis royalty , by biopharma-ii in 2012 , we transferred to curis royalty our right to receive certain royalty and royalty-related payments on the commercial sales of erivedge that we receive from genentech . the loan and accrued interest is being repaid by curis royalty using such royalty and royalty-related payments . the loan constitutes an obligation of curis royalty , and is intended to be non-recourse to curis . as of december 31 , 2015 , curis royalty owed biopharma-ii a total of $ 24,502,000 , which was comprised of principal and accrued interest . royalty payments related to erivedge are servicing the outstanding debt and accrued interest to biopharma-ii , and will continue to do so until the debt is fully repaid . because the repayment of the term loan is contingent upon the level of erivedge royalties received , the short- and long-term classification of the debt is based on our estimate of the timing of amounts to be repaid . we currently estimate that the loan will be repaid in 2019 ; however , this estimate is impacted by numerous factors , most of which are beyond our control . accordingly , our estimate may not be indicative of when this loan would actually be repaid . the repayment term may be shortened or extended depending on the actual level of erivedge royalties received . in addition , if erivedge royalties are insufficient to pay the accrued interest on the outstanding loan , any unpaid interest will be added to the principal on a quarterly basis . the length of the actual repayment period could vary materially to the extent that royalty payments curis royalty receives are lower than our current estimates , which could arise due to factors beyond our control , such as : the sale of 82 competing products that result in a lowering of the royalty rates that curis royalty is entitled to receive , decreased market acceptance , or failure by genentech and or roche to successfully commercialize erivedge in territories where it has received regulatory approval . as a result of our licensing agreements with various universities , we are obligated to make payments to university licensors on royalties that curis royalty earns in all territories ( other than australia ) in an amount that is equal to 5 % of the royalty payments received from genentech . story_separator_special_tag this obligation endures for a period of 10 years from the first commercial sale of erivedge , which occurred in february 2012. we are also obligated to make payments to university licensors of 2 % of roche 's direct net sales of erivedge in australia until the expiration of the australian patent in april 2019 , after which time the amount will decrease to 5 % of the royalty payments that curis royalty receives from genentech for the remainder of the period ending 10 years from the first commercial sale of erivedge , or february 2022. cost of royalty revenues were $ 406,000 during the year ended december 31 , 2015. as of december 31 , 2015 , we have paid an aggregate of $ 1,120,000 to university licensors since erivedge was approved . genentech iap inhibitor license agreement in november 2012 , we licensed from genentech the exclusive , worldwide rights for the development and commercialization of cudc-427 , a small molecule that is designed to promote cancer cell death by antagonizing iap proteins . under the terms of the license agreement , we and or our sublicensees have the sole right and responsibility for all research , development , manufacturing and commercialization activities related to cudc-427 . genentech is entitled to receive milestone payments upon the first commercial sale of cudc-427 in certain territories , and tiered single-digit royalties on net sales of cudc-427 . we are currently seeking a collaborator for the further development of cudc-427 . the leukemia & lymphoma society in november 2011 , we entered into an agreement with lls , pursuant to which lls agreed to provide us with up to $ 4,000,000 in payments to support our ongoing development of cudc-907 , subject to the achievement of specified milestones . in august 2015 , we entered into an amendment of the november 2011 agreement with lls . under the amendment , lls agreed to provide advisory services regarding both the cudc-907 and irak4 programs , and lls is no longer obligated to make further milestone payments related to ongoing clinical development of cudc-907 . we agreed to make up to $ 1,650,000 in future payments to lls , which represents the aggregate payments previously received from lls under the november 2011 agreement , pursuant to achievement of certain objectives , including a licensing , sale , or other similar transaction , as well as regulatory and commercial objectives , in each case related to the cudc-907 program in hematological malignancies . however , if cudc-907 does not continue to meet its clinical safety endpoints in future clinical trials in the defined field , or fails to obtain necessary regulatory approvals , all funding provided to us by lls will be considered a non-refundable grant . debiopharm agreement in august 2009 , we granted a worldwide , exclusive , royalty-bearing license to debiopharm to develop , manufacture , market and sell our hsp90 inhibitor technology , including debio 0932. debiopharm completed phase 1 testing , as well as the phase 1 portion of phase 1/2 clinical trial of debio 0932 , in combination with various chemotherapy regimens in patients with non-small cell lung cancer . debiopharm reviewed data from the phase 1 portion of this study and determined that the results were inconclusive , although safety observations 83 were generally consistent with the previously observed side effects of debio 0932 and or the respective chemotherapeutic regimens administered in the trial . in february 2015 , as amended in august 2015 , we entered into a termination and transition agreement with debiopharm , which we refer to as the transition agreement , to terminate our august 2009 license agreement . the termination of the august 2009 agreement was effective as of february 2015. we have re-designated the molecule cudc-305 . under the terms of the transition agreement , the licenses and all other rights related to cudc-305 have been terminated and reverted to us effective as of the termination date . debiopharm ceased enrollment in all clinical trials as of the termination date . in addition , we exercised our right , pursuant to the license agreement , to obtain a non-exclusive , worldwide , royalty-bearing license , with the right to sublicense , under other intellectual property rights of debiopharm to develop , make , have made , use , sell , offer for sale , have sold and import cudc-305 , and debiopharm will transfer to us the ind application related to cudc-305 . debiopharm also assigned to us its sole patent application related to cudc-305 . further under the terms of the transition agreement , debiopharm will transition ongoing cudc-305 development and manufacturing activities to us and will make available all necessary information generated by or on behalf of debiopharm for us to pursue the manufacturing of cudc-305 . during the year ended december 31 , 2015 , we paid $ 750,000 to debiopharm , primarily in consideration for debiopharm providing drug product . we have agreed to pay to debiopharm royalties at a rate of 3 % of net sales by us ( excluding sales by our third party sublicensees ) of products containing cudc-305 , and the following percentages of amounts that we receive from third party sublicensees : ( i ) 10 % of any royalties that we receive from third party sublicensees based on such sublicensees ' net sales of products containing cudc-305 ; and ( ii ) 20 % of any non-royalty sublicense payments that we receive from third party sublicensees , provided that the maximum aggregate amount payable by us to debiopharm with respect to non-royalty sublicense payments is $ 30,000,000. liquidity since our inception , we have funded our operations primarily through license fees , contingent cash payments , research and development funding from our corporate collaborators , private and public placement of our equity securities , debt financings and the monetization of certain royalty rights .
| we expect to file an ind and initiate phase 1 clinical testing of ca-170 during the first half of 2016 , and we expect to file an ind and initiate phase 1 clinical testing of ca-4948 during the second half of 2016. in addition , in october 2015 we selected a third program for potential development under the collaboration , the second preclinical program within the immuno-oncology field , which is focused on evaluating small molecule antagonists of pd-1 and tim-3 pathways , including small molecules that target pd-l1 and tim-3 . we have not yet exercised our option to license this third program . our other collaborators , f. hoffmann-la roche ltd , or roche , and genentech inc. , or genentech , a member of the roche group , are commercializing erivedge ® ( vismodegib ) , a first-in-class orally-administered small molecule hedgehog signaling pathway inhibitor , in advanced basal cell carcinoma , or bcc . roche and genentech are also continuing erivedge 's clinical development in less severe forms of bcc , and have recently initiated clinical studies of erivedge in ipf and mf . our proprietary pipeline also includes cudc-427 , an orally-available , small molecule antagonist of inhibitor of apoptosis , or iap proteins . in 2015 , we completed the dose escalation stage of a phase 1 clinical trial of cudc-427 in patients with solid tumors or lymphoma . we also regained rights to our heat shock protein 90 , or hsp90 , inhibitor cudc-305 from debiopharm international s.a. , or debiopharm in 2015. based on our clinical development plans for our pipeline , in the near term we will predominantly focus our available resources on the continued development of cudc-907 , ca-170 and ca-4948 . we continue to seek to collaborate with third parties for further development of our pipeline . 79 our collaborations and license agreements our current collaborations and license agreements are summarized as follows : aurigene collaboration overview . on january 18 , 2015 , we entered into a collaboration agreement with aurigene for the discovery , development and commercialization of small molecule compounds in the areas of immuno-oncology and precision oncology , which we refer to as the aurigene agreement . under the aurigene agreement , aurigene has granted us an exclusive option , exercisable within 90 days after aurigene delivers the relevant data regarding a development candidate , to obtain an exclusive , royalty-bearing
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the corporation 's capital level remained sound as evidenced by capital ratios that exceed current regulatory requirements for well capitalized institutions . the closing price for the corporation 's common stock ( nasdaq : cvly ) was $ 16.96 per share on december 31 , 2020 , compared to $ 23.03 per share on december 31 , 2019 , as adjusted . cash dividends paid on common shares for the year 2020 totaled $ 0.520 per share , representing a decrease of $ 0.088 or 15 percent below the cash dividends of $ 0.608 , as adjusted , paid for the year 2019 . 28 year ended december 31 , 2020 vs. year ended december 31 , 2019 the full year 2020 net income available to shareholders of $ 8,442,000 represents a decrease of $ 10,205,000 compared to the full year 2019 earnings of $ 18,647,000. earnings per share were $ 0.86 basic and diluted for 2020 compared to $ 1.89 basic and $ 1.88 diluted for 2019. the lower net income was primarily the result of higher provision for loan loss in 2020 compared to 2019. lower interest income was partially offset by a decrease in interest expense . net interest income , which totaled $ 60,460,000 for the year ended december 31 , 2020 , represented a decrease of $ 3,479,000 or 5 percent below net interest income of $ 63,939,000 for 2019. the change in net interest income was primarily due to a decrease in the rate on commercial loans , offset by an increase in the volume of commercial loans and a decrease in the rate on interest-bearing deposits . the loan loss provision for 2020 was $ 14,675,000 , an increase of $ 12,225,000 compared to a provision of $ 2,450,000 for 2019. the increased provision expense in 2020 was primarily due to partial charge offs on commercial lending relationships . although some of the lending relationships did have specific reserve allocations to adequately cover the partial charge off , historical loss factors were negatively impacted which increased the provision expense . one partial charge off in the first quarter 2020 did not have a specific reserve allocation , which also increased provision expense . in addition , changes in the external environment created by covid-19 caused management to increase the qualitative factors for certain loan segments in the allowance for loan loss analysis , which resulted in additional provision for loan losses during the year . the provision for both periods supported adequate allowance for loan loss coverage considering several factors , including the size , composition , and risks to the loan portfolio , the level of specific reserves , and realized net charge-offs , however , changing economic conditions associated with the covid-19 pandemic may require future adjustments . the allowance for loan losses as a percentage of total period-end loans was 1.38 percent and 1.40 percent as of december 31 , 2020 and 2019 , respectively . noninterest income , excluding gains on sales of investment securities , for the year ended december 31 , 2020 , totaled $ 15,827,000 representing an increase of $ 1,906,000 or 14 percent compared to noninterest income of $ 13,921,000 for 2019. specific noninterest income increases included trust and investment services fees , income from mutual fund , annuity and insurance sales , and gains on sale of loans held for sale . gains on sales of investment securities totaled $ 65,000 for 2020 compared to losses on sales of investment securities of $ 9,000 in 2019. noninterest expense for the year ended december 31 , 2020 , totaled $ 51,204,000 representing a decrease of $ 525,000 or 1 percent compared to $ 51,729,000 for 2019. decreases in foreclosed real estate costs , marketing and occupancy were partially offset by increases in professional and legal expense , fdic insurance , and external data processing costs . the provision for income taxes for 2020 totaled $ 2,031,000 which was $ 2,994,000 or 60 percent below the provision for income taxes for 2019 of $ 5,025,000. the decrease was due to lower income before taxes for 2020 compared to 2019. on december 31 , 2020 , total assets were $ 2.16 billion , representing a 15 percent increase compared to total assets of $ 1.89 billion as of december 31 , 2019. the growth for 2020 occurred primarily in the commercial loan portfolio and cash and cash equivalents which was funded primarily by an increase in deposits and offset by a reduction in long-term debt . the growth in core deposits included a $ 102,499,000 increase in the average balance of noninterest bearing deposits for 2020 compared to 2019. growing core deposits remains a particular focus of the corporation because the rates paid for such deposits are low , transactional activity on these deposits are a source of fee income , and a core deposit relationship provides the opportunity to cross-sell other financial products and services . the corporation excludes time deposits in its definition of core deposits . cash dividends paid on common shares for the year 2020 totaled $ 0.520 per share , representing a decrease of $ 0.088 or 15 percent below the cash dividends of $ 0.608 , as adjusted , paid for the year 2019. the corporation distributed a 5 percent common stock dividend on december 10 , 2019. there was no common stock dividend distributed in 2020. the corporation 's capital level remained sound as evidenced by capital ratios that exceed current regulatory requirements for well capitalized institut ions . table 9 - capital ratios , following , shows that both the corporation and peoplesbank were well capitalized for all periods presented . 29 income statement analysis net interest income the corporation 's principal source of revenue is net interest income , which is the difference between ( i ) interest income on earning assets , primarily loans and investment securities , and ( ii ) interest expense incurred on deposits and borrowed funds . story_separator_special_tag fluctuations in net interest income are caused by changes in both interest rates , and the volume and composition of interest rate sensitive assets and liabilities . unless otherwise noted , this section discusses interest income and interest expense amounts as reported in the consolidated statements of income , which are not presented on a tax equivalent basis . net interest income for the year ended december 31 , 2020 , was $ 60,460,000 , a decrease of $ 3,479,000 or 5 percent below the full year 2019 net interest income . although average earning assets increased by 11 percent , the average rate decreased by 96 basis points or 20 percent , driven by payroll protection program ( “ ppp ” ) loans and an increase in interest bearing deposits with banks . the decrease in the rate of earning assets was partially offset by a reduction in the rate of interest bearing liabilities . the net interest margin , which reflects net interest income on a tax-equivalent basis as a percentage of average interest-earning assets , was 3.13 percent for 2020 , compared to 3.66 percent for 2019. interest income for the full year 2020 totaled $ 75,713,000 , a decrease of $ 9,604,000 or 11 percent below 2019. the decrease in total interest income was driven by lower rates on interest earning assets , partially offset by a higher average volume of interest bearing assets . the decrease in rate and the increase in average balances were driven by ppp loans and an increase in interest bearing deposits with banks . interest earning assets averaged $ 1.94 billion and yielded 3 .92 percent ( tax equivalent basis ) for 2020 , compared to $ 1.75 billion and a tax-equivalent yield of 4.88 percent , respectively , for 2019. interest expense for the full year 2020 totaled $ 15,253,000 , a decrease of $ 6,125,000 or 29 percent below 2019. the decrease in total interest expense was primarily driven by a decrease in rate in core deposits ( the corporation defines core deposits as demand , savings , and money market deposits ) , time deposits and long-term borrowings . interest expense on deposits decreased $ 5,168,000 or 28 percent for 2020 compared to 2019 and was primarily attributed to the decreases in rates paid on interest bearing core deposits and time deposits . the average volume of interest bearing core deposits was $ 851,495,000 for the full year 2020 , an $ 88,772,000 or 12 percent increase above the average volume for 2019. interest expense on long-term debt and subordinated debentures decreased $ 953,000 or 36 percent for 2020. the average rate paid on long-term borrowings in 2020 of 2.54 percent , reflected a 6 basis point increase from the average rate paid of 2.48 percent in 2019. long-term debt is primarily comprised of advances from the federal home loan bank of pittsburgh , with intermediate term bullet maturities that supplement deposit funding and provide a partial funding hedge against rising market interest rates . tables 1 and 2 , following , are presented on a tax-equivalent basis to make it easier to compare taxable and tax-exempt assets . interest on tax-exempt assets ( which include securities issued by , or loans made to , state and local governments ) is adjusted based upon a 21 percent federal income tax rate in 2020 and 2019 . 30 table 1-average balances and interest rates ( tax equivalent basis ) replace_table_token_7_th ( 1 ) average balance includes average nonaccrual loans of $ 22,475,000 in 2020 and $ 23,626,000 in 2019. interest includes net loan fees of $ 6,128,000 in 2020 and $ 3,175,000 in 2019 . ( 2 ) average balance includes average bank owned life insurance , foreclosed real estate and unrealized holding gains ( losses ) on investment securities . ( 3 ) net interest income ( tax equivalent basis ) annualized as a percent of average interest earning assets . 31 table 2-rate/volume analysis of changes in net interest income ( tax equivalent basis ) replace_table_token_8_th changes which are due to both volume and rate are allocated in proportion to their relationship to the amount of change attributed directly to volume or rate . provision for loan losses the provision for loan losses is an expense charged to earnings to cover estimated losses attributable to uncollectable loans . the provision reflects management 's judgment of an appropriate level for the allowance for loan losses . the risk management section of this report , including table 10 – nonperforming assets , table 11 – analysis of allowance for loan losses , and table 12 – allocation of allowance for loan losses , provides detailed information about the allowance for loan losses , the loan loss provision , and credit risk . for the year 2020 , the provision for loan losses was $ 14,675,000 , which was $ 12,225,000 or 499 percent higher , compared to a provision of $ 2,450,000 in 2019. the increased provision expense in 2020 was primarily due to partial charge offs on commercial lending relationships . although some of the lending relationships did have specific reserve allocations to adequately cover the partial charge off , historical loss factors were negatively impacted which increased the provision expense . one partial charge off in the first quarter 2020 did not have a specific reserve allocation , which also increased provision expense . in addition , changes in the external environment created by covid-19 caused management to increase the qualitative factors for certain loan segments in the allowance for loan loss analysis , which resulted in additional provision for loan losses during the year . the provision for both periods supported adequate allowance for loan loss coverage , however , changing economic conditions associated with the covid-19 pandemic may require future adjustments . 32 noninterest income the following table presents the components of total noninterest income for each of the past two years .
| in addition , changes in the external environment created by covid-19 caused management to increase the qualitative factors for certain loan segments in the allowance for loan loss analysis , which resulted in additional provision for loan losses during the year . the provision for both periods supported adequate allowance for loan loss coverage , however , changing economic conditions associated with the covid-19 pandemic may require future adjustments . the allowance as a percentage of total loans was 1.38 percent at december 31 , 2020 , and 1.40 percent at december 31 , 2019 . noninterest income , excluding gains on sales of investment securities , for the year ended december 31 , 2020 , totaled $ 15,827,000 representing an increase of $ 1,906,000 or 14 percent compared to noninterest income of $ 13,921,000 for 2019. specific noninterest income increases included trust and investment services fees , income from mutual fund , annuity and insurance sales , and gains on sale of loans held for sale . gains on sales of investment securities totaled $ 65,000 for 2020 compared to losses on sales of investment securities of $ 9,000 in 2019 . noninterest expense for the year ended 2020 , totaled $ 51,204,000 representing a decrease of $ 525,000 or 1 percent compared to $ 51,729,000 for 2019. decreases in foreclosed real estate costs , marketing and occupancy were partially offset by increases in professional and legal expense , fdic insurance , and external data processing costs . the provision for income taxes for 2020 totaled $ 2,031,000 which was $ 2,994,000 or 60 percent below the provision for income taxes for 2019 of $ 5,025,000. the decrease was due to lower income before taxes for 2020 compared to 2019 . earnings per share were $ 0.86 basic and diluted for 2020 compared to $ 1.89 basic and $ 1.88 diluted for 2019. the decrease in earnings per share for the year was primarily the result of the aforementioned lower net income in 2020. on december 31 , 2020 , total assets were approximately $ 2.16 billion , representing a 15 percent
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