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energy segment , comprised of the following : aarding thermal acoustics , effox-flextor and avc specialists , inc. fluid handling filtration segment , comprised of the following : met-pro global pump solutions , mefiag filtration solutions , keystone filtration solutions , ceco filters and strobic air corporation . the financial information presented in this annual report on form 10-k does not give effect to the change in the composition of the company 's reportable segments as a result of the restructuring effective january 1 , 2014. operations overview we operate under a hub and spoke business model in which executive management , finance , administrative and marketing staff serves as the hub while the sales channels serve as spokes . we use this model throughout our operations . this has provided us with certain efficiencies over a more decentralized model . the company 's division presidents and general managers are responsible for successfully running their operations , that is , sales , gross margins , manufacturing , pricing , purchasing , safety , employee development , and customer service excellence . the presidents work closely with our ceo on global growth strategies , operational excellence , and employee development . the headquarters ( hub ) focuses on enabling the core back-office key functions for scale and efficiency , that is , accounting , payroll , human resources/benefits , it , safety support , audit controls , and administration . we have excellent organizational focus from headquarters throughout our divisional businesses with clarity and minimal duplicative work streams . we are structured for growth and will do future bolt-on acquisitions . our four operating segments are : the engineered equipment technology and parts group ( the eet & p group ) , which produces various types of air pollution control equipment , the mp group , a global provider of a wide range of products and services for industrial , commercial , municipal and residential markets , the contracting/services group ( the c/s group ) , which produces air pollution control and industrial ventilation systems , and the component parts group ( the cp group ) , which manufactures products used by us and other air pollution control companies and contractors . it is through combining the efforts of some or all of these groups that we are able to offer complete turnkey systems to our customers and leverage the operational efficiencies between our family of companies . our contracts are obtained either through competitive bidding or as a result of negotiations with our customers . contract terms offered by us are generally dependent on the complexity and risk of the project as well as the resources that will be required to complete the project . for example , a contract that can be performed primarily by subcontractors and that does not require us to use our fabrication and assembly facilities can be quoted at a lower gross margin than a more typical contract that will require additional factory overhead and administrative expenses . our focus is on increasing our operating margins as well as our gross margin percentage , which translates into higher net income . our sales typically peak in the fourth quarter due to a tendency of customers to want to fully utilize annual capital budgets and due to the fact that many industrial facilities shut down for the holiday season and that creates demand for maintenance and renovation work that can be done at no other time . our cost of sales is principally driven by a number of factors including material prices and labor cost and availability . changes in these factors may have a material impact on our overall gross profit margins . for example , in larger contracts , we may incur sub-contract work or direct equipment purchases , which may only be marked-up to a limited extent and consequently , the gross margins of the company are affected . however , profitability is enhanced through the absorption of fixed operating costs , including selling , general and administrative and factory overhead . we break down costs of sales into five categories . they are : labor- our direct labor both in the shop and in the field ; material- raw material that we buy to build our products ; equipment- fans , motors , control panels and other equipment necessary for turnkey systems ; subcontracts- electrical work , concrete work and other subcontracts necessary for turnkey systems ; factory overhead- costs of facilities and supervision wages necessary to produce our products . 26 in general , labor provides us the most flexibility in margin followed by material and equipment and subcontracts . across our various product lines , the relative relationships of these factors change and cause variations in gross margin percentage . material costs have also increased faster than labor costs , which also reduces gross margin percentage . selling and administrative expense principally includes sales payroll and related fringes , advertising and marketing expenditures as well as all corporate and administrative functions and other costs that support our operations . the majority of these expenses are fixed . we expect to leverage our fixed operating structure as we continue to grow our revenue . note regarding use of non-gaap financial measures the company 's audited consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( gaap ) . these gaap financial statements include certain charges the company believes are not indicative of its ongoing operational performance . as a result , the company provides financial information in this md & a that was not prepared in accordance with gaap and should not be considered as an alternative to the information prepared in accordance with gaap . the company provides this supplemental non-gaap financial information , which the company 's management utilizes to evaluate its ongoing financial performance and which the company believes provides greater transparency to investors as supplemental information to its gaap results . story_separator_special_tag the company has provided the non-gaap financial measures of non-gaap gross profit and gross profit margin , non-gaap operating income , non-gaap operating margin , and non-gaap net income as a result of items that the company believes are not indicative of its ongoing operations . these include charges associated with the company 's acquisition and integration of adwest , aarding , and met-pro and the items described below in consolidated results. the company believes that evaluation of its financial performance compared with prior and future periods can be enhanced by a presentation of results that exclude the impact of these items . as a result of the company 's acquisition of adwest , aarding and met-pro , which closed on december 31 , 2012 , february 28 , 2013 and august 27 , 2013 , respectively , the company has incurred and expects to continue to incur substantial charges associated with the acquisition and integration of these companies . while the company can not predict the exact timing or amounts of such charges , it does expect to treat these charges as special items in its future presentation of non-gaap results . see note 16 to the audited consolidated financial statements for further information on the met-pro and aarding acquisitions . story_separator_special_tag style= '' margin-top:18pt ; margin-bottom:0pt ; margin-left:2 % ; font-size:10pt ; font-family : times new roman '' > engineered equipment technology and parts group our eet & p group net sales increased $ 36.6 million to $ 125.2 million in the year ended december 31 , 2013 compared with $ 88.7 million in the year ended december 31 , 2012 , an increase of 41.2 % . the increase is primarily due to the adwest and aarding acquisitions , which collectively accounted for $ 10.5 million and $ 27.0 million in net sales , respectively , for the year ended december 31 , 2013. the year ended december 31 , 2013 benefited from increased revenues at effox , fki , and buell , but was partially offset by decreased revenues at busch . for the year ended december 31 , 2013 , effox continued to have increased revenues due to utilities investing in their systems , while busch was impacted by the lack of demand from the metals industries . operating income from the eet & p group increased $ 3.1 million to $ 18.7 million for the year ended december 31 , 2013 compared with $ 15.6 million in the year ended december 31 , 2012 , an increase of 19.9 % . the increase was due in part to the adwest and aarding acquisitions , which collectively accounted for $ 0.4 million and $ ( 0.2 ) million , respectively , for the year ended december 31 , 2013. we also benefited from increased operating income at effox , fki , and our china operations due to increased volume , while the remaining operations were comparable to the same period in 2012 . 30 mp group our mp group net sales for the year ended december 31 , 2013 were $ 30.5 million , since its acquisition at the end of august 2013. mp group operating income for the year ended december 31 , 2013 was $ 1.4 million , since its acquisition at the end of august 2013. contracting / services group our c/s group net sales for the year ended december 31 , 2013 were $ 19.5 million compared with $ 25.5 million for the same period in 2012. this decrease was primarily due to a decline in service work , which normally occurs in the middle to end-of-year time periods . in addition , other jobs were delayed or cancelled in 2013. operating income for the c/s group was $ 2.0 million for the year ended december 31 , 2013 compared with income of $ 3.5 million for the same period in 2012. this decrease is primarily due to the sales volume declines experienced in the current year period as described above . component parts group our cp group net sales for the year ended december 31 , 2013 were $ 21.9 million compared with $ 20.8 million for the same period in 2012. this increase is primarily due to increased demand for our component parts and clamp together duct products , which is the result of many smaller contractors buying these products instead of making them in-house . operating income for the cp group was flat at $ 4.2 million for the years ended december 31 , 2013 and 2012. backlog our backlog consists of the amount of revenue we expect from complete performance of uncompleted , signed , firm fixed-price contracts that have not been completed for products and services we expect to substantially deliver within the next 12 months . our backlog as of december 31 , 2013 was $ 98.5 million compared with $ 59.5 million as of december 31 , 2012. the increase in backlog at december 31 , 2013 was primarily a result of the acquisitions of aarding and met-pro , which in the aggregate represent $ 37.1 million of our backlog at december 31 , 2013. there can be no assurances that backlog will be replicated , increased or translated into higher revenues in the future . the success of our business depends on a multitude of factors related to our backlog and the orders secured during the subsequent periods . certain contracts are highly dependent on the work of contractors and other subcontractors participating in a project , over which we have no or limited control , and their performance on such project could have an adverse effect on the profitability of our contracts . delays resulting from these contractors and subcontractors , changes in the scope of the project , weather , and labor availability also can have an effect on a contract 's profitability .
| the increase in sales was due to the acquisitions of adwest at the end of 2012 , aarding at the end of february 2013 and met-pro at the end of august 2013. these acquisitions aggregated to $ 68.1 million of sales in 2013 , and were partially offset by a decrease in the contracting/services group in 2013 compared with 2012. gross profit increased by $ 19.1 million , or 45.0 % , to $ 61.6 million in 2013 compared with $ 42.4 million in 2012. gross profit as a percentage of sales was 31.2 % in 2013 compared with 31.4 % in 2012. the increase gross profit was the result of the adwest , aarding and met-pro acquisitions . on a non-gaap basis as adjusted for the non-gaap items discussed above , non-gaap gross profit was $ 62.9 million or 31.9 % for 2013 , an increase of $ 20.5 million compared with non-gaap gross margin of $ 42.4 million or 31.4 % in 2012. selling and administrative expenses were $ 37.1 million in 2013 compared with $ 25.4 million in 2012. the increase in selling and administrative expenses were the result of the adwest , aarding and met-pro acquisitions . acquisition and integration expenses of $ 7.2 million in 2013 relate to acquisition activities , which include legal , accounting , and banking expenses . amortization and earn out expense was $ 6.8 million in 2013 and $ 0.3 million in 2012. this increase was the result of the aarding and met-pro acquisitions . legal reserves of $ 3.5 million in 2013 relate to the settlement of the sheet workers ' local union no . 80 claim . operating income for 2013 was $ 7.0 million , a decrease of $ 9.7 million from $ 16.7 million in 2012. operating income as a percent of sales for 2013 was 3.5 % compared with 12.4 % for 2012. the decrease in operating income was attributable to acquisition and integration expenses , amortization and earn-out expenses and legal reserves . on a non-gaap basis as adjusted for the non-gaap items discussed above , non-gaap operating income was $ 25.8 million for 2013 , an increase of $ 8.8 million from 2012. non-gaap operating income as a percentage of sales for 2013 was 13.1 % compared with 12.6 % for 2012. improved margins , changes in product mix , and manufacturing improvements were the primary factors for the increases in operating income and operating margin percentages . other income ( expense ) for 2013 was $ 1.0 million
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35 our potash production volume , and therefore our potash sales volumes , will be less in 2017 as compared to 2016 due to the transition of our east facility to trio ® -only in april 2016 and the transition of our west facility into care-and-maintenance mode in july 2016. trio ® prices and demand . we sold 146,000 tons of trio ® in the year ended december 31 , 2016 , a decrease of 17,000 tons compared to trio ® sales volumes in the year ended december 31 , 2015. trio ® demand was negatively impacted by the overall softness in the fertilizer market for the same reasons discussed above with respect to potash demand . further , some of our domestic trio ® customers delayed purchases and moved to more of a just-in-time purchasing model as these customers gained increased confidence in our ability to supply the product closer to the domestic traditional spring application season . our average net realized sales price per ton for trio ® was $ 287 per ton in the year ended december 31 , 2016 , as compared to $ 364 per ton in the year ended december , 31 2015. although we experienced price decreases for trio ® into the fourth quarter of 2016 , domestic trio ® pricing stabilized in the fourth quarter and into the first part of 2017. over the long term , we believe the demand for trio ® will exceed supply , providing an opportunity to increase our gross margin . in light of this opportunity , in mid-2016 , we transitioned our east facility to a trio ® -only facility , which significantly increased our production rate and our effective production capacity for trio ® . we will continue our efforts to expand our sales and marketing efforts for trio ® , particularly internationally . however , we have experienced a longer-than-expected ramp-up for international sales and in some international locations our trio ® average net realized sales prices are significantly lower than domestic pricing . as a result , we may incur lower-of-cost-or-market adjustments for trio ® tons that are positioned for sale into these markets . we operate our east facility at production levels that approximate demand and expect to continue to do so for the foreseeable future . decrease in production . due to decreased potash prices , in july 2016 we idled mining operations at our west facility and transitioned it to care-and-maintenance mode . in addition , in april 2016 , we transitioned our east facility from a mixed-ore processing facility that processed both potash and trio ® to a trio ® -only facility . as discussed above , due to the longer-than-expected ramp-up for international trio ® sales in the fourth quarter of 2016 , we began operating our east facility at production levels that approximate demand and expect to continue to do so for the foreseeable future . as a result of these activities , we incurred restructuring charges of approximately $ 2.7 million in the year ended december 31 , 2016 , primarily related to severance payments made to impacted employees . evaluation of strategic alternatives . under the terms of our senior notes , in december 2016 we engaged cantor fitzgerald & co. , a nationally-recognized investment bank , to assess , evaluate , and assist in pursuing potential strategic alternatives available to us , as we determine to be appropriate . these potential strategic alternatives could include , but are not limited to , continuing our current operating plan , equity offerings or balance sheet restructurings , merger and acquisition opportunities , partnership or joint venture opportunities , entering into new or complementary businesses , or a sale of intrepid or some or all of our assets . this evaluation is ongoing . weather impact . evaporation rates at our potash solution mines during the 2015 evaporation season were below average , resulting in lower production levels in 2016. during the 2016 evaporation season , we experienced average to above-average evaporation rates . as a result , we expect our potash production to increase in 2017 compared to 2016. revised debt terms . in october 2016 , we entered into an amended agreement governing our senior notes . as a result , we expensed $ 3.1 million of debt restructuring costs paid to third parties . under the revised terms of the agreement our interest rates increased by 4.5 % above the stated rates under the terms of the original agreement . we also entered into a new $ 35 million revolving line of credit facility . 36 story_separator_special_tag compared to net income for 2014 of $ 9.8 million . our net loss for 2015 included long-lived asset impairment charges of $ 323.8 million in the fourth quarter of 2015 and an increase in our valuation allowance of $ 300.3 million on our deferred tax assets . selling and administrative expense selling and administrative expenses were essentially flat in the year ended december 31 , 2015 as compared to 2014. restructuring expense in january 2014 , in response to lower potash prices and the substantial completion of our major capital projects , we undertook a number of cost saving actions that were intended to better align our cost structure with the current business environment . these initiatives included the elimination of approximately 7 % of the workforce , including employees supporting our major capital projects , reduction in the use of outside professionals , and cutbacks in other general and administrative areas . other operating ( income ) expense in december 2015 , a snowstorm caused damage to a portion of one of our warehouses in new mexico and product stored in the warehouse . these damages , as well as alternative handling and storage costs were covered by our insurance 38 policies at replacement value , less a $ 1 million deductible . we submitted an insurance claim of $ 2.2 million . story_separator_special_tag during the fourth quarter of 2015 , we recognized $ 2.5 million of losses related to this snowstorm , and those losses are reflected in `` other operating ( income ) expense '' in the accompanying consolidated statement of operations . in the second quarter of 2016 , after considering our deductible , we received $ 1.2 million in insurance proceeds related to this event , and recognized that amount in `` other operating ( income ) expense '' at that time . in late 2014 , we initiated legal action to protest property tax valuations in new mexico . in the second quarter of 2015 , we reached an agreement with the state of new mexico that resulted in a net $ 2.0 million reduction in previously paid property taxes . accordingly , as the inventory produced during 2014 has since been sold , we recorded the settlement in `` other operating ( income ) expense '' during the second quarter of 2015. during 2013 , our application for certain new mexico employment-related credits was denied , and we recorded an additional allowance of $ 2.8 million related to the denied tax credits . in 2014 , we received notice that the state of new mexico had approved claims that had been previously denied . accordingly , we reduced our estimate of the allowance related to the realizability of our claims by $ 4.1 million . the credits were for periods prior to 2014 and the inventory produced during that time has been sold ; therefore , we recorded the decrease in the allowance as `` other operating ( income ) expense '' in the accompanying consolidated statement of operations in 2014. potash segment results replace_table_token_13_th 1 average net realized sales price per ton is a non-gaap measure that we calculate as sales less freight costs then divided by sales tons . more information about this non-gaap measure is below under the heading `` non-gaap financial measure . '' 2 depreciation , depletion and amortization incurred excludes depreciation , depletion and amortization amounts absorbed in or ( relieved from ) inventory . 3 depreciation expense decreased in 2016 compared to 2015 as a result of the impairment charge discussed above in the `` consolidated results '' section . 4 cost of goods sold are presented net of by-product credits which were $ 9.0 million , $ 7.9 million and $ 6.5 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . potash segment results for the years ended december 31 , 2016 , and 2015 we sold 681,000 tons of potash in 2016 compared with 587,000 tons in 2015 . in late 2015 , there was significant uncertainty surrounding declining potash prices resulting from global and domestic potash supplies exceeding demand . as a result , customers limited their exposure to inventory price risk and deferred purchases . in 2016 , we saw increased purchases based on farmer demand ; however , customers have moved to more of a just-in-time purchasing model . sales of potash decreased by $ 58.0 million , or 27 % , to $ 159.5 million for the year ended december 31 , 2016 , from $ 217.5 million for the year ended december 31 , 2015 . this decrease was primarily the result of a 42 % decrease in average net realized sales price per ton for potash partially offset by a 16 % increase in sales volume . our potash freight costs increased to $ 26.7 million in 2016 from $ 18.3 million in 2015 as we sold more tons in 2016 than in 2015. our freight costs are impacted by the proportion of customers paying for their own freight , the geographic distribution of our products and the freight rates of our carriers . 39 total cost of goods sold of potash , which includes royalties and depreciation , depletion and amortization , decreased in 2016 compared to 2015 as we recorded less depreciation in 2016 due to the impairment of long-lived assets recorded in the fourth quarter of 2015. further , our potash cost of goods sold also benefited from the direct expensing of lower-of-cost-or-market adjustments and abnormal production costs related to reduced production at our east facility . we recorded lower-of-cost-or-market inventory adjustments , and costs associated with abnormal production and other costs , during 2016 of $ 18.4 million and $ 0.6 million respectively , which are excluded from our cost of goods sold . our production volume of potash in 2016 decreased to 493,000 tons , compared with 768,000 tons produced in 2015 . our potash production was lower as we stopped producing potash at our east facility in april 2016 and idled potash production at our west facility in july 2016. we routinely evaluate our production levels and costs to determine if any costs are associated with abnormal production , as described under generally accepted accounting principles . the assessment of normal production levels is judgmental and unique to each period . during 2015 , we received an order issued by msha related to maintenance issues and salt build-up in the ore hoisting shaft at our west mine . upon issuance of the order , we suspended production at the west mine for 15 days while we took corrective actions to resolve the issues . as a result , potash production from our west mine was abnormally low during this period . further , during 2015 and in the first quarter of 2016 , we temporarily suspended potash production periodically at our east facility as we performed testing related to developing our plans to convert the east facility to a trio ® -only facility in april 2016. as a result of these temporary suspensions of production , during 2015 , we determined that approximately $ 10.4 million of costs would have been allocated to additional potash tons produced , assuming we had been operating at normal production rates .
| due to the idling of our west facility , and the transition of our east facility to a trio ® -only facility , we sold fewer tons of potash from these facilities , which previously represented our highest cost facilities . further , due to the impairment of long‑lived assets recorded in the fourth quarter of 2015 , we recorded less depreciation expense in 2016 . as a percentage of sales , cost of goods sold increased during 2016 as our net average sales price for both potash and trio ® decreased over 2015 levels . net loss for 2016 was $ 66.6 million , compared to a net loss for 2015 of $ 524.8 million , which primarily related to long-lived asset impairment charges of $ 323.8 million and an increase in our valuation allowance of $ 300.3 million on our deferred tax assets . selling and administrative expense selling and administrative expenses decreased to $ 20.0 million in 2016 compared to $ 27.5 million in 2015 as a result of lower administrative headcount , aircraft-related costs , corporate facility rent expense and professional fees . debt restructuring expense in the fourth quarter of 2016 , after we completed our debt restructuring , we expensed $ 3.1 million of professional fees paid to third parties . 37 restructuring expense in january 2016 , we undertook a number of cost-saving actions in response to continued downward pressure on potash prices . these actions included the elimination of a portion of our workforce and reductions in compensation and benefits ( including elimination of annual bonuses for 2015 and 2016 for most employees ) . additionally , in connection with the transition of our east facility to trio ® -only production in april 2016 , the transition of our west facility to care-and-maintenance mode in july 2016 , and the implementation of a reduced operating schedule at our east facility in december 2016 , our overall headcount was approximately 48 % less as of december 31 , 2016 , as compared to december 31 , 2015. in connection with these events , we recorded restructuring expenses of approximately $ 2.7 million , primarily for severance related activities , the majority
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treatment with rxi-109 demonstrated a trend for dose-dependent silencing of ctgf mrna in the treated areas , resulting in 43-50 % reduction of ctgf mrna levels compared to the placebo when measured three days after the last dose . in one of two highest-dose cohorts , the dosing period was delayed by two weeks after the incisions were made . no additional benefit was seen on mrna reduction . 19 based on the safety profile shown in our two phase 1 clinical trials , we initiated a phase 2 clinical trial for rxi-109 in november 2013 known as study 1301. in this study , patients with a long hypertrophic scar in the lower abdominal area are eligible to receive scar revision surgery and subsequent treatment with rxi-109 in one of two treatment regimens . patients will receive rxi-109 or placebo on a blinded basis at the distal ends of their revised scar , leaving a central untreated section of the scar . each patient 's revised scar area will provide the opportunity to compare the appearance of the revised areas after treatment with rxi-109 or placebo when left untreated . this design allows for intra-subject comparison of the three revised scar segments , thereby increasing the power of the study . in 2014 , we expect to initiate two additional phase 2 studies . the first additional phase 2 study will evaluate the effect of rxi-109 on the recurrence of keloids after keloid revision surgery and the second additional phase 2 study will evaluate the effect of rxi-109 on suppressing recurrence of hypertrophic scars after bilateral scar revision surgery in the breast area . overexpression of ctgf is implicated in dermal scarring and fibrotic disease , and because of this , we believe that rxi-109 or other ctgf-targeting rnai compounds may be able to treat additional fibrotic indications , including pulmonary fibrosis , liver fibrosis , acute spinal injury , ocular scarring , joint fibrosis and vascular restenosis . if the current clinical trials of rxi-109 produce successful results in dermal anti-scarring , we may explore opportunities in these indications , as well as other possible dermatology applications ( e.g . , cutaneous scleroderma ) . while focusing our efforts on our rxi-109 development program , we also intend to continue to advance additional development programs both on our own and through collaborations with academic and corporate third parties . current programs in the discovery and preclinical stages include an sbir grant to evaluate and develop sd-rxrnas as potential therapeutics for the treatment of retinoblastoma and a collaboration evaluating the potential to use a ctgf-targeting sd-rxrna as a therapeutic to reduce or inhibit retinal scarring , which often occurs as a consequence of some retinal diseases and following retinal detachment . on march 1 , 2013 , we entered into an asset purchase agreement with opko pursuant to which we have acquired substantially all of opko 's rnai-related assets , including patents , licenses , clinical and preclinical data and other assets . the assets purchased from opko are at an early stage of development , and we have established a discovery program to identify potential sd-rxrna lead compounds and targets from these acquired rnai-related assets . in november 2013 , we signed a distribution agreement with ethicor ltd. ( ethicor ) , a uk-based unlicensed medicinal products ( specials ) pharmaceutical company . the agreement provides ethicor with the distribution rights to rxi-109 in the european union , with the possibility to negotiate in the future to extend such rights to other regions of the world , excluding the united states , canada and mexico . if approved , ethicor will pay us a double-digit percentage of any gross profits from its sales of rxi-109 by ethicor . ethicor 's distribution rights continue until the agreement is terminated ; provided , however , that should we obtain marketing authorization for rxi-109 in any of the countries covered by the agreement , we have the option to terminate the agreement with respect to each such country in which marketing authorization has been obtained . under the european medicines legislation ( directive 2001/83/ec , article 5 ( 1 ) ) , we expect that ethicor will be able to supply , prior to regulatory approval , rxi-109 as a special drug . a special drug may be requested by an authorized health-care professional to meet the special needs of an individual patient under their direct responsibility . the collaboration is important for health-care professionals and patients who can get safe controlled early access to a development drug and is a significant milestone for the company , not only in possible early revenue , but as increased exposure to rxi-109 may be key in accelerating the development of our drug . reverse stock split on july 23 , 2013 , we effected a 1-for-30 reverse stock split of our outstanding common stock in connection with a listing of our common stock on the nasdaq capital market . stockholders who would otherwise have been entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares . shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices , if applicable , were proportionately increased in accordance with the terms of the agreements governing such securities . shares of common stock reserved for issuance upon the conversion of the company 's series a preferred stock were proportionately reduced and the respective conversion prices were proportionately increased . all share and per share amounts in the financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split , including reclassifying an amount equal to the reduction in par value to additional paid-in capital . story_separator_special_tag research and development to date , our research programs have focused on identifying product candidates and optimizing the delivery method and technology necessary to make rnai compounds available by local or systemic administration , as appropriate , for diseases for which we intend to develop an rnai therapeutic . since we commenced operations , research and development has comprised a significant proportion of our total operating expenses and is expected to comprise the majority of our spending for the foreseeable future . there are risks in any new field of drug discovery that preclude certainty regarding the successful development of a product . we can not reasonably estimate or know the nature , timing and costs of the efforts necessary to complete the development of , or the period in which material net cash inflows are expected to commence from , any product candidate . our inability to make these estimates results from the uncertainty of numerous factors , including but not limited to : our ability to advance product candidates into preclinical research and clinical trials ; the scope and rate of progress of our preclinical program and other research and development activities ; the scope , rate of progress and cost of any clinical trials we commence ; the cost of filing , prosecuting , defending and enforcing patent claims and other intellectual property rights ; clinical trial results ; 20 the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the cost and timing of regulatory approvals ; the cost of establishing clinical and commercial supplies of our product candidates and any products that we may develop ; the cost and timing of establishing sales , marketing and distribution capabilities ; the effect of competing technological and market developments ; and the effect of government regulation and insurance industry efforts to control healthcare costs through reimbursement policy and other cost management strategies . failure to complete any stage of the development of our product candidates in a timely manner could have a material adverse effect on our operations , financial position and liquidity . license agreements we have entered into licensing relationships with academic institutions , research foundations and commercial entities , and may seek to enter into additional licenses with pharmaceutical and biotechnology companies . we also may enter into strategic alliances to expand our intellectual property portfolio and to potentially accelerate our development programs by gaining access to technology and funding , including equity sales , license fees and other revenues . for each product that we develop that is covered by the patents licensed to us , including our material licenses discussed elsewhere in this annual report on form 10-k , we are obligated to make additional payments upon the attainment of certain specified product development milestones . see business intellectual property and note 13 to our consolidated financial statements for information on our material license agreements . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with united states generally accepted accounting principles ( 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 disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to the impairment of long-lived assets , certain accrued expenses and stock-based compensation . we base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results . while our significant accounting policies are more fully described in the notes to our financial statements included elsewhere in this annual report on form 10-k , we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our financial statements , research and development expenses research and development costs are charged to expense as incurred and relate to salaries , employee benefits , facility-related expenses , supplies , stock-based compensation related to employees and non-employees involved in the company 's research and development , external services , other operating costs and overhead related to our research and development departments , costs to acquire technology licenses and expenses associated with preclinical activities and our clinical trials . payments made by the company in advance for research and development services not yet provided and or for materials not yet received are recorded as prepaid expenses . accrued liabilities are recorded related to those expenses for which vendors have not yet billed us with respect to services provided and or materials that we have received . preclinical clinical trial expenses relate to third-party services , patient-related fees at the sites where our clinical trials are being conducted , laboratory costs , analysis costs , toxicology studies and investigator fees . costs associated with these expenses are generally payable on the passage of time or when certain milestones are achieved . expense is recorded during the period incurred or in the period in which a milestone is achieved . in order to ensure that we have adequately provided for preclinical and clinical expenses during the proper period , we maintain an accrual to cover these expenses . these accruals are assessed on a quarterly basis and are based on such assumptions as expected total cost , the number of patients and clinical trial sites and length of the study . actual results may differ from these estimates and could have a material impact on our reported results . our historical accrual estimates have not been materially different from our actual costs .
| total research and development expense was approximately $ 17,651,000 for the year ended december 31 , 2013 , compared with $ 10,451,000 for the year ended december 31 , 2012. the increase of $ 7,200,000 , or 69 % , was primarily due an increase of $ 6,077,000 in expense related to the fair value of common stock issued in exchange for patent and technology rights , $ 743,000 in research and development expenses largely due to costs related to the manufacture of rxi-109 for use in the company 's on-going clinical trials and an increase of $ 451,000 in employee stock-based compensation expense offset by a decrease of $ 71,000 in non-employee stock-based compensation related to the change in the fair value of stock options . general and administrative expenses general and administrative expenses consist primarily of compensation-related costs for our employees dedicated to general and administrative activities , legal fees , audit and tax fees , consultants , professional services and general corporate expenses . general and administrative expense was approximately $ 3,697,000 for the year ended december 31 , 2013 , compared with $ 2,621,000 for the year ended december 31 , 2012. the increase of $ 1,076,000 , or 41 % , was primarily due to an increase of $ 631,000 in employee stock-based compensation and $ 458,000 in general and administrative expense due to an increase in headcount , employee compensation and benefits , an increase in board fees due to the addition of two new members in 2013 , annual delaware franchise tax and professional services such as outside contract services and consultants , offset by a decrease of $ 13,000 related to the fair value of common stock warrants issued in exchange for services . interest income ( expense ) the key objectives of our investment policy are to preserve principal and ensure sufficient liquidity , so our invested cash may not earn as high of a level of income as longer-term or higher risk securities , which generally have less liquidity and more volatility . interest income was approximately $ 24,000 for the year ended december
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36 our current initiatives to execute this strategy include the following : continue to provide products that can compete effectively in the healthcare market where cost and quality are important ; continue to focus on integrating the triage and bnp businesses acquired in late 2017 ; strengthen our international infrastructure to support the integration of the triage and bnp businesses and enhance our global footprint to support our international operations and future growth ; continue to focus our research and development efforts on three areas : new proprietary product platform development ; the creation of improved products and new products for existing markets and unmet clinical needs ; and pursuit of collaborations with , or acquisitions of , other companies for new and existing products and markets that advance our strategy to develop differentiated technologies and products ; strengthen our market and brand leadership in current markets by acquiring and or developing and introducing clinically superior diagnostic solutions ; strengthen our direct sales force to enhance relationships with integrated delivery networks , laboratories and hospitals , with a goal of driving growth through improved physician and laboratorian satisfaction ; leverage our wireless connectivity and data management systems , including cloud-based tools ; support payer evaluation of diagnostic tests and establishment of favorable reimbursement rates ; provide clinicians with validated studies that encompass the clinical efficacy and economic efficiency of our diagnostic tests for the professional market ; continue to create strong global alliances to support our efforts to achieve leadership in key markets and expand our presence in emerging markets ; and further refine our manufacturing efficiencies and productivity improvements to increase profit , with continued focus on innovative products and markets and our efforts to leverage our core competency in new product development . product development activities are inherently uncertain , and there can be no assurance that we will be able to obtain regulatory body clearance to market any of our products , or if we obtain clearances , that we will successfully commercialize any of our products . in addition , we may terminate our development efforts with respect to one or more of our products under development at any time , including before or during clinical trials . outlook we anticipate revenue growth over the next year and a related positive impact on gross margin and earnings , assuming relatively normal respiratory seasons . this growth is expected to be driven primarily by the full year impact of the triage/bnp acquisition , and increased sales of our sofia assays and molecular products . in addition , we expect continued and significant investment in research and development activities as we invest in our next generation immunoassay and molecular platforms . we will continue our focus on prudently managing our business and delivering solid financial results , while at the same time striving to continue to introduce new products to the market and maintaining our emphasis on research and development investments for longer term growth . finally , we will continue to evaluate opportunities to acquire new product lines , technologies and companies . 37 story_separator_special_tag $ 191.6 million . the decrease in total revenues was primarily driven by lower rapid immunoassay revenues due to a weaker influenza season in the first quarter of 2016 compared to the previous year . this decrease was partially offset by growth in our molecular diagnostic solutions . the acquisition of immutopics , inc. ( `` immutopics '' ) contributed to the growth in our specialized diagnostic solutions category . gross profit gross profit for the year ended december 31 , 2016 decreased by 5 % as compared to the prior year , to $ 111.7 million , or 58 % of revenue , as compared to $ 118.1 million , or 60 % of revenue , for the year ended december 31 , 2015 . gross margins decreased in 2016 due to unfavorable product mix , with lower influenza product sales in the same period as compared to the prior year . operating expenses the following table compares operating expenses for the years ended december 31 , 2016 and 2015 ( in thousands , except percentages ) : replace_table_token_8_th research and development expense research and development expense for the year ended december 31 , 2016 increased from $ 35.5 million to $ 38.7 million primarily due to an increase in development spending for the savanna mdx platform and our next generation sofia instrument , and an increase in clinical trials spending for our solana and sofia products . these increases were partially offset by lower spending on development of our lyra products . research and development expenses include direct external costs such as fees paid to third-party contractors and consultants , and internal direct and indirect costs such as compensation and other expenses for research and development personnel , supplies and materials , clinical trials and studies , facility costs and depreciation . due to the risks inherent in the product development process and given the early-stage of development of certain projects , we are unable to estimate with meaningful certainty the costs we will incur in the continued development of our product candidates for commercialization . we expect our research and development costs to be substantial as we move other product candidates into preclinical and clinical trials and advance our existing product candidates into later stages of development . 40 sales and marketing expense sales and marketing expense for the year ended december 31 , 2016 remained relatively flat over prior year . at december 31 , 2015 , we employed more than 100 u.s. sales representatives . we utilized this sales force to work closely with our key distributors to drive market penetration of our products in the u.s. poc market , with a particular focus on addressing acute care and integrated delivery network customers . general and administrative expense general and administrative expense for the year ended december 31 , 2016 decreased from $ 27.1 million to $ 26.4 million . story_separator_special_tag the decline was due primarily to business development expenditures in the prior year period that did not repeat during 2016 , as well as the suspension of the medical device excise tax for 2016. these decreases were partially offset by increased integration costs associated with the acquisition of immutopics . acquisition and integration costs acquisition and integration costs for the year ended for the year ended december 31 , 2016 decreased from $ 2.4 million to $ 0.7 million and is primarily attributable to one-time fees for professional services and internal costs related to business development activities occurring in 2015. this decrease was partially offset by increased integration costs associated with the acquisition of immutopics in 2016. the company recorded reclassifications of acquisition and integration costs totaling $ 0.7 million and $ 2.4 million for years ended december 31 , 2016 and 2015 , respectively , from general and administrative expense as previously reported in the consolidated statements of operations to conform to current year presentation . interest expense , net interest expense in 2016 and 2015 related to accrued interest for the coupon and accretion of the discount on our $ 172.5 million 3.25 % convertible senior notes due 2020 ( `` convertible senior notes '' ) issued in december 2014 and interest paid on our lease obligation associated with our san diego mckellar facility . the decrease in interest expense of $ 0.3 million for the year ended december 31 , 2016 was primarily due to a gain on extinguishment of debt related to the repurchase of $ 5.2 million in principal of our convertible senior notes during the first quarter of 2016. income taxes we recognized an income tax benefit of $ 2.4 million and $ 3.2 million for the years ended december 31 , 2016 and 2015 , respectively . the decrease in the income tax benefit in 2016 was primarily driven by the increase in the valuation allowance for our federal deferred tax assets . liquidity and capital resources as of december 31 , 2017 and 2016 , our principal sources of liquidity consisted of the following ( in thousands ) : replace_table_token_9_th as of december 31 , 2017 , we had $ 36.1 million in cash and cash equivalents , a $ 133.4 million decrease from the prior year . during the year ended december 31 , 2017 , the company used $ 399.8 million in cash to acquire the triage and bnp businesses and $ 13.7 million to acquire the inflammadry and adenoplus diagnostic business from rps diagnostics . our cash requirements fluctuate as a result of numerous factors , such as the extent to which we generate cash from operations , progress in research and development projects and integration activities , competition and technological developments and the time and expenditures required to obtain governmental approval of our products . in addition , we intend to continue to evaluate candidates for new product lines , company or technology acquisitions or technology licensing . if we decide to proceed with any such transactions , we may need to incur additional debt or issue additional equity , to successfully complete the transactions . 41 our primary source of liquidity , other than our holdings of cash and cash equivalents , has been cash flows from operations and financing . cash generated from operations provides us with the financial flexibility we need to meet normal operating , investing , and financing needs . we anticipate that our current cash and cash equivalents , together with cash provided by operating activities will be sufficient to fund our near term capital and operating needs for at least the next 12 months . normal operating needs include the planned costs to operate our business , including amounts required to fund working capital and capital expenditures . our primary short-term needs for capital , which are subject to change , include expenditures related to : support of commercialization efforts related to our current and future products , including support of our direct sales force and field support resources both in the united states and abroad ; interest on and repayments of our convertible senior notes , senior credit facility , deferred consideration , contingent consideration and lease obligations ; the continued advancement of research and development efforts ; acquisitions of equipment and other fixed assets for use in our current and future manufacturing and research and development facilities ; the integration of our recent strategic acquisitions and investments ; and potential strategic acquisitions and investments . in december 2014 , we issued convertible senior notes in the aggregate principle amount of $ 172.5 million . the convertible senior notes have a coupon rate of 3.25 % and are due in december 2020. the convertible senior notes were not convertible as of december 31 , 2017 . for detailed information of the terms of the convertible senior notes , see note 3 to the consolidated financial statements in part ii , item 8 of this annual report under the heading “ 3.25 % convertible senior notes due 2020 , ” which is incorporated by reference herein . as of december 31 , 2017 , we have $ 24.3 million in fair value of contingent considerations and $ 223.2 million of deferred consideration associated with acquisitions to be settled in future periods . in january 2016 , our board of directors authorized an amendment to replenish the amount available under our share repurchase program up to an aggregate of $ 50.0 million in shares of common stock or convertible senior notes . during 2016 , we used $ 19.6 million to repurchase our common stock under the share repurchase program and $ 4.5 million to repurchase $ 5.2 million in principal amount of our outstanding convertible senior notes . on october 6 , 2017 , the company entered into the credit agreement , which provided the company with a $ 245.0 million term loan and a $ 25.0 million revolving credit facility .
| operating expenses the following table compares operating expenses for the years ended december 31 , 2017 and 2016 ( in thousands , except percentages ) : replace_table_token_6_th research and development expense research and development expense for the year ended december 31 , 2017 decreased from $ 38.7 million to $ 33.6 million primarily due to a decrease in development spending for the savanna mdx platform and lower spend on clinical trial activities . these decreases are partially offset by additional expenses associated with the triage and bnp businesses . 38 research and development expenses include direct external costs such as fees paid to third-party contractors and consultants , and internal direct and indirect costs such as compensation and other expenses for research and development personnel , supplies and materials , clinical trials and studies , facility costs and depreciation . due to the risks inherent in the product development process and given the early-stage of development of certain projects , we are unable to estimate with meaningful certainty the costs we will incur in the continued development of our product candidates for commercialization . we expect our research and development costs to be substantial as we move other product candidates into preclinical and clinical trials and advance our existing product candidates into later stages of development . sales and marketing expense sales and marketing expense for the year ended december 31 , 2017 increased from $ 50.4 million to $ 67.2 million primarily driven by expenses associated with the newly acquired triage and bnp businesses in october 2017 and the inflammadry and adenoplus diagnostic business from rps diagnostics in may 2017 as discussed in the notes to the consolidated financial statements in part ii , item 8 of this annual report . general and administrative expense general and administrative expense for the year ended december 31 , 2017 increased from $ 26.4 million to $ 29.2 million primarily due to higher incentive compensation and additional costs associated with the triage and bnp businesses .
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our gross profit for fiscal 2013 increased to $ 129.0 million compared with $ 112.7 million in fiscal 2012 primarily due to increased sales . our gross margin , which is gross profit as a percent of sales , increased to 67.6 percent compared with 66.1 percent in fiscal 2012 primarily due to increased facilitator and intellectual property sales , and increased international licensee royalty revenues . our operating expenses in fiscal 2013 increased $ 12.3 million compared with fiscal 2012 primarily due to an $ 11.7 million increase in selling , general , and administrative expenses and a $ 0.7 million increase in amortization expense that were partially offset by a $ 0.1 million decrease in depreciation expense . the increase in selling , general , and administrative expenses was primarily driven by increased commissions and bonuses on higher sales during fiscal 2013 and investments in new sales and sales-support personnel . increased sales and improved operating margins combined to increase our fiscal 2013 income from operations by 23 percent to $ 21.6 million compared with $ 17.6 million in fiscal 2012. including the benefit of foreign tax credits , which reduced our effective income tax rate to approximately 26 percent in fiscal 2013 , our net income increased 83 percent to $ 14.3 million , or $ .80 per diluted share , in fiscal 2013 compared with $ 7.8 million , or $ .43 per diluted share , in fiscal 2012. further details regarding these items can be found in the comparative analysis of fiscal 2013 with fiscal 2012 as discussed within this management 's discussion and analysis . our liquidity position strengthened during fiscal 2013 and we had $ 12.3 million of cash and cash equivalents at august 31 , 2013 compared with $ 11.0 million at august 31 , 2012. our net working capital ( current assets minus current liabilities ) increased to $ 38.2 million at august 31 , 2013 compared with 28 $ 27.5 million at the end of fiscal 2012. for further information regarding our cash flows and liquidity refer to the liquidity and capital resources discussion found later in this management 's discussion and analysis . business overview we believe that the combination of : ( 1 ) creating best-in-class content and solutions in each of our practice areas , and continuing to invest in the refinement and expansion of each of our content categories ; and ( 2 ) significantly increasing the size and capabilities of our various sales and content-delivery channels are the foundation of our long-term strategic growth plan . each year we make significant investments in the development and enhancement of our existing content , and to develop new services , features , and products . we expect to continue the introduction of new or refreshed content and delivery methods and consider them key to our long-term success . at the same time , we continue to make substantial investments each year to expand the size and capabilities of our sales and delivery forces to take our solutions to market in a way which attracts and retains client organizations . during the third quarter of fiscal 2013 we acquired substantially all of the assets of ninetyfive 5 , llc ( ninetyfive 5 ) . ninetyfive 5 provides sales success training services that complement our existing sales performance content . we believe that the acquisition of ninetyfive 5 and its integration into our sales performance practice will be highly synergistic for our clients and we expect ninetyfive 5 to become a key component of our sale performance practice in future periods . other key factors that influence our operating results include : the size and productivity of our sales force ; the number and productivity of our international licensee operations ; the number of organizations that are active customers ; the number of people trained within those organizations ; the continuation or renewal of existing services contracts ; the availability of budgeted training spending at our clients and prospective clients , which , in certain content categories , can be significantly influenced by general economic conditions ; and our ability to manage operating costs necessary to develop and provide meaningful training and related services and products to our clients . for a further discussion of risk factors that may influence our results of operations and financial position , refer to item 1a - business risks as contained in this report on form 10-k. our fiscal year ends on august 31 , and unless otherwise indicated , fiscal 2013 , fiscal 2012 , and fiscal 2011 refer to the twelve-month periods ended august 31 , 2013 , 2012 , 2011 , and so forth . results of operations the following table sets forth , for the fiscal years indicated , the percentage of total sales represented by the line items through income before income taxes in our consolidated income statements . this table should be read in conjunction with the following discussion and analysis and the consolidated financial statements , including the related notes to the consolidated financial statements : 29 replace_table_token_5_th fiscal 2013 compared with fiscal 2012 sales we offer a variety of training content and training-related offerings that are focused on improving leadership , execution , productivity , trust , loyalty , sales performance , and educational results . these offerings are provided , both domestically and internationally , through our sales force , certified client facilitators , international licensee partners , or through technology-enabled solutions . for the fiscal year ended august 31 , 2013 , our consolidated sales increased by $ 20.5 million , or 12 percent , to $ 190.9 million . the following sales analysis for the fiscal year ended august 31 , 2013 is based on activity through our primary sales channels . u.s./canada direct offices – this channel includes our four regional field offices that serve clients in the united states and canada and our government services group . story_separator_special_tag during fiscal 2013 , sales through our regional offices increased by $ 12.3 million , or 18 percent compared with the prior year . increased sales through our regional sales offices were generally broad-based across our content and practice areas and were favorably impacted by increased facilitator and intellectual property license sales when compared with fiscal 2012. during fiscal 2013 we held additional marketing events and increased the number of sales and sales support personnel . we believe that the additional events and sales personnel were key drivers of increased sales at our regional sales offices during the year . partially offsetting increased regional office sales was a $ 2.1 million decline in government services sales . our government services revenues were adversely affected by government sequestration , and the contracting timeframe for a large government contract . previous annual renewals of this contract have occurred during our third fiscal quarter . during fiscal 2013 , the contract renewal process was postponed and occurred during our first quarter of fiscal 2014. subsequent to august 31 , 2013 we won a renewal of the contract for a portion of fiscal 2014 and , later in fiscal 2014 , we hope to obtain an extended renewal of this large contract for the remainder of fiscal 2014 and beyond . we will continue our efforts to win additional renewals of this contract in the future , but we can not guarantee a successful outcome , as many of the aspects of renewal are not within our control , including factors such as the partial government shutdown that occurred during the fall of 2013 . 30 although we are encouraged about future growth prospects through the u.s./canada direct office channel , our sales through this channel in the first quarter of fiscal 2014 and in future periods could be significantly impacted by our ability to obtain work orders on governmental contracts due to the persistence of governmental operating issues in the united states , the renewal of the other existing contracts , and general economic conditions . international direct offices – our three international direct offices are located in australia , japan , and the united kingdom . during fiscal 2013 , sales increased at all of our international direct offices , which were led by a $ 0.5 million improvement at our office in australia . sales increased by $ 0.2 million at our office in japan and by $ 0.1 million in the united kingdom . however , the translation of international sales into u.s. dollars had a $ 3.4 million adverse impact on reported sales as the u.s. dollar strengthened during fiscal 2013 , particularly against the japanese yen . in fiscal 2013 , sales at our japan office ( denominated in yen ) increased by 17 percent compared with fiscal 2012. we anticipate that foreign exchange rates ( primarily the japanese yen ) will continue to have an adverse effect on our reported sales through december 2014 when compared to the prior year . during fiscal 2013 we implemented hiring and go-to-market strategies in our international direct offices which are consistent with those implemented in our domestic direct offices , including holding more marketing events and hiring additional sales personnel . we believe that these factors began to have a favorable impact on the sales activity in our international direct offices during fiscal 2013 when compared with the prior year . we expect these initiatives will also increase sales during fiscal 2014 and in future periods . international licensees – in countries or foreign locations where we do not have a direct office , our training and content offerings and services are delivered through independent licensees , who , subject to strict standards , may translate and adapt our content to match local preferences and customs . in fiscal 2013 , international licensee royalties increased $ 1.2 million compared with the prior year as many of our licensees reported strengthening sales in their countries during the year . we believe that our increased efforts to support our licensees through additional program training , international branding , and the introduction of new offerings has had a favorable impact on their sales growth in fiscal 2013. we are continuing our efforts to improve licensee performance and expect continued growth from our international licensee partners during future periods . national account practices – our national account practices offer and sell content solutions that are not typically offered in our u.s/canada direct offices . these offerings include , in the education practice , the leader in me program designed for students primarily in k-6 elementary schools ; helping clients succeed from our sales performance practice ; and winning customer loyalty from our customer loyalty practice . the increase in revenue from our national account practices was due to increased sales in our education and sales performance practices . we continue to see increased demand for the leader in me program in many school districts in the united states as well as in some international locations , which contributed to a $ 9.0 million , or 64 percent , increase in education practice revenues compared with fiscal 2012. at august 31 , 2013 , over 1,500 elementary level schools were using the leader in me program , and we anticipate continued growth in future periods . we completed the acquisition of ninetyfive 5 during the third quarter of fiscal 2013 , which was added as a component of the sales performance practice . primarily as a result of this acquisition , our sales performance practice sales increased by $ 1.0 million compared with the prior year . these increases were partially offset by a $ 0.3 million decrease in customer loyalty practice sales . self-funded marketing – this group includes our book and audio sales , public programs , and speeches through our speakers ' bureau .
| the final payment on the term loan was due on september 1 , 2013 ; however , we repaid the remaining balance prior to august 31 , 2013. we had no outstanding obligations on our restated credit agreement at august 31 , 2013. we may use our line of credit facility for general corporate purposes as well as for other transactions , unless prohibited by the terms of the line of credit agreement . the restated credit agreement and subsequent modifications also contain customary representations and guarantees as well as provisions for repayment and liens . in addition to customary non-financial terms and conditions , our line of credit requires us to be in compliance with specified financial covenants , including ( i ) a funded debt to ebitdar ratio requirement of less than 3.00 to 1.00 ; ( ii ) a fixed charge coverage ratio requirement in excess of 1.5 to 1.0 ; and ( iii ) an $ 8.0 million limitation on capital expenditures , excluding capitalized curriculum development . at august 31 , 2013 , we believe that we were in compliance with the terms and financial covenants applicable to the restated credit agreement and its subsequent modifications . in addition to potential obligations from our restated credit facility , we have a long-term lease on our corporate campus that expires in 2025 and is accounted for as a long-term financing obligation . the following table summarizes our cash flows from operating , investing , and financing activities for the past three years ( in thousands ) : 37 replace_table_token_8_th cash flows from operating activities our cash provided by operating activities declined slightly compared with the prior year and totaled $ 15.5 million for the fiscal year ended august 31 , 2013 compared with $ 15.6 million in fiscal 2012. the slight decrease was primarily due to cash used to support investments in working capital , including a significant increase in accounts receivable resulting from increased sales during the fourth quarter of fiscal 2013. the
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if the recorded net assets of the reporting unit are less than the reporting unit 's estimated fair value , then no impairment is indicated . alternatively , if the recorded net assets of the reporting unit exceed its estimated fair value , then goodwill is potentially impaired and a second step is performed . in the second step , the implied fair value of the goodwill is determined by deducting the estimated fair value of all tangible and identifiable intangible net assets of the reporting unit from the estimated fair value of the reporting unit . if the recorded amount of goodwill exceeds this implied fair value , an impairment charge is recorded for the excess . other intangible assets include acquired student rosters , accreditation , tradenames , non-competition agreements and curriculum . the assumptions used to calculate the initial fair value of these identified intangible assets included estimates of future operating results and cash flows , as well as discount rates and weighted average costs of capital for each acquisition . accreditations and tradenames have indefinite lives . useful lives , which range from 2 to 7 years , are assigned to all other intangible assets based upon estimated matriculation rates and other factors . if the company used different assumptions and estimates in the calculation of the initial fair value of identified intangible assets and the estimation of the related useful lives , the amounts allocated to these assets , as well as the related amortization expense , could have been significantly different than the amounts recorded . in assessing the recoverability of the company 's goodwill and other intangible assets , the company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets . if these estimates or their related assumptions change in the future , the company may be required to record impairment charges for these assets not previously recorded . income taxes . the company earns a significant portion of its income from subsidiaries located in countries outside of the united states . deferred tax liabilities have not been recognized for undistributed earnings because it is management 's intention to permanently reinvest such undistributed earnings outside of the united states . apb opinion no . 23 , accounting for income taxes special areas , requires that a company evaluate its circumstances to determine whether or not there is sufficient evidence to support the assertion that it has or will reinvest undistributed foreign earnings indefinitely . the company 's assertion that earnings from its foreign operations will be permanently reinvested is supported by projected working capital and long-term capital needs in each subsidiary location in which the earnings are generated . additionally , the company believes that it has the ability to permanently reinvest foreign earnings based on a review of projected cash flows from domestic operations , projected working capital and liquidity for both short-term and long-term domestic needs , and the expected availability of debt or equity markets to provide funds for those domestic needs . 24 if circumstances change and it becomes apparent that some or all of the undistributed earnings of the company 's foreign subsidiaries will be remitted to the united states in the foreseeable future , the company will be required to recognize deferred tax expense and liabilities on those amounts . the company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized . the company also has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of valuation allowance needed . if the company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income from continuing operations in the period such determination was made . likewise , should the company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount , an adjustment to the valuation allowance would increase income from continuing operations in the period such determination was made . impact of recently issued accounting standards . in june 2005 , the financial accounting standards board ( fasb ) issued statement of financial accounting standards no . 154 , accounting changes and error corrections ( sfas 154 ) . sfas 154 replaces accounting principles board ( apb ) opinion no . 20 , accounting changes and sfas no . 3 , reporting accounting changes in interim financial statements . sfas 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle . sfas 154 also requires that a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for prospectively as a change in estimate , and correction of errors in previously issued financial statements should be termed a restatement . sfas 154 is effective for accounting changes and correction of errors made in fiscal years beginning after december 15 , 2005. the company does not expect the adoption of sfas 154 to have a material impact on the company 's consolidated financial statements except as discussed below related to our voluntary change in accounting for revenue recognition . as permitted by sfas no . 123 , accounting for stock-based compensation , the company accounts for share-based payments to employees using the intrinsic value method under apb opinion no . 25. as such , the company generally does not recognize compensation cost related to employee stock options or shares issued under the company 's employee stock purchase plan . in december 2004 , the fasb issued sfas no . 123 ( r ) , share-based payment , which is a revision of sfas no . 123 and supersedes apb opinion no . 25. sfas no . story_separator_special_tag 123 ( r ) allows for two adoption methods : the modified prospective method which requires companies to recognize compensation cost beginning with the effective date of adoption based on ( a ) the requirements for all share-based payments granted after the effective date of adoption and ( b ) the requirements for all unvested awards granted to employees prior to the effective date of adoption ; or the modified retrospective method which includes the requirements of the modified prospective method described above , but also requires restatement of prior period financial statements using amounts previously disclosed under the pro-forma provisions of statement 123. sfas no . 123 ( r ) requires all share-based payments to employees and directors to be recognized in the financial statements based on their fair values , using prescribed option-pricing models . upon adoption pro-forma disclosure will no longer be an alternative to financial statement recognition . the company will adopt the provisions of sfas no . 123 ( r ) in the first quarter of 2006. the company intends to use the modified prospective method of adoption and continue to use the black-scholes option pricing model to value share-based payments , though alternatives for adoption under the new pronouncement continue to be reviewed by the company . the company continues to review the impact of sfas no . 123 ( r ) as relates to future use of share-based payments to compensate employees in 2006. therefore , the impact of adoption can not be predicted with certainty at this time because it will depend on the levels of share-based payments granted in the future . due to the timing of the company 's equity grants , the charge will not be spread evenly throughout the year . the adoption of the fair-value method will have a significant impact on the company 's results of operations as the fair value of stock option grants and stock purchases under the employee stock purchase plan will be required to be expensed beginning in 2006. the adoption of statement no . 123 ( r ) is not expected to have a material impact on the company 's overall financial position . 25 statement no . 123 ( r ) also requires the benefit related to income tax deductions in excess of recognized compensation cost to be reported as a financing cash flow , rather than as an operating cash flow as required under current accounting guidance . this requirement will reduce net operating flows and increase financing cash flows of the company in periods subsequent to adoption . these future amounts can not be estimated , as they depend on , among other things , when employees exercise stock options . effective january 1 , 2006 , the company has changed its revenue recognition policies for its international universities . the universities will recognize revenue on a weekly basis over each academic session as opposed to the monthly , which had been the revenue recognition period used . the revenue recognition policy will remain unchanged for its online business . this decision was made to improve transparency and the connection among the company 's enrollments , revenues , and actual academic calendars . this adoption is preferential and elective by the company . the company recognizes this as a voluntary change in accounting method and will file the required preferability letter in conjunction with the first quarter form 10-q . the company will apply this change retrospectively with all prior period financial statements presented in accordance with statement no . 154. there is no material impact on the annual results of the company as a result of this change . certain financial data has been historically re-presented for 2004 and 2005 in the company 's form 8-k filing on february 28 , 2006. story_separator_special_tag translations increased revenues by $ 26.5 million , primarily due to the strengthening of the chilean peso and mexican peso relative to the u.s. dollar . a full year 's operations at upc , ulacit , and the hispanoamericana campus of uvm , and the acquisitions of uam , unitec , and the uno campus of uvm in 2005 increased revenues by $ 53.5 million . latin america revenue represented 58 % of total revenues for 2005 and 56 % of total revenue for 2004. europe revenue for 2005 increased by $ 32.4 million , or 21 % , to $ 183.8 million compared to 2004. enrollment increases of 6.0 % in schools owned in both years added revenues of $ 9.7 million over 2004. for schools owned in both years , the company increased local currency tuition by a weighted average of 4.9 % , which served to increase revenues by $ 8.4 million . each institution in the segment offers tuitions at various prices based upon degree program . for 2005 , the effects of product mix resulted in a $ 11.0 million reduction in revenue primarily due to lower-priced post-graduate enrollment growth in spain exceeding undergraduate enrollment growth . the segment operates in several countries and is subject to the effects of foreign currency exchange rates in each of those countries . for 2005 , the effects of currency translations decreased revenues by $ 1.2 million , due to the weakening of the euro and swiss franc against the u.s. dollar . a full year 's operations at iede , ifg and ece and the acquisition of cyprus college in 2005 increased revenues by $ 26.5 million . europe revenue represented 21 % of total revenues for 2005 , and 23 % of total revenue for 2004. laureate online education revenue increased by $ 49.2 million , or 36 % , to $ 184.3 million for 2005 compared to 2004. enrollment increases of 27 % added revenues of $ 30.3 million , and the laureate online education b.v. acquisition added revenues of $ 2.9 million . weighted average tuition increases of 4.6 % accounted for $ 5.0 million of additional revenues , and other factors , primarily a favorable change in degree program mix , added $ 11.0 million .
| the second quarter is also strong as most schools have classes in session , although the company 's largest school , located in mexico , is in session for only part of that quarter . the first and third quarters are weaker quarters because the majority of the company 's schools have summer breaks for some portion of one of these two quarters . due to this seasonality , revenues and profits in any quarter are not necessarily indicative of results in subsequent quarters . 26 the following chart shows the enrollment cycles for each higher education institution . in the chart , shaded areas represent periods when classes are generally in session and revenues are recognized . areas that are not shaded represent summer breaks during which revenues are not typically recognized . the large circles indicate the primary intake start dates of the company 's schools , and the small circles represent secondary intake start dates ( smaller intake cycles ) . notes : ( 1 ) central america includes mexico , costa rica , panama and honduras ( 2 ) south america includes chile , brazil , ecuador and peru ( 3 ) mediterranean region includes spain and cyprus student attrition management defines attrition as those students that leave the higher education institution prior to graduation . attrition may be due to academic , financial or other personal reasons . management closely monitors attrition levels at its higher education institutions . to address the key reasons for student attrition , management has implemented programs , such as assistance with financing , remedial educational programs , mentoring and counseling . in general , attrition at the company 's schools has been stable as a percentage of total revenue over the past five years . average length of stay management actively monitors the average length of stay of students . the average length of stay is defined as the average time necessary to complete a given course of study , adjusted for attrition . management believes that the company 's 3 to 4 year average length of stay and low attrition levels contribute to the predictability of future revenues . due to the
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replace_table_token_6_th comparable restaurant sales comparable restaurant sales reflect year-over-year sales changes for comparable company-operated , franchised , and system-wide restaurants . a restaurant enters our comparable restaurant base the first full week after it has operated for fifteen months . comparable restaurant sales exclude restaurants closed during the applicable period . at december 28 , 2016 , december 30 , 2015 and december 31 , 2014 , there were 409 , 397 , and 397 comparable restaurants , 169 , 160 , and 160 company-operated and 240 , 237 and 237 franchised , respectively . comparable restaurant sales indicate the performance of existing restaurants , since new restaurants are excluded . comparable restaurant sales growth can be generated by an increase in the number of meals sold and or by increases in the average check amount , resulting from a shift in menu mix and or higher prices resulting from new products or price increases . company-operated average unit volumes we measure company-operated auvs on both a weekly and an annual basis . weekly auvs consist of comparable restaurant sales over a seven-day period from thursday to wednesday . annual auvs are calculated using the following methodology : first , we divide our total net sales for all company-operated restaurants for the fiscal year by the total number of restaurant operating weeks during the same period . second , we annualize that average weekly per-restaurant sales figure by multiplying it by 52. an operating week is defined as a restaurant open for business over a seven-day period from thursday to wednesday . this measurement allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base . 34 restaurant contribution and restaura nt contribution margin restaurant contribution and restaurant contribution margin are neither required by , nor presented in accordance with , gaap . restaurant contribution is defined as company-operated restaurant revenue less company restaurant expenses . restaurant contribution margin is defined as restaurant contribution as a percentage of net company-operated restaurant revenue . restaurant contribution and restaurant contribution margin are supplemental measures of operating performance of our restaurants , and our calculations thereof may not be comparable to those reported by other companies . restaurant contribution and restaurant contribution margin have limitations as analytical tools , and you should not consider them in isolation or as substitutes for analysis of our results as reported under gaap . management believes that restaurant contribution and restaurant contribution margin are important tools for investors , because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity , efficiency , and performance . management uses restaurant contribution and restaurant contribution margin as key metrics to evaluate the profitability of incremental sales at our restaurants , to evaluate our restaurant performance across periods , and to evaluate our restaurant financial performance compared with our competitors . a reconciliation of restaurant contribution and restaurant contribution margin to company-operated restaurant revenue is provided below : replace_table_token_7_th new restaurant openings the number of restaurant openings reflects the number of new restaurants opened by us and our franchisees during a particular reporting period . before a new restaurant opens , we and our franchisees incur pre-opening costs , as described below . new restaurants often open with an initial start-up period of higher than normal sales volumes , which subsequently decrease to stabilized levels . new restaurants typically experience normal inefficiencies in the form of higher food and paper , labor , and other direct operating expenses and , as a result , restaurant contribution margins are generally lower during the start-up period of operation . the average start-up period after which our new restaurants ' revenue and expenses normalize is approximately fourteen weeks . when we enter new markets , we may be exposed to start-up times and restaurant contribution margins that are longer and lower than reflected in our average historical experience . ebitda and adjusted ebitda ebitda represents net income before interest expense , provision ( benefit ) for income taxes , depreciation , and amortization . adjusted ebitda represents net income before interest expense , provision ( benefit ) for income taxes , depreciation , amortization , and items that we do not consider representative of our on-going operating performance , as identified in the reconciliation table below . ebitda and adjusted ebitda as presented in this annual report are supplemental measures of our performance that are neither required by , nor presented in accordance with , gaap . ebitda and adjusted ebitda are not measurements of our financial performance under gaap and should not be considered as alternatives to net income , operating income , or any other performance measures derived in accordance with gaap , or as alternatives to cash flow from operating activities as a measure of our liquidity . in addition , in evaluating ebitda and adjusted ebitda , you should be aware that in the future we will incur expenses or charges such as those added back to calculate ebitda and adjusted ebitda . our presentation of ebitda and adjusted ebitda should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items . ebitda and adjusted ebitda have limitations as analytical tools , and you should not consider them in isolation , or as substitutes for analysis of our results as reported under gaap . story_separator_special_tag some of these limitations are ( i ) they do not reflect our cash expenditures , or future requirements for capital expenditures or contractual commitments , ( ii ) they do not reflect changes in , or cash requirements for , our working capital needs , ( iii ) they do not reflect interest expense , or the cash requirements necessary to service interest or principal payments , on our debt , ( iv ) although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and ebitda and adjusted ebitda do not reflect any cash requirements for such replacements , ( v ) they do not adjust for all non-cash income or expense items that are reflected in our statements of cash flows , ( vi ) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our on-going operations , and ( vii ) other companies in our industry may calculate these measures differently than we do , limiting their usefulness as comparative measures . 35 we compensate for these limitations by providing specific information regarding the gaap amounts excluded from such non-gaap financial measures . we further compensate for the limitations in our use of non-gaap financial measures by presenting comparable gaap measures more prominently . we believe that ebitda and adjusted ebitda facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies . these potential differences may be caused by variations in capital structures ( affecting interest expense ) , tax positions ( such as the impact on periods or companies of changes in effective tax rates or net operating losses ) and the age and book depreciation of facilities and equipment ( affecting relative depreciation expense ) . we also present ebitda and adjusted ebitda because ( i ) we believe that these measures are frequently used by securities analysts , investors and other interested parties to evaluate companies in our industry , ( ii ) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness , and ( iii ) we use ebitda and adjusted ebitda internally as benchmarks to compare our performance to that of our competitors . the following table sets forth reconciliations of ebitda and adjusted ebitda to our net income ) : replace_table_token_8_th ( a ) includes non-cash , stock-based compensation . ( b ) includes management fees and other out-of-pocket costs paid to affiliates of trimaran and freeman spogli up through our ipo . this agreement was cancelled in conjunction with the ipo . ( c ) loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment . ( d ) in november 2015 , one of the company 's restaurants incurred damage resulting from a fire . in fiscal 2016 , we incurred costs directly related to the fire of less than $ 0.1 million , disposed of assets of an additional $ 0.1 million and recognized gains of $ 0.7 million , related to the reimbursement of property and equipment and expenses incurred and $ 0.5 million related to the reimbursement of lost profits . the reimbursement of lost profits is included in the accompanying consolidated statements of income , for fiscal 2016 , as a reduction of company restaurant expenses . the company received from the insurance company cash of $ 1.4 million , net of the insurance deductible , during fiscal 2016. in 2015 , the company disposed of $ 0.1 million of assets related to the fire . the restaurant was reopened for business on march 14 , 2016 . ( e ) includes costs related to impairment of long-lived assets and closing restaurants . during fiscal 2016 , the company determined that the carrying value of the assets of nine restaurants , in arizona , california and texas , may not be recoverable . as a result , the company recorded a $ 8.3 million expense related to the impairment of the assets of the nine restaurants . the company continues to monitor the recoverability of the carrying value of the assets of several other restaurants , opened between 2014 and 2016 . 36 ( f ) includes costs associated with our debt refinancing transactions in december 2014 and the repayment of our 2013 second lien term loan with a portion of the proceeds of our ipo in july 2014 . ( g ) on september 24 , 2014 , we completed the sale of six company-operated restaurants in the greater san antonio area . this sale resulted in cash proceeds of $ 5.4 million , a decrement to goodwill of $ 0.7 million and a net gain of $ 2.7 million . these six restaurants are now franchised . on june 16 , 2016 , we completed an agreement to sell one company-operated restaurant in tucson , arizona to a franchisee , resulting in cash proceeds of $ 1.5 million and a net gain of less than $ 0.1 million , which is recorded as a gain on disposition of restaurants in the accompanying consolidated statements of income . this restaurant is now included in our franchised restaurant totals . ( h ) includes : ( 1 ) costs related to the sale , in the second quarter of 2015 , of 5.4 million shares of common stock in a block trade to various investors , by our largest shareholder , which was at that time our majority shareholder , pursuant to rule 144 under the securities act . this shareholder owns stock in us not registered under the securities act . under our stockholders agreement , this shareholder may require us to register stock in us that it owns , under the securities act . in that event , we are responsible for all registration expenses .
| food and paper costs as a percentage of company-operated restaurant revenue were 30.2 % in fiscal 2016 , compared to 31.9 % in fiscal 2015. this decrease in percentage was due primarily to the lower commodity costs , noted above , and increases in average check size , due to menu price increases at the end of 2015 and during 2016. labor and related expenses payroll and benefit expenses increased $ 13.2 million in fiscal 2016. this increase was due primarily to additional labor needs arising from the opening of 18 new restaurants in fiscal 2016 and 14 new restaurants in fiscal 2015 , and minimum wage increases in california in january 2016 and los angeles in july 2016. this was partially offset by lower workers compensation expense due to lower claims activity . payroll and benefit expenses as a percentage of company-operated restaurant revenue were 27.4 % in fiscal 2016 , compared to 25.4 % in fiscal 2015. this increase was primarily due to the minimum wage increases and incremental labor required for the new restaurant openings , noted above , partially offset by lower worker 's compensation expense and higher restaurant revenue . occupancy and other operating expenses occupancy and other operating expenses increased $ 8.3 million in fiscal 2016. this increase was primarily due to ( i ) a $ 3.3 million increase in other operating expenses , resulting primarily from the new restaurants opened in fiscal 2016 and 2015 , and an increase in travel and restaurant security costs , ( ii ) a $ 3.2 million increase in occupancy costs , largely related to additional rent due to the additional stores , ( iii ) a $ 0.9 million increase in advertising and ( iv ) a $ 0.9 million increase in repair and maintenance costs . occupancy and other operating expenses as a percentage of company-operated restaurant revenue was 22.0 % in fiscal 2016 , compared to 21.1 % in fiscal 2015. this increase was primarily related to the higher costs noted above , partially offset by higher restaurant
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post-reorganization , each field leader is dedicated to a specific brand/concept , as well as geography , and are focused solely on field leadership . 27 consolidated results of operations the following table sets forth , for the periods indicated , certain information derived from our consolidated statement of operations . the percentages are computed as a percent of total revenues , except as otherwise indicated . replace_table_token_11_th ( 1 ) cost of service is computed as a percent of service revenues . cost of product is computed as a percent of product revenues . ( 2 ) excludes depreciation and amortization expense . ( 3 ) computed as a percent of income ( loss ) from continuing operations before income taxes and equity in loss of affiliated companies . the income taxes basis point change is noted as not applicable ( n/a ) as the discussion below is related to the effective income tax rate . fluctuations in major revenue categories , operating expenses and other income and expense were as follows : 28 consolidated revenues consolidated revenues primarily include revenues of company-owned salons , product and equipment sales to franchisees and franchise royalties and fees . the following tables summarize revenues and same-store sales by concept , as well as the reasons for the percentage change : replace_table_token_12_th _ ( 1 ) same-store sales are calculated on a daily basis as the total change in sales for company-owned locations which were open on a specific day of the week during the current period and the corresponding prior period . quarterly and fiscal year same-store sales are the sum of the same-store sales computed on a daily basis . locations relocated within a one mile radius are included in same-store sales as they are considered to have been open in the prior period . same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation . decreases in consolidated revenues were driven by the following : replace_table_token_13_th same-store sales by concept by fiscal year are detailed in the table below : replace_table_token_14_th 29 fiscal year ended june 30 , 2018 compared with fiscal year ended june 30 , 2017 consolidated revenues the same-store sales increase of 0.5 % during fiscal year 2018 was due to a 3.4 % increase in average ticket price , partly offset by a 2.9 % decrease in same-store guest visits . we closed 701 company-owned salons , constructed ( net of relocations ) 3 company-owned salons and sold ( net of buybacks ) 448 company-owned salons during fiscal year 2018 ( 2018 net salon count changes ) . our franchisees closed 194 salons and constructed ( net of relocations ) 79 salons during the same period . consolidated revenues are primarily comprised of service and product revenues , as well as franchise royalties and fees . service revenues the $ 61.3 million decrease in service revenues during fiscal year 2018 was primarily due to the 2018 net salon count changes . the same-store service sales increase of 0.5 % was primarily a result of a 3.8 % increase in average ticket price , partly offset by a 3.3 % decrease in same-store guest visits . service revenues were also favorably impacted by a cumulative adjustment related to discontinuing a piloted loyalty program and foreign currency . product revenues the $ 1.2 million decrease in product revenues during fiscal year 2018 was primarily due to 2018 net salon count changes and an unfavorable impact of hurricanes in the southern united states , partly offset by product sold to tbg and same-store product sales increases of 0.2 % . the increase in same-store product sales was primarily a result of a 3.7 % increase in average ticket price , partly offset by a 3.5 % decrease in same-store transactions . royalties and fees the increase of $ 8.1 million in royalties and fees during fiscal year 2018 was primarily due to higher franchise fees due to an increase in the number of new salons opened in fiscal year 2018 compared to the prior year and higher royalties due to the increase of 1,468 in franchised locations and same-store sales increases at franchised locations . cost of service the 460 basis point decrease in cost of service as a percent of service revenues during fiscal year 2018 was primarily due to the change in expense categorization as a result of the field reorganization that took place during the first quarter of fiscal year 2018 . after considering the change in expense categorization , cost of service as a percent of service revenues decreased 180 basis points as a result of improved stylist productivity , one-time benefit from a settlement and cost savings associated with salon tools , partly offset by state minimum wage increases , higher commissions expense as a result of same-store sales increases and higher health insurances costs . cost of service was also negatively impacted by hurricanes in the southern united states . cost of product the 580 basis point increase in cost of product as a percent of product revenues during fiscal year 2018 was primarily due to franchise product sold to tbg , shift into lower margin product sales to franchisees and inventory reserves related to the january 2018 smartstyle portfolio restructure , less favorable shrink as compared to the prior year and a promotional sale implemented in the fourth quarter , partly offset by a one-time benefit from a settlement . site operating expenses site operating expenses decreased $ 0.5 million during fiscal year 2018 . after considering the change in expense categorization as a result of the field reorganization that took place during the first quarter of fiscal year 2018 , site operating expenses increased $ 5.2 million primarily due to higher marketing costs associated with the smartstyle marketing campaign and fees associated with an industry exclusive sponsorship with major league baseball , unfavorable actuarial adjustments related to workers ' compensation accruals and higher contract maintenance , repairs and services costs , partly offset by the 2018 net salon count changes . story_separator_special_tag general and administrative general and administrative expense ( g & a ) increased $ 16.7 million during fiscal year 2018 . after considering the change in expense categorization as a result of the field reorganization that took place during the first quarter of fiscal year 2018 , g & a decreased $ 15.6 million , primarily due to an $ 8.0 million gain associated with life insurance proceeds in connection with the passing of a former executive officer , lower severance expense due to the prior year including severance related to the 30 termination of former executive officers including the company 's chief executive officer and professional fees , partly offset by increases in incentive compensation accruals . rent rent expense increased by $ 2.6 million during fiscal year 2018 primarily due to lease termination fees and other related closure costs associated with the january 2018 smartstyle portfolio restructure , rent inflation , partly offset by the 2018 net salon count changes and a deferred rent adjustment related to the january 2018 smartstyle portfolio restructure . depreciation and amortization depreciation and amortization expense ( d & a ) increased $ 6.1 million during fiscal year 2018 , primarily due to costs associated with returning certain smartstyle locations to their pre-occupancy condition in connection with the january 2018 smartstyle restructuring and higher fixed asset impairment charges , partly offset by lower depreciation due to a reduced salon base . interest expense interest expense increased by $ 1.9 million during fiscal year 2018 primarily due to the premium and unamortized debt discount expense associated with paying off the 5.5 % senior term note originally due december 2019 , partly offset by savings resulting from a reduced interest rate and lower debt levels . interest income and other , net the $ 3.8 million increase in interest income and other , net during fiscal year 2018 was primarily due to income from transition services related to tbg , higher gains on refranchised salons , incremental interest income , increased gift card breakage , partly offset by a non-recurring insurance recovery benefit in the prior year . income taxes during fiscal year 2018 , the company recognized an income tax benefit of $ 65.4 million on $ 3.5 million of loss from continuing operations before income taxes and equity in loss of affiliated companies as compared to recognizing income tax expense of $ 9.2 million on $ 8.3 million of income from continuing operations before income taxes and equity in loss of affiliated companies during fiscal year 2017. on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) . in connection with the tax act , the company recorded a provisional net tax benefit of $ 68.1 million in continuing operations for the twelve months ended june 30 , 2018. the net tax benefit is primarily attributable to the impact of the corporate rate reduction on our deferred tax assets and liabilities along with a partial release of the u.s. valuation allowance . the benefit recognized on current losses and the partial valuation allowance release is solely attributable to tax reform and the law change that allows for the indefinite carryforward of net operating losses ( `` nols '' ) arising in tax years ending after december 31 , 2017. prior law limited the carryforward period to 20 years . as a result of the new tax rules , companies can now consider its indefinite lived deferred tax liabilities as a source of income to support the realization of its existing deferred tax assets that upon reversal are expected to generate indefinite lived nols . consequently , the company was able to remove the valuation allowance associated with these deferred tax assets . the company continues to maintain a valuation allowance on the historical balance of its finite lived federal nols , tax credits and various state tax attributes . we are still analyzing certain aspects of the tax act and refining our calculations , which could potentially affect the measurement of our deferred tax balances and ultimately cause us to revise our provisional estimate in future periods in accordance with sab 118. in addition , changes in interpretations , assumptions , and guidance regarding the new tax legislation , as well as the potential for technical corrections to the tax act , could have a material impact to the company 's effective tax rate in future periods . the recorded tax provision and effective tax rate for the twelve months ended june 30 , 2018 were different than what would normally be expected primarily due to the impact of the tax act and state conformity of the new federal provisions , closure of the irs examination and the deferred tax valuation allowance . additionally , the company is currently paying taxes in canada and certain states in which it has profitable entities . see note 9 to the consolidated financial statements in part ii , item 8 , of this form 10-k. 31 equity in loss of affiliated companies , net of income taxes the company has not recorded any equity income or losses related to its investment in eeg subsequent to the impairment in fiscal year 2016. the company will record equity income related to the company 's investment in eeg once eeg 's cumulative income exceeds its cumulative losses , measured from the date of impairment . loss from discontinued operations , net of income taxes during fiscal year 2018 , the company recognized $ 53.2 million of loss , net of taxes from discontinued operations , primarily due to asset impairment charges based on the sale prices and the carrying values of the mall-based salon business and the international segment , the recognition of net loss of amounts previously classified within accumulated other comprehensive income , professional fees associated with the transactions and losses from operations .
| the same-store sales decrease was due to a 4.6 % decrease in same-store guest visits , partly offset by a 4.1 % increase in average ticket price . 34 company-owned salon operating income company-owned salon operating income decreased $ 9.4 million during fiscal year 2017 primarily due to minimum wage increases , unfavorable stylist productivity , same-store sales declines and a one-time inventory write-off related to salon tools , partly offset by the closure of underperforming salons . franchise salons replace_table_token_17_th _ ( 1 ) total includes $ 1.2 million of royalties related to tbg during the fiscal year 2018 , respectively . ( 2 ) total is a recalculation ; line items calculated individually may not sum to total due to rounding . fiscal year ended june 30 , 2018 compared with fiscal year ended june 30 , 2017 franchise salon revenues franchise salon revenues increased $ 31.1 million during fiscal year 2018 due to a $ 23.1 million increase in franchise product sales primarily due to product sold to tbg and a $ 8.1 million increase in royalties and fees . the increase in royalties and fees was primarily due to increased franchised locations and an increase in the number of new salons open during fiscal year 2018. our franchisees closed 194 salons , constructed ( net of relocations ) 79 salons and purchased ( net of company buybacks ) 1,581 salons from the company , including 1,132 salons previously included in the company 's mall-based business and international segment during fiscal year 2018 . franchise salon operating income franchise salon operating income increased $ 6.9 million during fiscal year 2018 primarily due to the increased number of new franchised locations and increased franchise product sales . cash generated from refranchised salons during fiscal year 2018 , the company generated $ 11.6 million of cash from refranchising salons ( the sale of company-owned salons to franchisees ) . fiscal year ended june 30 , 2017 compared with fiscal year ended june 30 , 2016 franchise salon revenues franchise salon revenues remained flat during fiscal year 2017 due to a $ 0.8 million increase
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as announced on march 12 , 2010 , and in light of receiving a notice of noncompliance of the continued listing requirements from the nasdaq stock market , we voluntarily removed our securities from listing and registration on the nasdaq capital market . on march 22 , 2010 , we filed a form 25 delisting our shares from the nasdaq capital market , and trading of our shares was suspended effective at the open of business on march 30 , 2010. our common stock ( otcqb : trxi ) has been quoted on the pink otc markets inc. ( otc marketplace ) electronic quotation service under the otcqb market tier beginning on april 1 , 2010. 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 . data intelligence : we generate data intelligence 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 intelligence 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 . 21 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 . 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 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 . story_separator_special_tag 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 . 22 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 reduces the value of a reporting unit below its carrying value . as a result of declining market conditions from january 1 , 2009 to march 31 , 2009 , and their related effect on current and anticipated volumes and pricing with clients , we determined that it was necessary to test goodwill for impairment as of march 31 , 2009. we used the same approach that was used during the 2008 impairment analysis , which required estimates of future operating results and cash flows of the reporting unit discounted using estimated discount rates ranging from 16 % to 18 % . the estimates of future operating results and cash flows were principally derived from an updated long-term financial outlook in light of the first quarter of 2009 market conditions and the challenging economic outlook . as a result of our impairment test , we determined that goodwill was fully impaired and recorded a noncash impairment charge to goodwill of $ 37.4 million during the first quarter of 2009 , which is included in impairment of goodwill , intangible assets and other long-lived assets in our consolidated statements of operations . subsequent to the goodwill impairment charge recorded in the first quarter of 2009 , we recorded goodwill of $ 0.3 million related to earnout payments on a previous business acquisition transaction . since there was no improvement in our financial outlook , such goodwill was also impaired in that same period . we expect to record additional goodwill impairment charges through december 31 , 2011for future earnout payments associated with this business acquisition transaction , until our financial outlook improves thereby justifying the recording of a goodwill asset . the outcome of our goodwill impairment analysis as of march 31 , 2009 also indicated that the carrying amount of certain acquisition-related intangible assets or asset groups may not be recoverable . we assessed the recoverability of the acquisition-related intangible assets by determining whether the unamortized balances could be recovered through undiscounted future net cash flows . we determined that certain of the acquisition-related intangible assets were impaired primarily due to the revised lower revenue forecasts associated with the products incorporating the trademarks and patents , customer relationships and non-compete agreements . we measured the amount of impairment by calculating the amount by which the carrying value of the assets exceeded their estimated fair values , which were based on projected discounted future net cash flows . as a result of this impairment analysis , we recorded a noncash impairment charge of approximately $ 1.1 million during the first quarter of 2009 , which is included in impairment of goodwill , intangible assets and other long-lived assets in our consolidated statements of operations . impairment of long-lived assets . we regularly evaluate whether events and circumstances have occurred that indicate whether the carrying amount of property and equipment and other intangible assets may warrant revision or may not be recoverable . when factors indicate that these long-lived assets should be evaluated for recoverability , we assess the recoverability by determining whether the carrying value of such long-lived assets will be recovered through the future undiscounted cash flows expected from the use of the asset and its eventual disposition . during the first quarter of 2009 , we experienced a continued decline in our business that led us to revise our short-term and long-term financial forecasts that indicated that an impairment of long-lived assets may 23 have occurred . accordingly , we performed an analysis comparing the undiscounted cash flows estimated to be generated by the long-lived assets to the carrying amounts of those assets . the estimates of future operating results and cash flows are derived from our updated long-term financial forecast .
| the decrease for 2010 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 2010 compared to the prior year was primarily due to reduced average cash balances available for investment . interest expense . the decrease for 2010 compared to the prior year was primarily due to lower interest expense related to our hi-mark note payable as we pay down the note . income tax benefit . income tax benefit of $ 0.4 million was recorded in 2010. this benefit was composed of $ 0.5 million of current tax benefit from the settlement of uncertain tax positions in germany , $ 0.2 million of net deferred tax benefit , and $ 0.3 of current tax expense . the $ 0.2 million net deferred tax benefit included $ 1.5 million of deferred tax benefit from the release of valuation allowance . this release was prompted by usage of deferred tax inventory during 2010 and by the completion of international contract negotiations during fourth quarter of 2010 that allowed us to reassess the amount of our deferred tax inventory that we were more likely than not to realize . income tax benefit of $ 23 thousand was recorded in 2009 primarily due to $ 0.5 million of tax expense recorded as a result of an increase for uncertain tax positions related to our operations in germany and $ 0.1 million of tax expense related to our operations in india , largely offset by the reversal of $ 0.6 million of deferred tax liabilities recorded in 2008 related to our goodwill , which was written-off during the first quarter of 2009. liquidity and capital resources we fund our ongoing operations primarily with cash from operating activities . the underlying drivers of cash
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our capital requirements generally consist of the following : maintenance capital expenditures , which are cash expenditures ( including expenditures for the construction or development of new capital assets or the replacement , improvement or expansion of existing capital assets ) made to maintain , over the long-term , our operating capacity or operating income ; and expansion capital expenditures , which are cash expenditures incurred for acquisitions or capital improvements that we expect will increase our operating income or operating capacity over the long-term . for the year ending december 31 , 2020 , expansion capital expenditures were $ 108 million and maintenance capital expenditures were $ 107 million . our future expansion capital expenditures may vary significantly from period to period based on commodity prices , producer activities and the investment opportunities available to us . we expect to fund future capital expenditures from cash flow generated from our operations , issuances of commercial paper , borrowings under our revolving credit facility , new debt offerings or the issuance of additional partnership units . issuances of equity or debt in the capital markets may not , however , be available to us on acceptable terms . distributions of available cash general our partnership agreement requires that , within 60 days after the end of each quarter , we distribute all of our available cash ( defined below ) to unitholders of record on the applicable record date . 70 definition of available cash available cash is defined in our partnership agreement , which is an exhibit to this annual report on form 10-k. available cash generally means , for any quarter , all cash and cash equivalents on hand at the end of that quarter : less , the amount of cash reserves established by our general partner to : ◦ provide for the proper conduct of our business ( including cash reserves for our future capital expenditures , future acquisitions and anticipated future debt service requirements and refunds of collected rates reasonably likely to be refunded as a result of a settlement or hearing related to ferc rate proceedings or rate proceedings under applicable law subsequent to that quarter ) ; ◦ comply with applicable law , any of our debt instruments or other agreements ; ◦ provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters ( provided that our general partner may not establish cash reserves for distributions if the effect of the establishment of such reserves will prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages on such common units for the current quarter ) ; or ◦ provide funds for distributions on our preferred units ; plus , if our general partner so determines , all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter . minimum quarterly distribution the minimum quarterly distribution , as set forth in the partnership agreement , is $ 0.2875 per unit per quarter , or $ 1.15 per unit on an annualized basis to the extent we have sufficient cash from our operations after the establishment of cash reserves and the payment of costs and expenses , including reimbursements of expenses to our general partner . our current quarterly distribution is $ 0.16525 per unit , or $ 0.661 per unit annualized . however , there is no guarantee that we will pay any specific distribution on our common units in any quarter , and w e have no obligation to pay in arrears any distribution below the minimum quarterly distribution . even if our cash distribution policy is not modified or revoked , the amount of distributions paid under our policy and the decision to make any distribution is determined by our general partner , taking into consideration the terms of our partnership agreement . p lease see note 12 “ debt ” in the notes to the consolidated financial statements under item 8 . “ financial statements and supplementary data ” for a discussion of the restrictions included in our credit agreement that may restrict our ability to make distributions . percentage allocations of available cash from operating surplus the following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner ( through the incentive distribution rights ) based on the specified target distribution levels . the amounts set forth under “ marginal percentage interest in distributions ” are the percentage interests of our general partner and the unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “ total quarterly distribution per unit target amount. ” the percentage interests shown for our unitholders for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution . the percentage interests set forth below for our general partner assume that our general partner has not transferred its incentive distribution rights and that there are no arrearages on common units . replace_table_token_11_th in determining the amount of available cash for distributions to holders of common units , the board of directors determines the amount of cash reserves to set aside for our operations , including reserves for future working capital , maintenance capital expenditures , expansion capital expenditures , acquisitions and other matters , which will impact the amount of cash we are able to distribute to our unitholders . however , we expect that we will rely upon external financing sources , 71 including borrowings under our revolving credit facility and issuances of debt and equity securities , as well as cash reserves , to fund our expansion capital expenditures including acquisitions . to the extent we are unable to finance growth externally and are unwilling to establish cash reserves to fund future expansions , our available cash for distributions will not significantly increase . story_separator_special_tag in addition , because we distribute all of our available cash , we may not grow as quickly as businesses that reinvest their available cash to expand ongoing operations . to the extent we issue additional units in connection with any expansion capital expenditures including acquisitions , or to the extent we issue additional units ranking senior to our common units , the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level . there are no limitations in our partnership agreement or in the terms of our revolving credit facility on our ability to issue additional units , including units ranking senior to the common units . we paid or have authorized payment of the following cash distributions to common unitholders , as applicable , during the years ended december 31 , 2020 and 2019 ( in millions , except for per unit amounts ) : replace_table_token_12_th _ ( 1 ) the board of directors declared this $ 0.16525 per common unit cash distribution on february 12 , 2021 , to be paid on march 1 , 2021 , to unitholders of record at the close of business on february 22 , 2021 . the partnership has 14,520,000 series a preferred units outstanding as of december 31 , 2020. holders of the series a preferred units receive a quarterly cash distribution on a non-cumulative basis if and when declared by the general partner , and subject to certain adjustments , equal to an annual rate of : 10 % on the stated liquidation preference of $ 25.00 from the date of original issue to , but not including , the five year anniversary of the original issue date of february 18 , 2016 ; and thereafter a percentage of the stated liquidation preference equal to the sum of the three-month libor plus 8.5 % . the series a preferred units rank senior to the partnership 's common units with respect to the payment of distributions and , unless full distributions are paid on the series a preferred units with respect to a quarter , we can not declare or pay a distribution on common units with respect to that quarter . we intend to pay full distributions on series a preferred units each quarter , however these distributions are not mandatory , and we do not have a legal obligation to pay these distributions . for more information on our series a preferred units , see note 7 “ partners ' equity ” included in item 8 . “ financial statements and supplementary data—notes to the consolidated financial statements. ” 72 we paid or have authorized payment of the following cash distributions to holders of the series a preferred units during the years ended december 31 , 2020 and 2019 ( in millions , except for per unit amounts ) : replace_table_token_13_th _ ( 1 ) the board of directors declared a $ 0.625 per series a preferred unit cash distribution on february 12 , 2021 , to be paid on february 12 , 2021 to series a preferred unitholders of record at the close of business on february 12 , 2021 . trends affecting liquidity and capital resources borrowing capacity our revolving credit facility and our 2019 term loan agreement each contain a financial covenant limiting our ratio of consolidated funded indebtedness to consolidated earnings before interest , taxes , depreciation and amortization as of the last day of each fiscal quarter of less than or equal to 5.00 to 1.00. our financial results , which have been impacted by the effects of preexisting oversupply conditions and exacerbated by the decrease in economic activity due to the covid-19 pandemic , have lowered our aggregate borrowing capacity under our revolving credit facility . as of december 31 , 2020 , our available borrowing capacity under our revolving credit facility was approximately $ 740 million . considering these financial covenants , we believe that we will have sufficient cash flow and borrowing capacity to fully fund our business and expect to continue to proactively take steps to maintain sufficient liquidity and capital resources for our business . in 2020 , we reduced our quarterly distribution per common unit and reduced our expansion capital expenditures , maintenance capital expenditures and operations and maintenance and general and administrative expenses from previously provided outlook for 2020. as a result of the measures we have undertaken , we were able to reduce the amount of our total debt . for more information on the preexisting oversupply conditions and covid-19 pandemic , including conditions impacting our cash on hand and cash flows , see “ results of operations—trends and uncertainties affecting results of operations. ” capital market volatility we may access the capital markets to fund our expansion capital expenditures , re-finance maturing debt obligations or for other general partnership purposes . in addition , our customers may also rely on the capital markets for similar purposes . drivers of energy capital markets volatility can include , but are not limited to , fluctuations in commodity prices as well as other macro-economic factors . during periods of capital market volatility , investor interest in new or outstanding equity or debt securities can decline . such declines in the energy capital markets may impact our business by limiting our or our customers ' ability to issue equity or debt on satisfactory terms , or at all , which may limit our ability to expand our operations or make future acquisitions . in recent years , energy equity prices have underperformed the broader market as investors have favored other sectors . in addition , unit prices of midstream master limited partnerships have experienced volatility and amounts of equity capital raised in the public markets by these partnerships in total have been reduced in recent years . in response , we have focused on funding more of our expansion capital expenditures with internally generated cash flows .
| our gathering and processing segment revenues decreased $ 452 million in 2020. the decrease was primarily due to the following : product sales : revenues from ngl sales decreased $ 239 million primarily due to a decrease in the average realized sales price from lower average market prices for ngl products and lower processed volumes , revenues from natural gas sales decreased $ 119 million due to lower average sales prices and lower sales volumes , changes in the fair value of natural gas , condensate and ngl derivatives decreased $ 2 million , and realized gains on natural gas , condensate and ngl derivatives , which decreased $ 2 million . service revenues : natural gas gathering revenues decreased $ 72 million due to lower gathered volumes in the anadarko and arkoma basins , inclusive of producer shut-ins in the anadarko basin that occurred during a portion of 2020 , lower shortfall fees associated with the expiration of certain minimum volume commitment contracts in the ark-la-tex and arkoma basins and lower revenue associated with the third quarter 2019 amendment of certain minimum volume commitment contracts in the arkoma basin , processing service revenues decreased $ 17 million due to lower processed volumes under fee-based arrangements , partially offset by higher consideration received from percent-of-proceeds , percent-of-liquids and keep-whole processing arrangements due to an increase in retained volumes at lower average market prices as well as an increase in the recognition of certain annual minimum processing fees , a $ 1 million decrease in intercompany management fees , and crude oil , condensate and produced water gathering revenues remained flat primarily due to a decrease in gathered crude oil volumes in the williston basin , offset by customer project reimbursements . 82 our gathering and processing segment gross margin decreased $ 185 million in 2020. the decrease was primarily due to the following : natural gas gathering fees decreased $ 72 million due to lower gathered volumes in the anadarko and arkoma basins , inclusive of producer shut-ins in the anadarko basin that occurred during a portion of 2020 , lower shortfall fees associated with the expiration of certain minimum volume commitment contracts in the ark-la-tex and arkoma basins and lower revenue associated with the third quarter 2019 amendment of certain minimum volume commitment contracts in the arkoma basin , revenues from natural gas sales less the cost of natural gas decreased approximately $ 67 million due to lower average sales prices and lower sales volumes , revenues from ngl
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the net yield on earning assets is an indicator of effectiveness of our ability to manage the net interest margin by managing the overall yield on assets and cost of funding those assets . the following table shows , for the twelve months ended december 31 , 2013 , 2012 and 2011 , the average balances of each principal category of our assets , liabilities and stockholders ' equity , and an analysis of net interest revenue , and the change in interest income and interest expense segregated into amounts attributable to changes in volume and changes in rates . this table is presented on a taxable equivalent basis , if applicable . 47 average balance sheets and net interest analysis on a fully taxable-equivalent basis for the year ended december 31 , ( in thousands , except average yields and rates ) replace_table_token_8_th ( 1 ) non-accrual loans are included in average loan balances in all periods . loan fees of $ 551,000 , $ 372,000 and $ 538,000 are included in interest income in 2013 , 2012 and 2011 , respectively . ( 2 ) interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 35 % . ( 3 ) unrealized gains of $ 8,408,000 , $ 11,998,000 and $ 7,624,000 are excluded from the yield calculation in 2013 , 2012 and 2011 , respectively . 48 the following table reflects changes in our net interest margin as a result of changes in the volume and rate of our interest-bearing assets and liabilities . for the year ended december 31 , 2013 compared to 2012 increase ( decrease ) in interest income and expense due to changes in : 2012 compared to 2011 increase ( decrease ) in interest income and expense due to changes in : volume rate total volume rate total interest-earning assets : loans , net of unearned income taxable $ 25,097 $ ( 7,208 ) $ 17,889 $ 22,910 $ ( 4,850 ) $ 18,060 tax-exempt 86 ( 11 ) 75 95 - 95 mortgages held for sale ( 108 ) 65 ( 43 ) 218 ( 80 ) 138 taxable ( 890 ) ( 19 ) ( 909 ) ( 124 ) ( 782 ) ( 906 ) tax-exempt 652 ( 451 ) 201 900 ( 492 ) 408 federal funds sold ( 119 ) 33 ( 86 ) 18 2 20 restricted equity securities ( 3 ) ( 8 ) ( 11 ) 3 27 30 interest-bearing balances with banks 54 26 80 ( 7 ) 4 ( 3 ) total interest-earning assets 24,769 ( 7,573 ) 17,196 24,013 ( 6,171 ) 17,842 interest-bearing liabilities : interest-bearing demand deposits 234 ( 107 ) 127 167 ( 226 ) ( 59 ) savings 13 - 13 25 ( 24 ) 1 money market 1,028 ( 1,038 ) ( 10 ) 941 ( 1,796 ) ( 855 ) time deposits 84 ( 633 ) ( 549 ) 980 ( 865 ) 115 federal funds purchased 215 25 240 174 ( 1 ) 173 other borrowed funds ( 738 ) ( 365 ) ( 1,103 ) ( 641 ) 87 ( 554 ) total interest-bearing liabilities 836 ( 2,118 ) ( 1,282 ) 1,646 ( 2,825 ) ( 1,179 ) increase in net interest income $ 23,933 $ ( 5,455 ) $ 18,478 $ 22,367 $ ( 3,346 ) $ 19,021 in the table above , changes in net interest income are attributable to ( a ) changes in average balances ( volume variance ) , ( b ) changes in rates ( rate variance ) , or ( c ) changes in rate and average balances ( rate/volume variance ) . the volume variance is calculated as the change in average balances times the old rate . the rate variance is calculated as the change in rates times the old average balance . the rate/volume variance is calculated as the change in rates times the change in average balances . the rate/volume variance is allocated on a pro rata basis between the volume variance and the rate variance in the table above . the two primary factors that make up the spread are the interest rates received on loans and the interest rates paid on deposits . we have been disciplined in raising interest rates on deposits only as the market demanded and thereby managing our cost of funds . also , we have not competed for new loans on interest rate alone , but rather we have relied significantly on effective marketing to business customers . our net interest spread and net interest margin were 3.66 % and 3.80 % , respectively , for the year ended december 31 , 2013 , compared to 3.62 % and 3.80 % , respectively , for the year ended december 31 , 2012. our average interest-earning assets for the year ended december 31 , 2013 increased $ 486.4 million , or 19.3 % , to $ 3.0 billion from $ 2.5 billion for the year ended december 31 , 2012. this increase in our average interest-earning assets was due to continued core growth in all of our markets and increased loan production . our average interest-bearing liabilities increased $ 362.1 million , or 18.7 % , to $ 2.3 billion for the year ended december 31 , 2013 from $ 1.9 billion for the year ended december 31 , 2012. this increase in our average interest-bearing liabilities was primarily due to an increase in interest-bearing deposits in all our markets . the ratio of our average interest-earning assets to average interest-bearing liabilities was 130.9 % and 130.3 % for the years ended december 31 , 2013 and 2012 , respectively . our average interest-earning assets produced a taxable equivalent yield of 4.25 % for the year ended december 31 , 2013 , compared to 4.39 % for the year ended december 31 , 2012. the average rate paid on interest-bearing liabilities was 0.59 % for the year ended december 31 , 2013 , compared to 0.77 % for the year ended december 31 , 2012 . story_separator_special_tag 49 our net interest spread and net interest margin were 3.62 % and 3.80 % , respectively , for the year ended december 31 , 2012 , compared to 3.58 % and 3.79 % , respectively , for the year ended december 31 , 2011. our average interest-earning assets for the year ended december 31 , 2012 increased $ 493.3 million , or 24.4 % , to $ 2.5 billion from $ 2.0 billion for the year ended december 31 , 2011. this increase in our average interest-earning assets was due to continued core growth in all of our markets , increased loan production and increases in investment securities , federal funds sold and interest-bearing balances with other banks . our average interest-bearing liabilities increased $ 325.4 million , or 20.2 % , to $ 1.9 billion for the year ended december 31 , 2012 from $ 1.6 billion for the year ended december 31 , 2011. this increase in our average interest-bearing liabilities was primarily due to an increase in interest-bearing deposits in all our markets . we prepaid our $ 5 million 8.25 % subordinated note on june 2 , 2012 and our $ 15 million 8.5 % subordinated debenture on november 8 , 2012. we issued $ 20 million in 5.5 % subordinated notes due in november 9 , 2022 in a private placement with accredited investors . the ratio of our average interest-earning assets to average interest-bearing liabilities was 130.3 % and 126.0 % for the years ended december 31 , 2012 and 2011 , respectively . our average interest-earning assets produced a taxable equivalent yield of 4.39 % for the year ended december 31 , 2012 , compared to 4.58 % for the year ended december 31 , 2011. the average rate paid on interest-bearing liabilities was 0.77 % for the year ended december 31 , 2012 , compared to 1.00 % for the year ended december 31 , 2011. provision for loan losses the provision for loan losses represents the amount determined by management to be necessary to maintain the allowance for loan losses at a level capable of absorbing inherent losses in the loan portfolio . our management reviews the adequacy of the allowance for loan losses on a quarterly basis . the allowance for loan losses calculation is segregated into various segments that include classified loans , loans with specific allocations and pass rated loans . a pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss . loans are rated using a nine-point risk grade scale with loan officers having the primary responsibility for assigning risk grades and for the timely reporting of changes in the risk grades . based on these processes , and the assigned risk grades , the criticized and classified loans in the portfolio are segregated into the following regulatory classifications : special mention , substandard , doubtful or loss , with some general allocation of reserve based on these grades . at december 31 , 2013 , total loans rated special mention , substandard , and doubtful were $ 93.2 million , or 3.3 % of total loans , compared to $ 100.7 million , or 4.3 % of total loans , at december 31 , 2012. impaired loans are reviewed specifically and separately under fasb asc 310-30-35 , subsequent measurement of impaired loans , to determine the appropriate reserve allocation . our management compares the investment in an impaired loan with the present value of expected future cash flow discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral , if the loan is collateral-dependent , to determine the specific reserve allowance . reserve percentages assigned to non-impaired loans are based on historical charge-off experience adjusted for other risk factors . to evaluate the overall adequacy of the allowance to absorb losses inherent in our loan portfolio , our management considers historical loss experience based on volume and types of loans , trends in classifications , volume and trends in delinquencies and nonaccruals , economic conditions and other pertinent information . based on future evaluations , additional provisions for loan losses may be necessary to maintain the allowance for loan losses at an appropriate level . the provision expense for loan losses was $ 13.0 million for the year ended december 31 , 2013 , an increase of $ 3.9 million from $ 9.1 million in 2012. this increase in provision expense for loan losses is primarily attributable to growth in the loan portfolio and elevated net charge-offs for 2013 compared to 2012. our management maintains a proactive approach in managing nonperforming loans , which decreased to $ 9.7 million , or 0.34 % , of total loans at december 31 , 2013 from $ 10.4 million , or 0.44 % , of total loans at december 31 , 2012. during 2013 , we had net charged-off loans totaling $ 8.6 million , compared to net charged-off loans of $ 4.9 million for 2012. the ratio of net charged-off loans to average loans was 0.33 % for 2013 compared to 0.24 % for 2012. the allowance for loan losses totaled $ 30.7 million , or 1.07 % of loans , net of unearned income , at december 31 , 2013 , compared to $ 26.3 million , or 1.11 % of loans , net of unearned income , at december 31 , 2012. the provision expense for loan losses was $ 9.1 million for the year ended december 31 , 2012 , an increase of $ 0.1 million from $ 9.0 million in 2011. also , nonperforming loans decreased to $ 10.4 million , or 0.44 % of total loans , at december 31 , 2012 , from $ 13.8 million , or 0.75 % of total loans , at december 31 , 2011. during 2012 , we had net charged-off loans totaling $ 4.9 million , compared to net charged-off loans of $ 5.0 million for 2011. the ratio of net charged-off loans to average
| compared to $ 4.03 and $ 3.53 , respectively , for the year ended december 31 , 2011. return on average assets was 1.30 % in 2012 , compared to 1.11 % in 2011 , and return on average stockholders ' equity was 15.81 % in 2012 , compared to 14.73 % in 2011 . 45 the following table presents some ratios of our results of operations for the years ended december 31 , 2013 , 2012 and 2011. replace_table_token_5_th the following tables present a summary of our statements of income , including the percent change in each category , for the years ended december 31 , 2013 compared to 2012 , and for the years ended december 31 , 2012 compared to 2011 , respectively . replace_table_token_6_th replace_table_token_7_th 46 net interest income net interest income is the difference between the income earned on interest-earning assets and interest paid on interest-bearing liabilities used to support such assets . the major factors which affect net interest income are changes in volumes , the yield on interest-earning assets and the cost of interest-bearing liabilities . our management 's ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of our primary source of earnings . net interest income increased $ 18.4 million , or 19.5 % , to $ 112.5 million for the year ended december 31 , 2013 from $ 94.1 million for the year ended december 31 , 2012. this was due to an increase in total interest income of $ 17.1 million , or 15.6 % , and a decrease in total interest expense of $ 1.3 million , or a 8.6 % reduction . the increase in total interest income was primarily attributable to a 26.50 % increase in average loans outstanding from 2012 to 2013 , which was the result of growth in all of our markets , including in mobile , alabama and nashville , tennessee , our two newest markets . net interest
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our integrators , branded manufacturers and branded suppliers incorporate our products into systems that are sold worldwide . all of our revenue to date has been denominated in u.s. dollars . seasonality our business is subject to seasonality related to the markets we serve and the location of our customers . for example , we have historically experienced higher revenue from the digital projector market in the third quarter of the year , and lower revenue in the first quarter of the year , as our japanese customers reduce inventories in anticipation of their march 31 fiscal year end . 39 story_separator_special_tag denominated money market funds . our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months . additionally , no maturities can extend beyond 24 months and concentrations with individual securities are limited . at the time of purchase , short-term credit rating must be rated at least a-2 / p-2 / f-2 by at least two nationally recognized statistical rating organizations ( `` nrsro '' ) and securities of issuers with a long-term credit rating must be rated at least a or a3 by at least two nrsros . our investment policy is reviewed at least annually by our audit committee . accounts receivable , net accounts receivable , net decreased to $ 4.7 million at december 31 , 2020 from $ 10.9 million at december 31 , 2019. average number of days sales outstanding decreased to 44 days at december 31 , 2020 from 61 days at december 31 , 2019. the decrease in accounts receivable and days sales outstanding was due to normal fluctuations in the timing of sales and customer receipts within the fourth quarter of 2020 , and the fourth quarter of 2019. inventories inventories decreased to $ 2.4 million at december 31 , 2020 from $ 5.4 million at december 31 , 2019. inventory turnover decreased to 6.0 at december 31 , 2020 from 7.9 at december 31 , 2019 primarily due to lower average inventory balances and lower cost of goods sold during the fourth quarter of 2020 compared to the fourth quarter of 2019. inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter . capital resources short-term line of credit on december 21 , 2010 , we entered into a loan and security agreement with silicon valley bank ( the `` bank '' ) , which was amended on december 14 , 2012 , december 4 , 2013 , december 18 , 2015 , december 15 , 2016 , july 21 , 2017 , december 21 , 2017 , december 18 , 2018 , december 18 , 2019 , april 17 , 2020 and december 14 , 2020 ( as amended , the `` revolving loan agreement '' ) . the revolving loan agreement provides a secured working capital-based revolving line of credit ( the `` revolving line '' ) in an aggregate amount of up to the lesser of ( i ) $ 10.0 million , or ( ii ) $ 2.5 million plus 80 % of eligible domestic accounts receivable and certain foreign accounts receivable . the revolving line has a maturity date of march 26 , 2021. in addition , the revolving loan agreement provides for non-formula advances of up to $ 10.0 million which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by us on or before the fifth business day after the applicable fiscal month or quarter end . due to their repayment terms , non-formula advances do not provide us with usable liquidity . the revolving loan agreement , as amended , contains customary affirmative and negative covenants as well as customary events of default . the occurrence of an event of default could result in the acceleration of our obligations under the revolving loan agreement , as amended , and an increase to the applicable interest rate , and would permit the bank to exercise remedies with respect to its security interest . as of december 31 , 2020 , we were in compliance with all of the terms of the revolving loan agreement , as amended . as of december 31 , 2020 and december 31 , 2019 , we had no outstanding borrowings under the revolving line . 44 paycheck protection program loan on april 25 , 2020 , we entered into a loan with silicon valley bank as the lender in an aggregate principal amount of $ 0.8 million ( the “ loan ” ) pursuant to the paycheck protection program ( the “ ppp ” ) under the coronavirus aid , relief , and economic security act ( the “ cares act ” ) . the loan is evidenced by a promissory note ( the “ note ” ) dated april 25 , 2020 and matures 2 years from the disbursement date . the note bears interest at a rate of 1.000 % per annum , with the first six months of interest deferred . principal and interest are payable monthly commencing 6 months after the disbursement date and may be prepaid by the company at any time prior to maturity with no prepayment penalties . the note contains customary events of default relating to , among other things , payment defaults or breaches of the terms of the note . upon the occurrence of an event of default , the lender may require immediate repayment of all amounts outstanding under the note . under the terms of the cares act , ppp loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the ppp . the loan is subject to forgiveness to the extent proceeds are used for payroll costs , including payments required to continue group health care benefits and certain rent , utility , and mortgage interest expenses ( collectively , “ qualifying expenses ” ) , pursuant to the terms and limitations of the ppp . we used the loan amount for qualifying expenses . story_separator_special_tag during the fourth quarter of 2020 , we applied for and received full forgiveness and have recorded a gain of $ 0.8 million within other income in our consolidated statements of operations . equity offering on december 14 , 2020 , we completed the sale of 4,900,000 shares of common stock in an underwritten registered offering . on december 16 , 2020 , an additional 735,000 shares were issued pursuant to the 30-day over-allotment option exercised by the underwriter . with the over-allotment shares , a total of 5,635,000 shares of common stock were sold in the offering at a price to the public of $ 2.45 per share . net proceeds to the company , after deducting underwriting discounts , commissions , and other expenses , were approximately $ 12.7 million . private placement investment on december 7 , 2020 , we completed a private placement of 724,288 shares of common stock to a certain accredited investor at a purchase price of $ 2.071 per share . on december 15 , 2020 , we completed a private placement of 2,475,712 shares of common stock to a certain accredited investor at a purchase price of $ 2.071. net proceeds to the company , after deducting commissions and other expenses , were approximately $ 6.2 million . at the market offering on june 5 , 2020 , we entered into a sales agreement ( the `` sales agreement '' ) with cowen and company , llc ( `` cowen '' ) , pursuant to which we may issue and sell shares of the company 's common stock , par value $ 0.001 per share , having an aggregate offering price of up to $ 25,000 , from time to time , through an `` at the market '' equity offering program under which cowen will act as sales agent . under the sales agreement , cowen may sell the shares by methods deemed to be an `` at the market offering '' as defined in rule 415 ( a ) ( 4 ) promulgated under the securities act of 1933 , as amended , including sales made by means of ordinary brokers ' transactions on the nasdaq global market or on any other existing trading market for the common stock or otherwise at market prices prevailing at the time of sale , in block transactions , or as otherwise directed by the company . we pay cowen a commission equal to three percent ( 3.0 % ) of the gross sales proceeds of any common stock sold through cowen under the sales agreement . the sales agreement may be terminated by us upon prior notice to cowen or by cowen upon prior notice to us , or at any time under certain circumstances , including but not limited to the occurrence of a material adverse change in the company . we are not obligated to sell any shares under the sales agreement . during the year ended december 31 , 2020 , we sold an aggregate of 1,747,466 shares of our common stock under this at the market offering , resulting in aggregate net proceeds to us of approximately $ 4.4 million , and gross proceeds of approximately $ 4.9 million and paid cowen commissions and fees of approximately $ 0.2 million , and other expenses of $ 0.3 million . 45 liquidity as of december 31 , 2020 , our cash , cash equivalents and short-term marketable securities balance of $ 31.5 million was highly liquid . we anticipate that our existing working capital will be adequate to fund our operating , investing and financing needs for at least the next twelve months . we may pursue financing arrangements including the issuance of debt or equity securities or reduce expenditures , or both , to meet the company 's cash requirements , including in the longer term . there is no assurance that , if required , we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity which , in turn , may have an adverse effect on our results of operations , financial position and cash flows . from time to time , we evaluate acquisitions of businesses , products or technologies that complement our business . any transactions , if consummated , may consume a material portion of our working capital or require the issuance of equity securities that may result in dilution to existing shareholders . our ability to generate cash from operations is also subject to substantial risks described in part i , “ item 1a. , risk factors. ” if any of these risks occur , we may be unable to generate or sustain positive cash flow from operating activities . we would then be required to use existing cash and cash equivalents to support our working capital and other cash requirements . if additional funds are required to support our working capital requirements , acquisitions or other purposes , we may seek to raise funds through debt financing , equity financing or from other sources . if we raise additional funds through the issuance of equity or convertible debt securities , the percentage ownership of our shareholders could be significantly diluted , and these newly-issued securities may have rights , preferences or privileges senior to those of existing shareholders . if we raise additional funds by obtaining loans from third parties , the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility , and would also require us to incur interest expense . we can provide no assurance that additional financing will be available at all or , if available , that we would be able to obtain additional financing on terms favorable to us . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires us to make estimates and judgments that affect the amounts reported .
| pixelworks ' gross profit margin is subject to variability based on changes in revenue levels , product mix , average selling prices , startup costs , restructuring charges , amortization related to acquired developed technology , amortization of inventory step-up and backlog , and the timing and execution of manufacturing ramps as well as other factors . 40 research and development research and development expense includes compensation and related costs for personnel , development-related expenses including non-recurring engineering and fees for outside services , depreciation and amortization , expensed equipment , facilities and information technology expense allocations and travel and related expenses . research and development expense was as follows ( in thousands ) : replace_table_token_3_th research and development expense decreased $ 1.0 million , or 4 % , from 2019 to 2020. the decrease was primarily due to a general decrease across multiple expense categories as we focused on cost management in response to the effects of covid-19 . these decreases were partially offset by an increase in non-recurring engineering expense due to the timing of development activities . selling , general and administrative selling , general and administrative expense includes compensation and related costs for personnel , sales commissions , allocations for facilities and information technology expenses , travel , outside services and other general expenses incurred in our sales , marketing , customer support , management , legal and other professional and administrative support functions . selling , general and administrative expense was as follows ( in thousands ) : replace_table_token_4_th selling , general and administrative expense decreased $ 1.4 million , or 6 % , from 2019 to 2020. the decrease was primarily due to a general decrease across multiple expense categories as we focused on cost management in response to the effects of covid-19 as well as due to severance expense associated with the resignation of our former chief financial officer in 2019. these decreases were partially offset by an increase in stock-based compensation expense due to the timing of awards granted . 41 restructurings in august 2020 , we executed a restructuring plan to make the operation of the company more efficient ( the `` august 2020 plan '' ) . the august 2020 plan included an approximately 14 % reduction in workforce , primarily in the areas of operations , research
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the majority of our r & d programs focus on product lifecycle innovation , which is defined as r & d programs that leverage existing animal health products by adding new species or claims , achieving approvals in new markets or creating new combinations and reformulations . perceptions of product quality , safety and reliability we believe that animal health medicines and vaccines customers value high-quality manufacturing and reliability of supply . the importance of quality and safety concerns to pet owners , veterinarians and livestock producers also contributes to animal health brand loyalty , which we believe often continues after the loss of patent-based and regulatory exclusivity . we depend on positive perceptions of the safety and quality of our products , and animal health products generally , by our customers , veterinarians and end-users . the issue of the potential transfer of increased antibacterial resistance in bacteria from food-producing animals to human pathogens , and the causality of that transfer , continue to be the subject of global scientific and regulatory discussion . antibacterials refer to small molecules that can be used to treat or prevent bacterial infections and are a sub-categorization of the products that make up our anti-infectives and medicated feed additives portfolios . in some countries , this issue has led to government restrictions and bans on the use of specific antibacterials in some food-producing animals , regardless of the route of administration ( in feed or injectable ) . these restrictions are more prevalent in countries where animal protein is plentiful and governments are willing to take action even when there is scientific uncertainty . our total revenue attributable to antibacterials for livestock was approximately $ 1.3 billion for the year ended december 31 , 2015 . we can not predict whether antibacterial resistance concerns will result in additional restrictions or bans , expanded regulations or public pressure to discontinue or reduce use of antibacterials in food-producing animals . the overall economic environment in addition to industry-specific factors , we , like other businesses , face challenges related to global economic conditions . growth in both the livestock and companion animal sectors is driven by overall economic development and related growth , particularly in many emerging markets . in recent years , certain of our customers and suppliers have been affected directly by economic downturns , which decreased the demand for our products and , in some cases , hindered our ability to collect amounts due from customers . the cost of medicines and vaccines to our livestock producer customers is small relative to other production costs , including feed , and the use of these products is intended to improve livestock producers ' economic outcomes . as a result , demand for our products has historically been more stable than demand for other production inputs . similarly , industry sources have reported that pet owners indicated a preference for reducing spending on other aspects of their lifestyle , including entertainment , clothing and household goods , before reducing spending on pet care . while these factors have mitigated the impact of recent downturns in the global economy , further economic challenges could increase cost sensitivity among our customers , which may result in reduced demand for our products , which could have a material adverse effect on our operating results and financial condition . competition the animal health industry is competitive . although our business is the largest by revenue in the animal health medicines and vaccines industry , we face competition in the regions in which we operate . principal methods of competition vary depending on the particular region , species , product category or individual product . some of these methods include new product development , quality , price , service and promotion to veterinary professionals , pet owners and livestock producers . our competitors include the animal health businesses of large pharmaceutical companies and specialty animal health businesses . there are also several new start-up companies working in the animal health area . in addition to competition from established market participants , there could be new entrants to the animal health medicines and vaccines industry in the future . in certain markets , we also compete with companies that produce generic products , but the level of competition from generic products varies from market to market . for example , the level of generic competition is higher in europe and certain emerging markets than in the united states . weather conditions and the availability of natural resources the animal health industry and demand for many of our animal health products in a particular region are affected by weather conditions , as usage of our products follows varying weather patterns and weather-related pressures from pests , such as ticks . as a result , we may experience regional and seasonal fluctuations in our results of operations . in addition , veterinary hospitals and practitioners depend on visits from and access to the animals under their care . veterinarians ' patient volume and ability to operate could be adversely affected if they experience prolonged snow , ice or other severe weather conditions , particularly in regions not accustomed to sustained inclement weather . furthermore , livestock producers depend on the availability of natural resources , including large supplies of fresh water . their animals ' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods , droughts or other weather conditions . in the event of adverse weather conditions or a shortage of fresh water , veterinarians and livestock producers may purchase less of our products . for example , drought conditions could negatively impact , among other things , the supply of corn and the availability of grazing pastures . a decrease in harvested corn results in higher corn prices , which could negatively impact the profitability of livestock producers of cattle , pork and poultry . story_separator_special_tag higher corn prices and reduced availability of grazing pastures contribute to reductions in herd or flock sizes that in turn result in less spending on animal health products . as such , a prolonged drought could have a material adverse impact on our operating results and financial condition . factors 32 | influencing the magnitude and timing of effects of a drought on our performance include , but may not be limited to , weather patterns and herd management decisions . disease outbreaks sales of our livestock products could be adversely affected by the outbreak of disease carried by animals . outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products , either due to heightened export restrictions or import prohibitions , which may reduce demand for our products . also , the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere . alternatively , sales of products that treat specific disease outbreaks may increase . for example , from december 2014 through june 2015 , highly pathogenic h5 avian influenza virus infections were reported in domestic poultry , captive birds and wild birds in the united states , with a majority of confirmed infections occurring in backyard and commercial poultry flocks . the egg and turkey industry were the most impacted by this occurrence of avian influenza . usda surveillance indicates that more than 48 million birds were affected ( either infected or exposed ) in at least 20 states . although no new h5 avian influenza infections have been detected in the united states since june 2015 , an outbreak of highly pathogenic h7 avian influenza was reported in a single turkey flock in indiana in january 2016 , and both forms of the virus continue to pose a threat to the poultry industry . it is important to note that human infection with avian influenza viruses has not occurred from eating properly cooked poultry or poultry products . we are closely monitoring the developments as this situation unfolds and the impact on our 2015 global revenue was not significant . manufacturing and supply in order to sell our products , we must be able to produce and ship our products in sufficient quantities . many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites . minor deviations in our manufacturing or logistical processes , such as temperature excursions or improper package sealing , could result in delays , inventory shortages , unanticipated costs , product recalls , product liability and or regulatory action . in addition , a number of factors could cause production interruptions that could result in launch delays , inventory shortages , recalls , unanticipated costs or issues with our agreements under which we supply third parties . our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes . the unpredictability of a product 's regulatory or commercial success or failure , the lead time necessary to construct highly technical and complex manufacturing sites , and shifting customer demand increase the potential for capacity imbalances . foreign exchange rates significant portions of our revenue and costs are exposed to changes in foreign exchange rates . our products are sold in more than 100 countries and , as a result , our revenue is influenced by changes in foreign exchange rates . for the year ended december 31 , 2015 , approximately 47 % of our revenue was denominated in foreign currencies . we seek to manage our foreign exchange risk , in part , through operational means , including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities . as we operate in multiple foreign currencies , including the euro , brazilian real , canadian dollar , australian dollar and other currencies , changes in those currencies relative to the u.s. dollar will impact our revenue , cost of goods and expenses , and consequently , net income . exchange rate fluctuations may also have an impact beyond our reported financial results and directly impact operations . these fluctuations may affect the ability to buy and sell our goods and services between markets impacted by significant exchange rate variances . for the year ended december 31 , 2015 , approximately 53 % of our total revenue was in u.s. dollars . our year-over-year revenue growth was unfavorably impacted by 8 % from changes in foreign currency values relative to the u.s. dollar . on february 10 , 2015 , the venezuelan government announced that they would continue to operate with a three-tier exchange rate system . in addition , they announced that the primary rate of 6.3 bolivars to the u.s. dollar would remain in place for imports that are deemed essential . a new free-floating rate ( simadi ) replaced the existing third-tier rate ( sicad ii ) . as of december 31 , 2015 , the venezuelan bolivar to u.s. dollar exchange rates were the cencoex official rate of 6.3 ; the sicad i rate of 13.5 ; and the simadi rate of 199. through the fourth quarter of 2015 , we used the cencoex official rate of 6.3 to report our venezuela financial position , results of operations and cash flows .
| sales of cattle products benefited from growth in brazil and mexico , partially offset by the impact of business reduction decisions in venezuela . livestock revenue in france also declined due to the anti-infective legislative changes in 2014. companion animal revenue growth resulted from increased sales of apoquel ® , the addition of products acquired from abbott animal health , and the non-recurrence of a prior year inventory buyback related to the termination of a distributor agreement in japan . international segment earnings decreased by $ 84 million , or 8 % , in 2015 compared with 2014 . operational earnings growth was $ 100 million , or 10 % , primarily due to higher revenue and lower operating expenses . 2014 vs. 2013 u.s. operating segment u.s. segment revenue increased by $ 157 million , or 8 % , in 2014 compared with 2013 , of which approximately $ 129 million resulted from growth in livestock products and approximately $ 28 million resulted from growth in companion animal products . livestock revenue growth was driven by increased sales across the cattle , swine , and poultry portfolios . strong growth in sales of cattle products was primarily due to higher demand for our premium products as a result of improved market conditions , driven by higher cattle prices and lower costs of feed , compared with 2013. growth in swine products was due to the successful launch of new products , tempered by the impact of pedv on the number of treatable animals . sales of poultry products benefited from new vaccines and growth in medicated feed additives . companion animal revenue growth was driven by the introduction of apoquel ® as well as sales growth in other key brands . results were partially offset by competitive pressures in our vaccine and pain portfolios and were tempered by competition in our parasiticides portfolio . u.s. segment earnings increased by $ 131 million , or 13 % , in 2014 compared with 2013 , due to strong revenue growth and improved gross margin due to
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we can also act as an agent , for instance , in the provision of insurance policies . in both cases , the revenue and costs associated with this approach are reflected in our financial inclusion and applied technologies segment . in south africa , we also generate fees from debit and credit card transaction processing , the provision of value-added services such as bill payments , mobile top-up and prepaid utility sales , and from providing a payroll transaction management service . the revenue and costs associated with these services are reflected in our south african transaction processing and financial inclusion and applied technologies segments . through ksnet , we earn most of our revenue from payment processing services we provide to approximately 225,000 merchants and to card issuers in south korea through our value-added-network . in the u.s. , we earn transaction fees from our customers utilizing our xeorules on-line real-time management system for healthcare transactions . we also generate fees from our customers who utilize our vcpay technology to generate a unique , one-time use prepaid virtual card number to securely purchase goods and services or perform bill payments in any card-not-present environment . the revenue and costs at ksnet , xeohealth and vcpay are reflected in our international transaction processing segment . finally , we have entered into business partnerships or joint ventures to introduce our payment solutions to markets such as namibia and more recently through t24 hong kong and one credit in nigeria . in these situations , we take an equity position in the business while also acting as a supplier of technology . in evaluating these types of opportunities , we seek to maintain a highly disciplined approach , carefully selecting partners , participating closely in the development of the business plan and remaining actively engaged in the management of the new business . in most instances , the joint venture or partnership has a license to use our proprietary technologies in the specific territory , including the back-end system . we account for our equity investments using the equity method . when we equity-account these investments , we are required under u.s. gaap to eliminate our share of the net income generated from sales of hardware and software to the investee . we recognize this net income from these equity-accounted investments during the period in which the hardware and software is utilized in the investee 's operations , or has been sold to third-party customers , as the case may be . we believe that this flexible approach enables us to drive adoption of our solution while capturing the value created by the implementation of our technology . developments during fiscal 2015 zazoo we established zazoo in the united kingdom to oversee the global expansion of our mobile payments and value-added services businesses , including the activities currently conducted through our n1ms business unit . zazoo 's management is focused on worldwide growth opportunities , especially in the uk , europe , the united states , nigeria , india and other developed and emerging markets . zazoo coordinates all research and development , operations and marketing activities associated with n1ms ' mobile businesses . zazoo entered into strategic collaborations with uber , microsoft and cell c ( one of south africa 's largest mobile operators ) during the third quarter of fiscal 2015 for our vcpay mobile application . vcpay is a mobile phone-based application that generates transaction specific virtual mastercards that can be used for online purchases , or in brick-and-mortar retailers , that accept manual card-not-present payments . users can also send a virtual card to friends or family anywhere via email , sms , mms or whatsapp , making it simpler than ever before to send funds to third parties . vcpay is fully interoperable and does not require merchants to change the way in which payments are accepted online or via mobile applications , like uber . we believe that vcpay bridges the electronic payment requirement gap for online or in-application payments by providing an immediate , safe and secure payment solution to anybody , regardless of their banking status . our collaboration with uber in south africa enables people who do not own credit cards to now use vcpay to pay for the uber service . 36 as a result of our collaboration with microsoft and cell c , zazoo agreed to sponsor a r250 vcpay voucher to consumers who purchase the new microsoft lumia 535 on a cell c contract . the new device became available on cell c 's talk and data contracts beginning february 1 , 2015 , and the initial batch was packaged with the vcpay voucher for new owners to use in completing a purchase of their choice when using our vcpay service . introduction of easypay everywhere epe and epe atms in south africa in june 2015 , we began the rollout of our business-to-consumer , or b2c , easypay everywhere offering in south africa . epe is a fully transactional account created to serve the needs of south africa 's unbanked and under-banked population , and is available to all consumers regardless of their financial or social status . the epe account offers customers a comprehensive suite of financial and various financial inclusion services , such as prepaid products , in a economical , convenient and secure solution . epe provides account holders with a ueps-emv debit mastercard , mobile and internet banking services , atm and pos services , as well as loans , insurance and other financial products and value-added services . to support the rollout of epe , we deployed atms , which are both emv-and ueps-compliant , and provided biometric verification as well as proof of life functionality , in south africa . we placed these atms with our merchant partners and within our own branches , creating a new delivery channel for our products and services that did not previously exist . although capital intensive , our atm rollout has already begun to make a positive contribution to our reported results . story_separator_special_tag we have been able to expand our customer base because our atms accept all emv-compliant cards . we currently have approximately 640 operational atms , and we are actively deploying more atms in high demand areas . we will continue to expand our atm footprint in fiscal 2016. world food program the southern africa regional office of the united nations world food program , or the wfp , has awarded to us a contract for 12 countries that are members of the southern african development community . under the terms of the contract , we distribute cash and food grants to hundreds of thousands of wfp beneficiaries in these countries . our technology makes use of the existing infrastructure in each territory and allows for the biometric verification of all beneficiaries regardless of whether or not such infrastructure is biometrically enabled . in certain situations , we utilize our patented variable pin technology in conjunction with fingerprint or voice verification methods using any mobile phone . we do not expect that this socially responsible initiative will necessarily translate into a meaningful financial contributor for us in the short term , but we strongly believe that the exposure and credibility associated with winning and operating a project of this nature and scale will create further opportunities for us to implement the same or similar solutions in other contexts . we are currently finalizing our deployment contract with the wfp office based in south africa . strategic investments during the fourth quarter of fiscal 2015 , we made two strategic investments in hong kong and nigeria , acquiring a significant noncontrolling stake in each company . both investments represent opportunities in specific markets with companies that have an established local presence , knowledge , and customer relationships , and where the introduction of our technology or solutions can enhance the breadth of their offerings and in turn the market opportunity . t24 in may 2015 , we acquired a 43.88 % interest in transact24 limited , or t24 , a specialist hong kong-based payment services company . we believe that our investment in t24 's business will complement our existing products and will further expand our product suite and geographic reach . in addition , the t24 management team has a wealth of experience in transaction processing , and will provide us with specialist marketing business development resources to expand the adoption of the net1 product range including our mobile virtual card product . t24 also provides us with an entry into the rapidly growing chinese e-commerce and transaction processing markets through its established relationships with china unionpay , the only domestic bank card organization and interbank network in china , and alipay , china 's leading third party online payment platform . t24 's primary business activities include : chinese debit card acquiring t24 has processing relationships with china unionpay , alipay and five other chinese gateways credit card acquiring t24 has acquiring relationships with banks and processing institutions in the uk , germany , australia and mauritius . t24 also offers a white-labeled credit card acquiring gateway to entities who wish to outsource the technical integration and operations of their acquiring gateways ; automated clearing house , or ach , processing t24 provides unsecured loan ach processing for tribal and state- licensed lenders in the u.s. ; prepaid card issuing and processing t24 issues u.s. dollar-denominated visa prepaid cards , south african rand- denominated mastercard prepaid cards and hong kong dollar-denominated china unionpay prepaid cards . 37 one credit in may 2015 , we acquired a 25 % interest in one credit limited , a leading nigerian consumer finance company focused on providing credit to unbanked , salaried nigerian consumers . we have also agreed to provide one credit with a credit facility of up to $ 10 million in the form of convertible debt . we believe that we can assist one credit to grow its market share through the provision of its financial technology products and services , which have been designed to address the biggest challenge facing nigerian financial institutions the ability to provide seamless and cashless services in an environment that poses significant logistical and infrastructural obstacles . in addition , our solutions will enhance one credit 's credit risk management and expand the current product offering to these customers . by acquiring a significant minority stake , we believe that we will be able to actively participate in the formulation and execution of the one credit business plan , including its delivery platforms . withdrawal from 2014 sassa tender process we decided to withdraw from the 2014 sassa tender process and did not submit a bid . we reached this conclusion after careful consideration of all the relevant factors , including financial feasibility of the rfp , further questions raised by prospective bidders , execution of our strategic plan , legal risks , reputational risk , and long term value creation for shareholders . we believe that the deployment of our business plan , which focuses on providing a comprehensive suite of transactional products and services , will allow us to service all south africa 's unbanked and under-banked citizens including social grant beneficiaries , but independently and without sassa 's limitations and constraints . our business plan includes the continued successful deployment of our easypay everywhere bank account , biometric atms and mobile portal , our suite of financial and added value services utilizing our proven and innovative technological systems . we believe that these activities will ensure a sustainable business model that will , over time , far exceed the benefits that could be realized from being the successful bidder for the sassa rfp . in addition , the execution of the business plan will no longer be limited by a five year contract ( or potentially shorter if legally challenged ) and provides us with the ability to freely determine pricing that is both competitive and profitable and removes any unknown or contingent liabilities associated with government contracts .
| financial inclusion and applied technologies financial inclusion and applied technologies revenue and operating income increased primarily due to higher prepaid airtime sales driven by the rollout of our prepaid airtime product , an increase in the number of ueps-based loans as we rolled out our product nationally , an increase in intersegment revenues and more ad hoc terminal and smart card sales . the increase in operating income was partially offset by ueps-based lending national rollout expenses and the establishment of the allowance for doubtful finance loans . smart life did not contribute to operating income in fiscal 2014 due to the fsb suspension of our license . operating income margin for the financial inclusion and applied technologies segment decreased to 29 % from 53 % , primarily as a result of more low-margin prepaid airtime and hardware sales . corporate/ eliminations the increase in our corporate expenses resulted primarily from the non-cash charge related to the equity instruments issued pursuant to our bee transactions , increases in general corporate audit fees , executive emoluments and other corporate head office-related expenses purchased from third parties , partially offset by lower u.s. government investigation expenses . our corporate expenses also include acquisition-related intangible asset amortization ; expenditure related to compliance with sarbanes ; non-employee directors ' fees ; employee and executive bonuses ; stock-based compensation ; audit fees ; directors and officers insurance premiums ; telecommunications expenses ; property-related expenditures including utilities , rental , security and maintenance ; and elimination entries . liquidity and capital resources at june 30 , 2015 , our cash balances were $ 117.6 million , which comprised zar-denominated balances of zar 1.3 billion ( $ 104.8 million ) , krw-denominated balances of krw 7.9 billion ( $ 7.0 million ) and u.s. dollar-denominated balances of $ 4.0 million and other currency deposits , primarily euro , of $ 1.8 million . the increase in our cash balances from june 30 , 2014 , was primarily due to the expansion of all of our core businesses , and to a lesser extent , to the cash conservation resulting from the sale of loss-incurring businesses , offset by provisional tax payments , investments , capital expenditures and the scheduled korean debt repayment in october 2014. we currently believe that our cash and credit facilities are sufficient
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and health and human services that would be incentivize the use of health reimbursement accounts by employers to permit employees to purchase health insurance in the individual market . the uncertainty resulting from these executive branch policies has led to reduced exchange enrollment in 2018 and 2019 and is expected to further worsen the individual and small group market risk pools in future years . it is also anticipated that these and future policies may create additional cost and reimbursement pressures on hospitals , including ours . in addition , while attempts to repeal the entirety of the affordable care act ( “ aca ” ) have not been successful to date , a key provision of the aca was repealed as part of the tax cuts and jobs act and on december 14 , 2018 , a federal u.s. district court judge in texas ruled the entire aca is unconstitutional . while that ruling is stayed and has been appealed , it has caused greater uncertainty regarding the future status of the aca . if all or any parts of the aca are found to be unconstitutional , it could have a material adverse effect on our business , financial condition and results of operations . see below in sources of revenue and health care reform for additional disclosure ; possible unfavorable changes in the levels and terms of reimbursement for our charges by third party payers or government based payers , including medicare or medicaid in the united states , and government based payers in the united kingdom ; our ability to enter into managed care provider agreements on acceptable terms and the ability of our competitors to do the same , including contracts with united/sierra healthcare in las vegas , nevada ; the outcome of known and unknown litigation , government investigations , false claim act allegations , and liabilities and other claims asserted against us and other matters as disclosed in item 3. legal proceedings , and the effects of adverse publicity relating to such matters ; the potential unfavorable impact on our business of deterioration in national , regional and local economic and business conditions , including a worsening of unfavorable credit market conditions ; competition from other healthcare providers ( including physician owned facilities ) in certain markets ; technological and pharmaceutical improvements that increase the cost of providing , or reduce the demand for healthcare ; our ability to attract and retain qualified personnel , nurses , physicians and other healthcare professionals and the impact on our labor expenses resulting from a shortage of nurses and other healthcare professionals ; demographic changes ; the availability of suitable acquisition and divestiture opportunities and our ability to successfully integrate and improve our acquisitions since failure to achieve expected acquisition benefits from certain of our prior or future acquisitions could result in impairment charges for goodwill and purchased intangibles ; the impact of severe weather conditions , including the effects of hurricanes ; 43 as discussed below in sources of revenue , we receive revenues from various state and county based programs , including medicaid in all the states in which we operate ( we receive medicaid revenues in excess of $ 100 million annually from each of texas , california , washington , d.c. , nevada , pennsylvania and illinois ) ; cms-approved medicaid supplemental programs in certain states including texas , mississippi , illinois , oklahoma , nevada , arkansas , california and indiana , and ; state medicaid disproportionate share hospital payments in certain states including texas and south carolina . we are therefore particularly sensitive to potential reductions in medicaid and other state based revenue programs as well as regulatory , economic , environmental and competitive changes in those states . we can provide no assurance that reductions to revenues earned pursuant to these programs , particularly in the above-mentioned states , will not have a material adverse effect on our future results of operations ; our ability to continue to obtain capital on acceptable terms , including borrowed funds , to fund the future growth of our business ; our inpatient acute care and behavioral health care facilities may experience decreasing admission and length of stay trends ; our financial statements reflect large amounts due from various commercial and private payers and there can be no assurance that failure of the payers to remit amounts due to us will not have a material adverse effect on our future results of operations ; in august , 2011 , the budget control act of 2011 ( the “ 2011 act ” ) was enacted into law . the 2011 act imposed annual spending limits for most federal agencies and programs aimed at reducing budget deficits by $ 917 billion between 2012 and 2021 , according to a report released by the congressional budget office . among its other provisions , the law established a bipartisan congressional committee , known as the joint select committee on deficit reduction ( the “ joint committee ” ) , which was tasked with making recommendations aimed at reducing future federal budget deficits by an additional $ 1.5 trillion over 10 years . the joint committee was unable to reach an agreement by the november 23 , 2011 deadline and , as a result , across-the-board cuts to discretionary , national defense and medicare spending were implemented on march 1 , 2013 resulting in medicare payment reductions of up to 2 % per fiscal year with a uniform percentage reduction across all medicare programs . the bipartisan budget act of 2015 , enacted on november 2 , 2015 , continued the 2 % reductions to medicare reimbursement imposed under the 2011 act . story_separator_special_tag we can not predict whether congress will restructure the implemented medicare payment reductions or what other federal budget deficit reduction initiatives may be proposed by congress going forward ; uninsured and self-pay patients treated at our acute care facilities unfavorably impact our ability to satisfactorily and timely collect our self-pay patient accounts ; changes in our business strategies or development plans ; in june , 2016 , the united kingdom affirmatively voted in a non-binding referendum in favor of the exit of the united kingdom from the european union ( the “ brexit ” ) and it has been approved by vote of the british legislature . on march 29 , 2017 , the united kingdom triggered article 50 of the lisbon treaty , formally starting negotiations regarding its exit from the european union , scheduled for march 29 , 2019. the actual exit of the united kingdom from the european union could cause disruptions to and create uncertainty surrounding our business . any of these effects of brexit ( and the announcement thereof ) , and others we can not anticipate , could harm our business , financial condition and results of operations ; fluctuations in the value of our common stock , and ; other factors referenced herein or in our other filings with the securities and exchange commission . given these uncertainties , risks and assumptions , as outlined above , you are cautioned not to place undue reliance on such forward-looking statements . our actual results and financial condition could differ materially from those expressed in , or implied by , the forward-looking statements . forward-looking statements speak only as of the date the statements are made . we assume no obligation to publicly update any forward-looking statements to reflect actual results , changes in assumptions or changes in other factors affecting forward-looking information , except as may be required by law . all forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . 44 a summary of our significant accounting policies is outlined in note 1 to the financial statements . we consider our critical accounting policies to be those that require us to make significant judgments and estimates when we prepare our financial statements , including the following : revenue recognition : on january 1 , 2018 , we adopted , using the modified retrospective approach , asu 2014-09 and asu 2016-08 , “ revenue from contracts with customers ( topic 606 ) ” and “ revenue from contracts with customers : principal versus agent considerations ( reporting revenue gross versus net ) ” , respectively , which provides guidance for revenue recognition . the standard 's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . the most significant change from the adoption of the new standard relates to our estimation for the allowance for doubtful accounts . under the previous standards , our estimate for amounts not expected to be collected based upon our historical experience , were reflected as provision for doubtful accounts , included within net revenue . under the new standard , our estimate for amounts not expected to be collected based on historical experience will continue to be recognized as a reduction to net revenue , however , not reflected separately as provision for doubtful accounts . under the new standard , subsequent changes in estimate of collectability due to a change in the financial status of a payer , for example a bankruptcy , will be recognized as bad debt expense in operating charges . the adoption of this asu in 2018 , and amounts recognized as bad debt expense and included in other operating expenses , did not have a material impact on our consolidated financial statements . see note 10 to the consolidated financial statements-revenue recognition , for additional disclosure related to our revenues including a disaggregation of our consolidated net revenues by major source for each of the periods presented herein . we report net patient service revenue at the estimated net realizable amounts from patients and third-party payers and others for services rendered . we have agreements with third-party payers that provide for payments to us at amounts different from our established rates . payment arrangements include prospectively determined rates per discharge , reimbursed costs , discounted charges and per diem payments . estimates of contractual allowances , which represent explicit price concessions under asc 606 , under managed care plans are based upon the payment terms specified in the related contractual agreements . we closely monitor our historical collection rates , as well as changes in applicable laws , rules and regulations and contract terms , to assure that provisions are made using the most accurate information available . however , due to the complexities involved in these estimations , actual payments from payers may be different from the amounts we estimate and record . we estimate our medicare and medicaid revenues using the latest available financial information , patient utilization data , government provided data and in accordance with applicable medicare and medicaid payment rules and regulations . the laws and regulations governing the medicare and medicaid programs are extremely complex and subject to interpretation and as a result , there is at least a reasonable possibility that recorded estimates will change by material amounts in the near term . certain types of payments by the medicare program and state medicaid programs ( e.g .
| ( d. ) on november 26 , 2018 we redeemed the $ 300 million aggregate principal , 3.75 % senior notes due 2019. the 2019 notes were redeemed for an aggregate price equal to 100.485 % of the principal amount ( premium of approximately $ 1 million ) plus accrued interest to the redemption date . ( e. ) in june , 2016 , we completed the offering of an additional $ 400 million aggregate principal amount of 4.75 % senior notes due in 2022 ( issued at a yield of 4.35 % ) , the terms of which were identical to the terms of our $ 300 million aggregate 70 principal amount of 4.75 % senior notes due in 2022 , issued in august , 2014. these senior notes , combined , are referred to as $ 700 million , 4.75 % senior notes due in 2022 . ( f. ) in june , 2016 , we completed the offering of $ 400 million aggregate principal amount of 5.00 % senior notes due in 2026 . ( g. ) in april , 2018 , we amended our accounts receivable securitization program , which was scheduled to expire in december , 2018. pursuant to the amendment , the term has been extended through april 26 , 2021 , and the borrowing limit has been increased to $ 450 million from $ 440 million ( $ 390 million outstanding as of december 31 , 2018 ) . interest expense increased $ 10 million during 2018 to $ 155 million as compared to $ 145 million during 2017. the increase was due primarily to : ( i ) a net increase of $ 23 million in aggregate interest expense on our revolving credit , demand notes , senior notes , term loan a and b facilities and accounts receivable securitization program resulting from an increase in our aggregate average cost of borrowings pursuant to these facilities ( 3.8 % during 2018 , as compared to 3.2 % during 2017 ) , partially offset by a decrease in the aggregate average outstanding borrowings ( $ 4.00 billion during 2018 as compared to $ 4.02 billion during 2017 ) , partially offset by ; ( ii ) a $ 9 million decrease in the interest rate swap expense ; ( iii ) a $ 3 million
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net ( gain ) loss on sales/write-downs of foreclosed real estate and repossessed assets improved by $ 0.8 million in 2014 compared to 2013 due to improved asset values . the fdic insurance assessment was reduced by $ 0.7 million in 2014 compared to 2013 due to the improvement in the company and release from regulatory agreements . loan servicing and collection expenses declined by $ 0.6 million in 2014 compared to 2013 as the volume of loans in collection and foreclosure declined . salaries and benefits were $ 0.6 million lower in 2014 compared to 2013 mostly due to severance and commissions paid in 2013 when the roseville office was closed . partially offsetting these declined expenses were increased costs associated with professional services of $ 0.3 million mostly from increased legal and consulting expenses . stock option expense also increased by $ 0.2 million as more options were granted in 2014 than in 2013 and the company 's stock price has improved . advertising and marketing increased by $ 0.1 million in 2014 compared to 2013 as the company shifted more resources to business development and customer focused events . 22 index non-interest expenses decreased slightly to $ 22.1 million in 2013 compared to $ 22.2 million for 2012. salaries and benefits increased by $ 1.3 million in 2013 compared to 2012 due to increased staffing in the loan production and credit administration as well as severance paid on the closure of the roseville sba production office in the second quarter 2013. in addition , advertising and marketing expense increased $ 0.1 million for the comparable periods mostly due to increased print media advertising . these increases were mostly offset by decreased losses on sales and write-downs of foreclosed assets of $ 0.8 million , decreased professional services of $ 0.3 million and fdic insurance of $ 0.3 million mostly the result of the decline in problem assets . income taxes the income tax provision for 2014 was $ 4.9 million compared to a benefit of $ 2.8 million in 2013 and no income tax expense in 2012. the effective income tax rate was 41.2 % , ( 45.5 ) % and 0 % , respectively for 2014 , 2013 and 2012. deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax bases including operating losses and tax credit carryforwards . net deferred tax assets are reported in the consolidated balance sheet as a component of total assets . accounting standards codification topic 740 , income taxes , requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “ more likely than not ” standard . a valuation allowance is established for deferred tax assets if , based on weight of available evidence , it is more likely than not that some portion or all of the deferred tax assets may not be realized . management evaluates the company 's deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence , including the company 's historical profitability and projections of future taxable income . the company is required to establish a valuation allowance for deferred tax assets and record a charge to income if management determines , based on available evidence at the time the determination is made , that it is more likely than not that some portion or all of the deferred tax assets may not be realized . there was no valuation allowance on deferred tax assets at december 31 , 2014 and 2013. at december 31 , 2013 , the company reversed $ 2.8 million of valuation allowance on its net deferred tax assets . the company is subject to the provisions of asc 740 , income taxes ( asc 740 ) . asc 740 prescribes a more-likely-than-not threshold for the financial statement recognition of uncertain tax positions . asc 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . on a quarterly basis , the company undergoes a process to evaluate whether income tax accruals are in accordance with asc 740 guidance on uncertain tax positions . additional information regarding income taxes , including a reconciliation of the differences between the recorded income tax provision and the amount of tax computed by applying statutory federal and state income tax rates before income taxes , can be found in note 7 “ income taxes ” to the consolidated financial statements of this annual report on form 10-k beginning on page 80. balance sheet analysis total assets increased $ 18.3 million to $ 557.3 million at december 31 , 2014 compared to $ 539.0 million at december 31 , 2013. the majority of the increase was in total loans of $ 20.9 million , or 4.4 % , to $ 495.1 million . investment securities increased by $ 2.5 million as the company invested excess liquidity . total liabilities increased $ 18.9 million , or 4.0 % to $ 490.3 million at december 31 , 2014 from $ 471.4 million at december 31 , 2013. total deposits increased by $ 41 million to $ 477.1 million at december 31 , 2014 from $ 436.1 million at december 31 , 2013. the majority of this increase was due to deposit growth . story_separator_special_tag non-interest bearing demand deposits increased by $ 4.9 million to $ 57.4 million at december 31 , 2014 from $ 52.5 million at december 31 , 2013. interest bearing demand deposits increased by $ 17.2 million to $ 275.6 million at december 31 , 2014 compared to $ 258.4 million at december 31 , 2013. certificates of deposit increased by $ 19.7 million to $ 128.8 million at december 31 , 2014 compared to $ 109.1 million at december 31 , 2013. partially offsetting these increases was a decrease in savings deposits of $ 0.9 million to $ 15.3 million at december 31 , 2014 compared to $ 16.2 million at december 31 , 2013. other borrowings and convertible debentures decreased by $ 21.4 million in 2014 as the company converted the debentures to equity and repaid the majority of the outstanding fhlb advances . total stockholders ' equity declined slightly to $ 67.0 million at december 31 , 2014 from $ 67.6 million at december 31 , 2013. this decrease was mostly from the redemption of $ 8.6 million of the preferred stock offset by net income for the year of $ 7.0 million . in addition , the company reinstated a quarterly dividend to common stockholders in the third quarter of 2014 . 23 index the following tables present the company 's average balances as of the dates indicated : replace_table_token_11_th 24 index loan portfolio the table below summarizes the distribution of the company 's loans at the year-end : replace_table_token_12_th commercial loans commercial loans consist of term loans and revolving business lines of credit . under the terms of the revolving lines of credit , the company grants a maximum loan amount , which remains available to the business during the loan term . the collateral for these loans typically are secured by uniform commercial code ( “ ucc-1 ” ) lien filings , real estate and personal guarantees . the company does not extend material loans of this type in excess of two years . 25 index commercial real estate commercial real estate and construction loans are primarily made for the purpose of purchasing , improving or constructing , commercial and industrial properties or single-family residences . this loan category also includes sba 504 loans and land loans . commercial and industrial real estate loans are secured by nonresidential property . office buildings or other commercial property primarily secure these types of loans . loan to appraised value ratios on nonresidential real estate loans are generally restricted to 75 % of appraised value of the underlying real property if occupied by the owner or owner 's business ; otherwise , these loans are generally restricted to 70 % of appraised value of the underlying real property . the company makes real estate construction loans on commercial properties and single family dwellings . these loans are collateralized by first and second trust deeds on real property . construction loans are generally written with terms of six to eighteen months and usually do not exceed a loan to appraised value of 80 % . sba 504 loans are made in conjunction with certified development companies . these loans are granted to purchase or construct real estate or acquire machinery and equipment . the loan is structured with a conventional first trust deed provided by a private lender and a second trust deed which is funded through the sale of debentures . the predominant structure is terms of 10 % down payment , 50 % conventional first loan and 40 % debenture . construction loans of this type must provide additional collateral to reduce the loan-to-value to approximately 75 % . conventional and investor loans are sometimes funded by our secondary-market partners and the bank receives a premium for these transactions . sba loans sba loans consist of sba 7 ( a ) and business and industry loans ( “ b & i ” ) . the sba 7 ( a ) loan proceeds are used for working capital , machinery and equipment purchases , land and building purposes , leasehold improvements and debt refinancing . at present , the sba guarantees as much as 85 % on loans up to $ 150,000 and 75 % on loans more than $ 150,000. the sba 's maximum exposure amount is $ 3,750,000. the company may sell a portion of the loans , however , under the sba 7 ( a ) loan program ; the company is required to retain a minimum of 5 % of the principal balance of each loan it sells into the secondary market . b & i loans are guaranteed by the u.s. department of agriculture . the maximum guaranteed amount is 80 % . b & i loans are similar to the sba 7 ( a ) loans but are made to businesses in designated rural areas . these loans can also be sold into the secondary market . agricultural loans for real estate and operating lines the company has an agricultural lending program for agricultural land , agricultural operational lines , and agricultural term loans for crops , equipment and livestock . the primary product is supported by guarantees issued from the u.s. department of agriculture ( “ usda ” ) , farm service agency ( “ fsa ” ) , and the usda business and industry loan program . the fsa loans typically issue a 90 % guarantee up to $ 1,392,000 ( amount adjusted annually based on inflation ) for up to 40 years . cwb is an approved federal agricultural mortgage corporation ( “ farmer mac ” ) lender under the farmer mac i and farmer mac ii programs . under the farmer mac i program , loans are sourced by cwb , underwritten , funded and serviced by farmer mac . cwb receives an origination fee and an ongoing field servicing fee for maintaining the relationship with the borrower and performing certain loan compliance monitoring , and other duties as directed by the central servicer .
| the amount by which interest income will exceed interest expense depends on the volume or balance of earning assets compared to the volume or balance of interest-bearing deposits and liabilities and the interest rate earned on those interest-earning assets compared to the interest rate paid on those interest-bearing liabilities .. net interest margin is computed by dividing net interest income by total average earning assets . it is used to measure the difference between the average rate of interest earned on assets and the average rate of interest that must be paid on liabilities used to fund those assets . to maintain its net interest margin , the company must manage the relationship between interest earned and paid . ( 3 ) net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities . 19 index the table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the company on such assets and liabilities . for purposes of this table , nonaccrual loans have been included in the average loan balances . replace_table_token_7_th ( 1 ) changes due to both volume and rate have been allocated to volume changes . comparison of interest income , interest expense and net interest margin the company 's primary source of revenue is interest income . interest income for the year ended december 31 , 2014 was $ 28.0 million , a slight increase from $ 27.9 million and a decrease from $ 31.4 million , respectively , for the years ended december 31 , 2013 and 2012. the interest income was impacted by decreased yields on earning assets in 2014 which declined to 5.1 % compared to 5.34 % for 2013 and 5.54 % for 2012. an increase in average earning assets to $ 549.1 million for 2014 compared to 2013 helped partially offset the declined yield . the largest decrease was in yields on loans which declined to 5.55 % for 2014 compared to 5.91 % for 2013 and 6.09 % for 2012. strong competition for quality new loans continued in 2014 which resulted in further margin compression . interest expense for the year ended december 31 , 2014 compared to 2013 and 2012 decreased by $
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our growth also reflects the impact of our acquisition of leeyo in may of 2017. total cost of revenue was $ 116.6 million , or 50 % of revenue , in fiscal 2019 compared to $ 79.9 million , or 48 % of revenue , in 2018. during fiscal 2019 , we invested additional resources to support the growth in the number of customers as well as the increase in usage from existing customers . loss from operations was $ 75.8 million , or 32 % of revenue in fiscal 2019 compared to a loss of $ 46.3 million , or 28 % of revenue , in 2018. during fiscal 2019 , we incurred additional costs to grow our business and to support operations as a publicly traded company . key operational and financial metrics we monitor the following key operational and financial metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans and make strategic decisions : replace_table_token_5_th customers with annual contract value ( acv ) equal to or greater than $ 100,000 we believe our ability to enter into larger contracts is indicative of broader adoption of our solution by larger organizations . it also reflects our ability to expand our revenue footprint within our current customer base . we define acv as the subscription revenue we would contractually expect to recognize from that customer over the next twelve months , assuming no increases or reductions in their subscriptions . we define the number of customers at the end of any particular period as the number of parties or organizations that have entered into a distinct subscription contract with us for which the term has not ended . each party with which we have entered into a distinct subscription contract is considered a unique customer , and in some cases , there may be more than one customer within a single organization . we have increased the number of customers with acv equal to or greater than $ 100,000 to 526 as of january 31 , 2019 , as compared to 415 as of january 31 , 2018 and 292 as of january 31 , 2017 . dollar-based retention rate we believe our dollar-based retention rate is a key measure of our ability to retain and expand revenue from our customer base over time . we calculate our dollar-based retention rate as of a period end by starting with the sum of the acv from all customers as of twelve months prior to such period end , or prior period acv . we then calculate the sum of the acv from these same customers as of the current period end , or current period acv . current period acv includes any upsells and also reflects contraction or attrition over the trailing twelve months , but excludes revenue from new customers added in the current period . we then divide the current period acv by the prior period acv to arrive at our dollar-based retention rate . our dollar-based retention rate increased to 112 % as of january 31 , 2019 , as compared to 110 % as of january 31 , 2018 and 104 % as of january 31 , 2017 . components of our results of operations revenue 41 subscription revenue . subscription revenue consists of fees for access to , and use of , our products , as well as customer support . we generate subscription fees pursuant to non-cancelable subscription agreements with terms that typically range from one to three years . subscription revenue is primarily based on fees to access our services platform over the subscription term . we typically invoice customers in advance in either annual or quarterly installments . customers can also elect to purchase additional volume blocks or products during the term of the contract . we typically recognize subscription revenue ratably over the term of the subscription period , beginning on the date that access to our platform is provided , which is generally on or about the date the subscription agreement is signed . professional services revenue . professional services revenue consists of fees for services related to helping our customers deploy , configure , and optimize the use of our solutions . these services include system integration , data migration , process enhancement , and training . professional services projects generally take three to twelve months to complete . once the contract is signed , we generally invoice for professional services on a time and materials basis , although we occasionally engage in fixed-price service engagements and invoice for those based upon agreed milestone payments . we recognize revenue as services are performed for time and materials engagements and on a proportional performance method as the services are performed for fixed fee engagements . impact of asc 606 adoption . in may 2014 , the fasb issued asc 606 , and has since modified the standard . this standard replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements . this new revenue standard became effective for public companies for the fiscal year beginning after december 15 , 2017 , and interim periods within that year . private companies have an additional year to adopt the standard . the two permitted transition methods under the new standard are the full retrospective method , under which asc 606 is applied to each prior reporting period presented and the cumulative effect of applying the standard is recognized at the earliest period shown , or the modified retrospective method , under which the cumulative effect of applying asc 606 is recognized at the date of initial application . we adopted the requirements of asc 606 , effective february 1 , 2019 , using the full retrospective transition method . the adoption of the new standard is expected to have an impact on revenue and commissions expense for all periods presented . story_separator_special_tag the primary impacts on revenue are an increased number of allocations of arrangement consideration between subscription and professional services and the recognition of discounts evenly across the term for multiple year subscription arrangements . both of these impacts are primarily due to the elimination of the contingent revenue rule . we also expect an impact due to a change in the recognition of legacy on-premise term deals inherited during our acquisition of leeyo software , inc. , which will require more revenue being recognized at the beginning of the license term as opposed to evenly over the term . in addition to impacting the way that the company recognizes revenue , the new standard will also impact the accounting for incremental commission costs of obtaining subscription contracts . under the new standard , the company will defer all incremental commission costs to obtain the contract . the company expects to amortize these costs on a straight-line basis over the period of economic benefit which has been determined to be five years . deferred revenue deferred revenue consists of customer billings in advance of revenue being recognized from our subscription and support services and professional services arrangements . we primarily invoice our customers for subscription services arrangements annually or quarterly in advance . amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue , current portion , and the remaining portion is recorded as deferred revenue , net of current portion in our consolidated balance sheets . overhead allocation and employee compensation costs we allocate shared costs , such as facilities costs ( including rent , utilities , and depreciation on capital expenditures related to facilities shared by multiple departments ) , information technology costs , and certain administrative personnel costs to all departments based on headcount and location . as such , allocated shared costs are reflected in each cost of revenue and operating expenses category . employee compensation costs consist of salaries , bonuses , commissions , benefits , and stock-based compensation . cost of revenue , gross profit and gross margin cost of subscription revenue . cost of subscription revenue consists primarily of costs related to hosting our platform and providing customer support . these costs include data center costs and third-party hosting fees , employee compensation costs associated with our cloud-based infrastructure and our customer support organizations , amortization expense associated with capitalized internal-use software and purchased technology , allocated overhead , software and maintenance costs , and outside services associated with the delivery of our subscription services . we intend to continue to invest in our platform infrastructure , 42 including third-party hosting capacity , and support organizations . however , the level and timing of investment in these areas could fluctuate and affect our cost of subscription revenue in the future . cost of professional services revenue . cost of professional services revenue consists primarily of costs related to the deployment of our platform . these costs include employee compensation costs for our professional services team , allocated overhead , travel costs , and costs of outside services associated with supplementing our internal staff . cost of providing professional services , excluding stock-based compensation , has historically been similar to the associated professional services revenue , and we expect this to continue for the foreseeable future . gross profit and gross margin . our gross profit and gross margin may fluctuate from period to period as our revenue fluctuates , and as a result of the timing and amount of investments to expand hosting capacity , including through third party cloud providers , our continued efforts to build platform support and professional services teams , as well as the amortization expense associated with capitalized internal-use software and acquired technology . operating expenses research and development . research and development expense consists primarily of employee compensation costs , allocated overhead , and travel costs . we capitalize research and development costs associated with the development of internal-use software and we amortize these costs over a period of approximately two to three years into cost of subscription revenue . all other research and development costs are expensed as incurred . we believe that continued investment in our platform is important for our growth , and as such , expect our research and development expense to continue to increase in absolute dollars for the foreseeable future but may increase or decrease as a percentage of revenue . sales and marketing . sales and marketing expense consists primarily of employee compensation costs , including commissions for our sales personnel , allocated overhead , costs of general marketing and promotional activities , and travel costs . we currently expense sales commissions in the period of sale . effective february 1 , 2019 under asc 606 , commissions will be amortized in sales and marketing expense over the period of benefit , which is expected to be five years . while our sales and marketing expense as a percentage of total revenue has decreased in recent periods , we expect to continue to make significant investments as we expand our customer acquisition and retention efforts . therefore , we expect that sales and marketing expense will increase in absolute dollars but may vary as a percentage of total revenue for the foreseeable future . general and administrative . general and administrative expense consists primarily of employee compensation costs , allocated overhead , and travel costs for finance , accounting , legal , human resources , and recruiting personnel . in addition , general and administrative expense includes non-personnel costs , such as accounting fees , legal fees , charitable contributions and all other supporting corporate expenses not allocated to other departments . we incurred additional costs as a result of operating as a public company in fiscal 2019 , including costs related to compliance and reporting obligations of public companies , and increased costs for insurance , investor relations , and professional services .
| cost of professional services revenue increased by $ 24.8 million , or 51 % , for fiscal 2019 compared to fiscal 2018 , primarily due to an increase of $ 16.6 million in employee compensation costs related to increased headcount , $ 4.4 million in allocated overhead including facilities expansions , $ 1.7 million in professional services , $ 1.7 million in travel costs , and $ 0.3 million in software license costs . our gross margin for subscription services improved to 75 % for fiscal 2019 from 74 % for fiscal 2018 as a result of the impact of purchase accounting from the acquisition of leeyo that resulted in higher subscription revenue recognition relative to costs for fiscal 2019 as compared to fiscal 2018 . our gross margin for professional services decreased to ( 11 ) % for fiscal 2019 compared to ( 3 ) % for fiscal 2018 , primarily from the increase in deployment capacity . some of this incremental investment in headcount was not fully utilized during fiscal 2019 due to ramp-up time for new hires , and is expected to be realized in future periods . operating expenses research and development replace_table_token_11_th research and development expense increased by $ 15.8 million , or 41 % , for fiscal 2019 compared to fiscal 2018 , primarily due to an increase of $ 12.0 million in employee compensation costs due to increased headcount , $ 2.3 million in allocated overhead including facilities expansions , $ 0.8 million in professional services , $ 0.7 million in travel costs , $ 0.6 million in data center costs , and $ 0.4 million in software license costs , partially offset by a decrease of $ 1.1 million in costs related to higher capitalized internal-use software costs . the increase in headcount was driven by our continued investment in technology , innovation , and new products . sales and marketing 46 replace_table_token_12_th sales and marketing expense increased by
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the credit loss component is recognized in earnings and is the difference between the investment 's amortized cost basis and the present value of its expected future cash flows . the remaining difference between the investment 's fair value and the present value of future expected cash flows is recognized in other comprehensive income . equity investments : some of the factors considered in evaluating whether a decline in fair value for an equity investment is other-than-temporary include : ( 1 ) our ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value ; ( 2 ) the recoverability of cost ; ( 3 ) the length of time and extent to which the fair value has been less than cost ; and ( 4 ) the financial condition and near-term and long-term prospects for the issuer , including the relevant industry conditions and trends , and implications of rating agency actions and offering prices . when it is determined that an equity investment is other-than-temporarily impaired , the security is written down to fair value , and the amount of the impairment is included in earnings as a realized investment loss . the fair value then becomes the new cost basis of the investment , and any subsequent recoveries in fair value are recognized at disposition . we recognize a realized loss when impairment is deemed to be other-than-temporary even if a decision to sell an equity investment has not been made . when we decide to sell a temporarily impaired available-for-sale equity investment and we do not expect the fair value of the equity investment to fully recover prior to the expected time of sale , the investment is deemed to be other-than-temporarily impaired in the period in which the decision to sell is made . fair values of financial instruments . accounting standards codification ( “ asc ” ) 820 defines fair value , establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements . asc 820 , among other things , requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . in addition , asc 820 precludes the use of block discounts when measuring the fair value of instruments traded in an active market , which were previously applied to large holdings of publicly traded equity securities . 40 we determine the fair value of our financial instruments based on the fair value hierarchy established in asc 820. in accordance with asc 820 , we utilize the following fair value hierarchy : · level 1 : quoted prices in active markets for identical assets ; · level 2 : inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , inputs of identical assets for less active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the instrument ; and · level 3 : inputs to the valuation methodology that are unobservable for the asset or liability . this hierarchy requires the use of observable market data when available . under asc 820 , we determine fair value based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date . it is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements , in accordance with the fair value hierarchy described above . fair value measurements for assets and liabilities where there exists limited or no observable market data are calculated based upon our pricing policy , the economic and competitive environment , the characteristics of the asset or liability and other factors as appropriate . these estimated fair values may not be realized upon actual sale or immediate settlement of the asset or liability . where quoted prices are available on active exchanges for identical instruments , investment securities are classified within level 1 of the valuation hierarchy . level 1 investment securities include common stock and preferred stock . level 2 investment securities include corporate bonds , collateralized corporate bank loans , municipal bonds , u.s. treasury securities , other obligations of the u.s. government and mortgage-backed securities for which quoted prices are not available on active exchanges for identical instruments . we use a third party pricing service to determine fair values for each level 2 investment security in all asset classes . since quoted prices in active markets for identical assets are not available , these prices are determined using observable market information such as quotes from less active markets and or quoted prices of securities with similar characteristics , among other things . we have reviewed the processes used by the pricing service and have determined that they result in fair values consistent with the requirements of asc 820 for level 2 investment securities . we have not adjusted any prices received from third-party pricing sources . in cases where there is limited activity or less transparency around inputs to the valuation , investment securities are classified within level 3 of the valuation hierarchy . level 3 investments are valued based on the best available data in order to approximate fair value . this data may be internally developed and consider risk premiums that a market participant would require . investment securities classified within level 3 include other less liquid investment securities . deferred policy acquisition costs . policy acquisition costs ( mainly commission , underwriting and marketing expenses ) that vary with and are primarily related to the successful acquisition of new and renewal insurance contracts are deferred and charged to operations over periods in which the related premiums are earned . ceding commissions from reinsurers , which include expense allowances , are deferred and recognized over the period premiums are earned for the underlying policies reinsured . story_separator_special_tag the method followed in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value . a premium deficiency exists if the sum of expected claim costs and claim adjustment expenses , unamortized acquisition costs , and maintenance costs exceeds related unearned premiums and expected investment income on those unearned premiums , as computed on a product line basis . we routinely evaluate the realizability of deferred policy acquisition costs . at december 31 , 2015 and 2014 , there was no premium deficiency related to deferred policy acquisition costs . goodwill . goodwill is tested for impairment at the reporting unit level ( operating segment or one level below an operating segment ) on an annual basis ( october 1 ) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . for purposes of evaluating goodwill for impairment , we have determined that our reporting units are the same as our operating units except for the specialty commercial operating unit for which reporting units are at the component level ( “ one level below ” ) . our consolidated balance sheet as of december 31 , 2015 includes goodwill of acquired businesses of $ 44.7 million that is assigned to our operating units as follows : standard commercial p & c operating unit - $ 2.1 million ; mga commercial products operating unit - $ 19.8 million ; specialty commercial operating unit- $ 17.4 million ( comprised of $ 7.7 million for the primary/excess & umbrella component and $ 9.7 million for the general aviation and satellite component ) ; and specialty personal lines operating unit - $ 5.4 million . this amount has been recorded as a result of prior business acquisitions accounted for under the acquisition method of accounting . under asc 350 , “ intangibles- goodwill and other , ” goodwill is tested for impairment annually . we completed our last annual test for impairment on the first day of the fourth quarter of 2015 and determined that there was no impairment . 41 a significant amount of judgment is required in performing goodwill impairment tests . such tests include estimating the fair value of our reporting units . as required by asc 350 , we compare the estimated fair value of each reporting unit with its carrying amount , including goodwill . under asc 350 , fair value refers to the amount for which the entire reporting unit may be bought or sold . the determination of fair value was based on an income approach utilizing discounted cash flows . the valuation methodology utilized is subject to key judgments and assumptions . estimates of fair value are inherently uncertain and represent management 's reasonable expectation regarding future developments . these estimates and the judgments and assumptions upon which the estimates are based will , in all likelihood , differ in some respects from actual future results . declines in estimated fair value could result in goodwill impairments in future periods which could materially adversely affect our results of operations or financial position . the income approach to determining fair value computed the projections of the cash flows that the reporting unit is expected to generate converted into a present value equivalent through discounting . significant assumptions in the income approach model include income projections , discount rates and terminal growth values . the income projections reflect an improved premium rate environment across most of our lines of business that continued throughout 2015. the income projections also include loss and lae assumptions which reflect recent historical claim trends and the movement towards a more favorable pricing environment . the income projections also include assumptions for expense growth and investment yields which are based on business plans for each of our operating units . the discount rate was based on a risk free rate plus a beta adjusted equity risk premium and specific company risk premium . the assumptions were based on historical experience , expectations of future performance , expected market conditions and other factors requiring judgment and estimates . while we believe the assumptions used in these models were reasonable , the inherent uncertainty in predicting future performance and market conditions may change over time and influence the outcome of future testing . the fair values of each of our operating units were in excess of their respective carrying values , including goodwill , as a result of our annual test for impairment during the fourth quarter 2015. however , a 8 % decline in the fair value of our standard commercial p & c operating unit , a 9 % decline in the fair value of our mga commercial products operating unit , a 15 % decline in the fair value of our specialty personal lines operating unit , a 57 % decline in the fair value of our excess & umbrella component or a 20 % decline in the fair value of our general aviation and satellite component would have caused the carrying value of the respective reporting unit to be in excess of its fair value , resulting in the need to perform the second step of impairment testing prescribed by asc 350 , which could have resulted in an impairment to our goodwill . the market capitalization of hallmark 's common stock has been below book value during 2015. we consider our market capitalization in assessing the reasonableness of the fair values estimated for our operating units in connection with our goodwill impairment testing . we believe the current financial market conditions , as well as the limited daily trading volume of hallmark shares has resulted in a decrease in our market capitalization that is not representative of a long-term decrease in value . the valuation analysis discussed above supports our view that goodwill was not impaired at october 1 , 2015. through december 31 , 2015 , there were no indicators of impairment .
| 44 we reported net income of $ 21.9 million for the year ended december 31 , 2015 , as compared to net income of $ 13.4 million for the year ended december 31 , 2014. on a diluted per share basis , net income was $ 1.13 per share for fiscal 2015 as compared to net income of $ 0.69 per share for fiscal 2014. segment information the following is additional business segment information for the years ended december 31 , 2015 and 2014 ( in thousands ) : replace_table_token_14_th 1 the net loss ratio is calculated as incurred losses and lae divided by net premiums earned , each determined in accordance with gaap . the net expense ratio is calculated as total underwriting expenses offset by agency fee income divided by net premiums earned , each determined in accordance with gaap . net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio . standard commercial segment . gross premiums written for the standard commercial segment were $ 81.9 million for the year ended december 31 , 2015 , which was $ 2.8 million , or 3 % , less than the $ 84.7 million reported for the same period in 2014. the decrease in gross premium was primarily due to lower premium production in our workers compensation operating unit due to a renewal rights agreement which ceded 100 % of the unearned premium effective july 1 , 2015. net premiums written were $ 71.1 million for the year ended december 31 , 2015 as compared to $ 76.9 million reported for the same period in 2014. the lower net premiums were primarily due to the workers compensation renewal rights agreement . 45 total revenue for the standard commercial segment of $ 76.9 million for the year ended december 31 , 2015 was $ 4.6 million less than the $ 81.5 million reported during the year ended december 31 , 2014. this 6 % decrease in total revenue was mostly due to a $ 5.7 million decrease in net premiums earned as a result of the workers compensation renewal
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in march 2019 , we executed purchase and sale agreements with amazon for two of our national landing development sites , metropolitan park and pen place , which will serve as the initial phase of construction associated with amazon 's new headquarters at national landing . in january 2020 , we sold metropolitan park to amazon for $ 155.0 million and began constructing two new office buildings thereon , totaling 2.1 million square feet , inclusive of over 50,000 square feet of street-level retail with new shops and restaurants . the sale of pen place to amazon for approximately $ 149.9 million is expected to close , subject to customary closing conditions , in 2021. we are the developer , property manager and retail leasing agent for amazon 's new headquarters at national landing . outlook on march 11 , 2020 , the world health organization declared the outbreak of covid-19 a global pandemic and recommended containment and mitigation measures worldwide . on march 13 , 2020 , a national emergency was declared in the united states in response to covid-19 . the efforts made by federal , state and local governments to mitigate the spread of covid-19 included orders requiring the temporary closure of or imposed limitations on the operations of certain non-essential businesses , which have adversely affected many tenants , especially tenants in the retail industry . while it is difficult to determine the long-term impact of covid-19 on our business , it has adversely impacted our operations in 2020 , and we expect it to continue to negatively impact our operations in 2021. the key areas that have been , and likely will continue to be , negatively impacted include : ● significantly decreased retail revenue from rent deferral accommodations offered to certain tenants unable to pay rent while stores are closed or not operating at full capacity , resulting in increased credit losses and write-offs against both billed and deferred ( straight-line ) rent receivables , as discussed below ; ● an increase in multifamily rental defaults as certain tenants fail to pay their rent ; ● a decline in parking revenue as employees of office tenants work from home and transient parking declines ( for the year ended december 31 , 2020 , parking revenue declined by $ 10.1 million , or 31.7 % , compared to 2019 ) ; ● depressed near-term leasing activity in our commercial and multifamily portfolios , including delays in the lease-up of our recently delivered multifamily assets , resulting in higher concessions and lower rents in our multifamily assets ; ● distress among co-working tenants , which comprised approximately 2.2 % of our total square feet on a consolidated basis and 3.0 % at our share as of december 31 , 2020 and the failure on their part to pay rent ; ● increased covid-19-related cleaning costs at some of our commercial and multifamily assets , partially offset by an overall decrease in operating expenses in our commercial buildings as many tenants ' employees work from home ; ● decreased income from the crystal city marriott hotel in national landing due to its temporary closure and lower occupancy . the hotel closed in late-march 2020 and reopened in mid-june 2020. noi from this asset decreased $ 3.8 million for the year ended december 31 , 2020 compared to 2019 ; and ● increased interest expense from borrowings to provide additional liquidity and financial flexibility . while we are always focused on the long term , we are providing the following data to provide additional information regarding the impact of the pandemic on rent collections for the three months ended december 31 , 2020. we make no assurances that our experience to date will be indicative of future performance . in the future , we plan to return to providing only our customary metrics , and we undertake no obligation to continue to provide such information going forward . ● rent collections for our commercial office tenants were 98.5 % ( 1 ) on a consolidated basis and 98.6 % at our share ( 2019 annual average rate was 99.7 % ) ; ● rent collections for our multifamily tenants were 98.6 % on a consolidated basis and 98.7 % at our share ( 2019 annual average rate was 99.9 % ) ; and 44 ● rent collections for our commercial retail tenants were 74.3 % ( 1 ) on a consolidated basis and 72.6 % at our share ( 2019 annual average rate was 98.4 % ) . ( 1 ) excludes $ 546,000 of deferred and abated rents , consisting of $ 100,000 for commercial office tenants and $ 452,000 for retail tenants . including these deferred and abated rents , our rent collections for the fourth quarter of 2020 on a consolidated basis would have been 98.4 % for commercial office tenants and 70.2 % for retail tenants . our rent collections for january 2021 kept pace with our fourth quarter of 2020 rent collections . during the year ended december 31 , 2020 , we recorded $ 11.2 million of credit losses against billed rent receivables and $ 19.6 million against deferred ( straight-line ) rent receivables . these losses are due to the effects of covid-19 , primarily on co-working and retail tenants , that are unable to pay rent while businesses are closed , not operating at full capacity or while employees continue to work from home . during 2020 , we recorded $ 8.2 million of income associated with certain lease guarantees . additionally , during the second quarter of 2020 , we determined that our investment in the unconsolidated real estate venture that owns the marriott wardman park hotel was impaired due to a decline in the fair value of the underlying asset and recorded an impairment loss of $ 6.5 million . on october 1 , 2020 , we transferred our interest in this venture to our former venture partner . story_separator_special_tag during 2020 , we put all co-working tenants and all retailers except for grocers , pharmacies , essential businesses and certain national credit tenants on the cash basis of accounting . although we are experiencing supply chain and labor delays as a result of new job site procedures due to the effects of covid-19 , as of december 31 , 2020 , all of our construction projects are active and on schedule with the exception of 7900 wisconsin avenue , for which we revised the delivery date earlier this year to the first quarter of 2021 , a delay of two quarters from the originally estimated completion date . we are not aware of any material impact on the construction timeline for amazon 's new headquarters . we obtained entitlements associated with approximately 820,000 square feet in national landing immediately prior to virginia 's stay-at-home order in march 2020. these entitlements added approximately 65,000 square feet of potential development density to our future development pipeline . we anticipate covid-19 will significantly impact the real estate industry for years to come . over the short term , uncertainty surrounding the pandemic has and will likely continue to suppress net new demand for office space and bias multifamily leasing to renewals . retail failures are likely to accelerate , and an already competitive marketplace will favor tenants for years to come . over the longer term , however , the story is likely to be more nuanced . we believe the maturation of teleworking and the continuing trend to workplace flexibility are here to stay and will likely be felt through an increase in office workers served per square foot of space . we believe this will be a headwind for office rent growth , much as densification served as a headwind over the past decade . while the unfolding economic downturn continues to be significant , the washington d.c. metropolitan area has historically proven to be more resilient than other gateway markets . our concentration in this market , where a high percentage of demand for our businesses is driven by the federal government , government contractors and amazon-related activity , should soften the anticipated impact of a recession on our business , and has the potential to translate into countercyclical growth . we expect our heavy concentration in amazon 's path of growth at a time like this to bear fruit on multiple fronts . first and foremost , amazon has historically increased its hiring pace during economic downturns . recent announcements from amazon suggest that it intends to accelerate hiring for its new headquarters in national landing in the years ahead , and that the organization remains fully committed to its planned occupancies in national landing . in addition , especially if the pandemic were to worsen , the potential for construction cost reductions , an expected decline in the supply pipeline and limited disruptions to permitting and construction , should facilitate pursuit of our multifamily growth plans , especially those related to new development in national landing . finally , we expect increased government spending in response to the pandemic to drive more agency and contractor spending locally , which should mitigate the effects of the downturn on our markets and could also provide stimulus for future growth . though we remain cautious on the short-and medium-term outlook for our business , as the impact of covid-19 is difficult to predict , we see the potential for strong demand and growth in our markets over the long term . the significance , extent and duration of the impact of covid-19 on our business remains largely uncertain and dependent on future developments that can not be accurately predicted at this time . these developments include : the continued severity , duration , transmission rate and geographic spread of covid-19 in the united states , the speed of the vaccine roll-out , the effectiveness and willingness of people to take covid-19 vaccines , the duration of associated immunity and 45 their efficacy against emerging variants of covid-19 , the extent and effectiveness of other containment measures taken , and the response of the overall economy , the financial markets and the population , particularly in areas in which we operate , once the current containment measures are lifted , and whether the residential market in the washington , d.c. region and any of our properties will be materially impacted by the moratoriums on residential evictions , among others . these uncertainties make it difficult to predict operating results for our business for 2021. therefore , there can be no assurances that we will not experience material declines in revenue , net income , noi or ffo . for additional information , see `` part ii – item 1a . risk factors '' included elsewhere in this annual report on form 10-k. operating results key highlights of operating results for the year ended december 31 , 2020 included : ● net loss attributable to common shareholders of $ 62.3 million , or $ 0.49 per diluted common share , for the year ended december 31 , 2020 as compared to net income attributable to common shareholders of $ 65.6 million , or $ 0.48 per diluted common share , for the year ended december 31 , 2019. net income ( loss ) attributable to common shareholders for the years ended december 31 , 2020 and 2019 included gains on the sale of real estate of $ 59.5 million and $ 105.0 million ; ● third-party real estate services revenue , including reimbursements , of $ 113.9 million for the year ended december 31 , 2020 as compared to $ 120.9 million for the year ended december 31 , 2019 ; ● operating commercial portfolio leased and occupied percentages at our share of 88.1 % and 87.7 % as of december 31 , 2020 compared to 91.4 % and 88.2 % as of december 31 , 2019 ; ● operating multifamily portfolio leased and occupied percentages at our share of 86.5 % and 81.1 % as of december 31 , 2020 and 89.5 % and
| property rental revenue , decreased by $ 34.3 million , or 7.0 % , to $ 459.0 million in 2020 from $ 493.3 million in 2019. the decrease was primarily due to a $ 35.1 million decrease related to the disposed properties , a $ 23.7 million decrease from the deferral of rent and the write-off of deferred rent receivable for tenants that were placed on the cash basis of accounting and an increase in uncollectable operating lease receivables attributable to covid-19 , a $ 6.8 million decrease related to 2100 crystal drive , which is currently vacant until amazon takes occupancy of the entire building in 2021 , and a $ 9.1 million decrease in our same-store multifamily assets due to lower occupancy and lower rents attributable to covid-19 . the decrease in property rental revenue was partially offset by a $ 14.4 million increase related to 4747 bethesda avenue and west half , both of which were placed into service during the second half of 2019 , a $ 13.3 million increase related to the commencement of leases with amazon at 1800 south bell street , 241 18th street south and 2200 crystal drive , an $ 8.1 million increase related to f1rst residences , which was acquired in december 2019 and a $ 3.2 million increase at 1901 south bell street due to higher tenant reimbursements for construction services . third-party real estate services revenue , including reimbursements , decreased by $ 6.9 million , or 5.7 % , to $ 113.9 million in 2020 from $ 120.9 million in 2019. the decrease was primarily due to a $ 4.3 million decrease in asset management fees and a $ 2.3 million decrease in property management fees due to the sale of assets within the jbg legacy funds , a $ 4.2 million decrease in development fee income primarily related to the timing of development projects and a $ 1.8 million decrease in leasing fees from lower leasing volume due to the impact of covid-19 . the decrease in third-party real estate services revenue was partially offset by a $ 3.0 million increase in other service revenue , a $ 1.3 million increase in construction management fees and a $ 1.2 million increase in reimbursements revenue . depreciation and amortization expense increased by $ 30.2 million , or 15.8 % , to $ 221.8 million in 2020 from $ 191.6 million in 2019. the increase was primarily due to an $ 18.6 million increase related to 4747 bethesda avenue , west half , the wren and 901 w street , which were placed into service in the second half of 2019 and during 2020 ,
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on january 25 , 2013 , we agreed with the state of arkansas to receive a grant of up to $ 1.75 million to relocate our corporate headquarters to conway , ar . in accepting the grant , we agreed to have at least 50 full-time equivalent , permanent positions in arkansas within four years , and maintain that personnel level for another six years at a total average compensation of $ 90,000 per year . if we fail to meet the requirements of the grant after the initial four year period , we may be required to repay a portion of the grant , up to but not to exceed the full amount of the grant . based on our hiring and financial forecasts , we believe we will meet all grant requirements . as of december 31 , 2013 , we had 32 employees located in arkansas . in conjunction with the relocation to arkansas , we exited our clearwater , fl office lease , found a subtenant for our office in new york city and completed the relocation of our new york city data centers to a single location in arkansas . as a result , our compensation and selling , general and administrative expenses together are now less than $ 3 million per quarter . 15 nyse mkt our common stock is listed on the nyse mkt , llc ( the `` exchange '' ) . in november 2012 we were notified by the exchange that we were out of compliance with certain aspects of their listing requirements ; specifically , due to losses from continuing operations and or net losses in our five most recent fiscal years , the exchange 's minimum requirement for continued listing is stockholders ' equity of not less than $ 6,000,000 . we were afforded the opportunity to submit a plan of compliance to the exchange by december 31 , 2012 to demonstrate our ability to regain compliance with their listing standards . we submitted our plan and were notified on february 15 , 2013 that it was accepted . we are able to continue our listing during the plan period , which the exchange recently extended to april 24 , 2014 , though subject to periodic review to determine whether we are making progress consistent with the plan . for the year ended december 31 , 2013 , net income was $ 477,216 . we believe reporting a net income for the most recent fiscal year changes the exchange 's minimum requirement for continued listing to stockholders ' equity of not less than $ 4,000,000. as of december 31 , 2013 , stockholder 's equity was $ 5,341,866 . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with u.s. generally accepted accounting practices ( “ gaap ” ) . the preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . we evaluate estimates , including those related to our allowance for doubtful accounts receivable , goodwill and amortizable intangibles , stock-based compensation and income taxes , on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies , among others , involve more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition - we recognize revenue in accordance with accounting standards codification ( “ asc ” ) 605-10 revenue recognition-general . we recognize revenue when the following criteria have been met : persuasive evidence of an arrangement exists , the fees are fixed and determinable , no significant obligations remain and collection of the related receivable is reasonably assured . most of our revenue is generated through clicks on advertisements presented on our properties or those of our partners . we recognize revenue from clicks in the period in which the click occurs . payments to partners who display advertisements on our behalf are recognized as cost of revenue . revenue from data sales and commissions is recognized in the period in which the transaction occurs and the other revenue recognition criteria are met . accounts receivable and allowance for doubtful accounts - we record our accounts receivable based upon the invoiced amount and they are considered past due when full payment is not received by the specified credit terms . we evaluate the collectability of our accounts receivable and establish an allowance for doubtful accounts based upon those estimates . the allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . goodwill - goodwill is recorded as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired . we test goodwill for impairment at the reporting unit level on an annual basis as of december 31 of each year or more frequently if we believe indicators of impairment exist . under asc 350 , companies may elect to 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 . story_separator_special_tag if it is determined that it is not more likely than not that the fair value is less than its carrying value then there is no impairment . otherwise , the test progresses to a two-step process . the first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying value , including goodwill . if the carrying amount of a reporting unit exceeds the reporting unit 's fair value , we perform the second step of the goodwill impairment test to determine the amount of impairment loss . the second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit 's goodwill with the carrying value of that goodwill . companies may omit the qualitative assessment and proceed directly to the two-step testing process at their discretion . during 2013 and 2012 , we elected to proceed directly to the two-step testing process . we determined there was no impairment of goodwill during 2013 and 2012 . 16 see note 5 , intangible assets and goodwill , for more information . intangible assets - we allocate a portion of the purchase price of acquisitions to identifiable intangible assets and we amortize definite-lived assets over their estimated useful lives . we consider our indefinite-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . as a result of our acquisition of vertro in march 2012 , we recognized an asset for the customer relationship with google of $ 8,820,000 and assigned it a useful life of 20 years . a primary reason for acquiring vertro was its relationship with google . up to the time of the acquisition , we principally had access to the yahoo ! inventory of advertisements . among the many valuable assets acquired in the vertro transaction was this google relationship and the access it provided to an enormous inventory of advertisements . in addition , we acquired the alot brand , whose products are monetized through google and has historically produced a better margin than monetization through yahoo ! . in determining the useful life of this asset , we considered the strategic importance of vertro 's strong relationship with google . vertro and its predecessor company had contracts and successful renewals with google that date back to 2006. the most recent renewal was february 1 , 2013 , a year after the acquisition of vertro . we expect the relationship with google to continue through the 20 year amortization period and beyond . at the time of the vertro acquisition , we engaged a third party valuation service to determine the fair value of the acquired assets . at the close of the 2013 and 2012 , we again engaged a third party valuation service to reassess the fair value of the acquired assets . from time to time , both search marketplaces , google and yahoo ! , may implement policy or marketplace changes . in january 2013 google requested changes to our agreement that impacted marketing programs for one of our alot products , the appbar , the result of which was a decline in the number of product installs . since acquiring the alot brand in the vertro acquisition , we have materially expanded the brand into a number of additional owned and operated websites and applications . we expect products within the brand to ebb and flow as customer preferences change and google adjusts its marketplace policies . at the close of 2013 , we considered the google change and its effect on the recoverability of the acquired intangible asset . we determined that the asset continued to be recoverable despite the short-term impact to the appbar product . we made this determination in part because of the recent success of other alot-branded and google monetized products and because of the marketing improvements associated with the original changes . between websites and applications , we have launched more than 20 new alot-branded products in 2013 and we expect to continue aggressively building out our owned and operated network segment into the future . we recorded no impairment of intangible assets during 2013 or 2012 . see note 5 , intangible assets and goodwill , for more information . income taxes - we utilize the liability method of accounting for income taxes as set forth in asc 740 , income taxes . under the liability method , deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities . a valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized . in assessing the need for a valuation allowance , we must project future levels of taxable income , which requires significant judgment . we examine evidence related to the history of taxable losses or income , the economic conditions in which we operate , organizational characteristics , our forecasts and projections , as well as factors affecting liquidity . we believe it is more likely than not that none of our deferred tax assets will be realized , and we have recorded a full valuation for the net deferred tax assets as of december 31 , 2013 and 2012 . we have adopted certain provisions of asc 740. this statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company 's financial statements . asc 740 prescribes a recognition threshold of more likely than not , and a measurement attribute for all tax positions taken or expected to be taken on a tax return , in order to be recognized in the financial statements .
| we expect appbar revenue to decline and website revenue to increase throughout 2014. we launched four new sites in 2013 : alot home , alot health , alot finance and alot careers . these websites are content-rich and optimized for mobile and desktop devices , and are designed to capitalize on growing consumer demand for content , delivered both on the desktop and on mobile devices . we intend to continue to expand our owned and operated network by launching more websites and mobile applications under the alot brand . in 2012 , owned and operated revenue includes ten months of revenue from the appbar product . 18 cost of revenue replace_table_token_3_th cost of revenue in the partner network is generated by payments to website publishers who host our advertisements . the increase in cost of revenue is directly associated with higher revenue in this segment and was partially offset by a decline in costs of name lists , which we previously bought to resell to advertisers . effective may 1 , 2013 , we no longer acquire names lists . the decrease in cost of revenue in the owned and operated network was driven by our decision to reduce the level of spend for bundled downloads of the appbar . the spend in 2012 was primarily for bundled downloads of the appbar , a marketing program , which was discontinued in 2013. other cost of revenue in this segment consists of charges for web searches and cash back to our bargainmatch application users . operating expenses replace_table_token_4_th operating expenses declined as compared to the prior year as a result of lower investment in marketing costs for the appbar and expense savings resulting from the move to arkansas . marketing costs include those expenses required to attract traffic to our owned and operated websites and to effect appbar downloads . marketing costs decreased in 2013 due to our decision to reduce
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as our solutions have expanded , our go to market model has also evolved , with a balanced mix between direct , distribution , and oem customers , and an increasing number of enterprise level customer relationships . critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with u.s. generally accepted accounting principles ( gaap ) requires us to make judgments , assumptions , and estimates that affect the reported amounts of assets , liabilities , revenue , costs of sales , operating expenses , and related disclosures . we consider the accounting polices described below to be our critical accounting policies . these critical accounting policies are impacted significantly by judgments , assumptions , and estimates used in the preparation of the consolidated financial statements , and actual results could differ materially from the amounts reported based on these policies . our accounting policies are more fully described in note 2 of our accompanying notes to consolidated financial statements included in part ii , item 8 , `` financial statements and supplementary data '' of this annual report on form 10-k. revenue recognition we adopted the requirements of the new revenue recognition standard starting in the first quarter of fiscal 2018 , utilizing the full retrospective method of transition . revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products or services . revenue is generally recognized net of allowance for returns and any taxes collected from customers . we enter into contracts that can include various combinations of products and services , which are generally capable of being distinct and accounted for as separate performance obligations ; however , determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment . judgment is required to determine stand alone selling price ( `` ssp '' ) for each distinct performance obligation . we use a range of amounts to estimate ssp when products and services are sold separately and determine whether there is a discount to be allocated based on the relative ssp of the various products and services . in instances where ssp is not directly observable , we determine ssp using information that may include market conditions and other observable inputs . income taxes we are a u.s. based multinational company operating in multiple u.s. and foreign jurisdictions . significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes . we consider many factors when evaluating and estimating our tax positions and tax benefits , which may require periodic adjustments and may not accurately forecast actual tax audit outcomes . determining whether an uncertain tax position is effectively settled requires judgment . changes in recognition or measurement of our uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision . income taxes are accounted for under the liability method , whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income . a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if we believe it is more likely than not such assets will not be realized . we are subject to the periodic examination of our domestic and foreign tax returns by the irs , state , local , and foreign tax authorities who may challenge our tax positions . we regularly assess the likelihood of adverse outcomes from these examinations in determining the adequacy of our provision for income taxes . 30 business combinations and valuation of goodwill and purchased intangible assets we allocate the fair value of purchase consideration to the assets acquired , liabilities assumed , and non-controlling interests in the acquiree based on their fair values as of the acquisition date . the excess of the fair value of purchase consideration over the fair value of these assets acquired , liabilities assumed , and non-controlling interests in the acquiree is recorded as goodwill . when determining the fair values of assets acquired , liabilities assumed , and non-controlling interests in the acquiree , management makes significant estimates and assumptions , especially with respect to intangible assets . critical estimates in valuing intangible assets include , but are not limited to , expected future cash flows , which includes consideration of future growth rates and margins , customer attrition rates , future changes in technology and brand awareness , loyalty and position , and discount rates . fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability . identifiable intangible assets are comprised of distribution channels and distribution rights , patents , licenses , technology , acquired backlog , trademarks , and in-process research and development . amounts recorded in a business combination may change during the measurement period , which is a period not to exceed one year from the date of acquisition , as additional information about conditions existing at the acquisition date becomes available . we evaluate goodwill on an annual basis and whenever events and changes in circumstances indicate that the carrying amount may not be recoverable . the annual goodwill impairment test is performed at the reporting unit level on the first day of the fourth fiscal quarter of each year . we utilize either a qualitative assessment or a quantitative test to determine if it is more likely than not that the fair value of each reporting unit is less than its carrying amount . in performing the qualitative assessment , we consider events and circumstances , including but not limited to , macroeconomic conditions , industry and market considerations , cost factors , and overall financial performance . story_separator_special_tag when we perform a quantitative test , the estimation of the fair value of a reporting unit involves the use of certain estimates and assumptions including expected future operating performance using risk-adjusted discount rates . identifiable intangible assets are being amortized over the period of estimated benefit using the straight-line method . changes in circumstances such as technological advances , changes to its business model , or changes in the capital strategy could result in the actual useful lives of intangible assets differing from initial estimates . if we determine that the useful life of an asset should be revised , the net book value in excess of the estimated residual value is depreciated over its revised remaining useful life . these assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable based on their future cash flows . the estimated future cash flows are primarily based upon assumptions about expected future operating performance . the assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities . if the sum of the estimated undiscounted cash flows is less than the carrying value of the assets , the assets are written down to the estimated fair value . inventory valuation our inventories are stated at the lower of cost or net realizable value . adjustments are also made to reduce the cost of inventory for estimated excess or obsolete balances . factors influencing these adjustments include declines in demand which impact inventory purchasing forecasts , technological changes , product life cycle and development plans , component cost trends , product pricing , physical deterioration and quality issues . if our estimates used to reserve for excess and obsolete inventory are different from what we expected , we may be required to recognize additional reserves , which would negatively impact our gross margin . 31 story_separator_special_tag for fiscal 2017 . the increase in operating income was attributable to segment revenue and gross margin expansion and operating expense control , partially offset by higher amortization of purchased intangible assets , acquisition costs associated with the viewpoint and e-builder acquisitions and expense related to the acceleration of e-builder employee stock options in the first quarter . operating income increased by $ 55.3 million for fiscal 2017 as compared to fiscal 2016 . operating income as a percentage of total revenue for fiscal 2017 was 8.9 % as compared to 7.6 % for fiscal 2016 . the increases in operating income and operating income percentage were attributable to revenue expansion and strong operating control in buildings and infrastructure , and to a lesser extent transportation , resources and utilities , and geospatial . operating income was partially offset by higher corporate expense . 33 research and development , sales and marketing , and general and administrative expenses the following table shows research and development ( “ r & d ” ) , sales and marketing , and general and administrative ( “ g & a ” ) expenses in absolute dollars and as a percentage of total revenue for fiscal years 2018 , 2017 , and 2016 and should be read in conjunction with the narrative descriptions of those operating expenses below . replace_table_token_3_th * see note 2 of the notes to the consolidated financial statements . overall , r & d , sales and marketing , and g & a expenses increased by approximately $ 203.7 million in fiscal 2018 compared to fiscal 2017 . research and development expense increased by $ 75.9 million , or 21 % , in fiscal 2018 , as compared to fiscal 2017 . overall , research and development spending was 14 % of revenue in both fiscal 2018 and 2017 . as compared to the prior year , the increase in fiscal 2018 was primarily due to the impact of acquisitions , primarily viewpoint and e-builder , not applicable in the prior corresponding periods , and to a lesser extent , an increase in compensation expense associated with increased headcount , particularly in transportation . research and development expense increased by $ 20.6 million , or 6 % , in fiscal 2017 , as compared to fiscal 2016 . overall , research and development spending was 14 % of revenue in fiscal 2017 compared to 15 % in fiscal 2016 . as compared to the prior year , the increase in fiscal 2017 research and development expense was primarily due to an increase in compensation expense associated with increased headcount , particularly in resources and utilities , and to a lesser extent , expense increase from fiscal 2017 business acquisitions , primarily müller expenses not applicable in the prior corresponding periods . we believe that the development and introduction of new products are critical to our future success and we expect to continue active development of new products . sales and marketing expense increased by $ 79.7 million , or 20 % , in fiscal 2018 , as compared to fiscal 2017 . overall , spending for sales and marketing was 15 % of revenue in both fiscal 2018 and 2017 . as compared to the prior year , the increase in fiscal 2018 was primarily due to the impact of acquisitions , primarily viewpoint and e-builder , not applicable in the prior corresponding periods , and to a lesser extent , increased sales compensation expense . sales and marketing expense increased by $ 25.4 million , or 7 % , in fiscal 2017 , as compared to fiscal 2016 . overall , spending for sales and marketing was 15 % of revenue in fiscal 2017 compared to 16 % in fiscal 2016 . as compared to the prior year , the increase in fiscal 2017 was primarily due to an increase in compensation expense , and to a lesser extent , expense from fiscal 2017 business acquisitions , not applicable in the prior corresponding periods . general and administrative expense increased by $ 48.1
| resources and utilities revenue increased primarily due to continued organic growth in agriculture markets , as well as the impact of the müller-elektronik ( `` müller '' ) acquisition , geospatial revenue increased mainly due to surveying organic growth , and transportation revenue increased due to increased organic subscription growth from new and existing transportation and logistics customers and to a lesser extent , product sales . by revenue category , overall product revenue increased $ 236.1 million , or 13 % , service revenue increased $ 113.3 million , or 24 % , and subscription revenue increased $ 112.5 million , or 28 % . product revenue increased primarily due to organic growth in buildings and infrastructure due to building construction and civil engineering and construction product sales , in geospatial due to surveying product sales , and in resources and utilities due to agriculture product sales . transportation contributed to a lesser extent . service and subscription revenue increases were primarily due to growth in buildings and infrastructure , including the impact of the viewpoint and e-builder acquisitions , and to a lesser extent , transportation , and resources and utilities . in fiscal 2017 , total revenue increased by $ 284.4 million , or 12 % , to $ 2.65 billion from $ 2.36 billion in fiscal 2016 . overall revenue increased primarily due to organic growth across all segments and major regions . to a lesser extent , acquisitions contributed to growth , particularly in product and service revenue . on a segment basis , the increase in fiscal 2017 was primarily due to transportation , buildings and infrastructure , resources and utilities , and to a lesser extent , geospatial . transportation increased $ 90.3 million or 15 % , buildings and infrastructure revenue increased $ 87.7 million , or 12 % , resources and utilities revenue increased $ 83.8 million , or 21 % , and geospatial revenue increased $ 22.8 million , or 4 % , as compared to fiscal 2017. transportation revenue increased due to continued organic growth in the transportation and logistics business . buildings and infrastructure revenue increased primarily due to strong organic growth in 32 civil engineering and construction and building construction . resources and utilities
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loss on demolition of factory on september 21 , 2018 , the company received a closing notice from the people 's government of yangkou town , shouguang city informing it to close its three bromine factories ( number 3 , number 4 , and number 11. ) . the crude salt fields surrounding these factories have been reclaimed as cultivated or construction land and hence did not meet the requirement for bromine and crude salt co-production set by the relevant authority . in closing these factories , the company wrote off net book value of these factories ' property , plant and equipment in the amount of $ 18,644,473 recorded in the loss on demolition of factory in the consolidated statements of loss for the fiscal year 2018. goodwill impairment loss as of december 31 , 2018 , the company performed the qualitative assessment and determined that it is more likely than not that the fair value of its chemical segment is less than its carrying amount due to the uncertainty in the timing of receipt of the final approval of the design of the new factory , the uncertainty in the forecast of demand for chemical products which may be affected by china 's environmental protection policies and the time that the segment may need to build up the customer base to a level similar to the past . considering these factors , the company determined the fair value of its chemical segment based on the discounted cash flow model is less than the carrying amount of its chemical segment to the extent of the entire goodwill and recorded an impairment charge of $ 27,966,050 in the year ended december 31 , 2018. general and administrative expenses . general and administrative expenses were $ 11,268,800 for the fiscal year 2018 , an increase of $ 2,732,043 ( or 32 % ) as compared to $ 8,536,757 for the same period in 2017. the increase was primarily due to ( i ) the increased property tax and land use right tax in the amount of $ 2,973,257 due to the increased tax rate by the government ( ii ) incurred repair and maintenance expenses in the amount of $ 2,590,003 for the damage by flood from a typhoon during the fiscal year 2018.this was offset by the unrealized exchange gain in relation to the translation difference of inter-company balances in usd and rmb for the fiscal year 2018 in the amount of $ 1,315,454 , as compared to the unrealized exchange loss for the same period in 2017 in the amount of $ 1,557,759. other operating income ( loss ) . other operating loss was $ 407,973 for the fiscal year 2018 for the write-off of some of prepaid land leases for the closed factories and raw material lost as a result of the damage from the flooding and the cost of demolition of the factory during fiscal year 2018 , compared to other operating income of $ 281,613 for the fiscal year 2017 for sales of wastewater . 26 income ( loss ) from operations . loss from operations was $ 83,552,531 for the fiscal year 2018 , compared to an income of $ 11,171,611 in the same period in 2017. replace_table_token_12_th bromine segment loss from operations from our bromine segment was $ 40,504,752 for the fiscal year 2018 , compared to an income of $ 12,460,230 in the same period in 2017. this decrease is due to the closure of all of our plants and factories to perform rectification and improvements since september 1 , 2017 . 27 crude salt segment loss from operations from our crude salt segment was $ 8,336,305 for the fiscal year 2018 , compared to income of $ 2,426,137 in the same period in 2017. this decrease is due to the closure of all of our plant and factories to perform rectification and improvement since september 1 , 2017. chemical products segment loss from operations from our chemical products segment was $ 34,757,750 for the fiscal year 2018 , compared to a loss of $ 1,024,569 in the same period in 2017. this decrease was attributable to the closure of our chemical factories since september 1 , 2017. we are setting up a new factory in the bohai park . as a result , there were limited chemical products and limited raw materials for sale for the fiscal year 2018. other income , net . other income , net , which represent bank interest income , net of capital lease interest expense was $ 500,690 for the fiscal year 2018 , an increase of $ 108,848 ( or approximately 28 % ) as compared to the same period in 2017. net income ( loss ) . net loss was $ 69,963,986 for the fiscal year 2018 , compared to net income of $ 7,953,313 in the same period in 2017. this decrease was attributable to the closure of all of our plants and factories to perform rectification and improvement since september 1 , 2017 , there are no bromine and limited crude salt and limited chemical products in inventory , and limited raw materials for selling for the fiscal year 2018. effective tax rate . our effective tax rates for the fiscal years 2018 and 2017 were 16 % and 31 % , respectively . the effective tax rate for the fiscal year 2018 was 9 % lower than the prc statutory income tax rate of 25 % , mainly due to non-deductible expense . the effective tax rate of 31 % for the fiscal year 2017 differs from the prc statutory income tax rate of 25 % mainly due to non-deductible item in connection with the unrealized exchange loss . liquidity and capital resources as of december 31 , 2018 , cash and cash equivalents were $ 178,998,935 as compared to $ 208,906,759 as of december 31 , 2017. the components of this decrease of $ 29,907,824 are reflected below . story_separator_special_tag replace_table_token_13_th for the fiscal years 2018 and 2017 , we met our working capital and capital investment requirements mainly by using cash flows from operations and cash on hand . net cash provided by operating activities during the years ended december 31 , 2018 and 2017 , we had positive cash flow from operating activities of approximately $ 17.3 million and $ 62.8 million respectively . 28 during the year ended december 31 , 2018 , cash flow from operating activities of approximately $ 17.3 million was more than our net loss of approximately $ 70.0 million mainly due to ( i ) cash used in working capital of approximately $ 30.8 million , which mainly consisted of the decrease in accounts receivable and decrease in inventories , which offset by decrease in retention payable ; and ( ii ) substantial non-cash charges of approximately $ 56.5 million , mainly in the form of depreciation and amortization of property , plant and equipment and goodwill impairment loss and loss on demolition of factory , which was offset by increased deferred tax assets . during the year ended december 31 , 2017 , cash flow from operating activities of approximately $ 62.8 million exceeded our net income of approximately $ 2.6 million due to non-cash charges in the amount of approximately $ 36.7 million , mainly in the form of depreciation and amortization of property , plant and equipment , property , plant and equipment impairment and exchange loss on intercompany balances ; and cash used in working capital of approximately $ 23.5 million , which mainly consisted of a decrease in accounts receivable and inventories and increase in taxes payable and partially offset by the increase in prepayment and deposit and decrease in accounts payable and accrued expenses . accounts receivable cash collections on our accounts receivable had a major impact on our overall liquidity . the following table presents the aging analysis of our accounts receivable as of december 31 , 2018 and 2017. replace_table_token_14_th there were no accounts receivable as of december 31 , 2018. inventory our inventory consists of the following : replace_table_token_15_th 29 the net inventory levels as of december 31 , 2018 decreased by $ 1,196,785 ( or 100 % ) , as compared to the net inventory levels as of december 31 , 2017. there were no production in the year ended december 31 , 2018 and all inventories carried forward from december 31 , 2017 were sold in the year except for $ 0.07 million of crude salt in which an allowance for obsolescence was recorded . net cash used in investing activities in the fiscal year 2018 , we used approximately $ 0.7 million cash for the prepayment of land leases . we also used approximately $ 35.3 million to perform the rectification and improvements of our bromine and crude salt factories , built new extraction wells and the relocation of our chemical factories for the fiscal year 2018. in the fiscal year 2017 , we used approximately $ 10.5 million cash for the prepayment of land leases . in the same period , we also used approximately $ 17.9 million cash to carry out enhancement projects to our crude salt fields and enhancement for meet the government 's safety and environmental standards . the above investing activities were financed by the opening cash balances as of december 31 , 2017. net cash used in financing activities we repaid approximately $ 0.3 million cash for our capital lease obligation for the fiscal year 2018 and 2017 . 30 we had available cash of approximately $ 179.0 million at december 31 , 2018 , most of which is in highly liquid current deposits which earn no or little interest . we intend to retain the cash for the relocation of our chemical factories ( see note 1 ( b ) in the notes to the consolidated financial statements ) , which we expect to incur additional capital expenditure of approximately $ 50 million , future expansion of our bromine and crude salt businesses through acquisition , build new extraction wells to our existing bromine and crude salt business , which we expect to incur capital expenditure of approximately $ 28 million , and further development of the new resources in sichuan province . we do not anticipate paying cash dividends in the foreseeable future . we believe that there is enough funds to cover the rectification and improvement , the setting up of the new chemical factory and the operating expense of the company during the rectification and relocation period . we believe that we have sufficient cash to meet our obligations and anticipated ongoing operating needs as they fall due in the next twelve months . in the future we intend to focus our efforts on the activities of schc , syci and dchc as these segments continue to expand within the chinese market . we may not be able to identify , successfully integrate or profitably manage any businesses or business segment we may acquire , or any expansion of our business . an expansion may involve a number of risks , including possible adverse effects on our operating results , diversion of management 's attention , inability to retain key personnel , risks associated with unanticipated events and the consolidated financial statement effect of potential impairment of acquired intangible assets , any of which could have a materially adverse effect on our condition and results of operations . in addition , if competition for acquisition candidates or operations were to increase , the cost of acquiring businesses could increase materially . we may effect an acquisition with a target business which may be financially unstable , under-managed , or in its early stages of development or growth . our inability to implement and manage our expansion strategy successfully may have a material adverse effect on our business and future prospects .
| from $ 56,311,460 for the fiscal year 2017 to $ 613,368 for the same period in 2018 , a decrease of approximately 99 % . this decrease was attributable to the closure of our chemical factories since september 1 , 2017. we are setting up a new factory in the bohai park . as a result there were limited chemical products for sale for the fiscal year 2018 and no chemical product in inventory at the end of december 31 , 2018. net revenue from our pesticides manufacturing additives decreased from $ 6,953,930 for the fiscal year 2017 to $ 98,200 for the same period in 2018 , a decrease of approximately 99 % . net revenue from our byproducts decreased from $ 9,307,756 for the fiscal year 2017 to $ 154,666 for the same period in 2018 , a decrease of approximately 98 % . since we are not allowed to engage in any production activities until the new factory is built , we sold our raw materials in the amount of $ 360,502 for the fiscal year 2018. cost of net revenue replace_table_token_9_th 23 cost of net revenue reflects mainly the raw materials consumed and the direct salaries and benefits of staff engaged in the production process , electricity , depreciation and amortization of manufacturing plant and machinery and other manufacturing costs . our cost of net revenue was $ 1,310,272 for the fiscal year 2018 , a decrease of $ 61,846,818 ( or 98 % ) as compared to the same period in 2017. bromine production capacity and utilization of our factories the table below represents the annual capacity and utilization ratios for all of our bromine producing properties : replace_table_token_10_th ( i ) utilization ratio is calculated based on the actual production volume in tonnes for the year divided by the annual production capacity in tonnes . our annual production capacity decreased 11,302 in tonnes
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if foreign currency exchange rates on january 28 , 2015 remained constant throughout 2015 , the company estimates the adverse impact to its expected motorcycle segment revenue from currency exchange in 2015 would be approximately 3.25 % . although the company has a significant portion of its 2015 foreign currency exposure hedged at favorable rates , it expects that about half of the unfavorable revenue impact would translate into lower gross profit . the company 's 2015 pension expense will increase as a result of a lower discount rate and changes in mortality assumptions . the company believes changes in product mix will adversely impact gross profit as street continues to increase as a percent of total shipments . the company expects selling , administrative and engineering expenses to increase in 2015 as it continues to invest in future growth opportunities , but will decrease as a percent of revenue as the company leverages its current spending . the company expects operating income for the financial services segment to be down modestly in 2015 as compared to 2014. going forward , the company continues to expect pressure on financial services operating income as a result of higher credit losses , and tightening net interest margins due to increasing competition and higher borrowing costs . the company 's capital expenditure estimates for 2015 are between $ 240 million and $ 260 million . the company anticipates it will have the ability to fund all capital expenditures in 2015 with cash flows generated by operations . the company also announced on january 29 , 2015 that it expects the full year 2015 effective income tax rate to be approximately 35.5 % , which does not include the u.s. federal research and development tax credits as it expired at the end of 2014. this guidance excludes the effect of any potential future adjustments such as changes in tax legislation or audit settlements which are recorded as discrete items in the period in which they are settled . 25 results of operations 2014 compared to 2013 consolidated results replace_table_token_9_th consolidated operating income was up 11.0 % in 2014 led by an increase in operating income from the motorcycles segment which improved by $ 132.5 million compared to 2013 . operating income for the financial services segment decreased by $ 5.3 million during 2014 as compared to 2013 . please refer to the “ motorcycles and related products segment ” and “ financial services segment ” discussions following for a more detailed discussion of the factors affecting operating income . interest expense was lower in 2014 compared to 2013 due to the retirement of $ 303 million of senior unsecured long-term debt in february 2014. the effective income tax rate for 2014 was 34.2 % compared to 34.1 % for 2013 . the company 's 2014 and 2013 effective tax rate included u.s. federal research and development tax credits that were reinstated by the american taxpayer relief act . the effective tax rate for 2013 also included the full-impact of the 2012 u.s. federal research and development tax credit due to the timing of the enactment of the american taxpayer relief act . diluted earnings per share were $ 3.88 in 2014 , up 18.3 % over 2013 . the increase in diluted earnings per share was driven primarily by the 15.1 % increase in net income , but also benefited from lower diluted weighted average shares outstanding . diluted weighted average shares outstanding decreased from 224.1 million in 2013 to 217.7 million in 2014 driven by the company 's repurchases of common stock . please refer to `` liquidity and capital resources '' for additional information concerning the company 's share repurchase activity . motorcycle retail sales and registration data worldwide independent dealer retail sales of harley-davidson motorcycles increased 2.7 % during 2014 compared to 2013 . retail sales of harley-davidson motorcycles increased 1.3 % in the united states and 5.4 % internationally in 2014 . the company believes u.s. retail sales for 2014 benefited from strong sales of rushmore and street motorcycles that were partially offset by adverse impacts that resulted from the absence of road glide motorcycles for most of the year and very difficult weather conditions in the first half of the year . international retail sales growth during 2014 in the asia pacific region , latin america region and emea region was partially offset by a decline in canada . retail sales in the asia pacific region were driven by growth in emerging markets , especially india and china . the retail sales growth in the latin america region was driven by mexico . the emea region retail sales growth was driven by growth in nearly all countries throughout the region . international retail sales as a percent of total retail sales in 2014 were 36.2 % of total retail sales compared to 35.3 % in 2013 . the company is encouraged by the 2014 performance of retail sales in international markets , but remains concerned with ongoing economic challenges in several markets . going forward , the company will continue to focus on factors it can control which include building its brand experience across the world and expanding its distribution network in emerging markets . 26 harley-davidson motorcycle retail sales ( a ) the following table includes retail unit sales of harley-davidson motorcycles : replace_table_token_10_th ( a ) data source for retail sales figures shown above is new sales warranty and registration information provided by harley-davidson dealers and compiled by the company . the company must rely on information that its dealers supply concerning retail sales and this information is subject to revision . ( b ) data for europe include austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland and the united kingdom . motorcycle registration data - 601+cc ( a ) the following table includes industry retail motorcycle registration data : replace_table_token_11_th ( a ) data includes on-road 601+cc models . story_separator_special_tag on-road 601+cc models include on-highway and dual purpose models and three-wheeled vehicles . ( b ) united states industry data is derived from information provided by motorcycle industry council ( mic ) . this third party data is subject to revision and update . prior periods have been adjusted to include all dual purpose models that were previously excluded . ( c ) europe data includes austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland , and the united kingdom . industry retail motorcycle registration data includes 601+cc models derived from information provided by association des constructeurs europeens de motocycles ( acem ) , an independent agency . this third-party data is subject to revision and update . 27 motorcycles and related products segment motorcycle unit shipments the following table includes wholesale motorcycle unit shipments for the motorcycles segment : replace_table_token_12_th ( a ) custom motorcycle units , as used in this table , include dyna ® , softail ® , v-rod ® and cvo models . ( b ) initial shipments of street motorcycle units began during the first quarter of 2014. during 2014 , wholesale shipments of harley-davidson motorcycles were up 3.9 % compared to the prior year and within the company 's most recent expected shipment range of 270,000 to 275,000 motorcycles . international shipments as a percentage of the total were down slightly in 2014 as compared to 2013. the company remains committed to investing in international growth and continues to believe that international retail sales will grow at a faster rate than the rate of growth of domestic retail sales ( 1 ) . in addition , shipments of touring motorcycles and sportster ® / street motorcycles as a percentage of total shipments increased in 2014 compared to the prior year while shipments of custom motorcycles as a percentage of total shipments declined . the company believes the increase in touring motorcycle shipments , as a percentage of total shipments , was driven by continued demand for model-year 2014 rushmore motorcycles and demand for model-year 2015 rushmore motorcycles . also , the shipment mix of sportster ® / street increased as a result of street shipments which began in 2014 and totaled approximately 9,900 motorcycles . the company believes the shipment mix of sportster ® / street will be higher in 2015 as a result of increased street shipments ( 1 ) . as expected , retail inventory in the u.s. at the end of 2014 was approximately 2,900 units higher than at the end of 2013 largely due to the initial dealer fill of street models for retail . the company believes the u.s. year-end 2014 dealer retail inventory level was appropriate going into 2015 ( 1 ) . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > data for europe include austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland and the united kingdom . motorcycle registration data - 601+cc ( a ) the following table includes industry retail motorcycle registration data : replace_table_token_19_th ( a ) data includes on-road 601+cc models . on-road 601+cc models include on-highway and dual purpose models and three-wheeled vehicles . ( b ) united states industry data is derived from information provided by motorcycle industry council ( mic ) . this third party data is subject to revision and update . prior periods have been adjusted to include all dual purpose models that were previously excluded . ( c ) europe data includes austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland , and the united kingdom . industry retail motorcycle registration data includes 601+cc models derived from information provided by association des constructeurs europeens de motocycles ( acem ) , an independent agency . this third-party data is subject to revision and update . 32 motorcycles and related products segment motorcycle unit shipments the following table includes wholesale motorcycle unit shipments for the motorcycles & related products segment : replace_table_token_20_th ( a ) custom motorcycle units , as used in this table , include dyna ® , softail ® , v-rod ® and cvo models . during 2013 , wholesale shipments of harley-davidson motorcycles were up 5.2 % compared to the prior year . international shipments as a percentage of the total were up slightly in 2013 as compared to 2012. in addition , shipments of touring motorcycles and custom motorcycles as a percentage of total shipments increased in 2013 compared to the prior year while shipments of sportster ® motorcycles as a percentage of total shipments declined . the company believes the increase in touring motorcycle shipments , as a percentage of total shipments , was driven by demand for model-year 2014 motorcycles . also , as expected , wholesale motorcycle shipments in the fourth quarter of 2013 were down compared to the fourth quarter of 2012 in advance of the launch of seasonal surge manufacturing at the company 's kansas city facility in early 2014. consequently , retail inventory in the u.s. was approximately 1,850 units lower than at the end of 2012. segment results the following table includes the condensed statement of operations for the motorcycles & related products segment ( in thousands ) : replace_table_token_21_th 33 the following table includes the estimated impact of the significant factors affecting the comparability of net revenue , cost of goods sold and gross profit from 2012 to 2013 ( in millions ) : replace_table_token_22_th the following factors affected the comparability of net revenue , cost of goods sold and gross profit from 2012 to 2013 : volume increases were driven by the increase in wholesale shipments of motorcycle units as well as higher sales volumes for parts & accessories partially offset by lower general merchandise sales volumes .
| for the first quarter of 2015 , the company expects mix to adversely impact margin driven by an expected increase in street motorcycle shipments ( 1 ) . raw material prices were slightly higher in 2014 relative to 2013. manufacturing costs for 2014 benefited from increased year-over-year production , restructuring savings , lower temporary inefficiencies and lower pension costs compared to 2013. the manufacturing cost benefits were partially offset by start-up costs of approximately $ 15.3 million associated with the launch of the street platform of motorcycles . the net increase in operating expense was primarily due to higher selling and administrative expenses and the absence of the restructuring benefit recorded in 2013 , partially offset by lower engineering expense . the higher selling and administrative expenses were primarily due to higher spending in support of the company 's growth initiatives and higher recall costs . in 2013 , the company completed work related to its various restructuring activities that were initiated during 2009 through 2011. for further information regarding the company 's previously announced restructuring activities , refer to note 3 of notes to condensed consolidated financial statements . 29 financial services segment segment results the following table includes the condensed statements of operations for the financial services segment ( in thousands ) : replace_table_token_15_th interest income was favorable due to higher retail and wholesale outstanding finance receivables , partially offset by lower yields primarily on retail finance receivables due to increased competition . other income was favorable primarily due to increased credit card licensing and insurance revenue . interest expense benefited from a more favorable cost of funds and a lower loss on the extinguishment of a portion of the company 's 6.80 % medium-term notes than in 2013 , partially offset by higher average outstanding debt . the provision for credit losses increased $ 20.9 million compared to 2013 primarily due to an increase in the provision for retail credit losses . the retail motorcycle provision increased $ 20.0 million during
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24 research and development net costs ( costs less participation and grants by the ocs and other parties ) , for the year ended june 30 , 2011 increased by 54 % to $ 6,629,000 from $ 4,301,000 for the year ended june 30 , 2010. this increase is mainly due to the increase in our research and development activities during the fiscal year 2011 , and more specifically is attributed to the increase in our stock-based compensation expenses and our salaries and lab materials expenses including hiring 11 new employees since june 2010. this increase is partially offset by a grant from the u.s. government , which was received and recorded in the third quarter of fiscal year 2011 , in the amount of $ 244,000. story_separator_special_tag the aggregate cash consideration received for exercise of warrants was $ 545,000. the balance of such amount , i.e. , $ 87,000 was received from the exercise of options for cash . our cash and cash equivalents as of june 30 , 2011 amounted to $ 42,829,000. this is an increase of $ 41,246,000 from the $ 1,583,000 reported as of june 30 , 2010. cash balances increased in the year ended june 30 , 2011 for the reasons presented below : operating activities used cash of $ 5,755,000 in the year ended june 30 , 2011. cash used by operating activities in the year ended june 30 , 2011 primarily consisted of payments of salaries to our employees , and payments of fees to our consultants , subcontractors and professional services providers including costs of the clinical studies , less research and development grants by the ocs and other parties . investing activities used cash of $ 36,000 in the year ended june 30 , 2011. the investing activities consisted primarily of repayments of short-term deposits , offset by investments in equipment for our r & d facilities and construction of a new research lab . financing activities generated cash in the amount of $ 47,037,000 during the year ended june 30 , 2011. substantially all of such amount is attributable to offerings we closed in october 2010 and february 2011 and exercise of warrants , as follows . on october 18 , 2010 , we closed an offering pursuant to which we sold 4,375,000 shares of our common stock at a price of $ 1.20 per share and warrants to purchase 2,625,000 shares of common stock , at an exercise price per share of $ 1.80. no separate consideration was paid for the warrants . the warrants have a term of four years and are exercisable starting six months following the issuance thereof . the aggregate net proceeds from the sale of the shares and the warrants were approximately $ 5,006,000. on february 1 , 2011 , we closed a firm commitment underwritten public offering of 11,000,000 units , with each unit consisting of one share of our common stock and one warrant to purchase 0.4 shares of common stock , at a purchase price of $ 3.25 per unit . the warrants sold in the offering are exercisable for a period of five years commencing six months following issuance , at an exercise price of $ 4.20 per share . also , on february 1 , 2011 we closed the exercise by the underwriters of their full overallotment option to purchase an additional 1,650,000 shares of common stock and warrants to purchase 660,000 shares of common stock . the aggregate net proceeds to us were approximately $ 38 million . 26 during january-june 2011 , a total of 769,391 warrants were exercised via a `` cashless '' manner , resulting in the issuance of 362,746 shares of common stock to our investors . in addition 2,079,968 warrants were exercised for cash and resulted in the issuance of 2,079,968 shares of common stock by our investors . the aggregate cash consideration received was $ 3,593,000. during the years that ended june 30 , 2012 , 2011 and 2010 we received approximately $ 3,156,000 , $ 2,177,000 and $ 1,492,000 , respectively , from the ocs towards our research and development expenses . such grants are subject to payment of royalties to the ocs , which are limited to repayment the grant amount received plus interest . in addition , the ocs limits our ability to transfer know-how developed with ocs support outside of israel , regardless of whether the royalties were fully paid . in addition , during fiscal year 2011 we received a grant from the u.s. government , in the amount of $ 244,000. we adhere to an investment policy set by our investment committee which aims to preserve our financial assets , maintain adequate liquidity and maximize return . such policy further provides that we should hold the vast majority of our current assets in bank deposits and the remainder of our current assets is to be invested in government bonds and a combination of corporate bonds and relatively low risk stocks . as of today , the currency of our financial portfolio is mainly in u.s. dollars and we use forward and options contracts in order to hedge our exposures to currencies other than the u.s. dollar . outlook we do not expect to generate any revenues from sales of products in the next twelve months . our products will likely not be ready for sale for at least three years , if at all . we expect to generate revenues , which in the short and medium terms will unlikely exceed our costs of operations , from the sale of licenses to use our technology or products , as we have in the united agreement . story_separator_special_tag our management believes that we may need to raise additional funds before we have cash flow from operations that can materially decrease our dependence on our existing cash and other liquidity resources . we are continually looking for sources of funding , including non-diluting sources such as the ocs grants . we have an effective shelf registration statement , which we may use in the future to raise additional funds . we anticipate that our operating expenses will increase significantly during fiscal year 2013. this is mainly attributable to the anticipated phase ii and phase ii/iii clinical trials , continuing the construction of our clinical manufacturing facility and developing capabilities for new clinical indications of plx cells . we expect our general and administrative expenses to continue in fiscal year 2013 at similar levels as they were in fiscal year 2012. the ocs has supported our activity in the past six years . our last program , for the seventh year , was approved by the ocs in april 2012 and is for the period march 2012 until december 2012. in addition the european authorities approved a research grant under the european commission 's seventh framework program ( fp7 ) in the amount of approximately $ 134,000 for a period of 5 years which began on january 1 , 2011. we believe that we have sufficient cash to fund our operations for at least the next 12 months . application of critical accounting policies our significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing in this annual report on form 10-k. we believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations . the discussion and analysis of our financial condition and results of operations is based on our financial statements , which we prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . 27 revenue recognition from the license agreement with united therapeutics we recognize revenue pursuant to the united agreement in accordance with asc 605-25 , `` revenue recognition , multiple-element arrangements '' . revenues from the non-refundable upfront license fee of $ 5,000,000 are recognized on a straight line basis over the estimated development period , resulting in revenues of $ 716,000 for the year ended june 30 , 2012 , in accordance with sab104 . the development period for the united project is estimated using the current project progress and future expected timeline of clinical trials in pah . we also received a refundable , advance payment on the development , of $ 2,000,000 that is deductible against development expenses as it accrued in accordance with asc 730-20. during the year ended june 30 , 2012 , we deducted an amount of approximately $ 424,000. stock-based compensation stock-based compensation is considered critical accounting policy due to the significant expenses of restricted stock units which were granted to our employees , directors and consultants . in fiscal year 2012 we recorded stock-based compensation expenses related to restricted stock units in the amount of $ 4,871,000. in accordance with asc 718 , restricted shares units to employees and directors are measured at their fair value on the grant date . all restricted shares units granted in 2012 and 2011 were granted for no consideration ; therefore their fair value was equal to the share price at the date of grant , based on the close trading price of our shares known at the grant date . the restricted shares units to non-employees consultants are remeasured in any future vesting period for the unvested portion of the grants . the value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in our consolidated statements of operations . we have graded vesting based on the accelerated method over the requisite service period of each of the awards . the expected pre-vesting forfeiture rate affects the number of the shares . based on our historical experience , the pre-vesting forfeiture rate per grant is 5 % for the shares granted to employees and 0 % for the shares granted to our directors , officers and non-employees consultants . marketable securities marketable securities consist of corporate bonds , government bonds and stocks . we determine the appropriate classification of marketable securities at the time of purchase and re-evaluate such designation at each balance sheet date . in accordance with fasb asc no . 320 , `` investment debt and equity securities , '' we classify marketable securities as available-for-sale . available-for-sale securities are stated at fair value , with unrealized gains and losses reported in accumulated other comprehensive income ( loss ) , a separate component of stockholders ' equity . realized gains and losses on sales of marketable securities , as determined on a specific identification basis , are included in financial income . the amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity , both of which , together with interest , are included in financial income . marketable securities are classified within level 1 or level 2 because marketable securities are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs . 28 we recognize an impairment charge when a decline in the fair value of our investments is below the cost basis and
| , 2011. the net loss per share decreased as a result of the increase in our weighted average number of shares primarily due to the issuance of additional shares pursuant to equity issuances during the year ended june 30 , 2011 that were fully reflected in the fiscal 2012 weighted average as discussed further below . net loss for the year ended june 30 , 2011 was $ 10,848,000 as compared to net loss of $ 7,453,000 for the year ended june 30 , 2010. net loss per share for the year ended june 30 , 2011 was $ 0.35 , as compared to $ 0.44 for the year ended june 30 , 2010. the net loss per share decreased as a result of the increase in our weighted average number of shares due to the issuance of additional shares pursuant to equity issuances since july 1 , 2010 as discussed further below . liquidity and capital resources as of june 30 , 2012 , our total current assets were $ 38,192,000 and our total current liabilities were $ 5,522,000. on june 30 , 2012 , we had a working capital surplus of $ 32,670,000 and an accumulated deficit of $ 65,747,000 . 25 as of june 30 , 2011 , total current assets were $ 43,297,000 and total current liabilities were $ 2,018,000. we finance our operations and plan to continue doing so with issuances of securities , grants from the ocs and other parties and also from licensing our technology . on june 30 , 2011 , we had a working capital surplus of $ 41,279,000 and an accumulated deficit of $ 50,953,000. our cash and cash equivalents as of june 30 , 2012 amounted to $ 9,389,000. this is a decrease of $ 33,440,000 from the $ 42,829,000 reported as of june 30 , 2011. cash balances decreased in the year ended june 30 , 2012 for the reasons
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37 the principal factors that affect the company 's results are : the number and relative mix of franchised hotel rooms in the various hotel lodging price categories ; growth in the number of hotel rooms under franchise ; occupancy and room rates achieved by the hotels under franchise ; the effective royalty rate achieved ; the level of franchise sales and relicensing activity ; and our ability to manage costs . the number of rooms at franchised properties and occupancy and room rates at those properties significantly affect the company 's results because our fees are based upon room revenues at franchised hotels . the key industry standard for measuring hotel-operating performance is revpar , which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized . our variable overhead costs associated with franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises . accordingly , continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results . we are required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide marketing and reservation activities . these expenditures , which include advertising costs and costs to maintain our central reservations system , help to enhance awareness and increase consumer preference for our brands . greater awareness and preference promotes long-term growth in business delivery to our franchisees , which ultimately increases franchise fees earned by the company . our company articulates its mission as a commitment to our franchisees ' profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise . we have developed an operating system dedicated to our franchisees ' success that focuses on delivering guests to our franchised hotels and reducing costs for our hotel owners . we believe that executing our strategic priorities creates value for our shareholders . our company focuses on two key value drivers : profitable growth . our success is dependent on improving the performance of our hotels , increasing our system size by selling additional hotel franchises , effective royalty rate improvement and maintaining a disciplined cost structure . we attempt to improve our franchisees ' revenues and overall profitability by providing a variety of products and services designed to increase business delivery to and or reduce operating and development costs for our franchisees . these products and services include national marketing campaigns , a central reservation system , property and yield management systems , quality assurance standards and qualified vendor relationships . we believe that healthy brands , which deliver a compelling return on investment for franchisees , will enable us to sell additional hotel franchises and raise royalty rates . we have established multiple brands that meet the needs of many types of guests , and can be developed at various price points and applied to both new and existing hotels . this ensures that we have brands suitable for creating growth in a variety of market conditions . improving the performance of the hotels under franchise , growing the system through additional franchise sales and improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth . maximizing financial returns and creating value for shareholders . our capital allocation decisions , including capital structure and uses of capital , are intended to maximize our return on invested capital and create value for our shareholders . we believe our strong and predictable cash flows create a strong financial position that provides us a competitive advantage . currently , our business does not require significant capital to operate and grow . therefore , we can maintain a capital structure that generates high financial returns and use our excess cash flow to increase returns to our shareholders . historically , we have returned value to our shareholders in two primary ways : share repurchases and dividends . in 1998 , we instituted a share repurchase program which has generated substantial value for our shareholders . during the year ended december 31 , 2012 , the company purchased 0.5 million shares of its common stock under the share repurchase program at an average price of $ 37.02 for a total cost of $ 19.9 million . since the program 's inception through december 31 , 2012 , we have repurchased 45.3 million shares ( including 33.0 million prior to the two-for-one stock split effected in october 2005 ) of common stock at a total cost of $ 1.1 billion . considering the effect of the two-for-one stock split , the company has repurchased 78.3 million shares at an average price of $ 13.89 per share . we currently believe that our cash flows from operations will support our ability to complete the current board of directors repurchase authorization of approximately 1.4 million shares remaining as of december 31 , 2012 . upon completion of the current authorization , our board of directors will evaluate the advisability of additional share repurchases . the company currently maintains the payment of a quarterly dividend on its common shares outstanding of $ 0.185 per share , however the declaration of future dividends are subject to the discretion of the board of directors . during the year ended december 31 , 2012 , the company 's board of directors elected to pay the four regular quarterly dividends as well as the regular quarterly dividend initially scheduled to be paid in the first quarter of 2013. as a result , the regular quarterly dividends paid during 2012 reflect five quarterly payments and totaled approximately $ 53.4 million . story_separator_special_tag 38 on july 26 , 2012 , the company 's board of directors declared a special cash dividend in the amount of $ 10.41 per share or approximately $ 600.7 million in the aggregate , which was paid on august 23 , 2012. the special cash dividend was paid with the proceeds from the company 's recent offering of the unsecured senior notes in the principal amount of $ 400 million and our new senior secured credit facility . the company entered into a senior secured credit facility consisting of a $ 200 million revolving credit tranche and a $ 150 million term loan tranche , with a four year term . the company utilized the proceeds from the term loan as well as borrowings under the revolving credit tranche to fund in part the special dividend . as a result of entering into the new senior credit facility , the company 's previous $ 300 million senior unsecured revolving credit facility was terminated . we expect to continue to pay dividends in the future , subject to future business performance , economic conditions , changes in income tax regulations and other factors . based on our present dividend rate and outstanding share count , we expect that aggregate annual regular dividends for 2013 , excluding the first quarter payment which was paid to shareholders in december 2012 , would be approximately $ 32.1 million . our board of directors previously authorized us to enter into programs which permit us to offer investment , financing and guaranty support to qualified franchisees as well as acquire and resell real estate to incent franchise development for certain brands in strategic markets . recent market conditions have resulted in an increase in opportunities to incentivize development under these programs and as a result over the next several years , we expect to deploy capital opportunistically pursuant to these programs to promote growth of our emerging brands . the amount and timing of the investment in these programs will be dependent on market and other conditions . our current expectation is that our annual investment in these programs will range from $ 20 million to $ 40 million . notwithstanding these programs , the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends , subject to business performance , economic conditions , changes in income tax regulations and other factors . we believe these value drivers , when properly implemented , will enhance our profitability , maximize our financial returns and continue to generate value for our shareholders . the ultimate measure of our success will be reflected in the items below . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > calculation of adjusted net income and adjusted diluted eps replace_table_token_18_th the company recorded adjusted net income of $ 123.1 million for the year ended december 31 , 2012 , an $ 8.8 million or 8 % increase from $ 114.3 million for the year ended december 31 , 2011 . the increase in adjusted net income for the year ended december 31 , 2012 is primarily attributable to a $ 19.3 million or 10 % increase in adjusted ebitda and a lower effective income tax rate . adjusted net income was further increased by $ 2.6 million due to a $ 2.0 million appreciation in the fair value of investments held in the company 's non-qualified benefit plans compared to a decline of $ 0.6 million in the fair value of these investments in the prior year . these items were partially offset by a $ 14.3 million increase in interest expense due to the issuance of debt to finance the company 's $ 600.7 million special cash dividend paid on august 23 , 2012. adjusted ebitda increased $ 19.3 million or 10 % as the company 's franchising revenues increased by $ 16.8 million or 6 % and adjusted sg & a expenses declined $ 2.4 million or 2 % . franchising revenues : franchising revenues were $ 302.2 million for the year ended december 31 , 2012 compared to $ 285.4 million for the year ended december 31 , 2011 , a 6 % increase . the increase in franchising revenues is primarily due to a $ 15.4 million or 6 % increase in royalty revenues and a $ 1.4 million or 18 % increase in other revenue . domestic royalty fees for the year ended december 31 , 2012 increased $ 15.5 million to $ 235.7 million from $ 220.3 million in 2011 , an increase of 7 % . the increase in royalties is attributable to a combination of factors including a 6.2 % increase in revpar , a 0.8 % increase in the number of domestic franchised hotel rooms and a 1 basis point increase in the effective royalty rate of the domestic hotel system from 4.32 % to 4.33 % . system-wide revpar increased due to a 200 basis point increase in occupancy rates and a 2.5 % increase in average daily rates . 43 a summary of the company 's domestic franchised hotels operating information for the years ending december 31 , 2012 and 2011 is as follows : replace_table_token_19_th * operating statistics represent hotel operations from december through november and exclude cambria suites . the number of domestic rooms on-line increased to 396,102 rooms as of december 31 , 2012 from 392,826 as of december 31 , 2011 an increase of 3,276 rooms or 0.8 % . the total number of domestic hotels on-line increased by 82 units or 1.6 % to 5,083 as of december 31 , 2012 from 5,001 as of december 31 , 2011 . a summary of the domestic hotels and available rooms at december 31 , 2012 and 2011 by brand is as follows : replace_table_token_20_th domestic hotels open and operating increased by 82 hotels during the year ended december 31 , 2012 compared to an increase of 8 domestic hotels open and operating during the year ended december 31 , 2011 .
| the increase in net income for the year ended december 31 , 2012 is primarily attributable to a $ 21.3 million or 12 % increase in operating income and a lower effective income tax rate than the prior year . net income was further increased by a $ 4.4 million decline in other ( gains ) and losses . the decline in other ( gains ) and losses was due to a $ 2.0 million appreciation in the fair value of investments held in the company 's non-qualified benefit plans compared to a decline of $ 0.6 million in the fair value of these investments in the prior year and a $ 1.8 million loss on assets held for sale incurred in the prior year . these items were partially offset by a $ 14.3 million increase in interest expense resulting from the issuance of debt to finance the company 's $ 600.7 million special dividend paid on august 23 , 2012 and a 39 $ 0.5 million loss on extinguishment of debt incurred as a result of refinancing the company 's $ 300 million revolving credit facility which was scheduled to mature in february 2016. summarized financial results for the years ended december 31 , 2012 and 2011 are as follows : replace_table_token_14_th the company utilizes certain measures such as adjusted net income , adjusted diluted eps , adjusted selling , general and administrative ( “ sg & a ” ) , earnings before interest , taxes and depreciation and amortization ( `` ebitda '' ) , adjusted ebitda and franchising revenues which do not conform to generally accepted accounting principles accepted in the united states ( “ gaap ” ) when analyzing and discussing its results with the investment community . this information should not be considered as an alternative to any measure of performance as promulgated under gaap , such as net income , diluted eps , sg & a , operating income and total revenues . the company 's calculation of these measurements may be different from the
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cost of goods sold replace_table_token_7_th 2017 compared with 2016 costs of goods sold increased in 2017 compared to 2016 by $ 165.1 million , or approximately 15 % , due primarily to higher prices of raw materials ( approximately 14 % ) , particularly benzene and propylene , and a one-time prior year benefit related to the termination of a long-term supply agreement in the three months ended march 31 , 2016 ( approximately 1 % unfavorable ) . gross margin percentage increased by approximately 6 % in 2017 compared to 2016 due primarily to higher sales and production volumes on a year-over-year basis ( approximately 6 % ) offset partially by the termination of a long-term supply agreement in 2016 ( approximately 1 % ) . 2016 compared with 2015 costs of goods sold decreased in 2016 compared to 2015 by $ 95.8 million , or approximately 8 % , due primarily to ( i ) lower prices of raw materials ( approximately 8 % ) , ( ii ) lower costs due to the volume reductions discussed above ( approximately 1 % ) , and ( iii ) the termination of a long-term supply agreement in the first quarter of 2016 ( approximately 1 % ) partially offset by the costs associated with the impact of the unplanned and extended plant turnarounds in the fourth quarter of 2016 ( approximately 1 % ) . prices of raw materials decreased due primarily to cumene ( approximately 4 % ) , sulfur ( approximately 2 % ) and natural gas ( approximately 1 % impact ) . gross margin percentage decreased by approximately 2 % in 2016 compared to 2015 due primarily to ( i ) the net impact of sales pricing over raw material costs ( approximately 2 % unfavorable impact ) and ( ii ) the impact of higher plant costs primarily associated with the unplanned and extended outages in the fourth quarter of 2016 described above ( approximately 1 % ) partially offset from the benefits from the termination of a long-term supply agreement ( approximately 1 % favorable impact ) . selling , general and administrative expenses replace_table_token_8_th selling , general and administrative expenses increased in 2017 compared to 2016 by $ 19.1 million or approximately 35 % due primarily to higher stand-alone costs incurred since the spin-off on october 1 , 2016. these stand-alone costs are related primarily to workforce and other infrastructure including costs for transition services provided by honeywell which were partially offset by the elimination of costs allocated in the prior year to the company from honeywell on the basis of sales . the incremental one-time and ongoing stand-alone costs to operate our business as an independent public company remain in line with the company 's expectations as previously disclosed in our form 10 filed with the sec and are expected to exceed the historical allocations of expenses from honeywell . changes in the selling , general and administrative expenses were not significant when comparing 2016 with 2015 . 31 other non-operating expense ( income ) , net replace_table_token_9_th the increase in other non-operating expense ( income ) , net in 2017 compared to 2016 was due primarily to higher interest expense for the full year in 2017 versus interest expense for only the fourth quarter in 2016 occurring in conjunction with the establishment of debt associated with the spin-off . for additional discussion of long-term debt , see “ note 9. long-term debt and credit agreement ” in the notes accompanying the audited consolidated financial statements . changes in the other non-operating expense ( income ) , net were not material when comparing 2016 with 2015 . income tax expense ( benefit ) replace_table_token_10_th on december 22 , 2017 the u.s. government enacted significant changes to federal tax law following the passage of the tax cuts and jobs act ( the “ 2017 act ” ) . the 2017 act significantly changes the u.s. corporate tax system . the company has reasonably estimated the accounting for the effects of the 2017 act during the year ended december 31 , 2017. our financial statements for the year ended december 31 , 2017 reflect certain effects of the 2017 act including a reduction in the corporate tax rate to 21 % from 35 % and changes made to executive compensation rules . as a result of these changes to tax laws and tax rates under the 2017 act , the company incurred a reduction in income tax expense of $ 53,424 primarily related to the reduction in the federal corporate tax rate to 21 % during the year ended december 31 , 2017. the company 's income tax benefit for 2017 was $ 2,067 . in the absence of the changes in the 2017 act , tax expense for 2017 would have been $ 51,357. given the significant changes resulting from and complexities associated with the 2017 act , the financial impacts for the fourth-quarter and full-year 2017 as well as the estimated impact on the 2018 effective tax rate are provisional and subject to further analysis , interpretation and clarification of the 2017 act , which could result in changes to these estimates during 2018. the company will reflect any adjustments to the provisional amounts within one year from the enactment date of the 2017 act , if applicable . the company 's effective income tax rate for 2017 was lower compared to the u.s. federal statutory rate of 35 % due primarily to the enactment of the 2017 act and the related remeasurement of deferred tax assets and liabilities . story_separator_special_tag the company also intends to make certain state tax apportionment elections in 2017 which results in a state income tax rate change that is expected to lower the company 's overall state tax liability dependent upon the company achieving minimum employment thresholds in tax years 2017 to 2019. the company 's effective income tax rates in 2016 and 2015 were higher compared to the u.s. federal statutory tax rate of 35 % due primarily to state taxes and , to a lesser extent , losses incurred in foreign jurisdictions with rates lower than the u.s. federal statutory rate , partially offset by the federal tax credit for research activities and the u.s. manufacturing incentive credits . for 2018 , the company expects an effective tax rate ( including federal , state and foreign taxes ) of approximately 25 % . in the absence of the 2017 act , the company would have expected a 2018 overall effective tax rate of approximately 38 % . during the third and fourth quarters of 2017 , the company adjusted its deferred tax assets and liabilities to account for changes to the september 30 , 2016 deferred tax balances related to the separation from honeywell . the changes were attributable to the completion of honeywell 's 2016 income tax return and related return to provision adjustment . the adjustment resulted in a $ 12.5 million decrease in deferred income taxes and an increase in additional paid in capital . for 2017 , 2016 and 2015 , there were no unrecognized tax benefits recorded by the company . although there are no unrecognized income tax benefits , when applicable , the company 's policy is to report interest expense related to unrecognized income tax benefits in the income tax provision . 32 for additional discussion of income taxes and the effective income tax rate , see “ note 4 – income taxes ” in the notes accompanying the audited consolidated financial statements . net income replace_table_token_11_th 2017 compared with 2016 as a result of the factors described above , net income was $ 146.7 million in 2017 as compared to $ 34.1 million in 2016 . 2016 compared with 2015 as a result of the factors described above , net income was $ 34.1 million in 2016 as compared to $ 63.8 million in 2015. non-gaap measures the following tables set forth the non-gaap financial measures of ebitda and ebitda margin . ebitda is defined as net income before interest , income taxes , depreciation and amortization . ebitda margin is equal to ebitda divided by sales . the company believes these non-gaap financial measures provide meaningful supplemental information as they are used by the company 's management to evaluate the company 's operating performance , enhance a reader 's understanding of the financial performance of the company , and facilitate a better comparison among fiscal periods and performance relative to its competitors , as the non-gaap measures exclude items that are not considered part of the company 's ongoing operations . these non-gaap results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with gaap . non-gaap financial measures should be read only in conjunction with the comparable gaap financial measures . the company 's non-gaap measures may not be comparable to other companies ' non-gaap measures . the following is a reconciliation between the non-gaap financial measures of ebitda and ebitda margin to their most directly comparable gaap financial measure : ( dollars in thousands , except per share amounts or unless otherwise noted ) replace_table_token_12_th ( 1 ) reflects a $ 15.5 million one-time benefit recognized in the first quarter of 2016 related to the termination of a long-term supply agreement . 33 the following are reconciliations between the non-gaap financial measure of net income and eps excluding the one-time net tax benefit to its most directly comparable gaap financial measure of net income and eps : replace_table_token_13_th replace_table_token_14_th replace_table_token_15_th ( 2 ) reflects a $ 53,424 one-time net tax benefit recognized in the fourth quarter of 2017 related to the 2017 act , which was signed and enacted effective december 22 , 2017. the 2017 act reduces the federal corporate tax rate to 21 % from 35 % for tax years beginning after december 31 , 2017. liquidity and capital resources liquidity we believe that cash balances and operating cash flows , together with available capacity under our credit agreement , will provide adequate funds to support our current annual operating and longer term strategic plans , subject to the risks and uncertainties outlined below and in the risk factors as previously disclosed in in item 1a . our principal source of liquidity is our cash flow generated from operating activities , which is expected to provide us with the ability to meet the majority of our short-term funding requirements . our operating cash flows are affected by capital requirements and production volume as well as the prices of our raw materials and general economic and industry trends . we utilize a trade receivables discount arrangement with a third party financial institution which enhances liquidity and enables us to efficiently manage our working capital needs . in addition , we monitor the third-party depository institutions that hold our cash and cash equivalents . our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds . we diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities . on a recurring basis , our primary future cash needs will be centered on operating activities , working capital , capital expenditures including high return growth and cost savings investments , environmental compliance costs , employee benefit obligations , interest payments , debt repayment and strategic acquisitions . we believe that our future cash from operations , together with our access to funds on hand and credit and capital markets , will provide adequate resources to fund our expected operating and financing needs .
| we believe that , in addition to a potential recovery that has historically followed periods of oversupply and declining prices , nylon 6 end-market growth will continue to generally track global gdp with certain applications growing at faster rates including engineered plastics and packaging . additionally , one of our strategies is to continue developing specialty nylon and copolymer products that we believe will generate higher margins . our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur , two key crop nutrients . global prices for ammonium sulfate fertilizer are influenced by several factors including the price of urea , which is the most widely used source of nitrogen-based fertilizer in the world . another global factor driving demand for ammonium sulfate fertilizer is general agriculture trends , including the price of crops . we expect agriculture fundamentals to remain challenging through the 2018 planting season . we produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process , but sales experience quarterly cyclicality based on the timing and length of the growing seasons in north and south america . due to the ammonium sulfate fertilizer sales cycle , we occasionally build up higher inventory balances because our production is continuous and not tied to seasonal demand for fertilizers . sales of most of our other products have generally been subject to minimal , or no , seasonality . we seek to run our production facilities on a nearly continuous basis for maximum efficiency and several of our intermediate products are key feedstock materials for other products in our integrated manufacturing chain . we schedule several planned outages each year to conduct routine and major maintenance across our facilities , which are referred to as plant turnarounds . while we may experience unplanned interruptions from time to time , we seek to mitigate the risk through regularly scheduled maintenance both for major and minor repairs at all of our production facilities . we also utilize maintenance excellence and mechanical
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we received $ 160.0 million in cash upon closing , with $ 16.0 million initially held in escrow , which was released to us in february 2019. if vx-561 is approved as part of a combination regimen to treat cystic fibrosis , we are eligible to receive up to $ 90.0 million in the form of two additional milestones based on marketing approval in the united states and agreement for reimbursement in the first of the united kingdom , germany or france . additional information concerning the sale of ctp-656 is discussed in note 12 to the consolidated financial statements appearing elsewhere in this annual report on form 10-k. our operating results may fluctuate significantly from year to year , depending on the timing and magnitude of cash payments received pursuant to collaboration and licensing arrangements and other agreements and the timing and magnitude of clinical trial and other development activities under our current development programs . we generated net losses of $ 74.8 million and $ 78.2 million for the years ended december 31 , 2020 and 2019 , respectively . 57 we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . we expect our expenses will increase substantially in connection with our ongoing activities as we continue research and development efforts and develop and conduct additional nonclinical studies and clinical trials with respect to our product candidates . we do not expect to generate revenue from product sales unless and until we , or our collaborators , obtain marketing approval for one or more of our product candidates , which we expect will take a number of years and is subject to significant uncertainty . if we obtain , or believe that we are likely to obtain , marketing approval for any product candidates for which we retain commercialization rights , and intend to commercialize a product , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . we expect to seek to fund our operations through a combination of equity offerings , debt financings , collaboration and licensing arrangements and other sources for at least the next several years . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would force us to delay , limit , reduce or terminate our research and development programs and could have a material adverse effect on our financial condition and our ability to develop our products . we will need to generate significant revenues to achieve sustained profitability , and we may never do so . collaborations we have entered into a number of collaborations for the research , development and commercialization of deuterated compounds . to date , our collaborations have provided us with significant funding for both our specific development programs and our dce platform . our collaborators also have applied their considerable scientific , development , regulatory and commercial capabilities to the development of our compounds . in addition , in some instances , where we develop and seek to collaborate with respect to deuterated analogs of marketed drugs or of drug candidates that are more advanced in clinical trials , our collaborators may be eligible for an expedited development or regulatory pathway by relying on previous clinical data regarding their corresponding non-deuterated compound . we believe that our collaborations have contributed to our ability to progress our product candidates and build our dce platform . our collaborations are discussed further in note 12 to the consolidated financial statements appearing elsewhere in this annual report on form 10-k. asset purchase agreement in july 2017 , we completed the sale of worldwide development and commercialization rights to ctp-656 , now known as vx-561 , and other assets related to the treatment of cystic fibrosis to vertex pursuant to the vertex agreement . we received $ 160.0 million in cash upon closing , with $ 16.0 million initially held in escrow , which was released to us in february 2019. additionally , upon the achievement of certain milestone events , vertex has agreed to pay us an aggregate of up to $ 90.0 million . of this amount , $ 50.0 million will become payable to us upon receipt of fda marketing approval for a combination treatment regimen containing vx-561 for patients with cystic fibrosis , and $ 40.0 million will become payable to us upon completion of a pricing and reimbursement agreement in the first of the united kingdom , germany or france with respect to a combination treatment regimen containing vx-561 for patients with cystic fibrosis . additional information concerning the sale of ctp-656 is discussed in note 12 to the consolidated financial statements appearing elsewhere in this annual report on form 10-k. covid-19 pandemic the covid-19 pandemic continues to spread throughout the united states and worldwide . we could be materially and adversely affected by the risks , or the public perception of the risks , related to an epidemic , pandemic or other public health crisis , such as the covid-19 pandemic , including but not limited to potential delays in our clinical trials . the ultimate extent of the impact of any epidemic , pandemic or other public health crisis on our business , financial condition and results of operations will depend on future developments , which are highly uncertain and can not be predicted , including new information that may emerge concerning the severity of such epidemic , pandemic or other public health crisis and actions taken to contain or prevent the further spread , among others . accordingly , we can not predict the extent to which our business , financial condition and results of operations may be affected by the covid-19 pandemic , but we are monitoring the situation closely . financial operations overview revenue 58 we have not generated any revenue from the sales of products . story_separator_special_tag all of our revenue to date has been generated through collaboration , license and research arrangements with collaborators and nonprofit organizations for the development and commercialization of product candidates , a patent assignment agreement and an asset sale . the terms of these agreements may include one or more of the following types of payments : non-refundable license fees , payments for research and development activities , payments based on the achievement of specified milestones , payment of license exercise or option fees relating to product candidates and royalties on any net product sales . to date , we have received non-refundable upfront payments , several milestone payments , payments for research and development services provided to our collaborators , a change in control payment pursuant to a patent assignment agreement and a payment for the sale of an asset . however , we have not yet earned any license exercise or option fees , sales-based milestone payments or royalty revenue as a result of product sales . in the future , we will seek to generate revenue from a combination of product sales and milestone payments and royalties on product sales in connection with our current collaborations , our asset sale with vertex or other collaborations we may enter into . research and development expenses research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : employee-related expenses , including salary , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with contract research organizations and investigative sites that conduct our clinical trials ; the cost of acquiring , developing and manufacturing clinical trial materials ; facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; platform-related lab expenses , which includes costs related to synthesis , analysis and in vitro and in vivo characterization of deuterated compounds to support the selection and progression of potential product candidates ; expenses related to consultants and advisors ; and costs associated with nonclinical activities and regulatory operations . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . a significant portion of our research and development costs have been external costs , which we track on a program-by-program basis . these external costs include fees paid to investigators , consultants , central laboratories and contract research organizations in connection with our clinical trials , and costs related to acquiring and manufacturing clinical trial materials . our internal research and development costs are primarily personnel-related costs , depreciation and other indirect costs . we do not track our internal research and development expenses on a program-by-program basis , as they are deployed across multiple projects under development . the successful development of any of our product candidates is highly uncertain . as such , at this time , we can not reasonably predict with certainty the duration and completion costs of the current or future clinical trials of any of our product candidates or if , when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain marketing approval . we may never succeed in achieving marketing approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope and rate of progress of our ongoing as well as any additional clinical trials and other research and development activities ; successful enrollment in and completion of clinical trials , including on account of the covid-19 pandemic and its impact on clinical trial sites ; conduct of and results from ongoing as well as any additional clinical trials and research and development activities ; significant and changing government regulation ; the terms and timing and receipt of any marketing approvals ; the performance of our collaborators ; our ability to manufacture any of our product candidates that we are developing or may develop in the future ; and 59 the expense and success of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights , including potential claims that we infringe other parties ' intellectual property . 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 cost and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials or other research and development activities beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . 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 , due to the increased size and duration of later-stage clinical trials and the manufacturing that is typically required for those later-stage clinical trials . we expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress , but we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product 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 .
| replace_table_token_3_th research and development expenses were $ 61.6 million for the year ended december 31 , 2020. ctp-543 expenses for the year ended december 31 , 2020 were $ 18.0 million , an increase of $ 0.6 million compared to $ 17.4 million for the year ended december 31 , 2019. ctp-543 expenses in 2020 primarily related to clinical development , including preparations for the phase 3 clinical trial that we initiated in november 2020. ctp-692 expenses for the year ended december 31 , 2020 were $ 17.3 63 million , an increase of $ 3.2 million compared to $ 14.1 million for the year ended december 31 , 2019. ctp-692 expenses in 2020 primarily related to the phase 2 dose-ranging clinical trial . external expenses for other programs consisted of costs incurred to develop our research pipeline . external expenses for other programs decreased by $ 2.3 million compared to $ 3.3 million for the year ended december 31 , 2019 primarily due to a decrease in lab activity in 2020 related to the covid-19 pandemic and a $ 0.5 million payment to the non-profit organization fast forward in the first quarter of 2019 under an existing agreement related to ctp-354 between fast forward and us , which was triggered by the upfront payment pursuant to our license agreement , or the cipla agreement , with cipla technologies llc , or cipla . employee-related expenses consisted primarily of cash and non-cash stock-based compensation expenses . facility-related expenses consisted primarily of rent and maintenance of our premises . for additional details related to the cipla agreement , see note 12 to the consolidated financial statements appearing elsewhere in this annual report on form 10-k. general and administrative expenses the following table summarizes our general and administrative expenses for the year ended december 31 , 2020. year ended december 31 , ( in thousands ) 2020 employee salaries and benefits $ 10,939 external professional service and legal expenses 3,669 facility , technology and other expenses 4,016 depreciation and amortization 301 total general and administrative expenses $ 18,925 general and administrative expenses for the year ended december 31 , 2020 consisted primarily of salaries and related costs for personnel , including
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revenues from product sales are mostly derived from the sales of our hsor , optoelectronics , sensing and test & measurement products that make use of light-transmitting optical fibers , or fiber optics . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . although we have been successful in licensing certain technology in past years , we do not expect license revenues to represent a significant portion of future revenues . over time , however , we do intend to gradually increase such revenues . in the near term , we expect revenues from product sales to continue to be primarily in areas associated with our hsor , optoelectronics , fiber optic test & measurement and sensing platforms . in the long term , we expect that revenues from product sales will represent a larger portion 33 of our total revenues and that as we develop and commercialize new products , these revenues will reflect a broader and more diversified mix of products . we realized net income attributable to common stockholders of approximately $ 2.2 million and $ 5.9 million for the years ended december 31 , 2015 and 2014 , respectively . excluding the effects of our medical shape sensing business , which we sold in 2014 , we incurred net losses from continuing operations of approximately $ 6.0 million and $ 3.4 million for the years ended december 31 , 2015 and 2014 , respectively . we may incur increasing expenses as we seek to expand our business , including expenses for research and development , sales and marketing and manufacturing capabilities . we may also grow our business in part through acquisitions of additional companies and complementary technologies , which could cause us to incur transaction expenses , amortization or write-offs of intangible assets and other acquisition-related expenses . as a result , we may incur net losses for the foreseeable future , and these losses could be substantial . reductions in government spending may impact the availability of new program awards in 2016. for example , the budget control act commits the u.s. government to reduce the federal deficit by $ 1.2 trillion over ten years through a combination of automatic , across-the-board spending cuts and caps on discretionary spending , or sequestration . automatic across-the-board cuts required by sequestration could have a material adverse effect on our technology development revenues and , consequently , our results of operations . while the exact manner in which sequestration will impact our business is unclear , funding for programs in which we participate could be reduced , delayed or canceled . our ability to obtain new contract awards also could be negatively affected . sale of medical shape sensing business in 2014 in january 2014 , we sold our assets associated with the development of fiber optic shape sensing and localization for the medical field to affiliates of intuitive surgical , inc. ( `` intuitive '' ) for total cash consideration of up to $ 30 million , including $ 6 million received at closing , $ 6 million received in april 2014 and up to $ 18 million in the future based on the achievement of certain technical milestones and royalties on system sales , if any . in december 2015 , although the specified technical milestones had not yet been achieved , we and intuitive agreed to settle all remaining potential amounts payable under the agreement for a single payment of $ 9 million , which we received in december 2015. description of our revenues , costs and expenses revenues we generate revenues from technology development , product sales and commercial product development and licensing activities . we derive technology development revenues from providing research and development services to third parties , including government entities , academic institutions and corporations , and from achieving milestones established by some of these contracts and in collaboration agreements . in general , we complete contracted research over periods ranging from six months to three years , and recognize these revenues over the life of the contract as costs are incurred . our technology development revenues represented approximately 31 % and 57 % of our total revenues for the years ended december 31 , 2015 and 2014 , respectively . our products and licensing revenues reflect amounts that we receive from sales of our products or development of products for third parties and , to a lesser extent , fees paid to us in connection with licenses or sub-licenses of certain patents and other intellectual property . products and licensing revenues represented approximately 69 % and 43 % of our total revenues for the years ended december 31 , 2015 and 2014 , respectively . cost of revenues cost of revenues associated with technology development revenues consists of costs associated with performing the related research activities including direct labor , amounts paid to subcontractors and overhead allocated to technology development activities . cost of revenues associated with product sales and license revenues consists of license fees for use of certain technologies ; product manufacturing costs including all direct material and direct labor costs ; amounts paid to our contract manufacturers ; manufacturing , shipping and handling ; provisions for product warranties ; and inventory obsolescence , as well as overhead allocated to each of these activities . operating expense 34 operating expense consists of selling , general and administrative expenses , as well as expenses related to research , development and engineering , depreciation of fixed assets and amortization of intangible assets . story_separator_special_tag these expenses also include compensation for employees in executive and operational functions including certain non-cash charges related to expenses from option grants , facilities costs , professional fees , salaries , commissions , travel expense and related benefits of personnel engaged in sales , product management and marketing activities ; costs of marketing programs and promotional materials ; salaries , bonuses and related benefits of personnel engaged in our own research and development beyond the scope and activities of our technology development segment ; product development activities not provided under contracts with third parties ; and overhead costs related to these activities . interest expense , net in february 2010 , we entered into a line of credit facility with silicon valley bank ( `` svb '' ) with a borrowing capacity of $ 5.0 million . in may 2011 , we entered into a loan modification agreement with svb under which we repaid the outstanding balance under the prior line of credit and obtained a term loan in the amount of $ 6.0 million , along with a new $ 1.0 million line of credit . in may 2012 , we entered into another loan modification agreement with svb under which we extended the maturity date of the line of credit to may 2014 and adjusted certain covenants . on may 8 , 2015 , we entered into a loan modification agreement with svb to borrow an additional $ 6 million , which we primarily used to repay the previously outstanding loans of api that existed at the time of our merger . on september 29 , 2015 , we entered into another loan modification with svb under which we borrowed an additional $ 1 million to finance planned capital expenditures . at december 31 , 2015 , we had $ 6.1 million outstanding on the term loan . we did not renew the line of credit in 2015. during the years ended december 31 , 2015 and 2014 , interest expense primarily included interest accrued on our outstanding bank credit facilities , and interest incurred with respect to our capital lease obligations . critical accounting policies and estimates technology development revenues we perform research and development for u.s. federal government agencies , educational institutions and commercial organizations . we recognize revenue under research contracts when a contract has been executed , the contract price is fixed and determinable , delivery of services or products has occurred , and collectability of the contract price is considered reasonably assured and can be reasonably estimated . revenue is earned under cost reimbursable , time and materials and fixed price contracts . direct contract costs are expensed as incurred . under cost reimbursable contracts , we are reimbursed for costs that are determined to be reasonable , allowable and allocable to the contract and paid a fixed fee representing the profit negotiated between us and the contracting agency . revenue from cost reimbursable contracts is recognized as costs are incurred plus an estimate of applicable fees earned . we consider fixed fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the contract . revenue from time and materials contracts is recognized based on direct labor hours expended at contract billing rates plus other billable direct costs . fixed price contracts may include either a product delivery or specific service performance throughout a period . for fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables , we recognize revenue based on the proportion of the cost of the deliverables compared to the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements . for fixed price contracts that provide for the development and delivery of a specific prototype or product , revenue is recognized based upon the percentage of completion method . our contracts with agencies of the u.s. government are subject to periodic funding by the respective contracting agency . funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided . in evaluating the probability of funding for purposes of assessing collectability of the contract price , we consider our previous experience with our customers , communication with our customers regarding funding status and our knowledge of available funding for the contract or program . if funding is not assessed as probable , revenue recognition is deferred until realization is reasonably assured . contract revenue recognition inherently involves estimation , including the contemplated level of effort to accomplish the tasks under the contract , the cost of the effort and an ongoing assessment of progress toward completing the contract . from time to time , as part of normal management processes , facts may change , causing revisions to estimated total costs or revenues 35 expected . the cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known . the underlying bases for estimating our contract research revenues are measurable expenses , such as labor , subcontractor costs and materials , and data that are updated on a regular basis for purposes of preparing our cost estimates . our research contracts generally have a period of performance of six months to three years , and our estimates of contract costs have historically been consistent with actual results . revisions in these estimates between accounting periods to reflect changing facts and circumstances have not had a material impact on our operating results , and we do not expect future changes in these estimates to be material . whether certain costs under government contracts are allowable is subject to audit by the government . certain indirect costs are charged to contracts using provisional or estimated indirect rates , which are subject to later revision based on government audits of those costs .
| the overall increase in technology development costs is consistent with the rate of growth in technology development segment revenues . our products and licensing segment costs increased $ 13.1 million to $ 17.1 million for the year ended december 31 , 2015 compared to $ 4.0 million for the year ended december 31 , 2014 . this increase is primarily attributable to the costs of product sales of api in 2015. product and licensing costs associated with the operations of api for the period from the closing of our merger on may 8 , 2015 through december 31 , 2015 were $ 12.6 million . operating expense replace_table_token_6_th selling , general and administrative expenses increased $ 8.2 million to $ 18.5 million for the year ended december 31 , 2015 compared to $ 10.3 million for the year ended december 31 , 2014 . this increase includes $ 3.7 million in expenses incurred with respect to completing our merger with api , including such costs as investment banking , legal , accounting , and printing , $ 1.1 million of amortization of intangible assets recorded as a result of the merger , and $ 3.1 million of selling , general and administrative expenses associated with the operations of api for the period from the closing of our merger on may 8 , 2015 through december 31 , 2015. research , development , and engineering expenses increased $ 2.2 million to $ 4.3 million for the year ended december 31 , 2015 compared to $ 2.1 million for the year ended december 31 , 2014 . this increase is attributable to the research and development costs of $ 2.5 million associated with the operations of api for the period from the closing of our merger on may 8 , 2015 through december 31 , 2015. interest expense , net and other income our net interest expense was approximately $ 0.2 million for the year ended
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critical accounting policies critical accounting policies are those accounting policies that management believes are important to the portrayal of the company 's financial condition and results of operations . these policies require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . impairment the company reviews the carrying values of its long-lived assets , such as property , equipment and fixtures for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable . such review analyzes the undiscounted estimated future cash flows from asset groups at the store level to determine if the carrying value of such assets are recoverable from their respective cash flows . if impairment is indicated , it is measured by comparing the fair value of the long-lived asset groups held for use to their carrying value . goodwill is tested for impairment at the end of each fiscal year , or more frequently if circumstances dictate . the company utilizes valuation techniques , such as earnings multiples , in addition to the company 's market capitalization to assess goodwill for impairment . calculating the fair value of a reporting unit requires the use of estimates . management believes the fair value of village 's one reporting unit exceeds its carrying value at july 27 , 2013. should the company 's carrying value of its one reporting unit exceed its fair value , the amount of any resulting goodwill impairment may be material to the company 's financial position and results of operations . patronage dividends as a stockholder of wakefern , village earns a share of wakefern 's earnings , which are distributed as a “ patronage dividend ” ( see note 3 ) . this dividend is based on a distribution of substantially all of wakefern 's operating profits for its fiscal year ( which ends september 30 ) in proportion to the dollar volume of purchases by each member from wakefern during that fiscal year . patronage dividends are recorded as a reduction of cost of sales as merchandise is sold . village accrues estimated patronage dividends due from wakefern quarterly based on an estimate of the annual wakefern patronage dividend and an estimate of village 's share of this annual dividend based on village 's estimated proportional share of the dollar volume of business transacted with wakefern that year . the amount of patronage dividends receivable based on these estimates were $ 11,810 and $ 10,774 at july 27 , 2013 and july 28 , 2012 , respectively . pension plans the determination of the company 's obligation and expense for company-sponsored pension plans is dependent , in part , on village 's selection of assumptions used by actuaries in calculating those amounts . these assumptions are described in note 8 and include , among others , the discount rate , the expected long-term rate of return on plan assets and the rate of increase in compensation costs . actual results that differ from the company 's assumptions are accumulated and amortized over future periods and , therefore , generally affect recognized expense in future periods . while management believes that its assumptions are appropriate , significant differences in actual experience or significant changes in the company 's assumptions may materially affect cash flows , pension obligations and future expense . 14 the objective of the discount rate assumption is to reflect the rate at which the company 's pension obligations could be effectively settled based on the expected timing and amounts of benefits payable to participants under the plans . our methodology for selecting the discount rate as of july 27 , 2013 was to match the plans cash flows to that of a yield curve on high-quality fixed-income investments . based on this method , we utilized a weighted-average discount rate of 4.43 % at july 27 , 2013 compared to 3.59 % at july 28 , 2012. the .84 % increase in the discount rate , and a change in the mortality table utilized , decreased the projected benefit obligation at july 27 , 2013 by approximately $ 10,077. village evaluated the expected long-term rate of return on plan assets of 7.5 % and the expected increase in compensation costs of 4 to 4.5 % and concluded no changes in these assumptions were necessary in estimating pension plan obligations and expense . sensitivity to changes in the major assumptions used in the calculation of the company 's pension plans is as follows : percentage point change projected benfit obligation decrease ( increase ) expense decrease ( increase ) discount rate + / - 1.0 % $ 5,379 $ ( 6,481 ) $ 34 $ ( 36 ) expected return on assets + / - 1.0 % -- - $ 365 $ ( 365 ) village contributed $ 3,254 and $ 3,227 in fiscal 2013 and 2012 , respectively , to these company-sponsored pension plans . village expects to contribute $ 3,000 in fiscal 2014 to these plans . the 2013 , 2012 and expected 2014 contributions are substantially all voluntary contributions . the company also contributes to several multi-employer pension plans based on obligations arising from collective bargaining agreements . these plans provide retirement benefits to participants based on their service to contributing employers . we recognize expense in connection with these plans as contributions are funded . story_separator_special_tag share-based employee compensation all share-based payments to employees are recognized in the financial statements as compensation expense based on the fair market value on the date of grant . village determines the fair market value of stock option awards using the black-scholes option pricing model . this option pricing model incorporates certain assumptions , such as a risk-free interest rate , expected volatility , expected dividend yield and expected life of options , in order to arrive at a fair value estimate . uncertain tax positions the company is subject to periodic audits by various taxing authorities . these audits may challenge certain of the company 's tax positions such as the timing and amount of deductions and the allocation of income to various tax jurisdictions . accounting for these uncertain tax positions requires significant management judgment . actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years . liquidity and capital resources cash flows net cash provided by operating activities was $ 51,273 in fiscal 2013 compared to $ 43,432 in the corresponding period of the prior year . this increase is primarily attributable to the prior year including a settlement of a $ 7,028 pension liability and changes in the timing of payables . during fiscal 2013 village used cash to fund capital expenditures of $ 21,888 and dividends of $ 24,048. capital expenditures include substantial remodels of three stores and the site work and beginning of construction of a replacement store . dividends paid include $ 12,009 of special dividends . net cash provided by operating activities was $ 43,432 in fiscal 2012 compared to $ 64,144 in the corresponding period of the prior year . this decrease is primarily attributable to settlement of a $ 7,028 pension withdrawal liability in fiscal 2012 , a decrease in payables in the current fiscal year as compared to an increase in the prior fiscal year , and the prior year including a refund of cash the company had placed in escrow to fund a property acquisition . these decreases were partially offset by higher net income in the current fiscal year . 15 during fiscal 2012 , village used cash to fund capital expenditures of $ 16,729 , the acquisition of the old bridge shoprite of $ 4,123 and dividends of $ 9,758. capital expenditures include remodeling and equipment for the acquired maryland stores , the installation of solar panels in one store and several small remodels . liquidity and debt working capital was $ 94,299 , $ 71,672 , and $ 44,448 at july 27 , 2013 , july 28 , 2012 and july 30 , 2011 , respectively . working capital ratios at the same dates were 1.85 , 1.72 , and 1.41 to one , respectively . the company 's working capital needs are reduced since inventory is generally sold before payments to wakefern and other suppliers are due . village has budgeted approximately $ 35,000 for capital expenditures in fiscal 2014. planned expenditures include the construction of two replacement stores , one of which began in fiscal 2013. the company 's primary sources of liquidity in fiscal 2014 are expected to be cash and cash equivalents on hand at july 27 , 2013 and operating cash flow generated in fiscal 2014. at july 27 , 2013 , the company had a $ 22,421 note receivable due from wakefern earning a fixed rate of 7 % . previously , this 15-month note was automatically extended for additional , recurring 90-day periods , unless , not later than one year prior to the due date , the company notified wakefern requesting payment on the due date . wakefern has the right to prepay this note at any time and notified the company that they intend to prepay the note on february 15 , 2014. village has an unsecured revolving credit agreement providing a maximum amount available for borrowing of $ 25,000. this loan agreement expires on december 31 , 2014. the revolving credit line can be used for general corporate purposes . indebtedness under this agreement bears interest at the prime rate , or at the eurodollar rate , at the company 's option , plus applicable margins based on the company 's fixed charge coverage ratio . there were no amounts outstanding at july 27 , 2013 or july 28 , 2012 under this facility . the revolving loan agreement contains covenants that , among other conditions , require a maximum liabilities to tangible net worth ratio , a minimum fixed charge coverage ratio and a positive net income . at july 27 , 2013 , the company was in compliance with all terms and covenants of the revolving loan agreement . under the above covenants , village had approximately $ 138,104 of net worth available at july 27 , 2013 for the payment of dividends . during fiscal 2013 , village paid cash dividends of $ 24,048. dividends in fiscal 2013 consist of $ 2.00 per class a common share and $ 1.30 per class b common share . these amounts include $ 12,009 of special dividends paid in december 2012 , comprised of $ 1.00 per class a common share and $ 0.65 per class b common share . during fiscal 2012 , village paid cash dividends of $ 9,758. dividends in fiscal 2012 consist of $ .85 per class a common share and $ .5525 per class b common share . 16 contractual obligations and commitments the table below presents significant contractual obligations of the company at july 27 , 2013 : replace_table_token_6_th ( 1 ) in addition , the company is obligated to purchase 85 % of its primary merchandise requirements from wakefern ( see note 3 ) . ( 2 ) the above amounts for capital , financing and operating leases include interest , but do not include certain obligations under these leases for other charges .
| as expected , the impact of the competitive store closures that began in the second half of fiscal 2011 and inflation both moderated beginning in the third quarter of fiscal 2012 , resulting in a fourth quarter same store sales increase of 1.8 % . sales continue to be impacted by economic weakness , high gas prices and high unemployment , which has resulted in increased sale item penetration and trading down . 12 gross profit gross profit as a percentage of sales decreased .40 % in fiscal 2013 compared to the prior year primarily due to decreased departmental gross margin percentages ( .47 % ) , partially offset by improved product mix ( .06 % ) . gross margins declined in several departments primarily due to investments in lower prices to combat nontraditional competitors . gross profit as a percentage of sales increased .38 % in fiscal 2012 compared to the prior year primarily due to increased departmental gross margin percentages ( .15 % ) , decreased warehouse assessment charges from wakefern ( .16 % ) and higher patronage dividends ( .11 % ) . these improvements were partially offset by higher promotional spending ( .06 % ) . operating and administrative expense operating and administrative expense as a percentage of sales increased .53 % in fiscal 2013 compared to the prior year primarily due to higher payroll ( .15 % ) and fringe benefit ( .27 % ) costs , a charge from settlement of a dispute with a landlord ( .04 % ) , and the prior fiscal year included a favorable settlement of a pension withdrawal liability ( .04 % ) . these increases were partially offset by income from settlement of the national credit card lawsuit ( .08 % ) in the current fiscal year . payroll costs increased due to efforts to enhance the customer experience and provide additional services , including our first village food garden at the remodeled livingston store and the addition of shoprite from home in several stores . fringe benefit costs increased due to higher costs for health , pension and workers compensation . operating and administrative expense as percentage of sales decreased .53 % in fiscal 2012 compared to the prior year due to the prior year including a $ 7,028 charge for the
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for example , in india , where regulators have not approved field trials for testing of gm traits for the last two years , we estimate the impact to the trait development and crop commercialization timelines of our license partner in india , mahyco , has been a commensurate delay . we believe the fundamental value of these traits remains commercially significant and we , along with our development and commercialization partners , remain fully committed to their ultimate commercialization . however , to compensate for the near-term impact of these regulatory delays on our anticipated commercialization revenue share , the company completed a comprehensive strategic review in the second half of 2016 of its technology programs , product pipeline , partner progress , competitive landscape and market conditions in order to prioritize and appropriately resource its most promising products and opportunities . as a result , some programs were terminated or placed on hold while investments in other programs were accelerated with the aim of generating the highest potential near-term value for the company and its shareholders . in addition , in cooperation with its primary licensee partner , mahyco , the company has undertaken an evaluation of the current regulatory environment by territory of its license portfolio to determine the optimal strategy for continued deregulation and commercialization of its traits . in december 2017 , we reached agreement with mahyco for the return of licensed geographies for certain wue , nue & salinity tolerance traits where mahyco either lacks the resources or expertise to effectively progress trait deregulation and commercialization . these licenses were terminated prior to december 31 , 2017 , with the remaining balance of the upfront license fees previously deferred for such agreements released and recognized as revenue into the fourth quarter totaling $ 528,000. in addition , for other geographies where mahyco has progressed trait development but does not possess the familiarity with , or influence on , the regulatory environment to affect deregulation , we have agreed we will endeavor to jointly pursue new in-country licensees we believe to be equipped and capable to achieve trait deregulation and commercialization . we will continue to work with our partners to closely monitor the progress of deregulation activities affecting our gm traits , and at the same time , we are realigning our core capabilities and evolving our business model to accelerate the development and near-term commercialization of non-gm nutrition and quality traits . balancing our near-term revenue goals with long-term value capture , we will continue to provide active support to our commercial partners working to advance our high value traits through development and deregulation for commercialization . our trait license agreements contain two main types of financial components : a set of pre-commercialization payments from our commercial partners that are linked to their pursuit of technical and regulatory milestones under a well-defined diligence plan . the pre-commercialization payments typically include up-front and annual license fees , as well as multiple payments for key technical and development milestones such as demonstration of greenhouse efficacy , demonstration of field efficacy , regulatory submission , regulatory approval , and commercial launch . under most of our license agreements , failure of our commercial partners to adhere to the diligence plan may result in a reduction , or elimination , of their license rights . the combination of diligence requirements and milestone payments motivates our commercial partners to develop and commercialize products containing our traits , while providing us with revenue to fund our development programs . 50 once a product containing one or more of our traits is commercialized , we are entitl ed to receive a portion of the revenue that it generates for our commercial partner . for seeds incorporating valuable traits , farmers typically pay either a premium for the seed or a trait fee . this premium or trait fee represents the additional value gene rated for our commercial partner by our trait ( s ) , and we receive a percentage of this additional value . typically , our share of this value ranges from 15 to 20 % , and it can increase to a range of 37 to 50 % under certain agreements if we elect to co-invest in product development and or deregulation . we expect that our participation in joint ventures will provide us with an opportunity to recognize additional value from our traits . while we seek patent protection on our technologies and traits , we have structured our commercial agreements so that we receive our percentage of additional commercial value whether or not patent protection is in effect at any particular time or place . nearly all of our agreements provide access to our traits , and our right to receive a share of commercial value , continue for a set number of years after products containing our traits are commercialized . while the exclusive rights afforded by patents may enable our commercial partners to realize greater commercial value attributable to our traits , our right to receive a portion of that increased commercial value is not dependent on the existence of patent rights in a particular geography . our commercial strategy is to migrate forward in the ag-food supply chain from the farmer and seed company to the consumer food company . due to early stage focus on the development of abiotic stress traits , we have historically been commercially aligned with farmers and seed companies . however , by also establishing commercial relationships with consumer food companies and developing consumer brand awareness of our high value premium ingredients , we expect to be better positioned to garner a greater share of our product 's value proposition . consumer food companies are looking to simplify their food ingredient formulations and consumer are demanding “ clean labeling ” in their foods , paying more for foods having fewer artificial ingredients and more natural , recognizable and healthy ingredients . ninety-one per cent of u.s. consumers believe food and beverage options with recognizable ingredients are healthier . story_separator_special_tag because we engineer nutrient density directly into the primary grains and oils , we provide the mechanism for food formulation simplification naturally , cost effectively and in a time-frame to meet evolving consumer demands . our branding strategy is to link consumer 's health and nutrition appreciation with the nutrients we source directly from the farm , enabling us to share premium economics throughout the ag-food supply chain . this forward migration in the ag-food supply chain will require we build additional organizational capabilities and industry expertise . for instance , we are expanding our in-house commercial grain production and logistics resources for greater scale capacity to bring our identity preserved products to market . we are also developing product branding strategies to build customer brand recognition and loyalty . since our inception , we have devoted substantially all of our efforts to research and development activities , including the discovery , development , and testing of our traits and products in development incorporating our traits . to date , we have not generated revenues from sales of commercial products , other than limited revenues from our sonova products , and we do not anticipate generating any revenues from commercial product sales other than from sales of our sonova products for at least the next three to five years . we do receive revenues from fees associated with the licensing of our traits to commercial partners . our long-term business plan and growth strategy is based in part on our expectation that revenues from products that incorporate our traits will comprise a significant portion of our future revenues . we have never been profitable and had an accumulated deficit of $ 167.3 million as of december 31 , 2017. we incurred net losses of $ 15.7 million and $ 19.6 million for the years ended december 31 , 2017 and 2016 , respectively . we expect to incur substantial costs and expenses before we obtain any revenues from the sale of seeds incorporating our traits . as a result , our losses in future periods could become even more significant , and we will need additional funding to support our operating activities . 51 components of our statements of operations data revenues we derive our revenues from product revenues , licensing agreements , contract research agreements , and government grants . we expect that over the next several years , a substantial majority of our revenues will consist of pre-commercial license revenues , product revenues , contract research and government grant revenues until our license revenues increase with the introduction of our seed trait products to the market ensuing value-share payments , if and when they are commercially available . further , we expect that our license revenues will vary as we enter into new license agreements and with the timing of milestone payments and recognition of deferred up-front license fees under existing license agreements . product revenues our product revenues to date have consisted solely of sales of our sonova products . we generally recognize revenue from product sales upon pick up by our third-party distributors or customers . our revenues fluctuate depending on the timing of orders from our customers and distributors . license revenues our license revenues to date consist of up-front , nonrefundable license fees , annual license fees , and subsequent milestone payments that we receive under our research and license agreements . we generally recognize nonrefundable up-front license fees and guaranteed , time-based payments as revenue proportionally over the expected development period . we recognize annual license fees proportionally over the related term subject to cancellation provisions . in the event a license is terminated prior to commercialization , the deferred balance of the unamortized up-front license is released to revenue on the effective date . we recognize milestone payments as revenue when the related performance criteria are achieved . milestones typically consist of significant stages of development for our traits in a potential commercial product , such as achievement of specific technological targets , completion of field trials , filing with regulatory agencies , completion of the regulatory process , and commercial launch of a product containing our traits . given the seasonality of agriculture and time required to progress from one milestone to the next , achievement of milestones is inherently uneven , and our license revenues are likely to fluctuate significantly from period to period . contract research and government grant revenues contract research revenues consist of amounts earned from performing contracted research primarily related to breeding programs or the genetic engineering of plants for third parties . we generally recognize revenue as these services are provided . in addition , we are entitled to receive a portion of the revenues generated from sales of products that incorporate our seed traits . products expected to result from such contract research are in various stages of the product development cycle and we do not expect to generate any revenues from the sale of any such products for at least the next two to four years . we receive payments from government entities in the form of government grants . government grant revenues are recognized as eligible research and development expenses are incurred . our obligation with respect to these agreements is to perform the research on a best-efforts basis . given the nature and uncertain timing of receipt of government grants and timing of eligible research and development expenses , such revenues are likely to fluctuate significantly from period to period . operating expenses cost of product revenues cost of product revenues relates to the sale of our sonova products and consists of in-licensing and royalty fees , any adjustments to inventory , as well as the cost of raw materials , including inventory and third-party services costs related to procuring , processing , formulating , packaging , and shipping our sonova products . 52 re search and development expenses research and development expenses consist of costs incurred in the discovery , development , and testing of our products and products in development incorporating our traits .
| 54 research and development research and development expenses decreased by $ 1.3 million , or 14 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the net decrease was primarily due to $ 1.8 million of lower salaries and benefits and $ 384,000 of reduced chemical and supply expenditures , mainly the result of the reductions in our workforce that occurred in 2016. partially offsetting these decreases were a $ 1.1 million increase in subcontracting activity in support of verdeca and $ 533,000 of license fee expense released from prepaid expenses upon the discontinuance of a license agreement in the fourth quarter of 2017. selling , general , and administrative selling , general , and administrative expenses decreased by $ 1.6 million , or 13 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the decrease in sg & a costs was primarily driven by $ 1.3 million of lower salaries and benefits resulting from reductions in our work force in 2016 , along with $ 1.2 million of related severance costs in 2016 that were not present in 2017. there was a $ 742,000 increase in the amount of incentive and bonus expense recognized in 2017 as compared to 2016 , along with higher consulting fees related to our strategic review process . interest expense interest expense decreased $ 572,000 , or 43 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the decrease was driven by the extinguishment of debt in july 2017. see note 10. other income , net other income , net , decreased $ 60,000 , or 18 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. this decrease primarily consisted of lower net investment income due to the declining investment balance from 2016 to 2017. loss on extinguishment of debt the loss on extinguishment of debt of $ 900,000 was related to the debt payoff that occurred in july 2017 .
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several factors are considered in determining whether or not a policy is critical in the preparation of the consolidated financial statements . these factors include among other things , whether the policy requires management to make difficult , subjective , and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . the accounting policies which we believe to be most critical in preparing our consolidated financial statements are those that are related to the determination of the reserve for credit losses , fair value estimates , leased asset residual values , and income taxes . reserve for credit losses a consequence of lending activities is that we may incur credit losses . the amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrowers . the reserve for credit losses consists of the allowance for loan and lease losses ( the “ allowance ” ) and the reserve for unfunded commitments ( the “ unfunded reserve ” ) . the allowance provides for probable and estimable losses inherent in our loan and lease portfolio . the allowance is increased or decreased through the provisioning process . there is no exact method of predicting specific losses or amounts that ultimately may be charged-off on particular segments of the loan and lease portfolio . the unfunded reserve is a component of other liabilities and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit . the level of the unfunded reserve is adjusted by recording an expense or recovery in other noninterest expense . management 's evaluation of the appropriateness of the reserve for credit losses is often the most critical of accounting estimates for a financial institution . our determination of the amount of the reserve for credit losses is a critical accounting estimate as it requires significant reliance on the accuracy of credit risk ratings of individual borrowers , the use of estimates and significant judgment as to the amount and timing of expected future cash flows on impaired loans , significant reliance on estimated loss rates on homogenous portfolios , and consideration of our quantitative and qualitative evaluation of economic factors and trends . while our methodology in establishing the reserve for credit losses attributes portions of the allowance and unfunded reserve to the commercial and consumer portfolio segments , the entire allowance and unfunded reserve is available to absorb credit losses inherent in the total loan and lease portfolio and total amount of unfunded credit commitments , respectively . the reserve for credit losses related to our commercial portfolio segment is generally most sensitive to the accuracy of credit risk ratings assigned to each borrower . commercial loan risk ratings are evaluated based on each situation by experienced senior credit officers and are subject to periodic review by an independent internal team of credit specialists . the reserve for credit losses related to our consumer portfolio segment is generally most sensitive to economic assumptions and delinquency trends . the reserve for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses . relevant factors include , but are not limited to , concentrations of credit risk ( geographic , large borrower , and industry ) , economic trends and conditions , changes in underwriting standards , experience and depth of lending staff , trends in delinquencies , and the level of criticized and classified loans . see note 4 to the consolidated financial statements and the “ corporate risk profile – credit risk ” section in management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) for more information on the allowance and the unfunded reserve . fair value measurements fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs . for financial instruments that are traded actively and have quoted market prices or observable market inputs , there is minimal subjectivity involved in measuring fair value . however , when quoted market prices or observable market inputs are not fully available , significant management judgment may be necessary to estimate fair value . in developing our fair value measurements , we maximize the use of observable inputs and minimize the use of unobservable inputs . 21 the fair value hierarchy defines level 1 valuations as those based on quoted prices , unadjusted , for identical instruments traded in active markets . level 2 valuations are those based on quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , or model-based valuation techniques for which all significant assumptions are observable in the market . level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market , or significant management judgment or estimation , some of which may be internally developed . financial assets that are recorded at fair value on a recurring basis include available-for-sale investment securities , loans held for sale , mortgage servicing rights , investments related to deferred compensation arrangements , and derivative financial instruments . as of december 31 , 2019 , and december 31 , 2018 , $ 2.7 billion or 15 % and $ 2.1 billion or 12 % , respectively , of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities measured using information from a third-party pricing service . story_separator_special_tag these investments in debt securities and mortgage-backed securities were all classified in either levels 1 or 2 of the fair value hierarchy . financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments . as of december 31 , 2019 , and december 31 , 2018 , $ 6.4 million and $ 9.7 million , respectively , or less than 1 % of our total liabilities consisted of financial liabilities recorded at fair value on a recurring basis . as of december 31 , 2019 , and december 31 , 2018 , level 3 financial assets recorded at fair value on a recurring basis were $ 29.7 million and $ 15.1 million , respectively , or less than 1 % of our total assets , and were comprised of mortgage servicing rights and derivative financial instruments . as of december 31 , 2019 , and december 31 , 2018 , level 3 financial liabilities recorded at fair value on a recurring basis were $ 6.1 million and $ 9.4 million , respectively , or less than 1 % of our total liabilities , and were comprised of derivative financial instruments . our third-party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors , omissions , or defects . as a result , we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service such as : 1 ) our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities . we review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy . this documentation is periodically updated by our third-party pricing service . accordingly , transfers of securities within the fair value hierarchy are made if deemed necessary . 2 ) on a quarterly basis , management also selects a sample of securities priced by the company 's third-party pricing service and reviews the significant assumptions and valuation methodologies used by the pricing service with respect to those securities . the information provided is comprised of market reference data , which may include reported trades ; bids , offers , or broker-dealer dealer quotes ; benchmark yields and spreads ; as well as other reference data as appropriate . periodically , based on these reviews , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 3 ) on a quarterly basis , management reviews the pricing information received from our third-party pricing service . this review process includes a comparison to a second source . 4 ) our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices . periodically , we will challenge the quoted prices provided by our third-party pricing service . our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us . our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis . generally , we do not adjust the price from the third-party service provider . 5 ) on an annual basis , we obtain and review the third-party 's most recently issued service organization controls report related to controls placed in operation and tests of operating effectiveness , to update our understanding of the third-party pricing service 's control environment . based on the composition of our investment securities portfolio , we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements . see note 21 to the consolidated financial statements for more information on our fair value measurements . income taxes we determine our liabilities for income taxes based on current tax regulations and interpretations in tax jurisdictions where our income is subject to taxation . currently , we file tax returns for federal , and in six state and local domestic jurisdictions , and four foreign jurisdictions . in estimating income taxes payable or receivable , we assess the relative merits and risks of the appropriate tax treatment considering statutory , judicial , and regulatory guidance in the context of each tax position . accordingly , previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes . changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates , interpretations of tax law , the status of examinations being conducted by various taxing authorities , and newly enacted statutory , judicial and regulatory guidance that impact the relative merits and risks of each tax position . these changes , when they occur , may affect the provision for income taxes as well as current and deferred income taxes , and may be significant to our statements of income and condition . 22 management 's determination of the realization of net deferred tax assets is based upon management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized . as of december 31 , 2019 , and december 31 , 2018 , we carried a valuation allowance of $ 2.5 million and $ 1.1 million , respectively , related to our deferred tax assets established in connection with our low-income housing investments .
| the effective tax rate was 20.96 % in 2019 compared to 18.73 % in 2018. this increase was primarily due to a reduced tax benefit from municipal bonds , which were sold in 2019 as part of a portfolio repositioning . we recorded a $ 16.0 million provision for credit losses in 2019 compared to a $ 13.4 million provision recorded in 2018 . the provision recorded was based on our determination that the allowance for loan and lease losses should be $ 110.0 million as of december 31 , 2019. we maintained a strong balance sheet throughout 2019 , with what we believe are adequate reserves for credit losses , and high levels of liquidity and capital . total loans and leases were $ 11.0 billion as of december 31 , 2019 , an increase of $ 0.5 billion or 5 % from december 31 , 2018 primarily due to growth in many of our commercial and consumer loan and lease portfolios partially offset by a decrease in lease financing . 24 the allowance for loan and lease losses ( the “ allowance ” ) was $ 110.0 million as of december 31 , 2019 , an increase of $ 3.3 million or 3 % from december 31 , 2018 . the ratio of our allowance to total loans and leases outstanding decreased to 1.00 % as of december 31 , 2019 , compared to 1.02 % as of december 31 , 2018 . the level of our allowance was commensurate with the company 's credit risk profile , loan portfolio growth and composition , and a stable hawaii economy . the total carrying value of our investment securities portfolio was $ 5.7 billion as of december 31 , 2019 , an increase of $ 171.3 million or 3 % from december 31 , 2018 , primarily due to an increase in mortgage-backed securities . government national mortgage association ( “ ginnie mae ” ) mortgage-backed securities continue to be the
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we now expect that the migration process could extend through 2017. this extended migration process will result in us incurring additional one-time costs associated with , among other things , maintaining the ntelos core network , providing additional customer care and , in certain circumstances , customer device replacement . we expect that the aggregate amount of non-recurring costs associated with the merger and the sprint transactions could be as much as twice the amount of our previous estimates . we are in discussions with sprint on potential ways to mitigate the incremental costs associated with the extended migration process . network vision in february 2012 , the company amended its management agreement with sprint in connection with the company 's commitment to build a 4g lte network in the company 's service area . replacement of base stations began in may 2012 , proceeded slowly through that august , and accelerated that fall . during 2012 , the company completed upgrades to 200 base stations , and during 2013 , completed upgrades to substantially all of its 526 total base stations . based upon the initial timetable and revisions , the company determined that changes to the remaining depreciable lives for base stations and certain other assets were required , adding $ 3.2 million of additional depreciation expense to 2013 's results . the 4g lte base stations require either fiber or microwave backhaul . accordingly , the company replaced the copper-based t1 circuits it previously had or leased with fiber and microwave technology . in addition to incurring the costs to install the new backhaul facilities , the company incurred duplicate network costs during the replacement period for each base station , early termination fees , and higher monthly costs of the higher capacity circuits ( though much less expensive per megabit of capacity ) following the upgrade . however , the additional capacity of the new fiber-based backhaul facilities will delay the need to further upgrade its capacity to accommodate additional network traffic . during 2013 , based upon company projections , the company determined that microwave equipment used to backhaul wireless traffic from approximately 150 of its cell sites would be inadequate to carry its traffic by 2016 , and accordingly , reduced the remaining useful life of this class of assets . critical accounting policies the company relies on the use of estimates and makes assumptions that affect its financial condition and operating results . these estimates and assumptions are based on historical results and trends as well as the company 's forecasts as to how these might change in the future . the most critical accounting policies that materially affect the company 's results of operations include the following : 42 revenue recognition the company recognizes revenue when persuasive evidence of an arrangement exists , services have been rendered or products have been delivered , the price to the buyer is fixed and determinable and collectability is reasonably assured . revenues are recognized by the company based on the various types of transactions generating the revenue . for services , revenue is recognized as the services are performed . for equipment sales , revenue is recognized when the sales transaction is complete . under the sprint management agreement , postpaid wireless service revenues are reported net of an 8 % management fee and , since its imposition effective january 1 , 2007 , a net service fee retained by sprint . initially set at 8.8 % , the net service fee increased to 12 % during 2010 and to 14 % , the maximum allowed , in august 2013. prepaid wireless service revenues are reported net of a 6 % management fee . allowance for doubtful accounts estimates are used in determining the allowance for doubtful accounts and are based on historical collection and write-off experience , current trends , credit policies , and the analysis of the accounts receivable by aging category . in determining these estimates , the company compares historical write-offs in relation to the estimated period in which the subscriber was originally billed . the company also looks at the historical average length of time that elapses between the original billing date and the date of write-off and the financial position of its larger customers in determining the adequacy of the allowance for doubtful accounts . from this information , the company assigns specific amounts to be applied against the outstanding receivables . the company does not carry an allowance for receivables related to sprint pcs customers . in accordance with the terms of the affiliate contract with sprint , the company receives payment from sprint for the monthly net billings to pcs customers in weekly installments over the following four or five weeks . income taxes income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates 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 evaluates the recoverability of deferred tax assets generated on a state-by-state basis from net operating losses apportioned to that state . management uses a more likely than not threshold to make the determination if a valuation allowance is warranted for tax assets in each state . management evaluates the effective rate of taxes based on apportionment factors , the company 's operating results , and the various state income tax rates . leases the company recognizes rent expense on a straight-line basis over the initial lease term and renewal periods that are reasonably assured at the inception of the lease . story_separator_special_tag in light of the company 's investment in each leased site , including acquisition costs and leasehold improvements , the company includes the exercise of certain renewal options in the recording of operating leases . where the company is the lessor , the company recognizes revenue on a straight line basis over the non-cancelable term of the lease . 43 long-lived assets the company views the determination of the carrying value of long-lived assets as a significant accounting estimate since the company must determine an estimated economic useful life in order to properly amortize or depreciate long-lived assets and because the company must consider if the value of any long-lived assets have been impaired , requiring adjustment to the carrying value . economic useful life is the duration of time the asset is expected to be productively employed by us , which may be less than its physical life . the company 's assumptions on obsolescence , technological advances , and other factors affect the determination of estimated economic useful life . the estimated economic useful life of an asset is monitored to determine if it continues to be appropriate in light of changes in business circumstances . for example , technological advances may result in a shorter estimated useful life than originally anticipated . in such a case , the company would depreciate the remaining net book value of the asset over the new estimated remaining life , increasing depreciation expense on a prospective basis . during 2013 , based upon company projections , the company determined that microwave equipment used to backhaul wireless traffic from approximately 150 of its cell sites would be inadequate to carry its traffic by 2016 , and accordingly , reduced the remaining useful life of this class of assets . additional depreciation expense was $ 1.2 million in 2014 and was not significant in 2013. intangible assets cable franchises , included in intangible assets , net , provide us with the non-exclusive right to provide video services in a specified area . while some cable franchises are issued for a fixed time ( generally 10 years ) , renewals of cable franchises have occurred routinely and at nominal cost . moreover , we have determined that there are currently no legal , regulatory , contractual , competitive , economic or other factors that limit the useful lives of our cable franchises . cable franchise rights and other intangible assets with indefinite lives are not amortized but are tested at least annually for impairment . the testing is performed on the value as of november 30 each year , and is generally composed of comparing the book value of the assets to their estimated fair value . cable franchises are tested for impairment on an aggregate basis , consistent with the management of the cable segment as a whole , utilizing a greenfield valuation approach . it is the company 's practice to engage an independent appraiser to prepare these fair value analyses . intangible assets that have finite useful lives are amortized over their useful lives . acquired subscriber base assets are amortized using accelerated amortization methods over the expected period in which those relationships are expected to contribute to our future cash flows . other finite-lived intangible assets are generally amortized using the straight-line method of amortization . other the company does not have any unrecorded off-balance sheet transactions or arrangements ; however , the company has significant commitments under operating leases . 44 results of continuing operations 2015 compared to 2014 consolidated results the company 's consolidated results from continuing operations for the years ended december 31 , 2015 and 2014 are summarized as follows : replace_table_token_7_th operating revenues operating revenues increased $ 15.5 million , or 4.8 % . cable segment revenue grew $ 13.1 million , primarily as a result of a 5.4 % growth in average subscriber counts and an increase in revenue per subscriber . wireless segment revenues increased $ 1.3 million compared to 2014. net prepaid service revenue increased $ 4.3 million , primarily due to 4.5 % growth in average prepaid subscribers over 2014 and higher average revenue per subscriber due to improvements in product mix . net postpaid service revenues decreased $ 2.7 million as a 6.7 % increase in average postpaid subscribers was more than offset by lower revenue service plans associated with handset financing and leasing programs . wireline segment revenue increased $ 4.4 million , led by growth in carrier access fees , fiber revenues , and internet service revenues . affiliate revenues increased $ 3.3 million . affiliate revenues are eliminated from the consolidated totals shown in the table above . operating expenses total operating expenses increased $ 3.4 million , or 1.3 % , in 2015 compared to 2014. cost of goods and services sold decreased $ 8.4 million , primarily due to an $ 11.8 million decrease in pcs postpaid and prepaid handset costs , partially offset by a $ 4.1 million increase in cable programming and retransmission consent costs . selling , general and administrative expenses increased $ 7.0 million , driven by $ 3.5 million of expenses associated with the pending acquisition of ntelos and by a $ 1.8 million increase to support growth of the wireless prepaid business . depreciation and amortization expense increased $ 4.8 million , due to a one-time unfavorable adjustment of $ 2.0 million cumulative impact of additional depreciation on certain assets placed into service in one year and closed out in the fixed asset system in a subsequent year , and to ongoing projects to expand and upgrade the wireless , cable and fiber networks . other expense , net interest expense decreased $ 0.8 million in 2015 from 2014. the decrease resulted from a combination of lower outstanding balances due to principal paydowns in 2015 , as well as a decrease in the base rate of 0.25 % effective may of 2015 due to improvements in the company 's leverage ratio . each of these factors contributed approximately $ 0.4 million to the decrease .
| disposal costs increased $ 1.6 million , as the company disposed of obsolete equipment that had been taken out of service while upgrading the cable and wireline networks . the increase in disposal costs was offset by reductions in network costs , driven primarily by lower third party backhaul expenses along with an increase in network engineering labor capitalized to projects . selling , general and administrative expenses increased $ 1.7 million , due to higher personnel costs , partially offset by lower advertising and bad debt expenses . depreciation and amortization expense increased $ 5.2 million , primarily due to completion of the network vision and cable network upgrade projects . income tax expense the company 's effective tax rate decreased from 40.2 % in 2013 to 39.5 % in 2014. the 2013 period included $ 0.5 million in unfavorable adjustments from finalizing the estimated effects of restructuring entities during 2012. the 2014 period included $ 0.2 million in favorable adjustments to estimates made for the 2013 federal and state returns filed in september 2014 . 53 net income net income increased $ 4.3 million , or 14.5 % , in 2014 from 2013 , reflecting growth in subscriber counts and revenue per subscriber in the wireless segment , partially offset by increases in operating expenses incurred in support of this growth . wireless replace_table_token_15_th operating revenues wireless service revenue increased $ 8.2 million , or 4.5 % , for 2014 over 2013. net postpaid service revenues increased $ 5.0 million , or 3.5 % , driven by 4.7 % year-over-year growth in average postpaid subscribers . the net service fee increased from 12 % of net billed revenues to 14 % on august 1 , 2013 , reducing net postpaid service revenue by $ 2.1 million , or approximately $ 0.3 million per month . net prepaid service revenues grew $ 3.2 million , or 7.9 % . average prepaid subscribers increased 4.9 % in 2014 over 2013 , with changes in the mix of subscribers accounting for the remainder of the increase in prepaid service revenues . the decrease in tower lease revenue resulted from
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freight , delivery and warehousing costs for the year ended december 31 , 2018 increased by 25 % to $ 34,616 , as compared to $ 27,750 in 2017. when expressed as a percentage of sales , freight costs decreased slightly year over year to 7.6 % in 2018 , as compared to 7.8 % in 2017. this is mainly due to product mix and locations of customers . net interest expense was $ 4,024 in 2018 , as compared to $ 1,941 in 2017. interest costs are summarized in the following table : replace_table_token_8_th the company 's average overall debt for the year ended december 31 , 2018 was $ 93,346 , as compared to $ 51,103 for the year ended december 31 , 2017. on a gross basis , our effective interest rate increased on our working capital revolver to 3.6 % , as compared to 3.0 % in 2017. this increase was driven by increases in the libor rate . after adjustments related to capitalized interest and including expenses related to the amortization of deferred liabilities , the overall effective rate was 4.3 % for 2018 , as compared to 3.8 % in 2017 . 23 on december 22 , 2017 , the tax cuts and jobs act ( the “ tax r eform act ” ) was signed into law . the l egislation significantly changed u.s. tax law by , among other things , lowering corporate income tax rates , implementing a territorial tax system and imposing a tax on deemed repatriated earnings of foreign subsidiar ies . the tax reform act reduced the u.s. corporate income tax rate from a maximum of 35 % to a flat 21 % rate , effective january 1 , 2018. as a result of the reduction in the u.s. corporate income tax rate , we revalued our ending net deferred tax assets and liab ilities at december 31 , 2017 , provisionally resulting in a deferred tax benefit of $ 4,683 that is included in the provision for income taxes for the year ended december 31 , 2017. the tax reform act also provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits ( “ e & p ” ) through the year ended december 31 , 2017. during 2017 , we had performed a n initial review of our foreign entities and estimated that the amount of deemed repatriated income amount s to $ 30,085 , on which the company included a tax expense of $ 1,250. during 2018 , the company obtained additional information and , as a result , adjusted its estimate . accordingly , the amount of deemed repatriated income increased to $ 32,305 , and the associated tax increased to $ 2,339 resulting in a one-time adjustment to tax expense in the amount of $ 1,089 rel ated to the transition tax element of the tax reform act . our provision for income taxes for 2018 was $ 9,145 , as compared to $ 4,443 for 2017. the effective tax rate for 2018 was 27.2 % , as compared to 17.9 % in 2017. the increase in our effective tax rate was primarily driven by the inclusion of the one-time adjustment of $ 1,089 related to the transition tax element of the tax cuts and jobs act . if this transition tax adjustment were to be excluded , the effective tax rate would have been 24.0 % . the sec staff issued staff accounting bulletin 118 , ( “ sab 118 ” ) which provides guidance on accounting for the tax effects of the tax act . sab 118 provides a measurement period that should not extend beyond one year from the tax act enactment date for companies to complete the accounting under accounting standards codification 740 ( “ asc 740 ” ) . the company completed its assessment under sab 118 within the one year time period as required under the guidance . the company is subject to u.s. federal income tax as well as to income tax in multiple state jurisdictions . federal income tax returns of the company are subject to international revenue ( “ irs ” ) examination for the 2015 through 2017 tax years . state income tax returns are subject to examination for the 2014 through 2017 tax years . the company has other foreign income tax returns subject to examination . for the year ended december 31 , 2018 , the company recorded net losses on its equity investments of $ 389. for 2017 , the company recorded losses on its equity investments of $ 49. in 2018 , our net income benefited by $ 133 , as compared to being reduced by $ 87 in 2017 , representing the share of net income or loss of our majority owned subsidiary that was charged to the non-controlling interest . net income attributable to american vanguard ended at 24,195 or $ 0.81 per diluted share in 2018 as compared to $ 20,274 or $ 0.68 per diluted share in 2017. liquidity and capital resources the company generated $ 11,346 of cash from operating activities provided during the year ended december 31 , 2018 , as compared to $ 59,001 in the prior year . included in the $ 11,346 are net income of $ 24,062 , plus non-cash depreciation , amortization of intangibles and other assets and discounted future liabilities , in the amount of $ 24,134. in addition , stock based compensation of $ 5,805 , loss from equity method investments of $ 389 and change in value of deferred income taxes of $ 561 , provided net cash inflows of $ 53,829 , as compared to $ 47,812 for the same period of 2017. during 2018 , the company used $ 42,483 as a result of increasing working capital , as compared to generating $ 11,189 during 2017. this change excluded increases in working capital related to the products and businesses acquired during 2018. included in this change : inventories increased by $ 31,440 primarily resulting from products and businesses acquired in 2017 , inventories story_separator_special_tag purchased ahead of potential tariff changes and some changes in customer usage in the final quarter of the year . deferred revenue as of december 31 , 2018 increased by $ 5,468 , as compared to december 31 , 2017 , as a result of customer decisions to make early payments in return for early cash incentive programs . our accounts payable balances increased by $ 9,097 driven by increased manufacturing activity and capital spending in the final quarter of the year and accounts receivables increased by $ 21,320 primarily driven by the significantly higher sales in the final three months of 2018 , as compared to the same period of the prior year . in addition , prepaid expenses were reduced by $ 186 , program accruals were reduced by $ 1,705 and other payables and accrued expenses were increased by $ 5,424 . 24 with regard to the program accrual , these changes as noted above , primarily reflect our mix of sales and customers in 2018 as compared to the prior year . the company accrues programs in line with the growing season upon which specific products are targeted . typically crop products have a growing season that ends on september 30 th of each year . during 2018 , the company made accruals for programs in the amount of $ 61,114 and made payments in the amount of $ 62,819. during the prior year , the compan y made accruals in the amount of $ 59,8 40 and made payments in the amount of $ 63 , 716 . in 2017 , inventory reduced by $ 16,183 , accounts payables increased by $ 3,322 , other payables increased by $ 3,841 , accounts receivables decreased by $ 754 , prepaid expenses reduced by $ 647 and deferred revenues increased by $ 10,726. offsetting these positive changes , income tax payable decreased by $ 12,073 , and accrued programs decreased by $ 4,529. cash used for investing activities was $ 27,697 for the year ended december 31 , 2018 , as compared to $ 89,512 in 2017. the company spent $ 19,647 in business and product acquisitions including intangible assets , goodwill , working capital and fixed assets . in addition , $ 8,050 was spent on fixed assets primarily focused on continuing to invest in manufacturing infrastructure . during the year ended december 31 , 2018 , financing activities provided $ 11,133 , principally from the borrowings on the company 's senior credit facility , as compared to utilizing $ 33,935 for the year ended december 31 , 2017. this included a net borrowing of $ 18,975 from our credit facility in 2018 , as compared to a net repayment of $ 37,025 in 2017. during the final quarter of the year , we paid $ 73 to buy out the non-controlling interest in a consolidated subsidiary . finally , during the year , we paid dividends to stockholders amounting to $ 2,199 ( $ 1,600 in 2017 ) , and purchased the company 's common stock at market for $ 7,287. the company has various loans in place that together constitute the long-term loan balances shown in the consolidated balance sheets as at december 31 , 2018 and 2017. these are summarized in the following table : replace_table_token_9_th the company 's main bank is bank of the west , a wholly-owned subsidiary of the french bank , bnp paribas . bank of the west has been the company 's bank for more than 30 years and is the syndication manager for the company 's loans . as of june 30 , 2017 , amvac chemical corporation ( “ amvac ” ) , the company 's principal operating subsidiary , as borrower , and affiliates ( including the company , amvac cv and amvac bv ) , as guarantors and or borrowers , entered into a third amendment to second amended and restated credit agreement ( the “ credit agreement ” ) with a group of commercial lenders led by bank of the west as agent , swing line lender and letter of credit ( “ l/c ” ) issuer . the credit agreement is a senior secured lending facility , consisting of a line of credit of up to $ 250,000 , an accordion feature of up to $ 100,000 and a maturity date of june 30 , 2022. the credit agreement contains two key financial covenants ; namely , borrowers are required to maintain a consolidated funded debt ratio of no more than 3.25-to-1 and a consolidated fixed charge covenant ratio of at least 1.25-to-1 . the company 's borrowing capacity varies with its financial performance , measured in terms of ebitda as defined in the credit agreement , for the trailing twelve-month period . under the credit agreement , revolving loans bear interest at a variable rate based , at borrower 's election with proper notice , on either ( i ) libor plus the “ applicable rate ” which is based upon the consolidated funded debt ratio ( “ eurocurrency rate loan ” ) or ( ii ) the greater of ( x ) the prime rate , ( y ) the federal funds rate plus 0.5 % , and ( z ) the daily one-month libor rate plus 1.00 % , plus , in the case of ( x ) , ( y ) or ( z ) the applicable rate ( “ alternate base rate loan ” ) . interest payments for eurocurrency rate loans are payable on the last day of each interest period ( either one , two , three or six months , as selected by the borrower ) and the maturity date , while interest payments for alternate base rate loans are payable on the last business day of each month and the maturity date .
| the relative sales performance of our crop and non-crop businesses is as follows : net sales of our crop business in 2018 were $ 392,305 , which constitutes an increase of 30 % as compared to net sales of $ 301,409 in 2017. net sales of our non-crop products in 2018 were $ 61,967 , which is an increase of approximately 16 % as compared to $ 53,638 in 2017. a more detailed discussion of product groups and products having an effect on net sales for each of the crop and non-crop businesses appears below . 21 in our crop business , net sales of insecticides in 201 8 ended at $ 150,595 , which was a 1 2 % increase , as compared to sales of $ 134,377 in 2017. the increase in sales was driven primarily by the f u ll yea r effect of sales of our c entral american distribution business acquired in the final quarter of 2017. this performance was somewhat offset by a reduction of 7 % in net sales of our granular soil insecticides , as compared to net sales in 2017. furthermore , we recorded reduced year-over-year sales for our aztec and smartchoice csi products for corn and for our thimet® used in peanuts , sugar cane and potatoes , primarily due to lower planted acres in the united states for both corn and peanuts in 2018. we had r elatively flat year-over-year sales for our nematicide counter® in the domestic corn and sugar beet segments along with slight increases in the combined international sales of mocap® and nemacur® . in our foliar insecticide category , we had relatively lowe r in-season infestation pressure , which reduced our year-over-year bidrin® sales somewhat , but was more than offset by sales from our abamectin product line acquired in 2017 . within the product group of herbicides/soil fumigants/fungicides , our crop net sales grew over 47 % in 2018 , ending at $ 183,350 , as compared to $ 124,529 in 2017. our sales growth was primarily driven by the full year effect of sales of our central american distribution business acquired in the final quarter of 2017. in addition , our fumigant product line continued to perform well , increasing 8 % above 2017 , benefiting from more favorable weather conditions at the time of application in the pacific northwest and the southeast united states . in the herbicide portion of this group , we had stronger performance from our
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we anticipate the total spending on u.s. onshore projects to decrease in 2020 from 2019 levels as operators act on adjusted capital budgets , however we believe the bottom has been reached in the fourth quarter of 2019 and will stabilize in 2020 at those levels . in 2019. the u.s. onshore market went through a disciplined spending cutback to ensure operations were within capital budget constraints which drove this market downward . we believe this cash flow discipline will continue through 2020. for our tubular running services segment , we expect both the u.s. and international offshore markets to see moderate growth . this business is typically associated with higher margin projects which we anticipate will evolve our margin profile during 2020. we do , however , anticipate that competitive pricing is likely to persist and that could serve to limit our growth . in 2018 and 2019 , we made market share gains globally and expect we will sustain those gains in the future . our client base continues to expand as drilling contractors and integrated service providers look for differentiated technology and efficiency-based solutions . our u.s. onshore operations are expected to see a reduction from 2019 , however we also anticipate a gradual improvement beginning in the second quarter as budgets are replenished and as drilling activity levels rebound slowly from what we believe is near bottom levels in the fourth quarter of 2019. the tubulars segment is primarily driven by specialized needs of our customers and the timing of projects , specifically in the gulf of mexico . we expect to benefit from increased sales in select international markets that are predicted to supplement our flat to slightly down outlook in the offshore gulf of mexico . our drilling tools service line continues to expand from the introduction of new tools and we anticipate this service line will grow well beyond market rates during the coming year as these new offerings penetrate both the u.s. and international markets . similarly , our tubulars product line is anticipated to benefit from greater demand during 2020 than that which was seen during 2019 as customer inventories are diminished and offshore activity increases . the cementing equipment segment product and service lines are expected to see incremental improvement year over year in offshore markets . the u.s. onshore products and services will likely follow the u.s. onshore trend of bottoming in the fourth quarter of 2019 and demonstrate slow improvement beginning in the second quarter of 2020. as in 2019 , the growth of cementing equipment into international offshore markets is expected to again see a sequential improvement as new equipment is built , certified and deployed in these markets . the u.s. gulf of mexico market is expected to see a slight increase matching market growth rates . 40 in furtherance of our operational efforts and in light of prolonged challenging market conditions , we completed a comprehensive review of our geographic footprint , ongoing initiatives , cost structure and asset base . the review identified areas for profitability improvement across the organization and actions have begun in several business areas which are designed to increase profitability by $ 30 million in 2020. this included a company-wide restructuring announced during the fourth quarter of 2019. alongside this restructuring , our project and initiative review also led us to conclude it was appropriate to impair and reserve a meaningful amount of our construction in progress as we challenged commercialization plans for some of our in-flight engineering efforts . overall , we expect continued but modest improvement in both customer spend and activity through 2020 in the offshore and international markets , which will be offset by the ongoing retraction in u.s. onshore spending on a year over year basis . we will continue our efforts to expand our newer service and product lines that have been historically weighted to the u.s. offshore market , focusing on international markets which have been historically underrepresented by the cementing equipment and tubulars segments . we will also place a strong focus on operational efficiency gains and prioritizing projects that improve market share and profitability . we remain in a strong position financially with a significant cash balance relative to our debt . how we evaluate our operations we use a number of financial and operational measures to routinely analyze and evaluate the performance of our business , including revenue , adjusted ebitda , adjusted ebitda margin and safety performance . revenue we analyze our revenue growth by comparing actual monthly revenue to our internal projections for each month to assess our performance . we also assess incremental changes in our monthly revenue across our operating segments to identify potential areas for improvement . adjusted ebitda and adjusted ebitda margin we define adjusted ebitda as net income ( loss ) before interest income , net , depreciation and amortization , income tax benefit or expense , asset impairments , gain or loss on disposal of assets , foreign currency gain or loss , equity-based compensation , unrealized and realized gain or loss , the effects of the tra , other non-cash adjustments and other charges or credits . adjusted ebitda margin reflects our adjusted ebitda as a percentage of our revenue . we review adjusted ebitda and adjusted ebitda margin on both a consolidated basis and on a segment basis . we use adjusted ebitda and adjusted ebitda margin to assess our financial performance because it allows us to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure ( such as varying levels of interest expense ) , asset base ( such as depreciation and amortization ) , items outside the control of our management team ( such as income tax and foreign currency exchange rates ) and other charges outside the normal course of business . story_separator_special_tag adjusted ebitda and adjusted ebitda margin have limitations as analytical tools and should not be considered as an alternative to net income ( loss ) , operating income ( loss ) , cash flow from operating activities or any other measure of financial performance presented in accordance with generally accepted accounting principles in the u.s. ( “ gaap ” ) . 41 the following table presents a reconciliation of adjusted ebitda and adjusted ebitda margin to net loss for each of the periods presented ( in thousands ) : replace_table_token_3_th ( 1 ) comprised of equity-based compensation expense ( 2019 : $ 11,280 ; 2018 : $ 10,621 ; 2017 : $ 13,862 ) , mergers and acquisition expense ( 2019 : none ; 2018 : $ 58 ; 2017 : $ 459 ) , unrealized and realized ( gains ) losses ( 2019 : $ ( 228 ) ; 2018 : $ ( 1,682 ) ; 2017 : $ 2,791 ) , investigation-related matters ( 2019 : $ 3,838 ; 2018 : $ 5,454 ; 2017 : $ 6,143 ) and other adjustments ( 2019 : $ ( 957 ) ; 2018 : none ; 2017 : $ 487 ) . safety performance safety is one of our primary core values . maintaining a strong safety record is a critical component of our operational success . many of our customers have safety standards we must satisfy before we can perform services . as a result , we continually monitor and improve our safety performance through the evaluation of safety observations , job and customer surveys , and safety data . the primary measure for our safety performance is the tracking of the total recordable incident rate ( “ trir ” ) . trir is a measure of the rate of recordable workplace injuries , normalized on the basis of 100 full time employees for an annual period . the factor is derived by multiplying the number of recordable injuries in a calendar year by 200,000 and dividing this value by the total hours actually worked in the year . a recordable injury includes occupational death , nonfatal occupational illness , and other occupational injuries that involve loss of consciousness , lost time injuries , restriction of work or motion cases , transfer to another job , or medical treatment cases other than first aid . the table below presents our worldwide trir for the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_4_th 42 results of operations the following table presents our consolidated results for the periods presented ( in thousands ) : replace_table_token_5_th ( 1 ) for the year ended december 31 , 2018 , $ 28,946 and $ 8,246 have been reclassified from general and administrative expenses and cost of revenue , products , respectively , to cost of revenue , services . for the year ended december 31 , 2017 , $ 34,486 and $ 15,492 have been reclassified from general and administrative expenses and cost of revenue , products , respectively , to cost of revenue , services . see note 1—basis of presentation and significant accounting policies in the notes to consolidated financial statements . ( 2 ) please see note 12—related party transactions in the notes to consolidated financial statements for further discussion . story_separator_special_tag decreased by $ 10.8 million , or 8.9 % , to $ 111.3 million from $ 122.1 million for the year ended december 31 , 2017 , as a result of a lower depreciable asset base and decreased intangible asset amortization expense . severance and other charges ( credits ) , net . severance and other charges ( credits ) , net for the year ended december 31 , 2018 changed by $ 75.7 million to a credit of $ 0.3 million from a charge of $ 75.4 million for the year ended december 31 , 2017. in 2017 , we recorded impairments of our pipe and connectors inventory of $ 51.2 million and accounts receivable write offs of $ 15.0 million related to venezuela , nigeria and angola . during the fourth quarter of 2017 , management decided to significantly reduce our footprint in nigeria and angola by exiting certain bases and temporarily abandoning our investment in venezuela . in 2018 , we recovered $ 4.9 million of previously written off receivables from a customer in angola . see note 18—severance and other charges ( credits ) , net in the notes to consolidated financial statements for additional information . foreign currency gain ( loss ) . foreign currency gain ( loss ) for the year ended december 31 , 2018 changed by $ 7.8 million to a loss of $ 5.7 million from a gain of $ 2.1 million for the year ended december 31 , 2017. the change in foreign currency results was primarily driven by the strengthening of the u.s. dollar against other currencies . income tax expense ( benefit ) . income tax expense ( benefit ) for the year ended december 31 , 2018 changed by $ 75.9 million to a benefit of $ 3.0 million from an expense of $ 72.9 million for the year ended december 31 , 2017. the effective income tax rate was 3.1 % and ( 84.3 ) % for the years ended december 31 , 2018 and december 31 , 2017 , respectively . the change from 2017 to 2018 was primarily because in 2017 we : ( 1 ) recorded valuation allowances against our net deferred tax assets , ( 2 ) reversed deferred taxes in conjunction with the derecognition of the tra , and ( 3 ) recorded the effect of a change in u.s. federal income tax rates on our deferred tax assets and liabilities . in addition , in 2018 we recorded a deferred tax benefit in conjunction with the reorganization of our intercompany leasing operations .
| we recognized a goodwill impairment of $ 111.1 million for the year ended december 31 , 2019 . there was no goodwill impairment charge during the year ended december 31 , 2018 . see note 1 —basis of presentation and significant accounting policies in the notes to consolidated financial statements for additional information . severance and other charges ( credits ) , net . severance and other charges ( credits ) , net for the year ended december 31 , 2019 increased by $ 50.7 million to a charge of $ 50.4 million from a credit of $ 0.3 million for the year ended december 31 , 2018 . severance and other charges ( credits ) , net for the year ended december 31 , 2019 was unfavorably impacted by fixed asset impairment charges of $ 32.9 million , intangible asset impairments of $ 3.3 million , inventory impairments of $ 4.5 million and severance and other costs of $ 9.7 million , primarily made in conjunction with our business review conducted during the fourth quarter of 2019. severance and other charges ( credits ) , net for the year ended december 31 , 2018 was favorably impacted by the recovery of accounts receivable previously written off in angola . see note 18 — severance and other charges ( credits ) , net in the notes to consolidated financial statements for additional information . foreign currency gain ( loss ) . foreign currency gain ( loss ) for the year ended december 31 , 2019 decreased by $ 3.4 million to $ 2.2 million from $ 5.7 million for the year ended december 31 , 2018 . the change in foreign currency results year-over-year was primarily driven by reduced strengthening of the u.s. dollar in the current period as compared to the prior year period , particularly in comparison to the norwegian krone , euro , and brazilian real . income tax expense ( benefit ) . income tax expense ( benefit ) for the year ended december 31 , 2019 changed by $ 26.7 million to an expense of $ 23.8 million from
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we are undertaking further studies on oral mucositis at this time before determining to proceed with a phase 2 clinical trial . our probiotic products we are marketing a variety of probiotic products that we developed . our probiotic products contain the active ingredient probiora3 , a patented blend of oral care probiotics that promote fresher breath , whiter teeth and support overall oral health . we have conducted scientific studies on probiora3 in order to market our products under self-affirmed generally recognized as safe status ( gras ) . we have historically sold our probiora3 products through multiple distribution channels . we continue to seek improvement in the performance of our oral care probiotics products , to better serve our customers , and we continue to evaluate new delivery systems , which we believe will enable us to deliver probiora3 to new markets and end-users . since initial commercialization of our probiora3 products we have attempted to improve market awareness and sales of our oral probiotic product line with limited success to date and we have reduced our marketing expenditures accordingly to focus more on lantibiotics . the allocation of limited financial resources between research and development of lantibiotics for our other product candidates and sale and marketing efforts for our probiora3 products , among other factors , resulted in our december 2014 announcement that we would seek to explore strategic alternatives for the probiotic business . these alternatives could include joint ventures , strategic partnerships or alliances , a sale of the probiotic products business or other possible transactions . there can be no assurance that a transaction or agreement , will be consummated with terms favorable to us , if at all . other product candidates and technologies in addition to our lantibiotics and oral mucositis product candidates , we also have other candidates and technologies in the oral care and weight loss areas . we do not intend to continue to develop these potential product candidates and technologies without partnering with a third party . we out-licensed the continued research and development of our weight loss product candidate in december 2013 to , lpthera llc , a newly formed entity . recent developments as of december 31 , 2015 we had an accumulated deficit of $ 87,655,968 and we have yet to achieve profitability . we incurred net losses of $ 11,711,333 and $ 5,789,519 for the years ended december 31 , 2015 and 2014 , respectively . we expect to incur significant and increasing operating losses for the foreseeable future as we seek to advance our product candidates through nonclinical testing and clinical trials to ultimately obtain regulatory approval and eventual commercialization . we need to raise additional capital . the report of our independent registered public accounting firm with respect to our financial statements appearing in our form 10-k contains an explanatory paragraph stating that our operating losses and negative cash flows from operations , and our need to raise additional financing and or financial support prior to june 30 , 2016 in order to continue to fund our operations , raise substantial doubt about our ability to continue as a going concern . there can be no assurance that additional capital will be available to us on acceptable terms , if at all . adequate additional funding may not be available to us on acceptable terms , or at all . we expect that research and development expenses will increase along with general and administrative costs , as we grow and operate our business . about us we were incorporated in november 1996 and commenced operations in 1999. we consummated our initial public offering in june 2003. we have devoted substantially all of our available resources to the commercialization of our probiora3 products as well as our discovery efforts comprising research and development , clinical trials for our product candidates , protection of our intellectual property and the general and administrative support of these operations . we have generated limited revenues from grants and probiora3 product sales through december 31 , 2015 , and have principally funded our operations through the sale of debt and equity securities , including the exercise of warrants issued in connection with these financing transactions . prior to 2008 our revenues were derived solely from research grants . since 2008 , our revenues have also included sales of our probiora3 products , which we initiated in late 2008. for the years ended december 31 , 2015 and 2014 , our net revenues were $ 1,175,841 and $ 939,926 , respectively . 41 financial overview net revenues our revenues are derived from sales of our probiora3 products which were $ 1,175,841 and $ 939,926 for the years ended december 31 , 2015 and 2014 , respectively . future increases in net revenue for our probiora3 products will depend on a number of factors , including our ability to successfully engage in marketing efforts related to our probiora3 products , which we have substantially scaled back . our marketing efforts for our probiora3 products have had limited success to date as revenues have not significantly increased from period to period . we continue to consider options for marketing our probiora3 products that can be cost-effective as we seek to manage the use of our cash resources relative to the research and development we are conducting for our other product candidates . we expect that our future revenues will fluctuate from quarter to quarter as a result of the volume of sales of our products and the amount of license fees , research and development reimbursements , milestone and other payments from any license or strategic partnerships we have entered into or we may enter into in the future . cost of goods sold our cost of goods sold includes the production and manufacture of our probiora3 products , as well as shipping and processing expenses and scrap expense . scrap expense represents product rework charges , inventory adjustments , inventory replacement reserves , and damaged inventory . story_separator_special_tag because our probiora3 products contain live organisms they have a limited shelf life . as such , we attempt to manage the amount of production we request of our manufacturers and the amount of inventory we maintain . we expect our costs of goods sold to increase as we are able to expand our distribution and sales efforts for our probiora3 products . research and development expenses research and development consists of expenses incurred in connection with the discovery and development of our product candidates . these expenses consist primarily of employee-related expenses , which include salaries and benefits and attending science conferences ; expenses incurred under our ecc agreements with intrexon and under other agreements with contract research organizations , investigative sites and consultants that conduct our clinical trials and a substantial portion of our nonclinical studies ; the cost of acquiring and manufacturing clinical trial materials ; facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities and equipment , and depreciation of fixed assets ; license fees , for and milestone payments related to , in-licensed products and technology ; stock-based compensation expense ; and costs associated with nonclinical activities and regulatory approvals . we expense research and development costs as incurred . our research and development expenses can be divided into ( i ) clinical research , and ( ii ) nonclinical research and development activities . clinical research costs consist of clinical trials , manufacturing services , regulatory activities and related personnel costs , and other costs such as rent , utilities , depreciation and stock-based compensation . nonclinical research and development costs consist of our research activities , nonclinical studies , related personnel costs and laboratory supplies , and other costs such as rent , utilities , depreciation and stock-based compensation and research expenses we incur associated with our ecc agreements with intrexon . while we are currently focused on advancing our product development programs , our future research and development expenses will depend on the clinical success of our product candidates , as well as ongoing assessments of each product candidate 's commercial potential . in addition , we can not forecast with any degree of certainty which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans , research expenses and capital requirements . our research and development expenses were $ 8,803,033 and $ 3,065,053 for the years ended december 31 , 2015 and 2014 , respectively . included in research and development expense for 2015 is the non-cash expense of $ 5,000,000 associated with an up-front payment of a technology access fee , consisting of the issuance of a convertible note to intrexon for $ 5,000,000 in connection with the establishment of the oral mucositis ecc with intrexon . the convertible note , including accrued interest , was repaid in december 2015 through the issuance of 3,381,004 shares of our common stock . our current strategy is to increase our research and development expenses in the future as we continue the advancement of our clinical trials and nonclinical product development programs for our mu1140 product candidate and with respect to our oral mucositis product candidate . the lengthy process of completing clinical trials ; seeking regulatory approval for our product candidates ; and expanding the claims we are able to make , requires expenditure of substantial resources . any failure or delay in completing clinical trials , or in obtaining regulatory approvals , could cause a delay in generating product revenues and cause our research and development expenses to increase and , in turn , have a material adverse effect on our operations . our current antibiotic product development candidate is not expected to be commercially available until we are able to obtain regulatory approval from the fda , which is not expected before 2017 . 42 our plan is to budget and manage expenditures in research and development such that they are undertaken in a cost-effective manner yet still advance the research and development efforts . while we have some control under our lantibiotic ecc and oral mucositis ecc as to the planning and timing of the research and development and therefore the timing of when expenditures may be incurred for various phases of agreed upon projects , actual expenditures can vary from period to period . subject to available capital , we expect overall research and development expenses to fluctuate as our financial resources permit . our research and development projects are currently expected to be taken to the point where they can be licensed or partnered with larger pharmaceutical companies . selling , general and administrative expenses selling , general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance , business development , marketing , information technology , legal and human resources functions . other general and administrative expenses include facility costs not otherwise included in research and development expenses , patent filing , and professional fees for legal , consulting , auditing and tax services . we anticipate that our general and administrative expenses may continue to increase for , among others , the following reasons : the exploring of strategic alternatives for , and sales and marketing of , our probiora3 products ; to support our research and development activities , which , subject to available capital , we expect to expand as we continue the development of our product candidates ; the efforts we undertake from , time to time , to raise additional capital ; and the increased payroll , and stock based compensation , expanded infrastructure and higher consulting , legal , accounting and investor relations costs associated with being a public company . our probiora3 marketing plans to date have attempted to strike a balance between the expenses of marketing and the achievement of improved sales .
| other income ( expense ) was $ ( 23,384 ) for the three months ended december 31 , 2015 compared to $ 6,600 in the same period in 2014 ; a change of $ 29,984. the net change was primarily attributable to a decrease in interest income of $ 3,840 due to decreased cash balances during 2015 and an increase in interest expense of $ 25,294 due to increased levels of borrowing in 2015 relating to the convertible note payable to shareholder . for the years ended december 31 , 2015 and 2014 net revenues . we generated net revenues of $ 1,175,841 for the year ended december 31 , 2015 compared to $ 939,926 for the year ended december 31 , 2014 ; an increase of $ 235,915. net revenue consists solely of probiotics sales . 46 cost of sales . cost of sales were $ 481,743 for the year ended december 31 , 2015 compared to $ 369,597 for the year ended december 31 , 2014 ; an increase of $ 112,146. this increase was primarily attributable to an increase in sales of our probiora3 products . gross margin for the year ended december 31 , 2015 was 67.8 % versus 69.9 % for the year ended december 31 , 2014. research and development . research and development expenses were $ 8,803,033 for the year ended december 31 , 2015 compared to $ 3,065,053 for the year ended december 31 , 2014 ; an increase of $ 5,737,980 , or 187.2 % . this increase was primarily due to the payment of a $ 5.0 million technology access fee through the issuance of a convertible note payable to intrexon pursuant to the terms of the our new oral mucositis ecc during the twelve months ended december 31 , 2015. there was no such payment of a technology access fee to intrexon during the twelve month period ending december 31 , 2014. in addition , there was an increase in salary and salary related costs , stock based compensation
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critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to our valuation of inventory , allowance for uncollectable accounts receivable , allowance for sales returns , long-lived assets and deferred income taxes . 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 materially differ from these estimates under different assumptions or conditions . historically , however , actual results have not differed materially from those determined using required estimates . our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report . however , we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions . stock-based compensation we account for stock-based compensation whereby share-based payment transactions with employees , such as stock options and restricted stock , are measured at estimated fair value at date of grant and recognized as compensation expense . 14 revenue recognition sales are recognized and recorded when products are shipped . products are shipped fob shipping point . ubam 's sales are paid at the time the product is shipped . these sales accounted for 65 % and 58 % of net revenues in fiscal years 2015 and 2014 , respectively . estimated allowances for sales returns are recorded as sales are recognized and recorded . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily from the retail stores . the damages occur in the stores , not in shipping to the stores . it is industry practice to accept returns from wholesale customers . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . management has estimated and included a reserve for sales returns of $ 100,000 for the years ended february 28 , 2015 and 2014. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 234,500 and $ 233,900 as of february 28 , 2015 and 2014 , respectively . inventory management continually estimates and calculates the amount of noncurrent inventory . the inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ½ years of anticipated sales was classified as noncurrent inventory . noncurrent inventory balances were $ 718,900 and $ 824,000 at february 28 , 2015 and 2014 , respectively . inventories are presented net of a valuation allowance . management has estimated and included a valuation allowance for both current and noncurrent inventory . this allowance is based on management 's identification of slow moving inventory on hand . management has estimated a valuation allowance for both current and noncurrent inventory of $ 393,100 and $ 378,800 as of february 28 , 2015 and 2014 , respectively . our product line contains approximately 1,500 titles , each with different rates of sale , depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in europe , china , singapore , india , malaysia and dubai resulting in a three to four-month lead-time to have a title reprinted and delivered to us . our principal supplier , based in england , generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run . smaller orders would require a shared print run with the supplier 's other customers , which can result in more lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led management to determine that 2 ½ years represents a reasonable estimate of the normal operating cycle for our products . 15 new accounting pronouncements the financial accounting standards board ( “ fasb ” ) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting . we have reviewed the recently issued pronouncements and concluded that the following recently issued accounting standards apply to us . in april 2014 , fasb issued accounting standards update ( asu ) no . 2014-08 “ reporting discontinued operations and disclosures of disposals of components of an entity , ” which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements . under the new guidance , a discontinued story_separator_special_tag critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to our valuation of inventory , allowance for uncollectable accounts receivable , allowance for sales returns , long-lived assets and deferred income taxes . 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 materially differ from these estimates under different assumptions or conditions . historically , however , actual results have not differed materially from those determined using required estimates . our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report . however , we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions . stock-based compensation we account for stock-based compensation whereby share-based payment transactions with employees , such as stock options and restricted stock , are measured at estimated fair value at date of grant and recognized as compensation expense . 14 revenue recognition sales are recognized and recorded when products are shipped . products are shipped fob shipping point . ubam 's sales are paid at the time the product is shipped . these sales accounted for 65 % and 58 % of net revenues in fiscal years 2015 and 2014 , respectively . estimated allowances for sales returns are recorded as sales are recognized and recorded . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily from the retail stores . the damages occur in the stores , not in shipping to the stores . it is industry practice to accept returns from wholesale customers . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . management has estimated and included a reserve for sales returns of $ 100,000 for the years ended february 28 , 2015 and 2014. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 234,500 and $ 233,900 as of february 28 , 2015 and 2014 , respectively . inventory management continually estimates and calculates the amount of noncurrent inventory . the inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ½ years of anticipated sales was classified as noncurrent inventory . noncurrent inventory balances were $ 718,900 and $ 824,000 at february 28 , 2015 and 2014 , respectively . inventories are presented net of a valuation allowance . management has estimated and included a valuation allowance for both current and noncurrent inventory . this allowance is based on management 's identification of slow moving inventory on hand . management has estimated a valuation allowance for both current and noncurrent inventory of $ 393,100 and $ 378,800 as of february 28 , 2015 and 2014 , respectively . our product line contains approximately 1,500 titles , each with different rates of sale , depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in europe , china , singapore , india , malaysia and dubai resulting in a three to four-month lead-time to have a title reprinted and delivered to us . our principal supplier , based in england , generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run . smaller orders would require a shared print run with the supplier 's other customers , which can result in more lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led management to determine that 2 ½ years represents a reasonable estimate of the normal operating cycle for our products . 15 new accounting pronouncements the financial accounting standards board ( “ fasb ” ) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting . we have reviewed the recently issued pronouncements and concluded that the following recently issued accounting standards apply to us . in april 2014 , fasb issued accounting standards update ( asu ) no . 2014-08 “ reporting discontinued operations and disclosures of disposals of components of an entity , ” which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements . under the new guidance , a discontinued
| company personnel attend many of the national trade shows held by the book selling industry each year , allowing us to make contact with potential buyers who may be unfamiliar with our books . we actively target the national chains through joint promotional efforts and institutional advertising in trade publications . the publishing division also participates with certain customers in a cooperative advertising allowance program , under which we pay back up to 2 % of the net sales to that customer . our products are then featured in promotions , such as catalogs , offered by the vendor . we may also acquire , for a fee , an end cap position in a bookstore ( our products are placed on the end of a shelf ) , which in the publishing industry is considered an advantageous location in the bookstore . edc publishing 's in-house telesales group targets the smaller independent book and gift store market . our semi-annual , full-color , 160-page catalogs , are mailed to over 5,000 customers and potential customers . we also offer two display racks to assist stores in displaying our products . net revenues for publishing division fy 2015 fy 2014 net revenues $ 11,532,500 $ 10,968,400 publishing division 's net revenues increased $ 564,100 in fiscal year 2015 from fiscal year 2014 , or 5.1 % . net revenues were up 5.5 % for smaller retail stores and 4.2 % for national chain stores . 8 usborne books & more ( “ ubam ” ) division ubam is a multi-level direct selling organization that markets its products through independent sales representatives ( “ consultants ” ) located throughout the united states . the customer base of ubam consists of individual purchasers , as well as school and public libraries . revenues are generated through home shows , direct sales , internet sales , book fairs and contracts with school and public libraries . this past fiscal year included a shift toward online home shows via social media outlets , such as facebook . an important factor in the continued growth of the ubam division is the addition of new sales consultants and the retention of existing consultants . current active
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fiscal year end we changed our fiscal year end from december 31 to january 31 effective for our fiscal year ended january 31 , 2012. for the year-over-year discussions below , the year ended january 31 , 2013 is compared to the year ended january 31 , 2012 , and the year ended january 31 , 2012 is compared to the year ended december 31 , 2010. components of results of operations revenues we primarily derive our revenues from subscription fees and professional services fees . subscription revenues primarily consist of fees that give our customers access to our cloud applications , which include routine customer support at no additional cost . professional service fees include deployment services , optimization services , and training . subscription revenues accounted for 70 % of our revenues during the year ended january 31 , 2013 and represented 92 % of our total unearned revenue as of january 31 , 2013. subscription revenues are driven primarily by the number of customers , the number of workers at each customer , the number of applications subscribed to by each customer , the price of our applications , and to a lesser extent , renewal rates . to date , revenues from renewals have not been a substantial component of revenues . the mix of the applications to which a customer subscribes can affect our financial performance due to price differentials in our applications . compared to our other offerings , our hcm application has been available for a longer period of time , is more established in the marketplace and has benefited from continued enhancements of the functionality over a longer period of time , all of which help us to improve our pricing for that application . however , new products or services offerings by competitors in the future could impact the mix and pricing of our offerings . subscription fees are recognized ratably as revenues over the contract term beginning on the date the application is made available to the customer , which is generally within one week of contract signing . our subscription contracts typically have a term of three years and are non-cancelable . we generally invoice our customers in advance , in annual installments . amounts that have been invoiced are initially recorded as unearned revenue and are recognized as revenue ratably over the subscription period . amounts that have not been invoiced represent backlog and are not reflected in our consolidated financial statements . our consulting engagements are typically billed on a time and materials basis , and revenues are typically recognized as the services are performed . we offer a number of training options intended to support our customers in configuring , using and administering our services . our typical professional services and training 38 payment terms provide that our customers pay us within 30 days of invoice . in some cases , we supplement our consulting teams by subcontracting resources from our service partners and deploying them on customer engagements . as workday 's professional services organization and the workday-related consulting practices of our partner firms continue to develop , we expect the partners to increasingly contract directly with our subscription customers . as a result of this trend , and the increase of our subscription revenues , we expect professional services revenues as a percentage of total revenues to decline over time . approximately 9 % of our revenues for the year ended january 31 , 2013 were derived from multiple-deliverable arrangements that were accounted for as a single unit of accounting , because some of our professional services offerings did not have standalone value when the related contracts were executed . in these situations , all revenue is recognized ratably over the term of the contracts . additionally , in these situations , we defer the direct costs of the related professional services contract and those direct costs are amortized over the same period as the professional services revenues are recognized . as of january 31 , 2013 , 8 % of our total unearned revenue balance represented multiple-deliverable arrangements accounted for as a single unit of accounting . for contracts executed during the current fiscal year , there was standalone value for all deliverables . costs and expenses costs of revenues . costs of subscription revenues consist primarily of employee-related expenses ( including salaries , benefits and share-based compensation ) related to hosting our applications and providing support , the costs of data center capacity , and depreciation of owned and leased computer equipment and software . costs of professional services revenues consist primarily of employee-related expenses associated with these services , the cost of subcontractors and travel costs . the percentage of revenues derived from professional services was 30 % in the year ended january 31 , 2013. the cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscriptions . research and development . research and development expenses consist primarily of employee-related expenses . we continue to focus our research and development efforts on adding new features and applications , increasing the functionality and enhancing the ease of use of our cloud applications . sales and marketing . sales and marketing expenses consist primarily of employee-related expenses , sales commissions , marketing programs and travel related expenses . marketing programs consist of advertising , events , corporate communications , brand building and product marketing activities . commissions earned by our sales force that can be associated specifically with a non-cancelable subscription contract are deferred and amortized over the same period that revenues are recognized for the related non-cancelable contract . general and administrative . general and administrative expenses consist of employee-related expenses for finance and accounting , legal , human resources and management information systems personnel , legal costs , professional fees and other corporate expenses . 39 story_separator_special_tag sales and marketing by expanding our domestic and international selling and marketing activities , building brand awareness and attracting new customers . story_separator_special_tag 42 year ended january 31 , 2012 compared to year ended december 31 , 2010. sales and marketing expenses were $ 70.4 million , or 52 % of total revenues , for the year ended january 31 , 2012 , compared to $ 36.5 million , or 54 % of total revenues , for the year ended december 31 , 2010 , an increase of $ 33.9 million . the increase was primarily due to increases of $ 24.7 million in employee related costs driven by increased headcount , $ 3.6 million in advertising , marketing and event costs , and $ 2.5 million in travel expenses . general and administrative replace_table_token_12_th year ended january 31 , 2013 compared to year ended january 31 , 2012. general and administrative expenses were $ 48.9 million , or 18 % of total revenues , for the year ended january 31 , 2013 , compared to $ 15.1 million , or 11 % of total revenues , for the year ended january 31 , 2012 , an increase of $ 33.7 million . the increase was primarily due to $ 15.6 million in higher employee related costs driven by higher headcount , of which $ 5.6 million is related to share-based compensation charges , and a one-time $ 11.3 million non-cash charge related to the donation of 500,000 shares of common stock to the workday foundation in the third quarter . also contributing to the change was a $ 4.9 million increase in professional services costs as we transitioned to being a public company . excluding the charge related to the workday foundation stock grant , we expect general and administrative expenses will increase in absolute dollars as we invest in our infrastructure and incur additional employee related costs , professional fees and insurance costs related to the growth of our business and international expansion . year ended january 31 , 2012 compared to year ended december 31 , 2010. general and administrative expenses were $ 15.1 million , or 11 % of total revenues , for the year ended january 31 , 2012 , compared to $ 8.6 million , or 13 % of total revenues , for the year ended december 31 , 2010 , an increase of $ 6.6 million . the increase was primarily due to increases of $ 2.5 million in employee related costs driven by higher headcount and $ 2.2 million in professional and outside service costs . the growth in general and administrative expenses during the year ended january 31 , 2012 was to support the overall growth of our company . liquidity and capital resources as of january 31 , 2013 , our principal sources of liquidity were cash , cash equivalents and marketable securities totaling $ 790.3 million , which were held for working capital purposes . our cash , cash equivalents and marketable securities are comprised primarily of u.s. agency obligations , u.s. treasury securities , commercial paper , money market funds , corporate securities , and certificates of deposit . since our inception , we financed our operations primarily through sales of equity securities , customer prepayments and capital lease obligations . our future capital requirements will depend on many factors including our growth rate , subscription renewal activity , the timing and extent of development efforts , the expansion of sales and marketing activities , the introduction of new and enhanced services offerings , and the continuing market acceptance of our services . we may in the future enter into arrangements to acquire or invest in complementary businesses , services and technologies , and intellectual property rights . we may be required to seek additional equity or debt financing . in the event that additional financing is required from outside sources , we may not be able to raise it on terms acceptable to us or at all . if we are unable to raise additional capital when desired , our business , operating results , and financial condition would be adversely affected . 43 our cash flows for the years ended january 31 , 2013 , january 31 , 2012 and december 31 , 2010 were as follows ( in thousands ) : replace_table_token_13_th operating activities for the year ended january 31 , 2013 , cash flows provided by operating activities was $ 11.2 million . the positive cash flows resulted primarily from increased cash collections driven by growth in sales to our customers . this increase in collections was largely offset by increases in our operating expenses , which was primarily driven by increased headcount . for the year ended january 31 , 2012 , cash flows used in operating activities was $ 13.8 million . the cash used was primarily attributable to increases in our operating expenses , partially offset by the increase in cash collections driven by growth in sales to our customers . for the year ended december 31 , 2010 , cash flows used in operating activities was $ 15.3 million . the cash used was primarily attributable to increases in our operating expenses , partially offset by the increase in cash collections driven by growth in sales to our customers . investing activities cash provided by ( used in ) investing activities for the years ended january 31 , 2013 , january 31 , 2012 and december 31 , 2010 was $ ( 670.1 ) million , $ ( 56.2 ) million , and $ 12.2 million respectively , and was primarily the result of the timing of purchases and maturities of marketable securities and of capital expenditures of $ 15.9 million , $ 5.0 million and $ 3.7 million respectively . following the initial public offering of our common stock in october 2012 , we purchased a significant amount of marketable securities .
| subscription services revenues were $ 88.6 million , or 66 % of total revenues , for the year ended january 31 , 2012 , compared to $ 36.6 million , or 54 % of total revenues , for the year ended december 31 , 2010. the increase in subscription revenues was due primarily to the addition of new and larger customers as compared to the prior year . we had more than 250 customers as of january 31 , 2012 and more than 150 customers as of december 31 , 2010. professional services revenues were $ 45.8 million , or 34 % of total revenues , for the year ended january 31 , 2012 , compared to $ 31.5 million , or 46 % of total revenues , for the year ended december 31 , 2010. the increase in professional services revenues was due primarily to a larger customer base requesting deployment , integration and training services . costs and expenses costs of revenues replace_table_token_9_th year ended january 31 , 2013 compared to year ended january 31 , 2012. costs of revenues were $ 116.5 million for the year ended january 31 , 2013 , compared to $ 65.4 million for the year ended january 31 , 2012 , an increase of $ 51.2 million or 78 % . the increase in costs of subscription services was primarily due to an increase of $ 6.2 million in employee related costs driven by higher headcount and an increase of $ 4.8 million in depreciation and amortization expenses for additional data center equipment . in addition , we had an increase of $ 2.9 million in service delivery costs and $ 1.5 million in facilities costs due to our efforts to increase data center capacity . the increase in the costs of professional services revenues for the year ended january 31 , 2013 as compared to the year ended january 31 , 2012 was primarily due to additional costs of $ 31.6 million to staff our deployment 41 and integration engagements . due to the large increase in demand for our professional services versus the year ended january 31 , 2012 , we have increased both our internal professional service staff as well as third party supplemental staff . we expect costs
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under the license agreement , uc granted us an exclusive license under their rights to patents and applications that are co-developed and co-owned with us for the treatment of human otic diseases . our financial obligations under the license agreement include annual license maintenance payments until we commercialize the first product covered under the license agreement , development milestone payments of up to $ 2.7 million per licensed product , of which $ 1.9 million has been paid for otiprio , $ 0.8 million has been incurred for oto-104 , and $ 0.1 million has been incurred for oto-311 ( but such milestone payments are reduced by 75 % for any orphan indication product ) , and a low single-digit royalty on net sales by us or our affiliates of licensed products . in addition , for each sublicense we grant we are obligated to pay uc a fixed percentage of all royalties as well as a sliding-scale percentage of non-royalty sublicense fees received by us under such sublicense , with such percentage depending on the licensed product 's stage of development when sublicensed to such third party . we have the right to offset a certain amount of third-party royalties , milestone fees or sublicense fees against the foregoing financial obligations , provided such third-party royalties or fees are paid by us in consideration for intellectual property rights necessary to commercialize a licensed product . in april 2013 , we entered into an exclusive license agreement with durect corporation , or durect , as part of an asset transfer agreement between us and incumed llc , an affiliate of the neurosystec corporation . under this license agreement , durect granted us an exclusive , worldwide , royalty-bearing license under durect 's rights to certain patents and applications that cover our oto-311 product candidate , as well as certain related know-how . under this license agreement and the asset transfer agreement , we are obligated to make one-time milestone payments of up to $ 7.5 million for the first licensed product . upon commercializing a licensed product , we are obligated to pay durect tiered , low single-digit royalties on annual net sales by us or our affiliates or sublicensees of the licensed products , and we have the right to offset a certain amount of third-party license fees or royalties against such royalty payments to durect . in addition , each sublicense we grant to a third party is subject to payment to durect of a low double-digit percentage of all non-royalty payments we receive 67 under such sublicense . additionally , we are also obligated to pay the institut national de la sante et de la recherche medicale , or inserm , on behalf of durect , for a low single-digit royalty payment on net sales by us or our affiliates or sublicensees upon commercialization of the licensed product . the foregoing royalty payment obligation to durect would continue on a product-by-product and country-by-country basis until expiration or determination of invalidity of the last valid claim within the licensed patents that cover the licensed product , and the payment obligation to inserm would continue so long as durect 's license from inserm remains in effect . financial operations overview revenue as of december 31 , 2015 we have not generated any revenue . we do not expect to generate product revenue until after we begin selling otiprio in the united states , which became available for commercial purchase as of march 1 , 2016. we do not expect to generate any revenue from any of our product candidates unless and until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties . operating expenses research and development expenses our research and development expenses primarily consist of costs associated with the preclinical and clinical development of our product candidates . our research and development expenses include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; external development expenses incurred under arrangements with third parties , such as fees paid to cros in connection with our clinical trials , costs of acquiring and evaluating clinical trial data such as investigator grants , patient screening fees , laboratory work and statistical compilation and analysis , and fees paid to consultants and our scientific advisory board ; costs to acquire , develop and manufacture clinical trial materials , including fees paid to contract manufacturers ; payments related to licensed product candidates and technologies ; costs related to compliance with drug development regulatory requirements ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory and other supplies . we expense our internal and third-party research and development expenses as incurred . the following table summarizes our research and development expenses ( in thousands ) by product candidate : replace_table_token_3_th 68 we expect our research and development expenses to increase substantially for the foreseeable future as we pursue expanded indications for otiprio and advance our other product candidates through their respective development programs . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in achieving regulatory approval for any of our product candidates . the probability of success for each product candidate will be affected by numerous factors , including preclinical data , clinical data , competition , manufacturing capability and commercial viability . we are responsible for all of the research and development costs for our programs . completion dates and completion costs for our clinical development programs can vary significantly for each current and future product candidate and are difficult to predict . we therefore can not estimate with any degree of certainty the costs we will incur in connection with development of our product candidates . story_separator_special_tag we anticipate that we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials , regulatory developments , and our ongoing assessments as to each current or future product candidate 's commercial potential . we may need to raise substantial additional capital in the future to complete clinical development for our product candidates . we may enter into collaborative agreements in the future in order to conduct clinical trials and gain regulatory approval of our product candidates , particularly in markets outside of the united states . we can not forecast which product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and overall capital requirements . the costs of clinical trials may vary significantly over the life of a program owing to the following : per patient trial costs ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the number of patients that participate in the trials ; the number of doses that patients receive ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; the phase of development of the product candidate ; and the efficacy and safety profile of the product candidate . general and administrative expenses our general and administrative expenses consist primarily of salaries , benefits , travel and stock-based compensation expense , and other related costs for our employees and consultants in executive , commercial , administrative , finance and human resource functions . other general and administrative expenses include facility-related costs not otherwise included in research and development and professional fees for accounting , auditing , tax and legal fees , and other costs associated with obtaining and maintaining our patent portfolio , and commercial preparation activities for otiprio and our product candidates . we expect our general and administrative expenses to increase substantially as we hire additional personnel to support commercialization of otiprio and our other product candidates . we also anticipate increased expenses related to audit , legal , regulatory , and tax-related services associated with maintaining compliance with stock exchange listing and sec requirements , director 's and officer 's liability insurance premiums , and investor relations-related expenses . 69 other ( expense ) income other ( expense ) income has included interest expense on our convertible notes payable , including amortization of debt discount , the change in fair value of the convertible preferred stock warrant liability , and interest income earned on cash and cash equivalents and short-term investments . in connection with our initial public offering in august 2014 , all of our outstanding warrants to purchase convertible preferred stock were either ( i ) exercised and the underlying shares of preferred stock were automatically converted into shares of common stock or ( ii ) converted into warrants to purchase common stock . critical accounting policies and significant judgments and estimates our financial statements are prepared in accordance with generally accepted accounting principles in the united states of america . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and assumptions , including those related to accrued expenses and stock-based compensation . we base our estimates on our historical experience , known trends and events , and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in note 2 to our financial statements appearing elsewhere in this annual report on form 10-k , we believe that the following accounting policy is most critical to the judgments and estimates used in the preparation of our financial statements . clinical trial expense accruals as part of the process of preparing our financial statements , we are required to estimate expenses resulting from our obligations under contracts with vendors , cros and consultants and under clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided under such contracts . our objective is to reflect the appropriate trial expenses in our financial statements by recording those expenses in the period in which services are performed and efforts are expended . we account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial . we determine accrual estimates through financial models taking into account discussion with applicable personnel and outside service providers as to the progress of trials . during the course of a clinical trial , we adjust the clinical expense recognition if actual results differ from our estimates . we make estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known at that time . our clinical trial accruals are dependent upon accurate reporting by cros and other third-party vendors .
| the decrease in otiprio clinical trial-related expenses is net of a $ 1.0 million development milestone which was met when we submitted the nda for otiprio to the fda in february 2015 , compared to no otiprio milestones met during the year ended december 31 , 2014. in addition , there was a decrease of $ 1.8 million in clinical trial-related expenses for oto-104 following the completion of enrollment in the phase 2b study during december 2014. the decrease in oto-104 clinical trial-related expenses is net of a $ 0.5 million development milestone which was met when we initiated the oto-104 phase 3 clinical trial in the united states during november 2015 , compared to no oto-104 milestones met during the year ended december 31 , 2014. general and administrative expenses . the increase of $ 15.4 million in general and administrative expenses was primarily related to the expansion of our operating activities , costs associated with becoming a publicly traded company , and costs related to commercial preparation activities . the overall increase is comprised of a $ 9.6 million increase in personnel costs , including stock-based compensation expense and overhead , due to additional headcount , and a $ 5.8 million increase in expenses for outside services , including otiprio launch preparation costs , consulting costs , legal fees , accounting fees , corporate development and market research . change in fair value of convertible preferred stock warrant liability . in connection with our initial public offering , all of our outstanding warrants to purchase convertible preferred stock were either ( i ) exercised and the underlying shares of preferred stock were automatically converted into shares of common stock or ( ii ) converted into warrants to purchase common stock . as such , no convertible preferred stock warrants were outstanding as of december 31 , 2015 and 2014. the decrease of $ 3.3 million was due to the final revaluation of the warrant liability which was performed upon the closing of our initial public offering in august 2014 , resulting in a $ 2.6 million increase in fair value of the convertible preferred stock warrant liability , as well as $ 0.7 million of fair value increases that occurred during the six months ended june 30 , 2014. following the final revaluation , the warrant liability was reclassified to additional paid-in capital . interest income . interest income consists primarily of interest earned on our available-for-sale securities . the increase in interest income is primarily the result of increased available-for-sale securities balances during the year ended december 31 , 2015 compared to the year ended december 31 , 2014. in
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our research and development group is also responsible for enhancing existing solutions and applications , internal tools , and developing new information maps that integrate our customers to their trading partners in compliance with those trading partners ' requirements . general and administrative expenses . general and administrative expenses consist primarily of personnel costs for finance , human resources , and internal information technology support , as well as legal , accounting , and other fees , such as bad debt expense and credit card processing fees . overhead allocation . we allocate overhead expenses such as rent , certain employee benefit costs , office supplies and depreciation of general office assets to cost of revenues and operating expenses categories based on headcount . other metrics recurring revenue customers . as of december 31 , 2020 , we had approximately 33,000 customers with contracts to pay us recurring fees , which we refer to as recurring revenue customers . we report recurring revenue customers as of the end of a period . a small portion of our recurring revenue customers consist of separate units within a larger organization . we treat each of these units , which may include divisions , departments , affiliates and franchises , as distinct customers . average recurring revenues per recurring revenue customer . we calculate average recurring revenues per recurring revenue customer , which we also refer to as wallet share , by dividing the recurring revenues from recurring revenue customers for the period by the average of the beginning and ending number of recurring revenue customers for the period . for interim periods , we annualize this number by multiplying the quotient calculated above by the quotient of 12 divided by the number of months in the period . we anticipate that average recurring revenues per recurring revenue customer will continue to increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base . non-gaap financial measures . to supplement our financial statements , we also provide investors with adjusted ebitda and non-gaap income per share , both of which are non-gaap financial measures . we believe that these non-gaap measures provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations . our management uses these non-gaap measures to compare the company 's performance to that of prior periods for trend analyses and planning purposes . adjusted ebitda is also used for purposes of determining executive and senior management incentive compensation . these measures are also presented to our board of directors . these non-gaap measures should not be considered a substitute for , or superior to , financial measures calculated in accordance with gaap . these non-gaap financial measures exclude significant expenses and income that are required by gaap to be recorded in the company 's financial statements and are subject to inherent limitations . investors should review the reconciliations of non-gaap financial measures to the comparable gaap financial measures that are included in this “ management 's discussion and analysis of financial condition and results of operations. ” sps commerce , inc. 28 form 10-k for the annual period ended december 31 , 2020 critical accounting policies and estimates the discussion of our financial condition and results of operations is based upon our consolidated financial statements , which are prepared in accordance with gaap . the preparation of these consolidated financial statements requires us to make estimates , judgments 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 . we base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable . our actual results may differ from these estimates under different assumptions or conditions . we believe that our significant accounting policies , which are described in the notes to our consolidated financial statements , involve a greater degree of judgment and complexity and are material to our financial statement presentation . a critical accounting policy is one that is both material to the presentation of our financial statements and requires us to make difficult , subjective , or complex judgments for uncertain matters that could have a material effect on our financial condition and results of operations . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . revenue recognition revenues are recognized when our services are made available to our customers , in an amount that reflects the consideration we are contractually and legally entitled to in exchange for those services . our set-up fees from customers are one-time revenues that are specific for each connection a customer has with a trading partner and many of our customers have connections with numerous trading partners . set-up fees related to our cloud-based supply chain management solutions are nonrefundable upfront fees that are necessary for our customers to utilize our cloud-based services . these set-up fees do not provide any standalone value to our customers . certain contracts contain set-up fees that constitute a material renewal option right . this material right provides customers a significant future incentive that would not be otherwise available to that customer unless they entered into the contract as the set-up fees will not be incurred again upon contract renewal . for our fulfillment solution , we have determined that the set-up fees and related costs represent a material renewal option right to our customers as they will not be incurred again upon renewal . these set-up fees and related costs are deferred and recognized ratably over two years , which is the estimated period for which a material right is present for our customers . story_separator_special_tag for our analytics solution , we have determined that the set-up fees do not represent a material customer renewal right and , as such , are deferred and recognized ratably over the estimated initial contract term , which is one year . internal-use software internal-use software consists of capitalized costs incurred during the application development stage , which include costs related to the design of the chosen path , coding , installation of the hardware necessary to run the software , and any testing done before the operational stage . costs incurred during the preliminary project stage and post-implementation stage are expensed as incurred . internal-use software is depreciated over the estimated useful life , three years , commencing on the date when the asset is ready for its intended use . depreciation is computed using the straight-line method . maintenance and enhancements of internal-use software are expensed as incurred . business combinations we allocate the fair value of purchase consideration to the tangible assets acquired , liabilities assumed , and intangible assets acquired based on their estimated fair values . the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill . such valuations require management to make significant estimates and assumptions , especially with respect to intangible assets . significant estimates in valuing certain intangible assets include , but are not limited to , future expected cash flows from acquired customers and acquired technology from a market participant perspective , useful lives , and discount rates . significant estimates in valuing liabilities for contingent consideration include , but are not limited to , sps commerce , inc. 29 form 10-k for the annual period ended december 31 , 2020 discount rates , projected financial results of the acquired businesses based on our most recent internal forecasts , and factors indicating the probability of achieving the forecasted results . management 's estimates of fair value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable and , as a result , actual results may differ from estimates . during the measurement period , which is not to exceed one year from the acquisition date , we may record adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill . upon the conclusion of the measurement period , any subsequent adjustments are recorded to earnings . story_separator_special_tag style= '' background-color : # ffffff ; padding-left:0pt ; padding-right:0.75pt ; padding-top:0.75pt ; width:1 % ; border-bottom : solid 0.75pt transparent ; white-space : nowrap ; '' valign= '' bottom '' > 31.9 92,239 33.0 7,597 8.2 gross profit 212,794 68.1 186,885 67.0 25,909 13.9 operating expenses sales and marketing 75,955 24.3 70,140 25.2 5,815 8.3 research and development 31,024 9.9 28,305 10.1 2,719 9.6 general and administrative 50,119 16.0 44,719 16.0 5,400 12.1 amortization of intangible assets 5,538 1.8 5,315 1.9 223 4.2 total operating expenses 162,636 52.0 148,479 53.2 14,157 9.5 income from operations 50,158 16.0 38,406 13.8 11,752 30.6 other income ( expense ) interest income , net 1,103 0.4 2,947 1.0 ( 1,844 ) ( 62.6 ) other income ( expense ) , net 1,334 0.4 272 0.1 1,062 390.4 change in earn-out liability 85 0.0 445 0.2 ( 360 ) ( 80.9 ) total other income , net 2,522 0.8 3,664 1.3 ( 1,142 ) ( 31.2 ) income before income taxes 52,680 16.9 42,070 15.1 10,610 25.2 income tax expense 7,094 2.3 8,358 3.0 ( 1,264 ) ( 15.1 ) net income $ 45,586 14.6 % $ 33,712 12.1 % $ 11,874 35.2 % ' % of revenue ' subtotals may not foot due to rounding revenues . the increase in revenues resulted from two primary factors : the increase in recurring revenue customers , which is driven by continued business growth and by business acquisitions , and the increase in average recurring revenues per recurring revenue customer , which we also refer to as wallet share . the number of recurring revenue customers increased 8 % to 33,151 at december 31 , 2020 from 30,771 at december 31 , 2019. wallet share increased 6 % to $ 9,231 at december 31 , 2020 from $ 8,722 at december 31 , 2019. this was primarily attributable to increased usage of our solutions by our recurring revenue customers . recurring revenues from recurring revenue customers increased 13 % in 2020 , as compared to 2019 , and accounted for 94 % of our total revenues in 2020 , unchanged from 94 % in 2019. we anticipate that the number of recurring revenue customers and wallet share will continue to increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base . sps commerce , inc. 30 form 10-k for the annual period ended december 31 , 2020 cost of revenues . the increase in cost of revenues was primarily due to increased headcount which resulted in an increase of $ 5 . 5 million in personnel-related costs , such as salaries and benefits , and an increase of $ 1.1 million in stock-based compensation expense . additionally , a $ 1 . 5 million increase in depreciation expense pertaining to continued investment in infrastructure to support our platform contributed to the increase in cost of revenue . last , $ 0.5 million increase in software subscriptions utilized in optimizing internal productivity . the increases were partially offset by a decrease of $ 1.0 million in network costs . sales and marketing expenses . the increase in sales and marketing expense was primarily due to increased headcount which resulted in increases of $ 2.7 million in personnel-related costs , such as salaries and benefits , and an increase of $ 1.2 million in stock-based compensation expense . the increase was also partially related to a $ 1.2 million increase in variable compensation earned by referral partners .
| results of operations year ended december 31 , 2020 compared to year ended december 31 , 2019 the following table presents our results of operations for the periods indicated : year ended december 31 , 2020 2019 change ( dollars in thousands ) % of revenue % of revenue % revenues $ 312,630 100.0 % $ 279,124 100.0 % $ 33,506 12.0 % cost of revenues 99,836 < td
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the following table summarizes the average sales prices received for oil , natural gas and ngls , before the effects of hedging contracts , for the years indicated : replace_table_token_17_th the following table summarizes the average sales prices received for oil , natural gas and ngls , after the effects of hedging contracts , for the years indicated : 39 replace_table_token_18_th commodity prices are inherently volatile and are influenced by many factors outside of our control . we plan our activities and capital budget using what we believe to be conservative sales price assumptions and our existing hedge position . we currently have hedged 2,478,600 barrels of oil and 1,830,000 mmbtu of natural gas or approximately 50 % of our expected 2016 production and 683,250 barrels of oil for our 2017 production at price levels that provide some economic certainty to our cash flows . we focus our efforts on increasing oil , natural gas and ngls reserves and production while controlling costs at a level that is appropriate for long-term operations . our future earnings and cash flows are dependent on our ability to manage our revenues and overall cost structure to a level that allows for profitable production . story_separator_special_tag been included in unused commitments in the consolidated statements of operations . see `` unused commitments '' below for further information . production tax expense . total production taxes decreased to $ 12.2 million for the year ended december 31 , 2015 from $ 31.3 million for the year ended december 31 , 2014 . the overall decrease in production tax expense is related to lower sales volumes as the result of the piceance divestiture and the powder river oil divestitures and a 39 % decrease in average realized prices before hedging . production taxes are primarily based on the wellhead values of production , which exclude gains and losses associated with hedging activities . production taxes as a percentage of oil , natural gas and ngl sales before hedging adjustments were 6.0 % and 6.8 % for the years ended december 31 , 2015 and december 31 , 2014 , respectively . production tax rates vary across the different areas in which we operate . as the proportion of our production changes from area to area , our average production tax rate will vary depending on the quantities produced from each area and the production tax rates in effect for those areas . impairment , dry hole costs and abandonment expense . our impairment , dry hole costs and abandonment expense for the years ended december 31 , 2015 and 2014 is summarized below : replace_table_token_21_th ( 1 ) due to the continued decline in oil prices , we recognized a non-cash impairment charge associated with the proved and unproved oil and gas properties in the uinta oil program for the year ended december 31 , 2015 . ( 2 ) as the result of the powder river oil divestiture , the carrying values of the remaining properties were analyzed relative to their estimated fair market values . as a result , we recognized impairment expense on proved properties of $ 14.8 million for the year ended december 31 , 2014. these properties were classified as held for sale as of december 31 , 2014. in addition , $ 1.0 million of proved property impairment expense was incurred during the year ended december 31 , 2014 related to the west tavaputs divestiture based upon a true-up of previously estimated carrying value . see note 4 of the notes to consolidated financial statements for more information related to these divestitures . ( 3 ) as a result of unsuccessful drilling and completion activity by an industry partner in the paradox basin , we recognized impairment expense of $ 11.6 million during the year ended december 31 , 2014 related to the remaining unproved property in the paradox basin . we recognized impairment expense of $ 6.1 million related to certain unproved oil and gas properties in the uinta basin as a result of having no future plans to evaluate the acreage . in addition , we recognized impairment expense of $ 6.4 million as the result of the powder river oil divestiture as discussed above . we review our proved oil and natural gas properties for impairment on a quarterly basis or whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred . we estimate the expected future cash flows of our oil and gas properties and compare these undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable . if the carrying amount exceeds the estimated undiscounted future cash flows , we will adjust the carrying amount of the oil and natural gas properties to fair value . the factors used to determine fair value include , but are not limited to , recent sales prices of comparable properties , the present value of future cash flows , net of estimated operating and development costs using estimates of reserves , future commodity 43 pricing , future production estimates , anticipated capital expenditures and various discount rates commensurate with the risk associated with realizing the projected cash flows . unproved oil and gas properties are assessed periodically for impairment on a property-by-property basis based on remaining lease terms , drilling results , reservoir performance , commodity price outlooks , future plans to develop acreage and other relevant matters . we generally expect impairments of unproved properties to be more likely to occur in periods of low commodity prices because we will be less likely to devote capital to exploration activities . if our attempts to market interests in certain properties to industry partners are unsuccessful , we may record additional leasehold impairments . given the decline in current and projected future commodity prices , we will continue to review our acreage position and future drilling plans . in addition , we will assess the carrying value of our properties relative to their estimated future net cash flows . story_separator_special_tag estimated future net cash flows from our properties are based on our aggregate best estimates of future production , commodity pricing , gathering and transportation deducts , production tax rates , lease operating expenses and future development costs as of the balance sheet date . our current recoverability test on our existing proved oil and gas properties as of december 31 , 2015 uses commodity pricing based on a combination of assumptions management uses in its budgeting and forecasting process adjusted for geographical location and quality differentials as well as other factors that management believes will impact realized prices . the application of this test as of december 31 , 2015 results in a surplus of future estimated net cash flows over carrying value of approximately $ 400.0 million and $ 292.0 million for the uinta oil program and dj basin , respectively . we estimate that the surplus in the uinta oil progam would decrease by approximately $ 20.0 million to $ 25.0 million and the dj basin would decrease by approximately $ 35.0 million to $ 40.0 million for every $ 1.00 decrease in future oil prices . if impairment is necessary then we would reduce the carrying value to fair value . the factors used to determine fair value include , but are not limited to , recent sales prices of comparable properties , indications from marketing activities , the present value of future revenues , net of estimated operating and development costs using estimates of reserves , future commodity pricing , future production estimates , anticipated capital expenditures and various discount rates used by market participants that are commensurate with the risks inherent in the development and production of the underlying oil and natural gas . if commodity prices remain at current or lower levels during 2016 , it is likely that we will incur a significant impairment . ( gain ) loss on divestitures . ( gain ) loss on divestitures decreased to a loss of $ 1.7 million for the year ended december 31 , 2015 from a loss of $ 100.4 million for the year ended december 31 , 2014 . ( gain ) loss on divestitures for the year ended december 31 , 2015 is primarily related to the loss on the sale of frac tank trailers previously used in completion operations in the amount of $ 2.4 million , offset by net gains related to purchase price adjustments for the piceance divestiture and the sale or exchange of the majority of our powder river basin assets ( `` powder river oil divestiture '' ) . ( gain ) loss on divestitures for the year ended december 31 , 2014 consisted of a $ 79.5 million loss related to the piceance divestiture and a $ 24.5 million loss related to the powder river oil divestiture , offset by $ 3.6 million in net gains realized from the sale of other properties . see note 4 to the consolidated financial statements for more information related to these divestitures . depreciation , depletion and amortization ( `` dd & a '' ) . dd & a decreased to $ 205.3 million for the year ended december 31 , 2015 compared with $ 235.8 million for the year ended december 31 , 2014 . the decrease of $ 30.5 million was a result of a 28 % decrease in production for the year ended december 31 , 2015 compared with the year ended december 31 , 2014 , partially offset by an increase in the dd & a rate . the decrease in production accounted for a $ 65.2 million decrease in dd & a expense , while the overall increase in the dd & a rate accounted for $ 34.7 million of additional dd & a expense . under successful efforts accounting , depletion expense is calculated on a field-by-field basis based on geologic and reservoir delineation using the unit-of-production method . the capital expenditures for proved properties for each field compared to the proved reserves corresponding to each producing field determine a depletion rate for current production . for the year ended december 31 , 2015 , the relationship of capital expenditures , proved reserves and production from certain producing fields yielded a depletion rate of $ 31.14 per boe compared with $ 25.88 per boe for the year ended december 31 , 2014 . the increase in the dd & a rate during the year ended december 31 , 2015 was due to an increase in oil development , which has higher capital costs per boe compared to natural gas development , and to the 2014 sale of natural gas properties in the piceance divestiture which had lower capital costs per boe compared to oil development . due to the continued decline in oil prices , we recognized a non-cash impairment charge associated with proved oil and gas properties in the uinta oil program for the year ended december 31 , 2015 . as a result of the impairment , management believes future depletion rates will be lower ; however , future depletion rates will be adjusted to reflect capital expenditures , proved reserve changes , well performance and any additional proved property impairments or sales of properties . unused commitments . unused commitments were $ 19.1 million for the year ended december 31 , 2015 compared to $ 4.4 million for the year ended december 31 , 2014 . during march 2010 , we entered into two firm natural gas pipeline 44 transportation contracts to provide a guaranteed outlet for production from the west tavaputs area of the uinta basin and the gibson gulch area of the piceance basin . these transportation contracts were not included in the sales of these assets in december 2013 and september 2014 , respectively .
| ( 4 ) excludes long-term cash and equity incentive compensation as described in note 3 above . this presentation is a non-gaap measure . average costs per boe for general and administrative expense , including long-term cash and equity incentive compensation expense , as presented in the consolidated statements of operations , were $ 8.17 and $ 5.86 for the years ended december 31 , 2015 and 2014 , respectively . production revenues and volumes . production revenues decreased to $ 204.5 million for the year ended december 31 , 2015 from $ 464.1 million for the year ended december 31 , 2014 . the decrease in production revenues was due to a 28 % decrease in production volumes and a 39 % decrease in the average realized prices per boe before hedging . the decrease in production volumes reduced production revenues by approximately $ 78.2 million , while the decrease in average prices decreased production revenues by approximately $ 181.4 million . total production volumes of 6.6 mmboe for the year ended december 31 , 2015 decreased from 9.1 mmboe for the year ended december 31 , 2014 . the decrease is primarily related to the piceance divestiture and powder river oil divestitures , along with a 23 % decrease in production from the uinta oil program due to natural production declines with no significant drilling or recompletion activities to offset these declines . the decrease in production was partially offset by a 70 % overall increase in dj basin production . additional information concerning production is in the following table : replace_table_token_20_th * not meaningful . ( 1 ) includes oil , ngl and natural gas volumes of 177 mbbls , 911 mbbls and 14,808 mmcf , respectively , from the piceance basin and 326 mbbls , 22 mbbls and 480 mmcf , respectively , from the powder river basin for the year ended december 31 , 2014. other operating revenues . other operating revenues decreased to $ 3.4 million for the year ended december 31 , 2015 from $ 8.2 million for
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a financial loss ; ( 20 ) peoples ' ability to anticipate and respond to technological changes , and peoples ' reliance on , and the potential failure of , a number of third-party vendors to perform as expected , including peoples ' primary core banking system provider , which can impact peoples ' ability to respond to customer needs and meet competitive demands ; ( 21 ) operational issues stemming from and or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which peoples and its subsidiaries are highly dependent ; ( 22 ) changes in consumer spending , borrowing and saving habits , whether due to changes in retail distribution strategies , consumer preferences and behavior , changes in business and economic conditions ( including as a result of the covid-19 pandemic ) , legislative or regulatory initiatives ( including those in response to the covid-19 pandemic ) , or other factors , which may be different than anticipated ; ( 23 ) the adequacy of peoples ' internal controls and risk management program in the event of changes in strategic , reputational , market , economic , operational , cybersecurity , compliance , legal , asset/liability repricing , liquidity , credit and interest rate risks associated with peoples ' business ; ( 24 ) the impact on peoples ' businesses , personnel , facilities , or systems , of losses related to acts of fraud , theft , or violence ; ( 25 ) the impact on peoples ' businesses , as well as on the risks described above , of various domestic or international widespread natural or other disasters , pandemics ( including covid-19 ) , cybersecurity attacks , system failures , civil unrest ( including any resulting branch closures or damage ) , military or terrorist activities or international conflicts ; ( 26 ) the impact on peoples ' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting peoples ' intellectual property ; ( 27 ) risks and uncertainties associated with peoples ' entry into new geographic markets and risks resulting from peoples ' inexperience in these new geographic markets ; ( 28 ) peoples ' ability to identify , acquire , or integrate suitable strategic acquisitions , which may be unsuccessful , or may be more difficult , time-consuming or costly than expected ; ( 29 ) peoples ' continued ability to grow deposits ; ( 30 ) the impact of future governmental and regulatory actions upon peoples ' participation in and execution of government programs related to the covid-19 pandemic ; ( 31 ) uncertainty regarding the impact of changes to the u.s. presidential administration and congress on the regulatory landscape , capital markets , elevated government debt , potential changes in tax legislation that may increase tax rates and the response to and management of the covid-19 pandemic ; and ( 32 ) other risk factors relating to the banking industry or peoples as detailed from time to time in peoples ' reports filed with the sec , including those risk factors included in the disclosures under the heading `` item 1a risk factors '' of this form 10-k. all forward-looking statements speak only as of the filing date of this form 10-k and are expressly qualified in their entirety by the cautionary statements . although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management 's knowledge of peoples ' business and operations , it is possible that actual results may differ materially from these projections . additionally , peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this form 10-k or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements . copies of documents filed with the sec are available free of charge at the sec 's website at www.sec.gov and or through peoples ' website – www.peoplesbancorp.com under the `` investor relations '' section . the following discussion and analysis of peoples ' consolidated financial statements is presented to provide insight into management 's assessment of the financial position and results of operations for the periods presented . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto , as well as the ratios and statistics , contained elsewhere in this form 10-k. summary of significant transactions and events the following is a summary of transactions or events that have impacted or are expected by management to impact peoples ' results of operations or financial condition : 42 ◦ on january 29 , 2021 , peoples announced that on january 28 , 2021 , peoples ' board of directors authorized a share repurchase program authorizing peoples to purchase up to an aggregate of $ 30 million of its outstanding common shares . this program replaced the share repurchase program authorizing peoples to purchase up to an aggregate of $ 40 million of its outstanding common shares , which peoples ' board of directors had authorized on february 27 , 2020 and which was terminated on january 28 , 2021. during 2020 , peoples repurchased 1,299,577 common shares for $ 29.3 million compared to 26,427 common shares for $ 805,000 during 2019 . ◦ peoples originated $ 489.0 million of ppp loans during 2020 under the loan guarantee program created under the cares act . these loans were targeted to provide small businesses with support to cover payroll and certain other expenses . loans made under the ppp are fully guaranteed by the sba . additional information can be found later in this discussion under the caption “ financial condition - covid-19 loan impacts . '' as of december 31 , 2020 , peoples had $ 366.9 million in ppp loans outstanding , which were included in commercial and industrial loan balances . peoples recognized interest income of $ 10.7 million on ppp loans during 2020 , which included $ 7.5 million for deferred fee/cost accretion . story_separator_special_tag ◦ during 2020 , peoples recorded a provision for credit losses of $ 26.3 million , compared to $ 2.5 million for 2019 and $ 5.4 million for 2018. during 2020 , peoples recorded $ 932,000 of the provision for credit losses to establish the allowance for credit losses for the loans acquired from triumph premium finance . the increase in the provision for credit losses compared to 2019 was primarily related to the impact of covid-19 on the cecl model , as well as the implementation of the cecl accounting standard . ◦ peoples has been providing relief solutions to consumer and commercial borrowers , including forbearance and modifications , during the covid-19 pandemic . additional information can be found later in this discussion under the caption “ financial condition - covid-19 loan impacts . '' ◦ peoples was selected to partner with jobsohio , a private nonprofit organization charged with economic development . additional information can be found later in this discussion under the caption “ financial condition - covid-19 loan impacts . '' ◦ peoples incurred $ 1.1 million in pension settlement charges in 2020 and $ 267,000 in 2018 , due to the aggregate amount of lump-sum distributions to participants in peoples ' defined benefit pension plan exceeding the threshold for recognizing settlement charges during the period . there were no such settlement charges during 2019 . ◦ during 2020 , peoples recorded $ 1.3 million of expenses related to the covid-19 pandemic . these expenses were primarily related to donations made to community food banks and pantries , as well as contributions to funds to support employees , including , in the second quarter of 2020 , the issuance of unrestricted common share awards totaling $ 396,000 granted to employees at the assistant vice president level and below . ◦ during 2020 , peoples incurred $ 489,000 of acquisition-related expenses , compared to $ 7.3 million for each of 2019 and 2018. the acquisition-related expenses in 2020 were related to the triumph premium finance acquisition , while the expenses during 2019 and 2018 were due to the first prestonsburg and asb acquisitions , respectively . ◦ during 2020 , peoples sold restricted class b visa stock for a gain of $ 680,000 , which was recorded in other non-interest income . peoples also sold restricted class b visa stock during 2019 , resulting in a gain of $ 787,000 . ◦ effective july 1 , 2020 , peoples completed the business combination under which peoples bank acquired the operations and assets of triumph premium finance ( referred to as the `` premium finance acquisition '' ) , a division of tbk bank , ssb . based in kansas city , missouri , the division operating as peoples premium finance will continue to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency partners nationwide . peoples bank acquired $ 84.7 million in loans , at acquisition date , after fair value adjustments . peoples also recorded $ 4.3 million of other intangible assets and $ 5.5 million of goodwill . total consideration paid for this acquisition was $ 94.5 million . as of december 31 , 2020 , peoples premium finance loans had grown to $ 114.8 million . ◦ during 2020 , peoples recognized credits to its fdic insurance expense as the fdic issued credits to member banks to offset against the quarterly assessment as a result of the deposit insurance fund reaching its target threshold for smaller banks . these credits were used by peoples beginning in 2019 and were fully exhausted during the second quarter of 2020 . ◦ on april 2 , 2020 , peoples entered into a first amendment to the loan agreement with u.s. bank national association ( the “ u.s . bank loan agreement ” ) , entered into on april 3 , 2019 , to extend the maturity . the first amendment to loan agreement extends the maturity from april 2 , 2020 to april 1 , 2021. the u.s. bank loan agreement provides peoples with a revolving line of credit in the maximum aggregate principal amount of $ 20.0 million that may be used : ( i ) for working capital purposes ; ( ii ) to finance dividends or other distributions ( other than stock dividends and stock splits ) on or in respect of peoples ' capital stock and redemptions , repurchases or other acquisitions of any of peoples ' capital stock permitted under the u.s. bank loan agreement ; and ( iii ) to finance acquisitions permitted under the u.s. bank loan agreement . 43 ◦ during 2020 , peoples recognized $ 109,000 in bank owned life insurance ( `` boli '' ) income related to tax-free death benefits , compared to $ 482,000 in 2019 . ◦ in an effort to stimulate an economy that was being adversely impacted by the impacts of the covid-19 pandemic , the federal reserve board first lowered the benchmark federal funds target rate by 50 basis points on march 3 , 2020 and then lowered the target rate another 100 basis points at the next fomc meeting on march 15 , 2020. the federal funds target rate range was 0 % - 0.25 % as of march 31 , 2020 and maintained this rate as of december 31 , 2020. according to the chair of the federal reserve board , the federal funds target rate is not likely to drop below this range . however , the federal reserve board does have other tools available that it can employ and has expressed an intention to do so in order to maintain a targeted level of liquidity . furthermore , the federal reserve board has indicated it is committed to a target 0 % - 0.25 % range for federal funds through at least 2023 .
| funding costs were controlled during 2020 , and declined 36 basis points compared to 2019. net interest income grew during 2019 , compared to 2018 , largely due to loan growth , which was positively impacted by the first prestonsburg and asb acquisitions , and higher loan yields . accretion income , net of amortization expense , from acquisitions totaled $ 2.8 million for 2020 , $ 4.9 million for 2019 and $ 2.2 million for 2018 , adding 7 basis points , 12 basis points and 6 basis points , respectively , to the net interest margin . during 2018 , proceeds of $ 0.9 million were received on an investment security that , in prior years , had been written down due to an other-than-temporary impairment , which added 3 basis points to net interest margin . provision for credit losses grew to $ 26.3 million for 2020 , compared to $ 2.5 million for 2019. this growth was due to the combination of the implementation of the cecl model at the beginning of 2020 , and the impact of the covid-19 pandemic on the economic forecasts utilized within the model . provision for credit losses declined during 2019 compared to 2018 , reflecting lower net charge-offs , which included a $ 1.8 million recovery on a previously charged-off loan , and reduced loan growth compared to the prior year . net charge-offs as a percent of average total loans were 0.05 % for 2020 , 0.04 % for 2019 and 0.15 % for 2018. total non-interest income declined 1 % compared to 2019 , and was largely due to a $ 2.3 million reduction in deposit account service charges , which was driven by the covid-19 pandemic and the higher balances being maintained by customers throughout 2020. the decline in deposit account service charges was partially offset by higher mortgage banking income , as a result of higher refinancing activity due to the low interest rate environment during 2020. increases in trust and investment income and electronic banking income were
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( see the “ segment results of operations ” section of this md & a . ) other ( includes international and through june 30 , 2020 , sports marketing ) . other generated revenues of $ 87.4 million in 2020 and $ 153.5 million in 2019 , and adjusted oibda of $ 0.4 million in 2020 and $ 18.6 million in 2019. covid-19 impact the novel coronavirus ( covid-19 ) pandemic and the related preventative measures taken to help curb the spread , including shutdowns and slowdowns of , and restrictions on , businesses , public gatherings , social interactions and travel ( including reductions in foot traffic , roadway traffic , commuting , transit ridership and overall target audiences ) throughout the markets in which we do business have had , and may continue to have , a significant impact on the global economy and our business . though generally we remain able to continue to sell and service our displays , our business operates billboard and transit franchise agreements in the top dmas , such as new york and los angeles , where the covid-19 pandemic has had a particularly significant impact . the covid-19 pandemic has ( i ) delayed our ability to build and deploy certain advertising structures and sites , including digital displays ; ( ii ) reduced or curtailed our customers ' advertising expenditures and overall demand for our services through purchase cancellations or otherwise ; ( iii ) increased the volatility of our customers ' advertising expenditure patterns from period-to-period through short-notice purchases , purchase deferrals or otherwise ; and ( iv ) extended delays in the collection of certain earned advertising revenues from our customers , all of which could have a material adverse effect on our business , financial condition and results of operation in 2021. as a result of the impact of the covid-19 pandemic on our business and results of operations , we expect our key performance indicators and total revenues to incrementally improve in 2021 as compared to 2020 , but be materially lower in 2021 than pre-covid-19 pandemic levels , particularly in our u.s. media segment and with respect to our transit and other business . we expect total expenses to increase in 2021 as compared to 2020 , but be materially lower than pre-covid-19 pandemic levels , particularly in our u.s. media segment and with respect to our transit and other business . additionally , we expect billboard property lease expenses , such as rental expenses , and posting , maintenance and other expenses , as a percentage of revenues , to decrease in 2021 as compared to 2020 , but be materially higher than pre-covid-19 pandemic levels . we expect transit franchise expenses , such as transit franchise payments , as a percentage of revenues , to increase in 2021 as compared to 2020 , but be materially higher than pre-covid-19 pandemic levels , primarily due to our guaranteed minimum annual payment amounts owed to the mta resuming on january 1 , 2021. the impacts described above with respect to 2020 were greatest in the second quarter of 2020 , with incremental improvement in the third and fourth quarters of 2020. accordingly , results for the years ended december 31 , 2020 and 2019 , are not indicative of the results that may be expected for the fiscal year ending december 31 , 2021. in response to the covid-19 pandemic , we have prioritized the health and safety of our employees and customers by ( i ) shifting to a secure remote workforce for all personnel other than operations personnel who service our displays and certain other personnel , ( ii ) implementing deep cleaning , social distancing and other protective policies and practices in accordance with federal , state and local regulations and guidance across all offices and facilities that are open or in the process of reopening , ( iii ) restricting non-essential business travel , and ( iv ) communicating frequently with our employees and customers to address any concerns . none of these actions have caused a significant disruption in our ability to manage the continuity of our business or our internal controls . in addition , in order to preserve financial flexibility , increase liquidity and reduce expenses in light of the current uncertainty in the global economy and our business , we modified our business goals and undertook the following actions in 2020 , which should be read in conjunction with the “ —analysis of results of operations ” and “ —liquidity and capital resources ” sections of this md & a : accessed the capital markets and raised $ 400.0 million , before expenses , by issuing series a preferred stock ( as defined below ) in the private placement ( as defined below ) and issued $ 400.0 million aggregate principal amount of 6.250 % senior unsecured notes due 2025 ( the “ 2025 notes ” ) ; amended the credit agreement ( as defined below ) to modify the calculation of the company 's financial maintenance covenant ratio under the credit agreement ; amended the agreements governing the ar securitization facilities ( as defined below ) to temporarily suspend the ar facility ( as defined below ) and extend the repurchase facility ( as defined below ) to june 2021 with a borrowing capacity of $ 80.0 million , unless further amended and or extended ; 41 suspended our quarterly dividend payments on our common stock , subject to the minimum annual reit distribution requirement ( which may be satisfied by making distributions to our common stockholders , our preferred stockholders ( including holders of series a preferred stock ) or a combination of our stockholders ) ; temporarily suspended or delayed our deployment of certain digital transit displays to reduce costs that may or may not be recoverable from customer sales or transit franchise partners ; reduced maintenance capital expenditures ( other than for necessary safety-related projects ) and growth capital expenditures for digital billboard display conversions ; and reduced our posting , maintenance and other , and sg & a ( as story_separator_special_tag defined below ) expenses through , among other things , restrictions on discretionary expenses , workforce reductions , employee furloughs and certain temporary compensation reductions , to offset decreases in revenues in 2020. we have in 2020 , and will continue in 2021 to , focus on managing costs and expenses , including capital expenditures , to offset any decreases in revenues in 2021 as compared to pre-covid-19 pandemic levels . however , we have resumed certain capital investments in a measured manner , including taking a highly selective approach to new acquisition activity , based on our current financial condition . in addition , we have engaged , and will continue to engage , in constructive conversations with our billboard ground lease landlords and transit franchise partners to mitigate any increases as a percentage of revenues in billboard property lease expenses , transit franchise expenses and posting , maintenance and other expenses . though we rely on third parties to manufacture and transport our digital displays , and have not experienced any significant supply chain or logistical disruptions , we may experience delays as a result of the covid-19 pandemic in receiving digital displays as we continue to reinstate our digital billboard display conversions and deployment of digital transit displays . we continue to monitor the rapidly evolving situation and guidance from federal , state and local public health authorities and may take additional actions based on their recommendations . when the covid-19 pandemic subsides , there can be no assurances as to the time it may take to generate revenues at pre-covid-19 pandemic levels . given the uncertainty around the severity and duration of the covid-19 pandemic and the measures taken , or may be taken , in response to the covid-19 pandemic , the company can not reasonably estimate the full impact of the covid-19 pandemic on our business , financial condition and results of operations at this time , which may be material . economic environment our revenues and operating results are sensitive to fluctuations in advertising expenditures , general economic conditions and other external events beyond our control such as the covid-19 pandemic as described above . business environment the outdoor advertising industry is fragmented , consisting of several companies operating on a national basis , as well as hundreds of smaller regional and local companies operating a limited number of displays in a single or a few local geographic markets . we compete with these companies for both customers and structure and display locations . we also compete with other media , including online , mobile and social media advertising platforms and traditional advertising platforms ( such as television , radio , print and direct mail marketers ) . in addition , we compete with a wide variety of out-of-home media , including advertising in shopping centers , airports , movie theaters supermarkets and taxis . increasing the number of digital displays in our prime audience locations is an important element of our organic growth strategy , as digital displays have the potential to attract additional business from both new and existing customers . we believe digital displays are attractive to our customers because they allow for the development of richer and more visually engaging messages , provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns , and eliminate or greatly reduce print production and installation costs . in addition , digital displays enable us to run multiple advertisements on each display . digital billboard displays generate approximately four times more revenue per display on average than traditional static billboard displays . digital billboard displays also incur , on average , approximately two to four times more costs , including higher variable costs associated with the increase in revenue than traditional static billboard displays . as a result , digital billboard displays generate higher profits and cash flows than traditional static billboard displays . the majority of our digital billboard displays were converted from traditional static billboard displays . 42 in 2017 , we commenced deployment of state-of-the-art digital transit displays in connection with several transit franchises and are planning to increase deployments over the coming years . once the digital transit displays have been deployed at scale , we expect that revenue generated on digital transit displays will be a multiple of the revenue generated on comparable static transit displays . subject to the impact of the covid-19 pandemic , we intend to incur significant equipment deployment costs and capital expenditures in the coming years to continue increasing the number of digital displays in our portfolio . we built or converted 60 new digital billboard displays in the united states and 3 in canada in 2020. additionally , in 2020 , we entered into marketing arrangements to sell advertising on 31 third-party digital billboard displays in the u.s. and 31 in canada . in 2020 , we built , converted or replaced 2,893 digital transit and other displays in the united states . as described above , as a result of the covid-19 pandemic , we reduced our digital billboard display conversions and temporarily suspended or delayed our deployment of certain digital transit displays . the following table sets forth information regarding our digital displays . replace_table_token_7_th ( a ) digital display amounts include 3,144 displays reserved for transit agency use . our number of digital displays is impacted by acquisitions , dispositions , management agreements , the net effect of new and lost billboards , and the net effect of won and lost franchises in the period . our revenues and profits may fluctuate due to seasonal advertising patterns and influences on advertising markets . typically , our revenues and profits are highest in the fourth quarter , during the holiday shopping season , and lowest in the first quarter , as advertisers adjust their spending following the holiday shopping season . as described above , our revenues and profits may also fluctuate due to external events beyond our control , such as the covid-19 pandemic . we have a diversified base of customers across various industries .
| total revenues in the u.s. media segment decreased $ 479.8 million , or 29 % , in 2020 compared to 2019 , due primarily to a decline in average revenue per display ( yield ) as a result of the impact of the covid-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise . we generated approximately 40 % in 2020 and 44 % in 2019 of revenues in the u.s. media segment from national advertising campaigns . billboard revenues in the u.s. media segment decreased $ 188.4 million , or 17 % , in 2020 compared to 2019 , reflecting a decline in average revenue per display ( yield ) as a result of the impact of the covid-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise . transit and other revenues in the u.s. media segment decreased $ 291.4 million , or 57 % , in 2020 compared to 2019 , driven by a decline in average revenue per display ( yield ) as a result of the impact of the covid-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise . operating expenses in the u.s. media segment decreased $ 213.3 million , or 25 % , in 2020 compared to 2019 , primarily driven by lower billboard and transit revenues resulting from the impact of the covid-19 pandemic and the impact of agreements with certain landlords and transit franchise partners to modify our existing minimum lease payments and guaranteed minimum annual payments to revenue share percentages in the second , third and fourth quarters of 2020. billboard property lease expenses in the u.s. media segment represented 40 % of billboard revenues in 2020 and 34 % in 2019 , and transit franchise expenses represented 62 % of transit display revenues in 2020 and 59 % in 2019. sg & a expenses in the u.s. media segment decreased $ 33.8 million , or 13 % , in 2020 compared to 2019 , primarily driven by lower compensation-related costs and lower professional fees , primarily resulting from cost reduction measures taken in response to the covid-19 pandemic , and lower amortization of direct lease acquisition costs , partially offset by a higher
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offsetting these challenges , we continue to expect that our ongoing investments in new product innovation , business execution , enterprise growth initiatives , technology infrastructure , and continuous process improvement will enable us , in a modestly growing economy , to deliver long-term average organic revenue growth ranging between 6 % and 8 % with additional growth of 1 % to 2 % derived from strategic acquisitions consistent with our long term business strategy . we also expect to grow earnings per share at a somewhat faster rate than revenue over time as a result of both operating and financial leverage . in 2014 , we expect to offset the negative growth in mortgage-related revenues with strong revenue growth in our core , non-mortgage market initiatives . 29 results of operations twelve months ended december 31 , 2013 , 2012 and 2011 consolidated financial results operating revenue replace_table_token_6_th revenue for 2013 increased by 11 % compared to 2012. the growth was driven by the acquisition of csc credit services in the fourth quarter of 2012 ( “ csc credit services acquisition ” ) and the impact of strategic growth initiatives across our businesses . the first half of 2013 also benefitted from the impact of increased mortgage refinancing activity in the u.s. , which , as expected , began to decline in the second half of 2013 as compared to the prior year . this expected decline reduced reported growth rates in our uscis and workforce solutions business units for the second half of 2013 as compared to the first half of 2013. for the full year , the net decline in mortgage market activity reduced our revenue growth rate by approximately 1.7 % . the effect of foreign exchange rates reduced revenue by $ 20.4 million in the 2013 compared to 2012. revenue for 2012 increased by 9 % compared to 2011. the deconsolidation of our brazilian business , which resulted from the merger of our business into a larger entity during the second quarter of 2011 , negatively impacted revenue growth by $ 35.4 million in 2012 , compared to the prior year , while all other revenue increased by 12 % compared to 2011. the growth in 2012 was driven by strong execution of key strategic initiatives and the impact of increased mortgage refinancing activity in the u.s. the effect of foreign exchange rates , in locations other than brazil , reduced revenue by $ 12.5 million in 2012 compared to the prior year . operating expenses replace_table_token_7_th cost of services . cost of services increased $ 27.8 million in 2013 compared to the prior year . the increase in cost of services , when compared to 2012 , was due primarily to increased salary and benefit costs of $ 27.8 million as well as smaller increases across other categories . the csc credit services acquisition did not have a material impact on cost of services as this business had already been processed on our systems under our previous affiliate arrangement . the effect of changes in foreign exchange rates reduced cost of services by $ 4.9 million . cost of services increased $ 55.6 million in 2012 compared to the prior year . the increase was due primarily to the impact of increased salary expense , direct production expenses and contract service expenses of $ 63.2 million as well as smaller increases in other expenses to support revenue growth . the increase in expense in 2012 was partially offset by decreases related to the deconsolidation of our brazilian business . the impact of changes in foreign currency exchange rates decreased our cost of services by $ 3.4 million . 30 selling , general and administrative expenses . selling , general and administrative expenses increased $ 42.3 million in 2013 as compared to 2012. the increase was due primarily to increased salary , severance , advertising , litigation and regulatory compliance expenses of $ 56.4 million as well as smaller increases in expense in various categories as we continue to support our business growth . 2013 expenses were also impacted by the csc credit services acquisition which contributed approximately $ 19 million of incremental selling , general and administrative expenses some of which are transitional expenses as we integrate the business . these expenses were partially offset by the $ 38.7 million non-cash pension settlement charge that occurred in the fourth quarter of 2012 and declines in incentive costs . the impact of changes in foreign currency exchange rates decreased our selling , general and administrative expenses by $ 4.4 million . the increase in selling , general and administrative expenses in 2012 , as compared to 2011 , included a $ 38.7 million non-cash pension settlement charge that occurred in the fourth quarter of 2012. the remaining increase was primarily due to increased salary , incentive , and professional and contractor services expenses of $ 66.4 million as well as higher marketing and other expenses partially offset by decreases in expenses related to the deconsolidation of our brazilian business . the impact of changes in foreign currency exchange rates decreased our selling , general and administrative expenses by $ 2.7 million . depreciation and amortization . the increase in depreciation and amortization expense in 2013 , as compared to 2012 , was driven by $ 49.1 million of incremental expense resulting from the csc credit services acquisition primarily related to amortization of purchased intangibles . the csc credit services acquisition amortization is partially offset by certain purchased intangible assets related to the talx acquisition in 2007 that became fully amortized during the second quarter of 2013 as well as other miscellaneous purchased intangible assets that fully depreciated during 2013. the slight decrease in depreciation and amortization expense in 2012 , as compared to 2011 , is primarily due to the decline in amortization of certain purchased intangibles acquired as part of the talx acquisition in 2007 , which fully amortized during the second quarter of 2011 , and the amortization and depreciation decrease resulting from the deconsolidation of our brazilian business . story_separator_special_tag this decrease was partially offset by our two 2011 acquisitions within workforce solutions . operating income and operating margin replace_table_token_8_th in 2013 , operating income increased faster than revenue due to margin improvements in our workforce solutions , north america personal solutions and north america commercial solutions businesses , reflecting rapid revenue growth and the ability to leverage our existing cost base . operating income in 2012 was also negatively impacted by the $ 38.7 million pension settlement recorded during the fourth quarter of 2012. in 2012 , operating expenses increased at a slightly faster rate than revenue , and operating income increased at a lower rate than revenue , due to a $ 38.7 million pension settlement recorded during the fourth quarter of 2012 , partially offset by improvements in margins in four of our business segments . the overall operating margin decreased in 2012 compared to the prior year period due primarily to the pension settlement in 2012 which negatively impacted margin by 180 basis points , and by increases in corporate expenses other than the pension settlement , which increased faster than revenues . these negative impacts on operating margin were partially offset by improvements in margins in our uscis , international , workforce solutions and personal solutions businesses , driven by revenue growth . 31 other expense , net replace_table_token_9_th interest expense increased in 2013 , when compared to 2012 , due primarily to the issuance of $ 500 million of 3.30 % ten-year senior notes in december 2012 to fund the csc credit services acquisition . our consolidated debt balance decreased , as compared to the prior year , as a result of paying down $ 265.0 million of commercial paper during 2013 that was used to partially fund the csc credit services acquisition . the decrease in the average cost of debt for 2013 is due to the issuance of the $ 500 million senior notes at a low interest rate and additional low rate commercial paper outstanding on average , which caused the average cost of debt to decrease as compared to the prior year . interest expense increased slightly in 2012 , when compared to the same period in 2011 , due to the issuance of $ 500 million of 3.30 % ten-year senior notes in december 2012. our consolidated debt balance increased at december 31 , 2012 , as a result of the issuance of $ 500 million of 3.30 % senior notes and additional borrowings in the form of commercial paper to partially fund the acquisition of csc credit services . the decrease in the average cost of debt for 2012 is due to the issuance of the $ 500 million senior notes at a low interest rate and additional low rate commercial paper outstanding on average year to date , which caused the average cost of debt to decrease as compared to the prior year period . the increase in other expense ( income ) , net , in 2013 is due to the impairment of our cost method investment representing a 15 % equity interest in boa vista servicos s.a. ( “ bvs ” ) recorded in 2013. during the fourth quarter of 2013 , the management of bvs revised its near-term outlook and its operating plans to reflect reduced near-term market expectations for credit information services in brazil and increased investment needed to achieve its strategic objectives . as a result of these changes , and the associated near-term changes in cash flow expected from the business , we recorded a 40 million brazilian reais ( $ 17.0 million ) impairment of our original investment of 130 million brazilian reais . if the economic growth in brazil remains at lower than trend levels for an extended period or if bvs is unsuccessful in effectively implementing its strategy , further write-downs could be recognized in future periods . other expense ( income ) , net in 2013 also includes $ 6.5 million in foreign exchange losses related to dividends declared by our subsidiary in argentina and losses incurred in repatriating these funds . these expenses were partially offset by an increase in our equity in the earnings of our russian joint venture . other expense ( income ) , net , from continuing operations for 2012 , decreased $ 14.3 million , as compared to the prior year periods . the decrease is primarily due to the merger of our brazilian business during the second quarter of 2011. on may 31 , 2011 , we completed the merger of our brazilian business with bvs , which was accounted for as a sale and deconsolidated , in exchange for a 15 % equity interest in bvs ( the “ brazilian transaction ” ) . we recorded a $ 10.3 million pre-tax loss on the brazilian transaction in other expense ( income ) , net . other expense , net , was also reduced in 2012 by higher income from our minority investment in russia and interest earned on higher cash balances during 2012 . 32 income taxes replace_table_token_10_th our effective tax rate was 35.6 % for 2013 , down from 36.2 % for the same period in 2012. the 2013 rate benefitted by 3.7 % as compared to the 2012 rate due to the unfavorable impact in 2012 of certain one-time effects caused by certain international tax planning implemented during 2012. this was offset by a one-time 2.8 % benefit in 2012 associated with a tax method change approved by tax authorities in 2012. the 2013 effective rate increased by 0.6 % as compared to 2012 due to increases in state income tax rates , which become effective in 2013. we expect our effective tax rate in 2014 to be in the range of 36 % to 37 % . our effective rate was 36.2 % for 2012 , down from 41.2 % for the same period in 2011. the 2011 rate was higher primarily due to the impact of the brazilian transaction which increased our effective rate by 5.2 % .
| for the year , core credit decision transaction volume increased by 4 % while average revenue per transaction increased by 9 % , resulting from the increase in mortgage volume ( at higher than average pricing ) as a share of our overall mix and from specific market segment pricing initiatives , while the remainder of our 17 % growth came from products billed on a subscription basis and other revenue sources . mortgage solutions . revenue increased 21 % in 2013 when compared to the prior year period , due primarily to the incremental revenue resulting from the csc credit services acquisition which contributed 18 % of the growth in 2013. revenue also benefitted from increased new product sales and market share gains from existing customers . revenue increased in 2012 when compared to 2011 due primarily to increased sales in core mortgage reporting services as a result of higher mortgage refinancings stimulated by historically low mortgage interest rates ; the sale of new mortgage information products which help lenders better manage risk ; and growth in settlement services revenue as a result of the favorable market conditions and increased market share from existing customers . consumer financial marketing services . revenue increased $ 36.0 million , or 24 % , in 2013 , as compared to 2012. revenue related to the csc credit services acquisition contributed approximately 11 % of the revenue growth in 2013 , with the remainder coming from account acquisition and analytical services products delivered to members of our key client program . revenue also benefitted from the collection of certain reserved billings related to both 2013 and 2012. revenue decreased in 2012 , as compared to 2011 , resulting from a decline in demand for wealth-based consumer information services due to reductions in their use for credit marketing by some large financial institutions . this decrease was partially offset in by growth in traditional credit-based pre-screen revenue and increased portfolio management revenue . u.s. consumer information solutions operating margin . uscis operating margin decreased to 39.3 % in 2013 as compared to 2012. margin expansion from revenue growth was more than offset by increased depreciation
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provisions for excess , obsolete or slow moving inventory are recorded after periodic evaluation of historical sales , current economic trends , forecasted sales , estimated product lifecycles and estimated inventory levels . purchasing practices , electronic component obsolescence , accuracy of sales and production forecasts , introduction of new products , product lifecycles , product support and foreign regulations governing hazardous materials are the factors that contribute to inventory valuation risks . exposure to inventory valuation risks is managed by maintaining safety stocks , minimum purchase lots , managing product and end-of-life issues brought on by aging components or new product introductions , and by utilizing certain inventory minimization strategies such as vendor-managed inventories . the accounting estimate related to valuation of inventories is considered a “ critical accounting estimate ” because it is susceptible to changes from period-to-period due to the requirement for management to make estimates relative to each of the underlying factors , ranging from purchasing , to sales , to production , to after-sale support . if actual demand , market conditions or product lifecycles differ from estimates , inventory adjustments to lower market values would result in a reduction to the carrying value of inventory , an increase in inventory write-offs and a decrease to gross margins . carrying value of long-lived assets if facts and circumstances indicate that a long-lived asset , including a products ' mold tooling and equipment , may be impaired , the carrying value is reviewed in accordance with fasb asc topic 360-10. if this review indicates that the carrying value of the asset will not be recovered as determined based on projected undiscounted cash flows related to the asset over its remaining life , the carrying value of the asset is reduced to its estimated fair value . impairment losses in the future will be dependent on a number of factors such as general economic trends and major technology advances , and thus could be significantly different than historical results . no impairment charges on tooling and equipment were recorded in 2013 or 2012. we perform a valuation of our patents and trademark assets when events or circumstances indicate their carrying amounts may be unrecoverable . we recorded an impairment charge of $ 73,423 representing cost of $ 98,797 , less accumulated amortization of $ 25,374 in 2013 , and an impairment charge of $ 64,703 representing cost of $ 171,868 , less accumulated amortization of $ 107,165 in 2012 regarding our abandoned patents and trademarks . the value of the remaining intellectual property , such as patents and trademarks , were valued ( net of accumulated amortization ) at $ 495,608 as of december 31 , 2013 , because management believes that its value is recoverable . software development costs the company capitalizes the costs of obtaining its software once technological feasibility has been determined by management . such costs are accumulated and capitalized and projects could take several years to complete . the capitalized costs are then amortized over 3 to 5 years on a straight-line basis . unsuccessful or discontinued software projects are written off and expensed in the fiscal period where the application is abandoned or discontinued . revenue recognition we recognize revenue from product sales in accordance with fasb asc topic 605 , revenue recognition . product sales represent the majority of our revenue and there have been no material changes in or inflation in our product pricing over the past two fiscal periods . we recognize revenue from these product sales when persuasive evidence of an arrangement exists , delivery has occurred or services have been provided , the sale price is fixed or determinable , and collectability is reasonably assured . additionally , we sell our products on terms which transfer title and risk of loss at a specified location , typically shipping point . accordingly , revenue recognition from product sales occurs when all factors are met , including transfer of title and risk of loss , which typically occurs upon shipment by us . if these conditions are not met , we will defer the revenue recognition until such time as these conditions have been satisfied . we collect and remit sales taxes in certain jurisdictions and report revenue net of any associated sales taxes . we also sell certain products through distributors who are granted limited rights of return for stock balancing against purchases made within a prior 90 day period , including price adjustments downwards on any existing inventory . the provision for product returns and price adjustments is assessed for adequacy both at the time of sale and at each quarter end and is based on recent historical experience and known customer claims . 31 revenue from any engineering consulting and other services is recognized at the time the services are rendered . for our longer-term development contracts , which to date have all been firm , fixed-priced contracts , we recognize revenue on the percentage-of-completion method . under this method income is recognized as work on contracts progresses , but estimated losses on contracts in progress are charged to operations immediately . to date , all of our longer-term development contracts have been less than one calendar year in duration . we generally submit invoices for our work under these contracts on a monthly basis . the percentage-of-completion is determined using the cost-to-cost method . we recognizes software license revenue under asc 985-605 “ software revenue recognition ” and under asc 605-25 “ revenue arrangements with multiple deliverables ” , and related interpretations , as amended . licensed software may be sold as a stand-alone element , with other software elements , or in conjunction with hardware products . when our products consists of more than one element , the product is considered to be a multiple element arrangement ( mea ) . when sold as a stand-alone element , the revenue is recognized upon shipment as discussed above . story_separator_special_tag when sold as part of a mea , revenue from the licensed software is recognized when the product and embedded software is shipped to the customer . for either a single element transaction or a mea , the company allocates consideration to all deliverables based on their relative stand-alone selling prices . amendments to asc 605-25 , which became effective january 1 , 2011 , establish a hierarchy to determine the stand-alone selling price as follows : vendor specific objective evidence of the fair value ( vsoe ) , third party evidence ( tpe ) best estimate of the selling price ( esp ) sales which constitute a mea are accounted for by determining if the elements can be accounted for as separate accounting units , and if so , by applying values to those units , per the hierarchy above . if vsoe is not available , management estimates the fair selling price using historical pricing for similar items , in conjunction with current pricing and discount policies . revenue from licensed software is recognized upon shipment and in accordance with industry-specific software recognition accounting guidance . software updates that will be provided free of charge are evaluated on a case-by-case basis to determine whether they meet the definition of an upgrade and create a multiple element arrangement . fees charged to customers for post-contract technical support are recognized ratably over the term of the contract . costs related to maintenance obligations are expensed as incurred . product warranty warranty obligations are generally incurred in connection with the sale of our products . the warranty period for these products is generally one year except in european countries where it is two years . warranty costs are accrued , to the extent that they are not recoverable from third party manufacturers , for the estimated cost to repair or replace products for the balance of the warranty periods . we provide for the costs of expected future warranty claims at the time of product shipment or over-builds to cover replacements . the adequacy of the provision is assessed at each quarter end and is based on historical experience of warranty claims and costs . the costs incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the time of sale . future warranty costs are estimated based on historical performance rates and related costs to repair given products . the accounting estimate related to product warranty is considered a “ critical accounting estimate ” because judgment is exercised in determining future estimated warranty costs . should actual performance rates or repair costs differ from estimates , revision to the estimated warranty liability would be required . 32 derivatives and fair value measurements the company has adopted the provisions of fasb asc topic 820 , “ fair value measurements and disclosures ” as of january 1 , 2008 for financial instruments . this standard defines fair value , establishes a framework for measuring fair value in generally accepted accounting principles , and expands disclosures about fair value measurements . asc 820 clarifies that fair value is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . asc 820 permits an entity to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period . in accordance with asc 815-10-25 , we measured the derivative liability using a lattice pricing model at their issuance date and subsequently they are remeasured . accordingly , at the end of each quarterly reporting date the derivative fair market value is remeasured and adjusted to current market value . derivatives that have more than one year remaining in their life are shown as long term derivative liabilities . asc 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value . level 1 inputs are quoted prices in active markets for identical assets or liabilities . level 2 inputs are inputs other than quoted prices included in level 1 that are directly or indirectly observable for the asset or liability . such inputs include quoted prices in active markets for similar assets and liabilities , quoted prices for identical or similar assets or liabilities in markets that are not active , inputs other than quoted prices that are observable for the asset or liability , or inputs derived principally from or corroborated by observable market data by correlation or other means . level 3 inputs are unobservable inputs for the asset or liability . such inputs are used to measure fair value when observable inputs are not available . stock-based compensation our board of directors approves grants of stock options to employees to purchase our common stock . a stock compensation expense is recorded based upon the estimated fair value of the stock option at the date of grant . the accounting estimate related to stock-based compensation is considered a “ critical accounting estimate ” because estimates are made in calculating compensation expense including expected option lives , forfeiture rates and expected volatility . the fair market value of our common stock on the date of each option grant is determined based on the most recent quoted sales price on our primary trading stock exchange , currently the otcqb . income taxes we have historically incurred domestic operating losses from both a financial reporting and tax return standpoint . accordingly , we provide deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws . a valuation allowance is established for deferred tax assets in amounts for which realization is not considered more likely than not to occur .
| our net loss was $ ( 10,146,228 ) or $ ( 1.69 ) per share for 2013 compared to a net income of $ 322,840 or $ 0.09 per share for 2012. the per share amounts reflect the 1-for-75 reverse stock split of our common stock , which was effective february 6 , 2013. liquidity and capital resources as of december 31 , 2013 , we had cash and cash equivalents of $ 310,140 , an increase of $ 243,586 from $ 66,554 as of december 31 , 2012. at december 31 , 2013 , we had current liabilities of $ 3,660,855 compared to current assets of $ 1,679,623 which resulted in a negative working capital position of $ 1,981,232. as at december 31 , 2012 we had a negative working capital position of $ 3,940,974. our current liabilities are comprised principally of accounts payable , accrued expenses and notes payable . operating activities . we used $ 5,091,550 of cash for 2013 compared to $ 2,823,296 in 2012. the major non-cash operating items for 2013 resulted from a $ 379,634 decrease in accounts payable , a $ 44,320 increase in accounts receivable and a $ 266,446 increase in inventory . the major non-cash operating items for 2012 resulted from a $ 717,499 reduction in inventory and a $ 607,885 reduction in accounts receivable , a $ 912,122 reduction in accounts payable and $ 329,073 reduction in customer deposits , along with a $ 677,994 increase in accrued interest . included in these items were reductions of $ 299,599 in accounts receivable and $ 1,135,042 in inventory related to the sale of the tdg assets . investing activities . investing activities used $ 459,194 of cash for 2013 as compared to providing $ 7,272,085 of cash for 2012 in the same period in 2012. in 2013 , we used $ 145,929 of cash primarily for the purchase of computer equipment additions and tooling , as compared to $ 180,189
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cost of revenues cost of revenues were $ 142.7 million and $ 114.0 million for the years ended december 31 , 2013 and 2012 , respectively , representing an increase of $ 28.7 million , or 25 % , primarily due to an increase in sales unit volume of enoxaparin . in addition , during the year ended december 31 , 2012 , we benefitted from the effect of having previously expensed $ 7.7 million of enoxaparin inventory costs in 2011 as pre-launched inventory . gross profit as a percentage of net revenues was 38 % and 44 % for the years ended december 31 , 2013 and 2012 , respectively . the decrease is primarily related to the effect of having previously expensed $ 7.7 million of enoxaparin inventory in 2011 as pre-launched inventory . selling , distribution and marketing , and general and administrative replace_table_token_12_th general and administrative expenses were $ 31.0 million and $ 27.2 million for the years ended december 31 , 2013 and 2012 , respectively , representing an increase of $ 3.8 million , or 14 % . the increase was primarily due to an increase in compensation expenses and an accrual of $ 1.0 million related to the retirement of our former chief financial officer in the year ended december 31 , 2013. research and development year ended december 31 , change 2013 2012 dollars % ( in thousands ) research and development $ 33,019 $ 31,163 $ 1,856 6 % 59 research and development expenses were $ 33.0 million and $ 31.2 million for the years ended december 31 , 2013 and 2012 , respectively , representing an increase of $ 1.9 million , or 6 % . the increase is primarily related to submission fees paid to the fda during 2013 , which is offset by a decrease in clinical trial expense . the following table sets forth our research and development expenses for the years ended december 31 , 2013 and 2012 : replace_table_token_13_th impairment of long-lived assets year ended december 31 , change 2013 2012 dollars % ( in thousands ) impairment of long-lived assets $ 126 $ 2,094 $ ( 1,968 ) ( 94 % ) impairment of long-lived assets was $ 0.1 million and $ 2.1 million for years ended december 31 , 2013 and 2012 , respectively , representing a decrease of $ 2.0 million , or 94 % . the decrease primarily related to equipment for a production project that was suspended during the year ended december 31 , 2012. provision for income tax expense replace_table_token_14_th income tax expense was $ 5.4 million and $ 7.8 million for the years ended december 31 , 2013 and 2012 , respectively , representing a decrease in income tax expense of $ 2.4 million , or 31 % . the decrease in income tax expense is primarily related to the retroactive application in the year ended december 31 , 2013 of the federal research and development tax credit for the 2012 tax year . the legislation renewing the allowance of the federal r & d tax credit for 2012 was not passed into law until january 2013 , therefore , the r & d tax credit was not factored into our 2012 income tax expense . also , the decrease in income tax expense is related to a decrease in taxable income . liquidity and capital resources cash requirements and sources our business requires capital resources in order to maintain and expand our business . our future capital expenditures will include projects undertaken to upgrade , expand and improve our manufacturing facilities in the united states , china and france . our cash obligations include the principal and interest payments due on our existing loans as described below and throughout this report . we believe that our cash reserves , operating cash flows , and availability under our revolving credit facility will be sufficient to meet our cash needs for the foreseeable future . working capital increased $ 27.8 million to $ 135.4 million at december 31 , 2014 compared to $ 107.6 million at december 31 , 2013. the increase in working capital was primarily due to cash in-flows from operations of $ 21.1 million and the proceeds from our initial public offering of $ 34.7 million , partially offset by payments on long-term debt of $ 8.2 million and capital expenditures of $ 20.5 million . 60 cash flows from operations the following table summarizes our cash flows used in operating , investing , and financing activities for the years ended december 31 , 2014 , 2013 and 2012. replace_table_token_15_th sources and use of cash operating activities net cash provided by operating activities was $ 21.1 million for the year ended december 31 , 2014 , which included a net loss of $ 10.7 million . non-cash items are comprised of $ 14.4 million of depreciation and amortization , $ 9.3 million of share-based compensation expense , and a $ 5.8 million change in deferred taxes and other tax related items . additionally , we received a deposit of 11.0 million , or approximately $ 14.0 million , from mannkind for future deliveries of insulin . investing activities net cash used in investing activities of $ 39.8 million for the year ended december 31 , 2014 was primarily related to the purchase of an api facility in france from merck with an initial payment of $ 18.4 million , and $ 20.5 million in purchases of property , machinery , and equipment , including the associated capitalized labor and interest on self-constructed assets . additionally , $ 0.8 million in deposits were made for machinery and equipment . financing activitie s net cash provided by financing activities of $ 32.1 million for the year ended december 31 , 2014 was primarily related to proceeds of our initial public offering of $ 38.0 million , after deducting $ 2.9 million in underwriting discounts and commissions incurred in connection therewith . story_separator_special_tag we also paid $ 3.3 million in offering expense incurred in connection with the ipo , resulting in net proceeds of $ 34.7 million . additionally , net cash provided by financing activities included $ 21.9 million in borrowings related to the purchase of the api facility in france from merck , and $ 4.6 million relating to the refinancing of an existing mortgage . this was offset by $ 1.9 million related to the cost associated with the initial public offering , $ 15.0 million in net repayments related to our line of credit , $ 14.2 million in principal payments on debt , and $ 1.1 million relating to the tax benefit of options exercised . debt and borrowing capacity our outstanding debt obligations are summarized as follows : replace_table_token_16_th the increase in long-term debt is primarily related to the debt associated with the merck api transaction and the refinancing of an existing mortgage which was to mature in march 2014 and will now mature in april 2021 . 61 as of december 31 , 2014 , we had $ 38.0 million in unused borrowing capacity under revolving lines of credit with cathay bank and east west bank . indebtedness line of credit facility — due march 2016 in march 2012 , we entered into a $ 10.0 million line of credit facility with east west bank . borrowings under the facility are secured by inventory and accounts receivable . borrowings under the facility bear interest at the prime rate as published by the wall street journal . this facility was to mature in july 2014. in april 2014 , we extended the maturity date to march 2016. as of december 31 , 2014 , we did not have any amounts outstanding under this facility . revolving line of credit — due may 2016 in april 2012 , we entered into a $ 20.0 million revolving line of credit facility with cathay bank . borrowings under the facility are secured by inventory , accounts receivables , and intangibles held by us . the facility bears interest at the prime rate as published by the wall street journal with a minimum interest rate of 4.00 % . this revolving line of credit was to mature in may 2014. in april 2014 , we modified the facility to extend the maturity date to may 2016. as of december 31 , 2014 , we did not have any amounts outstanding under this facility . line of credit facility — due january 2019 in july 2013 , we entered into an $ 8.0 million line of credit facility with east west bank . borrowings under the facility are secured by equipment . we paid monthly interest-only payments on the loan until january 2015 , after which we began making 48 monthly principal and interest payments . the facility bears interest at the prime rate as published in the wall street journal plus 0.25 % and matures in january 2019. as of december 31 , 2014 , we did not have any amounts outstanding under this facility . financial covenants under lines of credit at december 31 , 2014 , we were not in compliance with two of our financial covenants with cathay bank . the first one required a fixed charge coverage ratio of 1.2 to 1.0 , or greater , and the second one required a minimum debt service coverage ratio of 1.5 to 1.0 , or greater . on march 13 , 2015 , we obtained a waivers of these debt covenants for the period ending december 31 , 2014. at december 31 , 2013 , we were in compliance with all of our debt covenants , which include a minimum current ratio , minimum debt service coverage , minimum tangible net worth and maximum debt-to-effective-tangible-net-worth ratio , computed on a consolidated basis in some instances and on a separate-company basis in others . weighted-average interest rates under lines of credit the weighted-average interest rates on lines of credit as of december 31 , 2014 and 2013 were 3.6 % and 4.1 % , respectively . acquisition loan with cathay bank — due april 2019 on april 22 , 2014 , in conjunction with our acquisition of merck 's api manufacturing business in éragny-sur-epte , france , we entered into a secured term loan with cathay bank as lender . the principal amount of the loan is $ 21.9 million and bears a variable interest rate at the prime rate as published by the wall street journal , with a minimum interest rate of 4.00 % . beginning on june 1 , 2014 and through the maturity date , april 22 , 2019 , we must make monthly payments of principal and interest equal to the then outstanding amount of the loan amortized over a 120-month period . on april 22 , 2019 , all amounts outstanding under the loan become due and payable , which would be approximately $ 12.0 million based upon an interest rate of 4.00 % . the loan is secured by 65 % of the issued and outstanding shares of stock in amphastar france pharmaceuticals s.a.s. , or afp , a subsidiary we established in france in order to facilitate the acquisition , and certain assets of ours , including accounts receivable , inventory , certain investment property , goods , deposit accounts and general intangibles but not including our equipment and real property . the loan includes customary restrictions on , among other things , our ability to incur additional indebtedness , pay dividends in cash or make other distributions in cash , make certain investments , acquire other companies , create liens , sell assets and make loans . the loan also contains customary financial covenants , computed on a consolidated basis , which include a minimum tangible net worth , a maximum total liabilities to tangible net worth ratio , a minimum current ratio , a minimum profitability and a minimum fixed charge coverage ratio .
| the increase is primarily due to the overall cost of revenue at afp of $ 13.4 million , relating to the cost of sales of our insulin products . we added headcount at afp , during the year , to meet the additional planned sales quantities to mannkind . the associated expenses resulted in a negative gross margin for the afp business . the cost of revenues as a percentage of revenues , increased to 76 % from 62 % . this increase as a percentage of revenues was due to lower pricing on enoxaparin and cortrosyn ® . the declining prices of enoxaparin and cortrosyn ® will put additional downward pressure on gross margins , but this trend will be partially offset by increases in prices of several other finished pharmaceutical products . as production levels increase at afp , we anticipate that the api business will return to profitability . selling , distribution and marketing , and general and administrative replace_table_token_7_th general and administrative expenses were $ 34.8 million and $ 31.0 million for the years ended december 31 , 2014 and 2013 , respectively , representing an increase of $ 3.8 million , or 12 % . the increase was primarily due to the inclusion of expenses generated at our french subsidiary , afp , which we acquired in april 2014 , and an increase in corporate compensation expenses including stock-based compensation expense . general and administrative expenses will increase on an annual basis due to the annualization of costs associated with our insulin business acquired in april 2014 , the costs associated with compliance with sarbanes-oxley section 404 , and the full year impact of corporate public company expenses . 57 research and development year ended december 31 , change 2014 2013 dollars % ( in thousands ) research and development $ 28,427 $ 33,019 $ ( 4,592 ) ( 14 % ) research and development expenses were $ 28.4 million and $ 33.0 million for the years ended december 31 , 2014 and 2013 , respectively , representing a decrease of $ 4.6 million , or 14 % . the decrease is primarily due to a decrease in
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25 assets acquired through , or in lieu of , loan foreclosure are held for sale and are initially recorded at the lower of fair value less costs to sell or the loan carrying amount at the date of foreclosure . subsequent to foreclosure , appraisals or other independent valuations are periodically obtained by management and the assets are carried at the lower of carrying amount or fair value less costs to sell . recent accounting pronouncements – no recent accounting pronouncements are expected to have a significant impact on the corporation 's financial statements . accounting standards update 2015-14 ( asu 2015-14 ) , “ revenue from contracts with customers ( topic 606 ) ” was issued in august 2015. asu 2015-14 adopts a standardized approach for revenue recognition and was a joint effort with the international accounting standards board ( iasb ) . the new revenue recognition standard is based on a core principle of recognizing 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 or services . asu 2015-14 does not apply to financial instruments . asu 2015-14 is effective for public entities for reporting periods beginning after december 15 , 2017 ( therefore , for the year ending december 31 , 2018 for the corporation ) . early implementation is permitted only as of annual periods beginning after december 15 , 2016 , including interim periods within that period . management does not expect the standard will have a significant effect on the corporation 's consolidated financial statements , however the exact effect is still being determined . accounting standards update 2016-01 ( asu 2016-01 ) , “ recognition and measurement of financial assets and financial liabilities ” was issued in january , 2016. the asu covers various changes to the accounting , measurement , and disclosures related to certain financial instruments , including requiring equity investments to be accounted for at fair value with changes recorded through earnings , the use of the exit price when measuring fair value , and disaggregation of financial assets and liabilities by category for disclosure purposes . the new guidance will be effective for the company 's year ending december 31 , 2018. early adoption is permitted as early as periods ending after december 31 , 2017 with some additional options for early application . the company does not believe adopting the provisions of asu no . 2016-01 in the future will have a material impact on the consolidated financial statements . the company has not yet quantified the impact of the change . accounting standards update 2016-13 ( asu 2016-13 ) , “ financial instruments - credit losses : measurement of credit losses on financial instruments ” was issued in june , 2016. the asu includes increased disclosures and various changes to the accounting and measurement of financial assets including the company 's loans and available-for-sale and held-to-maturity debt securities . each financial asset presented on the balance sheet would have a unique allowance for credit losses valuation account that is deducted from the amortized cost basis to present the net carrying value at the amount expected to be collected on the financial asset . the amendments in this asu also eliminate the probable initial recognition threshold in current gaap and instead , reflect an entity 's current estimate of all expected credit losses using reasonable and supportable forecasts . the new credit loss guidance will be effective for the company 's year ending december 31 , 2020. upon adoption , the asu will be applied using a modified retrospective transition method to the beginning of the first reporting period in which the guidance is effective . a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date . early adoption for all institutions is permitted for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . the standard will have a significant effect on the company 's consolidated financial statements as credit losses will be accelerated with the elimination of the probable threshold for initial recognition . story_separator_special_tag 100 % ; margin-left : 0pt ; margin-right : 0pt '' > 27 the provision for loan losses decreased from a reversal of $ 0.5 million in 2014 to a reversal of $ 3.0 million in 2015 as the amount of net charge offs decreased from $ 2.5 million in 2014 to a net recovery of $ 0.7 million in 2015 , and the amount of allowance for loan losses required decreased $ 2.3 million . the improving economic conditions and continued high collection efforts contributed to the net recovery in 2015. the allowance as a percent of loans decreased from 2.16 % as of december 31 , 2014 to 1.77 % as of december 31 , 2015 as the allowance decreased by 17.5 % and the loan portfolio increased by 1.1 % . other income increased 14.8 % from $ 13.4 million in 2014 to $ 15.3 million in 2015. service charges and other fees increased $ 194,000 , or 4.9 % due to a change in the fees charged and benefits provided on our primary personal checking account product . debit card income increased $ 264,000 , or 12.1 % due to increased debit card usage . income from securities transactions improved $ 1,052,000 because the bank realized gains on bonds owned at discounts that were called at par in 2015 , after realizing a loss on the sales of pooled trust preferred collateralized debt obligations ( trup cdos ) in 2014. losses on sales of other real estate decreased $ 662,000 as real estate values continued to improve in southeast michigan in 2015 , resulting in less write downs and losses on sales . story_separator_special_tag mortgage loan origination income increased 53.2 % from 2014 to 2015 as refinance activity increased due to the continued low interest rates and improving real estate values improved property owners ' equity and ability to refinance . rental income on oreo properties decreased $ 219,000 , or 50.2 % due to the reduction in oreo assets . other expenses decreased $ 467,000 , or 1.2 % in 2015 compared to 2014. salaries and benefits expense decreased $ 143,000 , or 0.6 % as an efficiency initiative in the fourth quarter of 2015 resulted in a decrease in the number of full time equivalent employees . the full impact of the initiative is expected to be achieved in 2016 , and it is also expected to lead to a reduction in occupancy expenses in 2016. marketing expense increased $ 265,000 , or 31.6 % mainly because the checking account product enhancements caused an increase of $ 134,000 , advertising expenses increased $ 42,000 , and event sponsorships increased $ 51,000. expenses of other real estate owned decreased $ 675,000 , or 64.5 % primarily due to lower property taxes due to the reduction in properties owned . fdic insurance assessments decreased $ 719,000 , or 36.9 % as our assessment rate decreased in the second quarter of 2015 when our informal agreement with our regulators was terminated . other insurance decreased $ 169,000 , or 16.3 % due to the termination of the consent order in 2014. the company 's net income for 2015 , before provision for income taxes , was $ 17.1 million , an increase of $ 7.2 million compared to the pretax income of $ 9.9 million in 2014. in 2015 we recorded a federal income tax expense of $ 5.0 million , reflecting an effective tax rate of 29.4 % . in 2014 we recorded a tax expense of $ 2.6 million , reflecting an effective tax rate of 26.0 % . the higher effective tax rate in 2015 was due to the decrease in the portion of pretax income that was from nontaxable sources , primarily consisting of municipal investments and bank owned life insurance . the net income in 2015 was $ 12.1 million , an increase of $ 4.8 million compared to the net income of $ 7.3 million in 2014 . 28 interest rates and selected ratios - earnings for the bank are usually highly reflective of the net interest income . the federal open market committee ( fomc ) of the federal reserve maintained the fed funds rate target in the range of 0-0.25 % from 2008 until increasing it slightly , to 0.25-0.50 % in december , 2015 , and then again to 0.50-0.75 % in december , 2016. due to continued high unemployment and the absence of inflation , the fed extended its quantitative easing ( qe ) program through 2012 in an attempt to keep longer term market rates low and encourage borrowing , which reduced the slope from the yield curve . labor markets began to gain strength in 2012 , continuing through 2013 , and the fed began to taper its securities purchases in 2013 , which caused an increase in longer term market interest rates and an increase in the slope of the yield curve in the second half of 2013. although the fed concluded its qe purchases in 2014 , global economic uncertainty increased demand for us treasury securities , and longer term rates began to drop , flattening the yield curve throughout 2015 and into 2016. increased optimism about the economy and corporate earnings resulted in higher longer term rates and a steepening of the yield curve late in 2016. loan and investment yields follow long term market yields , and the yield on our loans decreased from 4.74 % in 2014 to 4.67 % in 2015 and 4.59 % in 2016. the yields on our investment securities decreased from 1.96 % in 2014 to 1.94 % in 2015 and 1.80 % in 2016. as a result of the low interest rate environment and increasing loan demand , we are maintaining our investment portfolio in shorter duration securities and cash reserves . this liquidity helped us fund loan growth and will benefit earnings when interest rates increase , but it is contributing to our low investment portfolio yield . funding costs are more closely tied to the short term rates , and the average cost of our deposits decreased from 0.29 % in 2014 to 0.21 % in 2015 and 0.16 % in 2016. the cost of borrowed funds was 3.56 % in 2014 , but increased to 4.71 % in 2015 and 4.73 % in 2016 after the maturity of some lower cost borrowed funds . the last remaining borrowed funds matured in june , 2016. as a result of the slowly changing interest rate environment and minimal changes in the yields and costs on our balance sheet , our net interest margin was 3.11 % in 2014 and 2015 , and then decreasing to 3.07 % in 2016. the average cost of interest bearing deposits was 0.21 % , 0.26 % , and 0.36 % , for 2016 , 2015 , and 2014 , respectively . the following table shows selected financial ratios for the same three years . replace_table_token_4_th balance sheet activity – compared to 2015 , the total assets of the company increased $ 15.0 million , or 1.1 % . the increase was funded by the growth of $ 34.3 million in deposit funding , which was partially offset by the $ 15.0 million decrease in non-deposit borrowed funding and the reduction of $ 6.2 million in capital . loan demand continued to improve in 2016 , but it was mitigated by principal reductions of problem loans during the year , and total loans held for investment increased $ 35.0 million , or 5.7 % .
| interest expense decreased $ 830,000 compared to 2015 even though the average amount of interest bearing liabilities increased $ 3.5 million because the cost of the interest bearing liabilities decreased from 0.34 % in 2015 to 0.25 % in 2016. the decrease in the interest expense was due to the reductions in the amount of funds borrowed under repurchase agreements and the amount of customer certificates of deposit and the cost of those certificates . during the prolonged low interest rate environment , customers have been moving maturing cd funds to lower cost transaction accounts . 26 the provision for loan losses increased from a reversal of $ 3.0 million in 2015 to a reversal of $ 2.2 million in 2016 as the amount of net charge offs increased from a net recovery of $ 688,000 in 2015 to a net loss of $ 238,000 in 2016 , and the amount of allowance for loan losses required decreased $ 2.4 million . the allowance as a percent of loans decreased from 1.77 % as of december 31 , 2015 to 1.30 % as of december 31 , 2016 as the allowance decreased by 22.4 % and the loan portfolio increased by 5.7 % . other income increased 14.3 % from $ 15.3 million in 2015 to $ 17.5 million in 2016. wealth management income decreased $ 275,000 , or 5.8 % , mainly due to our exit from the 401 ( k ) business . we exited this business because we could not achieve the scale of operation required to cover the rising costs and provide an acceptable return . debit card income increased $ 393,000 , or 16.1 % due to increased debit card usage . income from securities transactions improved $ 1,753,000 because the bank realized gains on bonds owned at discounts that were called at par in 2016. losses on sales of other real estate decreased $ 199,000 as real estate values continued to improve in southeast michigan in 2016 , resulting in less write downs and losses on sales . rental income on oreo properties decreased $ 190,000 , or 87.6 % due to the reduction in rent producing oreo assets . other expenses decreased $ 1.6 million , or 4.2 % in 2016 compared to 2015. salaries and benefits expense decreased $
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the change in consolidated gold sales is due to : replace_table_token_32_th gold sales increased 11 % in 2016 compared to 2015 primarily due to the addition of long canyon and merian in 2016 , the acquisition of cc & v in 2015 , higher average realized prices and higher sales volumes at existing operations , partially offset by the sale of waihi in 2015. gold sales decreased 11 % in 2015 compared to 2014 primarily due to lower average realized prices , lower sales volumes at existing operations and the sales of midas , la herradura and jundee in 2014 , partially offset by the acquisition of cc & v in 2015. for a complete discussion regarding variations in gold volumes , see results of consolidated operations below . the following analysis summarizes consolidated copper sales : replace_table_token_33_th 59 the change in consolidated copper sales is due to : replace_table_token_34_th copper sales decreased 11 % in 2016 compared to 2015 primarily due to lower sales volumes and lower average net realized prices . copper sales decreased 9 % in 2015 compared to 2014 due to lower average net realized prices , partially offset by higher sales volumes . for a complete discussion regarding variations in copper volumes , see results of consolidated operations below . the following is a summary of costs applicable to sales and depreciation and amortization : replace_table_token_35_th ( 1 ) commercial production at long canyon was achieved in november 2016 . ( 2 ) on august 3 , 2015 , the company acquired the cc & v gold mining business . ( 3 ) on october 6 , 2014 , the company sold its 44 % interest in la herradura . ( 4 ) commercial production at merian was achieved in october 2016 . ( 5 ) on july 1 , 2014 , the company sold the jundee mine . ( 6 ) on october 29 , 2015 , the company sold the waihi mine . 60 the details of our costs applicable to sales are set forth below : replace_table_token_36_th replace_table_token_37_th costs applicable to sales increased in 2016 compared to 2015 , primarily due to the acquisition of cc & v in 2015 , the addition of merian and long canyon in 2016 , higher stockpile and leach pad inventory adjustments at ahafo and yanacocha and higher gold sales volumes , partially offset by the sale of waihi in 2015 and lower oil prices . costs applicable to sales decreased in 2015 , compared to 2014 , primarily due to lower oil prices , a favorable australian dollar/u.s . dollar exchange rate , lower stockpile and leach pad inventory adjustments , the sales of waihi in 2015 and midas , jundee and la herradura in 2014 and lower gold sales volumes , partially offset by the acquisition of cc & v in 2015 . for a complete discussion regarding variations in operations , see results of consolidated operations below . the company reclassified regional administrative and community development costs of $ 60 and $ 25 from other expense , net to general and administrative and costs applicable to sales , respectively , for the year ended 2015 and $ 52 and $ 38 , respectively , for the year ended 2014. the details of our depreciation and amortization are set forth below : replace_table_token_38_th replace_table_token_39_th depreciation and amortization increased in 2016 , compared to 2015 , primarily due to the acquisition of cc & v in 2015 , the addition of merian and long canyon in 2016 , higher stockpile and leach pad inventory adjustments at ahafo and yanacocha and higher gold sales volumes , partially offset by the sale of waihi in 2015. depreciation and amortization expense increased in 2015 , compared to 2014 , primarily due to the acquisition of cc & v in 2015 , partially offset by lower gold sales volumes , lower stockpile and leach pad inventory adjustments and the sales of waihi in 2015 and midas , jundee and la herradura in 2014. depreciation and amortization expense fluctuates as capital expenditures increase or decrease and as production levels increase or decrease due to the use of the units-of-production amortization method for mineral interests and mine development . for a complete discussion regarding variations in operations , see results of consolidated operations . reclamation and remediation expense decreased to $ 179 in 2016 from $ 253 in 2015 primarily due to the prior year increase in remediation costs arising from revisions made to the remediation plan of the midnite mine in washington state , partially offset with the current year increase in reclamation costs related to yanacocha . reclamation and remediation expense increased to $ 253 in 2015 61 from $ 142 in 2014 primarily due to increased remediation costs from revised estimates to the remediation plan of the midnite mine in washington state . the company is conducting a comprehensive study of the current yanacocha long-term mining and closure plans as part of the requirement to submit an updated closure plan to peruvian regulators every five years . the revised closure plan will be submitted to peruvian regulators in the second half of 2017. the revised closure plan may require the company to provide additional reclamation bonding for yanacocha . as discussed in note 6 of the consolidated financial statements , after completing its review of preliminary changes to the yanacocha closure plan based on revised long-term mining plans , the study work completed to date and in connection with the company 's annual process to evaluate and update all asset retirement obligations , the company recorded a non-cash charge to reclamation expense for the quarter ended december 31 , 2016 of $ 77 related to operations no longer in production . the increase is primarily due to higher estimated long-term water management costs , heap leach earthworks and related support activities . story_separator_special_tag exploration expense decreased to $ 148 in 2016 from $ 156 in 2015 primarily due to the deconsolidation of tmac in 2015 and lower expenditures at yanacocha , partially offset by increased expenditures at various projects as we continue to focus on developing future reserves . exploration expense decreased to $ 156 in 2015 from $ 163 in 2014 primarily due to the deconsolidation of tmac in 2015 , partially offset by increased expenditures at long canyon . for additional information about proven and probable reserves , including additions and reductions , see the discussion in gold , copper and silver reserves in item 1 , business , and proven and probable reserves in item 2 , properties . advanced projects , research and development expense includes development project management costs , feasibility studies and other project expenses that do not qualify for capitalization . advanced projects , research and development expense increased to $ 134 in 2016 from $ 126 in 2015 primarily due to increased costs to develop various studies and merian pre-production expenses , partially offset by the sale of waihi in 2015 and reduced spend on conga care and maintenance . advanced projects , research and development expense decreased to $ 126 in 2015 from $ 159 in 2014 primarily due to the sale of waihi in 2015 and la herradura in 2014 , deferment of various studies , the decision to advance merian , turf vent shaft and tanami expansion projects to execution as most costs are capitalized in that stage , and general reductions in project and technical service costs . these decreases were partially offset by an increase in costs from placing conga on care and maintenance in the fourth quarter of 2014. general and administrative expense decreased to $ 233 in 2016 , compared to $ 241 in 2015 , primarily due to lower regional administrative costs , lower contracted services and lower non-cash stock compensation expense , partially offset by higher legal costs . general and administrative expense increased to $ 241 in 2015 , compared to $ 237 in 2014 , primarily due to higher non-cash stock compensation expense and contracted services , partially offset by headcount reductions resulting in lower corporate direct costs . general and administrative expense as a percentage of sales was 3.5 % in 2016 , compared to 4.0 % and 3.5 % in 2015 and 2014 , respectively . impairment of long-lived assets totaled $ 977 , $ 56 and $ 26 for 2016 , 2015 and 2014 , respectively . the 2016 impairments were primarily related to the impairment of long-lived assets at yanacocha in south america , due to an increase in asset retirement obligations and related asset as a result of the updated long-term mining and closure plans which was determined to be an impairment indicator . for additional information regarding our review of the yanacocha long-term mining and closure plans , see note 6 to our consolidated financial statements . the 2015 impairments were primarily related to assets in south america , non-essential equipment unrelated to operations at corporate and other and an intangible asset in africa . the 2014 impairments were primarily related to non-essential equipment at carlin and phoenix in north america , corporate and other and south america , specifically for certain assets at conga that have been sold . other expense , net was $ 58 , $ 116 , and $ 92 for 2016 , 2015 , and 2014 , respectively . the decrease in 2016 from 2015 is primarily due to the prior year charge from the ratification of the ghana investment agreement , acquisition costs related to cc & v in 2015 and lower current year power plant costs in western australia . the increase in 2015 from 2014 is primarily due to a charge from the ratification of the ghana investment agreement and acquisition costs related to cc & v in 2015 , partially offset by lower restructuring and power plant costs . other income , net was $ 69 , $ 135 , and $ 158 for 2016 , 2015 , and 2014 , respectively . the decrease in 2016 from 2015 is primarily due to the gain on the deconsolidation of tmac in 2015 , gains from the sale of non-core assets , such as hemlo and egr during 2015 , and losses recognized on debt repayments in 2016. these decreases were partially offset by a current year gain on the sale of our investment in regis and lower other-than-temporary impairments on marketable security investments . the decrease in 2015 from 62 2014 is primarily due to higher other-than-temporary impairments on marketable security investments and lower refinery income from the sale of egr , partially offset by the gain on the deconsolidation of tmac in 2015 and gains on the sales of egr and waihi during 2015. interest expense , net was $ 273 , $ 297 and $ 330 for 2016 , 2015 and 2014 , respectively . capitalized interest totaled $ 33 , $ 40 and $ 23 in each year , respectively . interest expense , net decreased in 2016 compared to 2015 due to lower debt discount amortization and reduced debt balances due to the partial early extinguishment of the 2017 , 2019 and 2039 senior notes and repayment of the 2019 term loan in 2016. capitalized interest decreased compared to 2015 primarily due to merian project completion . interest expense , net decreased in 2015 compared to 2014 due to increased capitalized interest and lower debt discount amortization . capitalized interest increased compared to 2014 primarily due the merian project and the addition of cc & v . income and mining tax expense was $ 563 , $ 391 and $ 204 for 2016 , 2015 and 2014 , respectively . the effective tax rate is driven by a number of factors as illustrated in the table below .
| commercial production for the long canyon project in north america was reached in november 2016. we expect average estimated gold production of 100,000 to 150,000 ounces per year over an eight year mine life . development c apital costs ( excluding capitalized interest ) since approval were $ 209 , of which $ 17 were related to the fourth quarter . at december 31 , 2016 , we reported 19.2 million tons of probable reserves , grading 0.061 ounce per ton for 1.2 million ounces of gold reserves at long canyon . tanami expansion , australia . the board of directors approved full funding of the tanami expansion project on october 28 , 2015. the scope for this project includes a ventilation upgrade , additional mining equipment , additional mine access and increasing process plant capacity and recovery . we expect the tanami expansion to reach commercial production by mid-2017 , which will maintain tanami production of between 425,000 and 475,000 gold ounces for the first five years . development capital costs ( excluding capitalized interest ) since approval were $ 74 , of which $ 23 were related to the fourth quarter of 2016. subika underground , africa . subika underground is in the definitive feasibility stage of development as work continues to optimize the mine plan and reduce costs . the project would increase profitable production by an average of 150,000 to 200,000 ounces of gold per year for the first five years and an investment decision is expected in the first half of 2017. ahafo mill expansion , africa . ahafo mill expansion is in the definitive feasibility stage of development as work continues to refine the scope and reduce costs . the project would increase profitable production by an average of 75,000 to 100,000 ounces of gold per year for the first five years , while lowering costs and off-setting the impacts of lower grades and harder ore. an investment decision is expected in the first half 2017. quecher main , south america . quecher main is a
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our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends , expected claims severity , judicial theories of liability and other factors . however , during the loss adjustment period , our insurance subsidiaries may learn additional facts regarding individual claims , and , consequently , it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates of liability . we reflect any adjustments to our insurance subsidiaries ' liabilities for losses and loss expenses in our consolidated results of operations in the period in which our insurance subsidiaries make the changes in estimates . our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims . our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses , including investigation and litigation costs . our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved , knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred . our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance . our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results . our insurance subsidiaries closely monitor their liabilities and recompute them periodically using new information on reported claims and a variety of statistical techniques . our insurance subsidiaries do not discount their liabilities for losses . reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries ' external environment and , to a lesser extent , assumptions related to our insurance subsidiaries ' internal operations . for example , our insurance subsidiaries have experienced a decrease in claims frequency on workers ' compensation claims during the past several years while claims severity has gradually increased . these trend changes give rise to greater uncertainty as to the pattern of future loss settlements on workers ' compensation claims . related uncertainties regarding future trends include the cost of medical technologies and procedures and changes in the utilization of medical procedures . assumptions related to our insurance subsidiaries ' external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure , consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation . internal assumptions include consistency in the recording of premium and loss statistics , consistency in the recording of claims , payment and case reserving methodology , accurate measurement of the impact of rate changes and changes in policy provisions , consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses , among other items . to the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed , our insurance subsidiaries attempt to make appropriate adjustments for such changes in their reserves . accordingly , our insurance subsidiaries ' ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at december 31 , 2013. for every 1 % change in our insurance subsidiaries ' estimate for loss and loss expense reserves , net of reinsurance recoverable , the effect on our pre-tax results of operations would be approximately $ 2.7 million . the establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries ' ultimate liability will not exceed our insurance subsidiaries ' loss and loss expense reserves and have an adverse effect on our results of operations and financial condition . furthermore , we can not predict the timing , frequency and extent of adjustments to our insurance subsidiaries ' estimated future liabilities , since the historical conditions and events that serve as a basis for our insurance subsidiaries ' estimates of ultimate claim costs may change . as is the case for substantially all property and casualty insurance companies , our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and , in other periods , their estimates of future liabilities have exceeded their actual liabilities . changes in our insurance subsidiaries ' estimate of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received since the prior reporting date . our -39- insurance subsidiaries recognized an increase ( decrease ) in their liability for losses and loss expenses of prior years of $ 10.4 million , $ 7.6 million and ( $ 168,460 ) in 2013 , 2012 and 2011 , respectively . our insurance subsidiaries made no significant changes in their reserving philosophy , key reserving assumptions or claims management personnel , and have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in these years . the 2013 development represented 4.1 % of the december 31 , 2012 net carried reserves and resulted primarily from higher-than-expected severity in the private passenger automobile liability , commercial multiple peril , commercial automobile and workers ' compensation lines of business in accident years prior to 2013. excluding the impact of weather events , our insurance subsidiaries have noted stable amounts in the number of claims incurred and a slight downward trend in the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business . story_separator_special_tag however , the amount of the average claim outstanding has increased gradually over the past several years as the united states property and casualty insurance industry has experienced increased litigation trends and economic conditions that have extended the estimated length of disabilities and contributed to increased medical loss costs . we have also experienced a general slowing of settlement rates in litigated claims . our insurance subsidiaries could have to make further adjustments to their estimates in the future . however , on the basis of our insurance subsidiaries ' internal procedures , which analyze , among other things , their prior assumptions , their experience with similar cases and historical trends such as reserving patterns , loss payments , pending levels of unpaid claims and product mix , as well as court decisions , economic conditions and public attitudes , we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses . atlantic states ' participation in the pool with donegal mutual exposes it to adverse loss development on the business of donegal mutual that the pool includes . however , pooled business represents the predominant percentage of the net underwriting activity of both companies , and donegal mutual and atlantic states proportionately share any adverse risk development of the pooled business . the business in the pool is homogeneous and each company has a pro-rata share of the entire pool . since substantially all of the business of atlantic states and donegal mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement , the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies . our insurance subsidiaries ' liability for losses and loss expenses by major line of business at december 31 , 2013 and 2012 consisted of the following : replace_table_token_14_th we have evaluated the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables we consider in establishing loss and loss expense reserves . we established the range of reasonably likely changes based on a review of changes in accident year development by line of business and applied it to our insurance subsidiaries ' loss reserves as a whole . the selected range does not necessarily indicate -40- what could be the potential best or worst case or the most-likely scenario . the following table sets forth the effect on our insurance subsidiaries ' loss and loss expense reserves and our stockholders ' equity in the event of reasonably likely changes in the variables considered in establishing loss and loss expense reserves : replace_table_token_15_th ( 1 ) net of income tax effect . our insurance subsidiaries base their reserves for unpaid losses and loss expenses on current trends in loss and loss expense development and reflect their best estimates for future amounts needed to pay losses and loss expenses with respect to incurred events currently known to them plus incurred but not reported ( ibnr ) claims . our insurance subsidiaries develop their reserve estimates based on an assessment of known facts and circumstances , review of historical loss settlement patterns , estimates of trends in claims severity , frequency , legal and regulatory changes and other assumptions . our insurance subsidiaries consistently apply actuarial loss reserving techniques and assumptions , which rely on historical information as adjusted to reflect current conditions , including consideration of recent case reserve activity . our insurance subsidiaries use the most-likely number their actuaries determine . for the year ended december 31 , 2013 , the actuaries developed a range from a low of $ 238.8 million to a high of $ 295.5 million and with a most-likely number of $ 265.6 million . the actuaries ' range of estimates for commercial lines in 2013 was $ 142.5 million to $ 176.2 million , and the actuaries selected the most-likely number of $ 158.5 million . the actuaries ' range of estimates for personal lines in 2013 was $ 96.2 million to $ 119.3 million , and the actuaries selected the most-likely number of $ 107.1 million . for the year ended december 31 , 2012 , the actuaries developed a range from a low of $ 228.7 million to a high of $ 275.3 million and with a most-likely number of $ 250.9 million . the actuaries ' range of estimates for commercial lines in 2012 was $ 130.9 million to $ 157.4 million , and the actuaries selected the most-likely number of $ 143.5 million . the actuaries ' range of estimates for personal lines in 2012 was $ 97.8 million to $ 117.9 million , and the actuaries selected the most-likely number of $ 107.4 million . our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they underwrite . for personal lines products , our insurance subsidiaries insure standard and preferred risks in private passenger automobile and homeowners lines . for commercial lines products , the commercial risks that our insurance subsidiaries primarily insure are business offices , wholesalers , service providers , contractors , artisans and light manufacturing operations . our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities . our insurance subsidiaries write no medical malpractice liability risks . through the consistent application of this disciplined underwriting philosophy , our insurance subsidiaries have avoided many of the long-tail issues other insurance companies have faced . we consider workers ' compensation to be a long-tail line of business , in that workers ' compensation claims tend to be settled over a longer time frame than those in the other lines of business of our insurance subsidiaries . -41- the following table presents 2013 and 2012 claim count and payment amount information for workers ' compensation .
| million , a $ 1.4 million decrease from 2012. an increase in our average invested assets from $ 795.9 million in 2012 to $ 799.1 million in 2013 was offset by a decrease in our annualized average rate of return to 2.4 % in 2013 , compared to 2.5 % in 2012. installment payment fees our insurance subsidiaries ' installment fees decreased primarily as a result of their customers ' increased usage of payment plans that have lower installment payment fees during 2013. net realized investment gains/losses our net realized investment gains in 2013 and 2012 were $ 2.4 million and $ 6.9 million , respectively . the net realized investment gains in 2013 and 2012 resulted from normal turnover within our investment portfolio . we did not recognize any impairment losses during 2013 or 2012. equity in earnings of dfsc our equity in the earnings of dfsc in 2013 and 2012 was $ 2.9 million and $ 4.5 million , respectively . the decrease in dfsc 's earnings resulted from a lesser benefit from acquisition accounting adjustments and lower net realized gains during 2013 compared to 2012. losses and loss expenses our insurance subsidiaries ' loss ratio , which is the ratio of incurred losses and loss expenses to premiums earned , was 66.6 % in 2013 , compared to 70.1 % in 2012. our insurance subsidiaries ' commercial lines loss ratio increased to 67.1 % in 2013 , compared to 65.5 % in 2012. this increase resulted primarily from the commercial automobile loss ratio increasing to 73.0 % in 2013 , compared to 63.8 % in 2012 , and the commercial multi-peril ratio increasing to 61.5 % in 2013 , compared to 60.2 % in 2012. the personal lines loss ratio decreased to 66.3 % in 2013 , compared to 72.8 % in 2012 , primarily as a result of a decrease in the homeowners loss ratio to 57.7 % in 2013 , compared to 66.1 % in 2012 , as a result of a
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the company 's common shares trade under the ticker symbol “ bb ” on the new york stock exchange and the toronto stock exchange . the company was incorporated under the business corporations act ( ontario ) ( “ obca ” ) on march 7 , 1984. the company continued to execute on its strategy in fiscal 2021 and announced the following achievements : products and innovation : announced an agreement with aws to develop and market the new blackberry ivy intelligent vehicle data platform ; launched blackberry spark® suites , offering enterprises a range of tailored cybersecurity and endpoint management options to help protect data , minimize risk , and reduce cost and complexity ; launched blackberry cyber suite , the industry 's first comprehensive ai-powered ues solution ; announced that blackberry qnx software is embedded in more than 175 million cars on the road ; announced that blackberry® ues was validated by mitre att & ck apt29 , which examines the ability to detect sophisticated tactics and techniques used by apt29 , a group that cybersecurity experts believe operates on behalf of the russian government ; announced that an independent frost & sullivan study reported that the company 's solutions can secure all iot endpoints against upwards of 96 % of all cyberthreats ; launched blackberry persona , the industry 's first ueba solution using ai technology for continuous authentication ; launched blackberry protect® mobile , an mtd solution to protect against mobile malware and phishing attacks ; launched zoom for blackberry® , a secure , containerized version of the zoom app enabled by blackberry dynamics ; announced that blackberry uem has achieved national security agency ( nsa ) commercial solutions for classified program ( csfc ) approval ; announced that blackberry uem achieved national information assurance partnership ( niap ) and u.s. department of defense information network ( dodin ) approvals ; announced that the blackberry® government mobility suite has achieved federal risk and authorization management program ( fedramp ) authorization ; launched qnx® os for safety 2.2 and announced its certification by tüv rheinland to iec 61508 sil3 ( industrial ) , iso 26262 asil d ( automotive ) , and iec 62304 class c ( medical devices ) functional safety standards ; launched blackberry qnx® hypervisor 2.2 , the latest edition of the company 's real-time embedded hypervisor ; launched qnx® black channel communications technology , a new software solution that oems and embedded software developers can use to ensure safe data communication exchanges within their safety-critical systems ; launched the blackberry® alert next-generation critical event management solution for the commercial sector ; introduced athoc® managed service to enable organizations of any size to maintain crisis communications capability ; 29 announced the launch of blackberry® athoc® public safety edition to support local governments and universities with critical event management programs ; announced the integration of blackberry athoc with microsoft teams ; announced the integration of the blackberry athoc service with servicenow 's now platform for rapid crisis communications and it service management ; announced a dedicated european union market version of blackberry athoc to comply with data residency mandates ; announced enhancements to blackberry radar® devices to help transportation businesses improve asset utilization and visibility ; announced that blackberry is making available pe tree , a free open-source tool for cybersecurity professionals that significantly reduces the time and effort required to reverse engineer malware ; announced a collaboration with intel to deliver a new release of blackberry optics to stop cryptojacking malware ; released the 2021 blackberry threat report , detailing a sharp rise in cyberthreats facing organizations since the onset of the covid-19 pandemic ; released proprietary research uncovering attacks by bahamut , a massive hack-for-hire group targeting governments , businesses , human rights groups and influential individuals ; released new research that examines how five related chinese advanced persistent threat groups have compromised linux servers , windows systems and mobile android devices for nearly a decade ; and announced feature updates to its secusuite for government and blackberry athoc solutions . customers and partners : launched the blackberry ivy innovation fund to drive innovation and new products using blackberry ivy ; announced that the u.s. air force chose blackberry spark for secure productivity ; announced expanded partnership with baidu to power high-definition map technology for autonomous driving ; announced that scania ab chose blackberry qnx to provide the safety-critical operating system and hypervisor in its next generation of heavy goods vehicles ; announced the development of an autonomous driving domain controller for the xpeng p7 intelligent electric sports sedan with desay sv automotive ; teamed up with desay sv automotive to launch a virtual smart cabin domain controller in chery 's tiggo 8 plus and jetour x90 models ; announced that qnx black channel communications technology will be used in motional 's driverless vehicle platform ; announced that stradvision will utilize the qnx® software development platform within a number of next generation advanced driver assistance systems ( adas ) and autonomous vehicles from south korean automakers ; announced that the neutrino operating system will power adas systems in canoo 's next generation electric vehicles ; announced that blackberry qnx technology will power the innovative digital cockpit in arcfox αt , a high-end , intelligent , electric suv ; announced that plus has selected blackberry qnx technology for the global commercial deployment of their automated driving system for class 8 trucks ; announced expanded partnerships with vodafone and telus to offer blackberry athoc as their secure critical event management and crisis communications solution ; partnered with bell to become bell 's preferred mtd solution provider , delivering blackberry protect to canadian enterprise customers ; launched the blackberry partner program to unify the blackberry enterprise partner program and blackberry cylance partner programs into one comprehensive structure ; announced that the blackberry enterprise partner program and the blackberry cylance partner program both received a 5-star rating from crn for the fourth consecutive year ; expanded the leadership position of the blackberry athoc crisis communication system within the u.s. federal government ; announced that blackberry athoc introduced derived credentials and fedramp authorization on aws govcloud to story_separator_special_tag better support u.s. federal agencies ; announced that the german development agency chose blackberry athoc as its emergency mass notification system ; entered into a partnership with dedrone , a market and technology leader in airspace security , to deliver advanced counter-drone technology to secure the world 's most critical sites ; announced that sliced tech will host secusuite for government for australian government and enterprise customers ; announced that blackberry radar added more than 12 new channel partners including two within mexico , expanding the company 's asset monitoring solutions outside of the u.s. and canada for the first time ; 30 entered into a partnership with ztr to offer railcar owners , operators and suppliers a powerful new digital monitoring solution ; announced that blackberry® jarvis was named “ best in breed ” binary analysis tool for embedded software by an internal research & development ( irad ) program study ; announced the success of a joint cybersecurity skills-based education program with girl guides of canada ; and entered into a partnership with university of windsor to develop and deliver a cybersecurity curriculum for the university 's graduate master 's program in applied computing . environmental , sustainability and corporate governance : announced that the company received eleven “ employer of choice ” and “ best place to work ” awards in 2020 ; expanded the company 's commitment to the united nations global compact sustainable development goals ; extended the company 's partnership with the american red cross by donating blackberry athoc software to support community safety and resilience ; appointed thomas eacobacci as president ; and appointed marjorie dickman as chief government affairs and public policy officer . debt redemption and new issuance on september 1 , 2020 , the company redeemed its outstanding 3.75 % unsecured convertible debentures ( the “ 3.75 % debentures ” ) for a redemption amount of approximately $ 615 million ( the “ redemption amount ” ) , which settled all outstanding obligations of the company in respect of the 3.75 % debentures . on september 1 , 2020 , the company issued an aggregate of $ 365 million principal amount of new 1.75 % unsecured convertible debentures maturing on november 13 , 2023 ( the “ 1.75 % debentures ” and collectively with the 3.75 % debentures , the “ debentures ” ) to hamblin watsa investment counsel ltd. , in its capacity as investment manager of fairfax financial holdings limited ( `` fairfax '' ) and another institutional investor on a private placement basis . fairfax agreed to acquire $ 330 million principal amount of the 1.75 % debentures and receives interest at the same rate as the other holder of the 1.75 % debentures . the 1.75 % debentures have terms that are substantially identical to those of the 3.75 % debentures except that the 1.75 % debentures are convertible into common shares at a price of $ 6.00 per common share , bear a lower rate of interest at 1.75 % per annum , are subject to a higher approval threshold for extraordinary resolutions and mature in 2023. additionally , the 1.75 % debentures can not be converted to the extent that , after giving effect to the conversion , the holder would beneficially own or exercise control or direction over more than 19.99 % of the company 's then issued and outstanding shares . quarterly and annual interest expense on the 1.75 % debentures is and will be approximately $ 2 million and $ 6 million , respectively . covid-19 in march 2020 , the world health organization characterized the novel coronavirus ( “ covid-19 ” ) as pandemic and extraordinary actions have been taken by international , federal , state , provincial and local governmental authorities to contain and combat the spread of covid-19 in regions throughout the world . the covid-19 pandemic and related public health measures , including orders to shelter-in-place , travel restrictions and mandated business closures , have adversely affected workforces , organizations , consumers and economies leading to an economic downturn and increased market volatility . the pandemic has disrupted the normal operations of the company and the businesses of many of the company 's customers , suppliers and distribution partners . to protect the health and safety of the company 's employees , contractors , customers and visitors , throughout most of fiscal 2021 , the company mandated remote working , utilizing virtual meetings and suspending employee travel , to protect the health and safety of its employees , contractors , customers and visitors . the company also shifted customer , industry and other stakeholder events to virtual-only experiences , and may similarly alter , postpone or cancel other events in the future . the company has a limited history with substantially remote operations and the long-term impacts of it are uncertain . in response to certain anticipated and ongoing impacts from the covid-19 pandemic , the company has also implemented a series of temporary cost reduction measures to further preserve financial flexibility . these actions include the postponement of certain discretionary spending , taking advantage of the broad-based employer relief provided by governments in canada , the united states and other jurisdictions , temporarily suspending certain company matching contributions to employee retirement savings plans and deferring increases in the base salaries of many employees and executives . these cost reduction measures and their estimated savings for the year ended february 28 , 2021 included measures impacting employee salaries and benefits of approximately $ 18 million , a reduction in travel spending of approximately $ 18 million , and a reduction in discretionary selling and administrative expenses relating to marketing and facilities of $ 14 million . in addition , the company has recorded approximately $ 53 million in offsets to salaries for amounts under the canada emergency wage subsidy ( “ cews ” ) and has deferred approximately $ 6 million of payments related to payroll taxes in the united states under the u.s. cares act , which amounts have been accrued .
| for the three months ended february 28 , 2021 , the company recorded a non-cash charge relating to changes in fair value from instrument specific credit risk of $ 4 million in other comprehensive income ( loss ) ( “ oci ” ) and a non-cash charge relating to changes in fair value from non-credit components of $ 258 million ( pre-tax and after tax ) ( the “ q4 fiscal 2021 debentures fair value adjustment ” ) in the company 's consolidated statements of operations . in fiscal 2021 , the company recorded non-cash income relating to changes in fair value from instrument-specific credit risk of $ 13 million in oci and a non-cash charge relating to changes in fair value from non-credit components of $ 372 million ( pre-tax and after tax ) ( the “ fiscal 2021 debentures fair value adjustment ” ) in the company 's consolidated statements of operations . see note 7 to the consolidated financial statements for further details on the debentures . the following table shows the impact of the changes in fair value of the debentures for the three months and year ended february 28 , 2021 : three months ended for the year ended february 28 , 2021 february 28 , 2021 income associated with the change in fair value from instrument-specific credit components on the 3.75 % debentures recorded in accumulated other comprehensive loss ( “ aocl ” ) $ — $ 15 realized charges associated with the change in fair value from credit components released from aocl on redemption of the 3.75 % debentures — 6 charge associated with the change in fair value from instrument-specific credit components on the 1.75 % debentures recorded in aocl ( 4 ) ( 8 ) total non-cash income ( charges ) recorded in aocl $ ( 4 ) $ 13 three months ended for the year ended february 28 , 2021 february 28 , 2021 charge associated with the change in fair value from non-credit components on the 3.75 % debentures recorded in the consolidated statements of operations $ — $ ( 19 ) realized charges associated with the change in fair value from credit components recorded in the consolidated statements of operations on redemption of the 3.75 % debentures — ( 6 ) charge associated with the change in fair value from non-credit components on the 1.75 % debentures recorded in the consolidated statements of operations ( 258 ) ( 347 ) total non-cash charges recorded in the consolidated statements of operations
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replace_table_token_3_th replace_table_token_4_th nm = not meaningful we monitor the key metrics set forth in the preceding table to help us evaluate trends , establish budgets , measure the effectiveness and efficiency of our operations and gauge our cash generation . we discuss adjusted ebitda in more detail in `` non-gaap financial measures — adjusted ebitda . '' we also monitor revenue retention rate and client retention rate described as follows . revenue retention rate we believe that our ability to retain revenue associated with new or existing client relationships is an indicator of the stability of our revenue base and the long-term value we provide to our clients . we assess our performance in this area using a metric we refer to as our revenue retention rate . we calculate our revenue retention rate at the end of each calendar year by dividing total revenue in the year from client contracts that have not been renewed or have been terminated during the year by our total revenue for that year , and subtracting this quotient from 100 % . our annual revenue retention rate was 98 % , 99 % , and 99 % for the years ended 2019 , 2018 , and 2017 , respectively . client retention rate we monitor our client retention rate as a measure for our overall business performance . we believe that our ability to retain clients is an indicator of the stability of our revenue base and the long-term value of our client relationships . we assess our performance in this area using a metric we refer to as our client retention rate . we calculate this rate by dividing the number of client terminations and client non-renewals during a calendar year by the total number of clients serviced during that year , and subtracting this quotient from 100 % . our annual client retention rate was 91 % , 96 % , and 95 % for the years ended 2019 , 2018 , and 2017 , respectively . the decline in client retention is the direct result of including the prescribewellness customer base in our calculation . while prescribewellness has a higher churn than the rest of our business , due to the nature of the contracts , it is low compared to many saas businesses . factors affecting our future performance we believe that our future success will be dependent on many factors , including our ability to maintain and grow our relationships with existing clients , expand our client base , continue to enter new markets and expand our offerings to meet evolving market needs . while these areas present significant opportunities , they also present risks that we must manage to ensure successful results . see the section entitled `` risk factors '' for a discussion of certain risks and uncertainties that may impact our future success . 51 recent developments acquisitions on march 5 , 2019 , we entered into and consummated the transactions contemplated by a merger agreement , pursuant to which we acquired prescribewellness , llc , a nevada limited liability company , or prescribewellness . prescribewellness is a leading cloud-based patient engagement solutions company that facilitates collaboration between more than 12,000 pharmacies with patients , payers , providers and pharmaceutical companies . we paid $ 150 million in cash consideration , subject to customary adjustments set forth in the merger agreement . a portion of the consideration is being held in escrow to secure potential claims for indemnification under the merger agreement and in respect of adjustments to the consideration under the merger agreement . on january 2 , 2019 , we completed our acquisition of the outstanding share capital and options to purchase share capital of doseme holdings pty ltd , or doseme , a proprietary company limited by shares organized under the laws of australia . doseme is the developer of dosemerx , an advanced precision dosing tool to help physicians and pharmacists more accurately dose patients ' high-risk parenteral medications . the acquisition was made pursuant to a share purchase deed made and entered into as of november 30 , 2018. the consideration for the acquisition was comprised of ( i ) cash consideration of $ 10.0 million paid upon closing , subject to certain customary post-closing adjustments , ( ii ) the issuance of 149,053 shares of our common stock , and ( iii ) contingent purchase price consideration . the stock consideration issued upon closing had an acquisition-date fair value of $ 9.5 million . during the third quarter of 2019 , we elected to accelerate the payment of the contingent earn out payment and paid $ 8.8 million in full satisfaction of the contingent purchase price consideration . on october 19 , 2018 , our wholly-owned subsidiary , trhc mec holdings , llc , acquired all of the issued and outstanding capital stock of cognify , inc. , a california corporation , or cognify , pursuant to a stock purchase agreement . cognify is a leading electronic health records solutions and services provider in the pace market and to managed long-term care and medical home providers . the consideration for the acquisition was comprised of ( i ) cash consideration of $ 10.8 million paid upon closing , subject to certain customary post-closing adjustments ; ( ii ) the issuance of 93,579 shares of our common stock ; and ( iii ) contingent purchase price consideration to be paid 50 % in cash and 50 % in our common stock based on the financial results of the acquired business and certain other factors set forth in the purchase agreement . the stock consideration issued upon closing had an acquisition-date fair value of $ 7.5 million . we are not obligated to pay more than $ 14.0 million in cash and our common stock for the contingent payment . story_separator_special_tag on august 31 , 2018 , our wholly-owned subsidiary , trhc mec holdings , llc , entered into a membership interest purchase agreement with each member of mediture llc , a minnesota limited liability company , and eclusive l.l.c. , a minnesota limited liability company , collectively mediture , pursuant to which we acquired all of the issued and outstanding membership and economic interests of mediture . mediture is a provider of electronic health record solutions and third party administrator services in the pace market and also services several managed long-term care organizations in the state of new york . the consideration for the acquisition was comprised of ( i ) cash consideration of $ 18.5 million paid upon closing , subject to certain customary post-closing adjustments , and ( ii ) the issuance of 45,561 shares of our common stock . the stock consideration issued at the closing of the acquisition had an acquisition-date fair value of $ 4.0 million . on may 1 , 2018 , we entered into an asset purchase agreement with peak pace solutions , llc , or peak pace , and certain other parties thereto pursuant to which we acquired substantially all of the assets , and assumed certain enumerated liabilities , of peak pace , an organization that helps pace organizations manage the business functions that drive the major sources of reimbursement revenue and utilization costs . the acquisition consideration was comprised of cash consideration consisting of ( i ) $ 7.7 million payable upon the closing of the acquisition , subject to certain customary post-closing adjustments and ( ii ) contingent purchase price to be paid in cash based on the achievement of certain performance goals for the twelve-month period ended december 31 , 2018. we made the final cash payment of $ 1.6 million in full satisfaction of the peak pace acquisition-related contingent consideration payable during the second quarter of 2019 . we account for acquisitions using the purchase method of accounting . we allocated the purchase price to the assets acquired , including intangible assets , and liabilities assumed , based on estimated fair values at the date of the acquisition . the results of operations from the acquisition are included in our consolidated financial statements from the acquisition date . 52 financing on february 12 , 2019 , we issued and sold convertible senior subordinated notes with an aggregate principal amount of $ 325.0 million in a private placement to qualified institutional buyers pursuant to rule 144a under the securities act of 1933 , as amended . the notes bear interest at a rate of 1.75 % per year , payable semiannually in arrears on february 15 and august 15 of each year , beginning on august 15 , 2019. the notes will mature on february 15 , 2026 , unless earlier converted or repurchased . the initial conversion rate for the notes is 14.2966 shares of our common stock per $ 1,000 principal amount of notes . this conversion rate is equal to an initial conversion price of approximately $ 69.95 per share of our common stock . upon conversion , we will pay or deliver , as the case may be , shares of our common stock , cash or a combination thereof at our option . in connection with the offering of the notes , we entered into convertible note hedge transactions with affiliates of certain of the initial purchasers , or the option counterparties , of the notes pursuant to the terms of call option confirmations . we also entered into warrant transactions with the option counterparties . the convertible note hedge transactions are expected generally to reduce the potential dilution to our common stock upon conversion of the notes and or offset any potential cash payments we are required to make in excess of the principal amount of converted notes . the warrant transactions could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants . corporate reorganization effective january 1 , 2020 , in order to facilitate the administration , management and development of our business , and minimize the burden on our tax and regulatory reporting obligations , we implemented a reorganization pursuant to which all of our domestic subsidiaries , other than ck solutions , llc , merged with and into our wholly-owned subsidiary carekinesis , inc. ( which had previously changed its legal name to trhc opco , inc. , or trhc opco , on december 20 , 2019 ) , and as a result thereof , following such reorganization , our only directly owned subsidiary is trhc opco which is the parent of ck solutions , llc and the three doseme foreign subsidiaries . components of our results of operations revenue our revenue is derived from our product sales and service activities . for the years ended december 31 , 2019 , 2018 , and 2017 , product sales represented 48 % , 55 % , and 71 % of our total revenue , respectively . for the years ended december 31 , 2019 , 2018 , and 2017 , service revenue represented 52 % , 45 % , and 29 % of our total revenue , respectively . product revenue mrm prescription fulfillment services . we have a stand ready obligation to provide prescription fulfillment pharmacy services , including dispensing and delivery of an unknown mix and quantity of medications , directly to pace organizations . revenue from medication risk management , or mrm , prescription fulfillment services is recognized when medications are delivered to the client . at the time of delivery , we have performed substantially all of our performance obligations under our client contracts and we do not experience a significant level of returns or reshipments . service revenue service revenue consists of mrm services , health plan management services , and pharmacy cost management services . mrm services .
| 56 cost of product revenue cost of product revenue increased $ 17.4 million , or 21 % , from $ 84.9 million for the year ended december 31 , 2018 to $ 102.3 million for the comparable period in 2019. new mrm prescription fulfillment clients acquired period over period contributed $ 2.2 million to the increase . in addition , increased prescription volume as a result of growth in the number of patients served by our existing customers contributed approximately $ 10.4 million to the change . manufacturer price increases and medication mix of prescriptions filled for our clients ' patients contributed an additional $ 1.2 million to the overall increase in the cost of product revenue . in addition , personnel costs , including stock-based compensation , increased $ 1.9 million due to additional headcount as well as increases in salary and benefits for existing employees related to market adjustments and performance based increases . distribution charges represented $ 1.6 million of the increase and related to higher shipping volume for the medications we fulfilled for our clients ' patients . cost of service revenue cost of service revenue increased $ 26.3 million , or 50 % , from $ 52.7 million for the year ended december 31 , 2018 to $ 79.0 million for the year ended december 31 , 2019. the recent acquisitions of peak pace , mediture , cognify , doseme , and prescribewellness contributed approximately $ 16.9 million to the increase in service costs . excluding the impact of the acquisitions , mrm service costs increased approximately $ 7.4 million , of which $ 5.3 million was primarily due to increases in headcount and related employee compensation , including stock-based compensation , to support the growth of our mtm service offerings . mrm service costs also increased due to a $ 1.6 million increase in contract labor costs , as well as increases in information technology expenses . service costs related to our health plan management services , excluding the impact of the recent acquisitions , increased $ 2.7 million primarily as a result of an increase in employee compensation costs to support the growth in the
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covid -19 pandemic in march 2020 , the world health organization declared the outbreak of the covid-19 pandemic , which has spread throughout the united states . the spread of the covid-19 pandemic has continued to cause significant volatility in the u.s. and international markets , and in many industries , business activity has experienced periods of almost complete shutdown . there continues to be uncertainty around the duration and severity of business disruptions related to the covid-19 pandemic , as well as its impact on the u.s. economy and international economies . the company collected 100 % of the contractual base rent ( “ cbr ” ) due for the three months ended december 31 , 2020. cbr represents the amount owed to the company under the current terms of its lease agreements . the company has agreed to defer or abate certain cbr in exchange for additional lease term or other lease enhancing additions that equated to 6 % of contractual rents in place at the time of the deferral or abatement agreements . repayment of deferred cbr began in the third quarter of 2020 , with payments continuing , in some cases , through the end of 2021. see note 17 , “ subsequent events ” to the consolidated and combined financial statements included in item 8 , “ financial statements and supplementary data ” in this annual report on form 10-k for the company 's disclosure related to 2021 rent collections . an assessment of the current or identifiable potential financial and operational impacts on the company as a result of the covid-19 pandemic are as follows : ● during the first quarter of 2020 , the company completed the acquisition of nine properties for an aggregate purchase price of $ 46.8 million . when the pandemic was declared , given the uncertainties created by the covid-19 pandemic and the impact on the capital markets , the u.s. economy , and pine 's tenants , the company temporarily suspended its activities directed at identifying additional acquisition opportunities . towards the end of the second quarter of 2020 , the company reached agreements with tenants for rent deferrals and abatements and the company completed the acquisition of two properties for an aggregate purchase price of $ 28.6 million . during the third and fourth quarter of 2020 , the company completed the acquisition of 18 properties for an aggregate purchase price of $ 41.2 million , for total acquisition volume of $ 116.6 million for the year ended december 31 , 2020. see note 17 , “ subsequent events ” to the consolidated and combined financial statements included in item 8 , “ financial statements and supplementary data ” in this annual report on form 10-k for information related to the single-tenant income properties acquired subsequent to december 31 , 2020 . 50 ● as a result of the outbreak of the covid-19 pandemic , the federal government and the state of florida issued orders encouraging everyone to remain at their residence and not go into work . in response to these orders and in the best interest of the employees of our manager and the board , our manager implemented significant preventative measures to ensure the health and safety of its employees and the board , including : conducting all meetings of the board and committees of the board telephonically or via a visual conferencing service , permitting its employees to work from home at their election , enforcing appropriate social distancing practices in our manager 's office , encouraging its employees to wash their hands often and use face masks and providing hand sanitizer and other disinfectant products throughout their office , requiring its employees who do not feel well , in any capacity , to stay at home , and requiring all third-party delivery services ( e.g . mail , food delivery , etc . ) to complete their service outside the front door of its offices . our manager also offered covid-19 testing to its employees in our manager 's office to ensure a safe working environment . 51 results of operations for the year ended december 31 , 2020 , the period from november 26 , 2019 to december 31 , 2019 , and the predecessor period from january 1 , 2019 to november 25 , 2019 ( in thousands ) ( 1 ) replace_table_token_6_th ( 1 ) results of operations prior to november 26 , 2019 represent the predecessor activity of cto . subsequent to november 26 , 2019 , upon the acquisition of the initial portfolio from cto , the results of operations are presented on a new basis of accounting pursuant to asc 805-10 . general and administrative expenses for the year ended december 31 , 2020 , the period from november 26 , 2019 to december 31 , 2019 , and the predecessor period from january 1 , 2019 to november 25 , 2019 ( in thousands ) : replace_table_token_7_th ( 1 ) for the predecessor period presented , stock compensation expense represents an allocation from cto . 52 revenue and direct cost of revenues total revenue from our income property operations totaled $ 19.3 million during the year ended december 31 , 2020 , $ 1.4 million during the period from november 26 , 2019 to december 31 , 2019 and $ 11.8 million during the predecessor period from january 1 , 2019 to november 25 , 2019. the increase in the respective revenues during the periods presented is primarily reflective of the increase in revenues attributable to the company 's 29 income property acquisitions during the year ended december 31 , 2020. the direct costs of revenues for our income property operations totaled $ 2.3 million during the year ended december 31 , 2020 , $ 0.4 million during the period from november 26 , 2019 to december 31 , 2019 , and $ 1.7 million during the predecessor period from january 1 , 2019 to november 25 , 2019. the increase in the direct cost of revenues is also story_separator_special_tag due to the increase in the company 's income property portfolio during the year ended december 31 , 2020. depreciation and amortization expense totaled $ 9.9 million during the year ended december 31 , 2020 , $ 0.7 million during the period from november 26 , 2019 to december 31 , 2019 , and $ 4.9 million during the predecessor period from january 1 , 2019 to november 25 , 2019. the increase in the depreciation and amortization expense is reflective of the increase in the company 's income property portfolio during the year ended december 31 , 2020. story_separator_special_tag style= '' bottom:0pt ; position : absolute ; width:100 % ; '' > face value debt stated interest rate maturity date credit facility $ 106,809 30-day libor + 1.35 % - 1.95 % ( 1 ) november 2023 total debt/weighted-average rate $ 106,809 1.71 % ( 1 ) effective april 30 , 2020 , the company utilized an interest rate swap to achieve a fixed interest rate of 0.48 % plus the applicable spread on $ 50.0 million of the outstanding balance on the credit facility , see note 10 , “ interest rate swap ” in the notes to the consolidated and combined financial statements in item 8 . credit facility . the company 's revolving credit facility ( the “ credit facility ” ) , with bank of montreal ( “ bmo ” ) serving as the administrative agent for the lenders thereunder , is unsecured with regard to our income property portfolio but is guaranteed by certain wholly owned subsidiaries of the company . the credit facility bank group is led by bmo and also includes raymond james bank , n.a . the credit facility had an initial total borrowing capacity of $ 100.0 million with the ability to increase that capacity up to $ 150.0 million during the base term , subject to lender approval . on october 16 , 2020 , the company executed the second amendment to the credit facility ( the “ second amendment ” ) , with the addition of two lenders , huntington national bank and truist bank . as a result of the second amendment , the credit facility has a total borrowing capacity of $ 150.0 million with the ability to increase that capacity up to $ 200.0 million during the term , utilizing an accordion feature , subject to lender approval . the credit facility provides the lenders with a secured interest in the equity of the company subsidiaries that own the properties included in the borrowing base . the indebtedness outstanding under the credit facility accrues interest at a rate ranging from the 30-day libor plus 135 basis points to the 30-day libor plus 195 basis points based on the total balance outstanding under the credit facility as a percentage of the total asset value of the operating partnership , as defined in the credit facility . the credit facility also accrues a fee of 15 to 25 basis points for any unused portion of the borrowing capacity based on whether the unused portion is greater or less than 50 % of the total borrowing capacity . at december 31 , 2020 , the current commitment level under the credit facility was $ 150.0 million and the company had an outstanding balance of $ 106.8 million . the operating partnership is subject to customary restrictive covenants under the credit facility , including , but not limited to , limitations on the operating partnership 's ability to : ( a ) incur indebtedness ; ( b ) make certain investments ; ( c ) incur certain liens ; ( d ) engage in certain affiliate transactions ; and ( e ) engage in certain major transactions such as mergers . the credit facility also contains financial covenants covering the operating partnership , including but not limited to , tangible net worth and fixed charge coverage ratio . in addition , the operating partnership is subject to additional financial maintenance covenants as described in the credit agreement . on june 30 , 2020 , the company and the operating partnership entered into the first amendment to the credit agreement with the lenders whereby the tangible net worth covenant was adjusted to be more reflective of market terms . acquisitions and investments . as noted previously , the company 's operations commenced on november 26 , 2019 and we did not acquire any single-tenant income properties during the period beginning with the commencement of our operations on november 26 , 2019 through december 31 , 2019. during the year ended december 31 , 2020 , we acquired 29 single-tenant , net leased properties for a total investment of $ 116.6 million . see note 17 , “ subsequent events ” to the consolidated and combined financial statements included in item 8 , “ financial statements and supplementary data ” in this annual report on form 10-k for information related to the single-tenant income properties acquired subsequent to december 31 , 2020. during the first quarter of 2020 , the company completed the acquisition of nine properties for an aggregate purchase price of $ 46.8 million . when the pandemic was declared , given the uncertainties created by the covid-19 pandemic and the impact on the capital markets , the u.s. economy , and pine 's tenants , the company temporarily suspended its activities directed at identifying additional acquisition opportunities . towards the end of the second quarter of 2020 , the company completed the acquisition of two properties for an aggregate purchase price of $ 28.6 million . during the third and fourth 56 quarter of 2020 , the company completed the acquisition of 18 properties for an aggregate purchase price of $ 41.2 million , for total acquisition volume of $ 116.6 million for the year ended december 31 , 2020 . dispositions .
| net income ( loss ) net income ( loss ) totaled $ 1.1 million for the year ended december 31 , 2020 , less than $ ( 0.1 ) million for the period from november 26 , 2019 to december 31 , 2019 , and $ 3.6 million for the predecessor period from january 1 , 2019 to november 25 , 2019. in addition to the impacts described above , the decrease in net income for the year ended december 31 , 2020 , as compared to the period from november 26 , 2019 to december 31 , 2019 and the predecessor period from january 1 , 2019 to november 25 , 2019 reflects the following elements : ● an increase in general and administrative expenses totaling $ 2.6 million as the predecessor period represents an allocation of the parent company expenses versus actual general and administrative expenses incurred by the company ; and ● an increase in interest expense totaling $ 1.4 million , as compared to the same period in 2019 , related to the outstanding balance on the company 's credit facility to fund the acquisition of 29 income properties during the year ended december 31 , 2020 . 53 results of operations for the period from november 26 , 2019 to december 31 , 2019 , the predecessor period from january 1 , 2019 to november 25 , 2019 , and the predecessor year ended december 31 , 2018 ( in thousands ) ( 1 ) replace_table_token_8_th ( 1 ) results of operations prior to november 26 , 2019 represent the predecessor activity of cto . as of november 26 , 2019 , upon the acquisition of the initial portfolio from cto , the results of operations are presented on a new basis of accounting pursuant to asc 805-10 . general and administrative expenses for the period from november 26 , 2019 to december 31 , 2019 , the predecessor period from january 1 , 2019 to november 25 , 2019 , and the predecessor year ended december 31 , 2018 ( in thousands ) : replace_table_token_9_th ( 1 ) for the predecessor periods presented , stock compensation expense represents an allocation from cto . 54 revenue and direct cost of revenues total revenue from our income property operations totaled $ 1.4 million during the period from november 26 , 2019 to december 31 , 2019 , $ 11.8 million during the predecessor period from january 1 , 2019 to november 25 , 2019 , and $ 11.7 million during the predecessor year ended december 31 ,
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during the third quarter of 2020 , san mateo completed the construction and successful start-up of the expansion of the black river processing plant , which added an incremental designed inlet capacity of 200 mmcf of natural gas per day to the previously designed inlet capacity of 260 mmcf per day for a total designed inlet capacity of 460 mmcf per day . the expanded black river processing plant supports our exploration and development activities in the delaware basin and , at december 31 , 2020 , was gathering and processing natural gas from the stateline asset area and from the greater stebbins area . the black river processing plant also processes natural gas from our rustler breaks asset area and provides natural gas processing services for other san mateo customers in the area . in september 2020 , san mateo also completed and placed in service approximately 43 miles of large diameter natural gas gathering pipelines between the black river processing plant and the stateline asset area ( approximately 24 miles ) and the greater stebbins area ( approximately 19 miles ) . in addition , san mateo completed and placed in service approximately 19 miles of various diameter crude oil pipelines from certain points of origin in the greater stebbins area to the existing san mateo interconnect with plains in eddy county , new mexico . at december 31 , 2020 , san mateo was gathering or transporting our oil and natural gas production via pipeline in both the stateline asset area and the greater stebbins area , as well as in the wolf and rustler breaks asset areas . san mateo was handling our produced water in each of these areas as well . at december 31 , 2020 , san mateo 's midstream system included : natural gas assets : 460 mmcf per day of designed natural gas cryogenic processing capacity and approximately 140 miles of natural gas gathering pipelines in eddy county , new mexico and loving county , texas , including 43 miles of large diameter natural gas gathering lines spanning from the stateline asset area to the greater stebbins area in eddy county , new mexico ; oil assets : three oil cdps with over 100,000 bbl of designed oil throughput capacity and approximately 90 miles of oil gathering and transportation pipelines in eddy county , new mexico and loving county , texas , as well as a 400,000-acre joint development area with plains to gather our and other producers ' oil production in eddy county , new mexico ; and produced water assets : 13 commercial salt water disposal wells and associated facilities with designed produced water disposal capacity of 335,000 bbl per day and approximately 120 miles of produced water gathering pipelines in eddy county , new mexico and loving county , texas . 2021 capital expenditure budget we expect that development of our delaware basin assets will be the primary focus of our operations and capital expenditures in 2021. we plan to operate three contracted drilling rigs in the delaware basin for most of the first quarter of 2021. in march 2021 , we plan to add a fourth drilling rig and operate four drilling rigs throughout the remainder of 2021. our 2021 estimated capital expenditure budget consists of $ 525.0 to $ 575.0 million for drilling , completing and equipping wells ( “ d/c/e capital expenditures ” ) and $ 20.0 to $ 30.0 million for midstream capital expenditures , which reflects our proportionate share of san mateo 's estimated 2021 capital expenditures . substantially all of these 2021 estimated capital expenditures are expected to be allocated to ( i ) the further delineation and development of our leasehold position , ( ii ) the construction , installation and maintenance of midstream assets and ( iii ) our participation in certain non-operated well opportunities in the delaware basin , with the exception of amounts allocated to limited operations in our south texas and haynesville shale positions to maintain and extend leases and to participate in certain non-operated well opportunities . our 2021 delaware basin operated drilling program is expected to focus on the continued development of our various asset areas throughout the delaware basin , with a continued emphasis on drilling and completing a higher percentage of longer horizontal wells in 2021 , including 98 % with anticipated completed lateral lengths of two miles or greater . 70 at december 31 , 2020 , we had $ 57.9 million in cash ( excluding restricted cash ) and $ 214.2 million in undrawn borrowing capacity under the credit agreement ( after giving effect to outstanding letters of credit based upon our elected borrowing commitment of $ 700.0 million ) . excluding any possible significant acquisitions , we expect to fund our 2021 capital expenditures through a combination of cash on hand , operating cash flows and performance incentives paid to us by five point in connection with san mateo . if capital expenditures were to exceed our operating cash flows in 2021 , we expect to fund any such excess capital expenditures through borrowings under the credit agreement or the san mateo credit facility ( assuming availability under such facilities ) or through other capital sources , including borrowings under additional credit arrangements , the sale or joint venture of midstream assets , oil and natural gas producing assets , leasehold interests or mineral interests and potential issuances of equity , debt or convertible securities , none of which may be available on satisfactory terms or at all . we may divest portions of our non-core assets , particularly in the haynesville shale and in our south texas position ( as we did in 2019 and 2020 ) , as well as consider monetizing other assets , such as certain mineral , royalty and midstream interests , as value-creating opportunities arise . story_separator_special_tag in addition , we intend to continue evaluating the opportunistic acquisition of acreage and mineral interests , principally in the delaware basin , during 2021. these monetizations , divestitures and expenditures are opportunity-specific , and purchase price multiples and per-acre prices can vary significantly based on the asset or prospect . as a result , it is difficult to estimate these 2021 monetizations , divestitures and capital expenditures with any degree of certainty ; therefore , we have not provided estimated proceeds related to monetizations or divestitures or estimated capital expenditures related to acreage and mineral acquisitions for 2021. the aggregate amount of capital we expend may fluctuate materially based on market conditions , the actual costs to drill , complete and place on production operated or non-operated wells , our drilling results , the actual costs and scope of our midstream activities , the ability of our joint venture partners to meet their capital obligations , other opportunities that may become available to us and our ability to obtain capital . 71 revenues the following table summarizes our revenues and production data for the periods indicated . replace_table_token_15_th ( 1 ) we report our production volumes in two streams : oil and natural gas , including both dry and liquids-rich natural gas . revenues associated with ngls are included with our natural gas revenues . ( 2 ) estimated using a conversion ratio of one bbl of oil per six mcf of natural gas . year ended december 31 , 2020 as compared to year ended december 31 , 2019 oil and natural gas revenues . our oil and natural gas revenues decreased $ 147.9 million , or 17 % , to $ 744.5 million for the year ended december 31 , 2020 , as compared to $ 892.3 million for the year ended december 31 , 2019. our oil revenues decreased $ 164.3 million , or 22 % , to $ 595.5 million for the year ended december 31 , 2020 , as compared to $ 759.8 million for the year ended december 31 , 2019. this decrease in oil revenues resulted from a 31 % decrease in the weighted average oil price realized for the year ended december 31 , 2020 to $ 37.38 per bbl , as compared to $ 54.34 per bbl realized for the year ended december 31 , 2019. this decrease in our oil revenues was partially offset by the 14 % increase in our oil production to 15.9 million bbl of oil for the year ended december 31 , 2020 , as compared to 14.0 million bbl of oil for the year ended december 31 , 2019. the increase in oil production was primarily attributable to our ongoing delineation and development drilling activities in the delaware basin , which offset declining oil production primarily from our properties in the eagle ford shale . our natural gas revenues increased by $ 16.4 million , or 12 % , to $ 149.0 million for the year ended december 31 , 2020 , as compared to $ 132.5 million for the year ended december 31 , 2019. the increase in natural gas revenues was primarily attributable to the 14 % increase in our natural gas production to 69.5 bcf for the year ended december 31 , 2020 , as compared to 61.1 bcf for the year ended december 31 , 2019. the increase in natural gas production was primarily attributable to our ongoing delineation and development drilling activities in the delaware basin , which offset declining natural gas production primarily from our properties in the haynesville shale . third-party midstream services revenues . our third-party midstream services revenues increased $ 5.8 million , or 10 % , to $ 64.9 million for the year ended december 31 , 2020 , as compared to $ 59.1 million for the year ended december 31 , 2019. third-party midstream services revenues are those revenues from midstream operations related to third parties , including working interest owners in our operated wells . this increase was primarily attributable to ( i ) an increase in our third-party natural gas gathering , transportation and processing revenues to $ 30.1 million for the year ended december 31 , 2020 , as compared to $ 27.0 million for the year ended december 31 , 2019 , ( ii ) an increase in our third-party oil gathering and transportation revenues to $ 9.4 million for the year ended december 31 , 2020 , as compared to $ 7.2 million for the year ended december 31 , 2019 , and ( iii ) an increase in third-party produced water handling revenues to $ 25.5 million for the year ended december 31 , 2020 , as compared to $ 24.9 million for the year ended december 31 , 2019 . 72 sales of purchased natural gas . our sales of purchased natural gas decreased $ 33.0 million , or 44 % , to $ 41.7 million for the year ended december 31 , 2020 , as compared to $ 74.8 million for the year ended december 31 , 2019. this decrease was primarily the result of a decrease in natural gas volumes sold during the year ended december 31 , 2020. sales of purchased natural gas primarily reflect those natural gas purchase transactions that we periodically enter into with third parties whereby we purchase natural gas and ( i ) subsequently sell the natural gas to other purchasers or ( ii ) process the natural gas at the black river processing plant and subsequently sell the residue gas and ngls to other purchasers . these revenues , and the expenses related to these transactions included in “ purchased natural gas , ” are presented on a gross basis in our consolidated statement of operations . lease bonus - mineral acreage .
| portion of the antelope ridge asset area during the second half of 2020. during the year ended december 31 , 2020 , we completed and began producing oil and natural gas from 53 gross ( 45.6 net ) operated and 36 gross ( 2.2 net ) non-operated wells in the delaware basin . we did not conduct any operated drilling and completion activities on our leasehold properties in south texas or northwest louisiana during 2020 , although we did participate in the drilling and completion of four gross ( less than 0.1 net ) non-operated haynesville shale wells that began producing in 2020 . 68 the vast majority of our 2020 capital expenditures was directed to ( i ) the delineation and development of our leasehold position in the delaware basin , ( ii ) the development of certain midstream assets to support our operations there , ( iii ) our participation in non-operated wells drilled and completed in the delaware basin and ( iv ) the acquisition of additional leasehold and mineral interests prospective for the wolfcamp , bone spring and other liquids-rich plays in the delaware basin . our remaining capital expenditures were primarily directed to the installation of pumping units and other facilities on certain of our eagle ford shale wells in south texas and to our participation in several non-operated wells drilled and completed in the haynesville shale throughout 2020. our average daily oil equivalent production for the year ended december 31 , 2020 was 75,175 boe per day , including 43,526 bbl of oil per day and 189.9 mmcf of natural gas per day , an increase of 14 % , as compared to 66,203 boe per day , including 38,312 bbl of oil per day and 167.4 mmcf of natural gas per day , for the year ended december 31 , 2019. our average daily oil production in 2020 of 43,526 bbl of oil per day increased 14 % from 38,312 bbl of oil per
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our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report . however , we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions . stock-based compensation we account for stock-based compensation whereby share-based payment transactions with employees , such as stock options and restricted stock , are measured at estimated fair value at the date of grant . for awards subject to service conditions , compensation expense is recognized over the vesting period on a straight-line basis . awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche . forfeitures are recognized when they occur . the restricted share awards granted under the 2019 long-term incentive plan ( “ 2019 lti plan ” ) contain both service and performance conditions . the company recognizes share compensation expense only for the portion of the restricted share awards that are considered probable of vesting . shares are considered granted , and the service inception date begins , when a mutual understanding of the key terms and conditions between the company and the employees have been established . the fair value of these awards is determined based on the closing price of the shares on the grant date . the probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment . for certain awards that provide discretion to adjust the allocation of the restricted shares , the service-inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions between the company and the employees has not yet been established . for awards in which the service-inception date precedes the grant date , compensation cost is accrued beginning on the service-inception date . the company estimates the award 's fair value on each subsequent reporting date , until the grant date , based on the closing market price of the company 's common stock . on the grant date , the award 's fair value is fixed , subject to the remaining performance conditions , and the cumulative amount of previously recognized compensation expense is adjusted to the fair value at the grant date . during fiscal year 2019 , the company recognized $ 0.4 million of compensation expense associated with the shares granted . revenue recognition sales associated with product orders are recognized and recorded when products are shipped . products are shipped fob shipping point . ubam 's sales are generally paid at the time the product is ordered . sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet . sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . estimated allowances for sales returns are recorded as sales are recognized . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily received from the retail stores of our publishing division . those damages occur in the stores , not in shipping to the stores , and we typically do not offer credit for damaged returns . it is industry practice to accept non-damaged returns from retail customers . management has estimated and included a reserve for sales returns of $ 0.2 million and $ 0.2 million for the fiscal years ended february 28 , 2019 and 2018 , respectively . 15 allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns ( collectively “ allowance for doubtful accounts ” ) . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 0.3 million and $ 0.3 million as of february 28 , 2019 and 2018 , respectively . included within this allowance is $ 0.1 million of reserve for vendor discounts to sell remaining inventory as of february 28 , 2019 and 2018. inventory our inventory contains over 2,000 titles , each with different rates of sale depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in europe , china , singapore , india , malaysia and dubai resulting in a four to six-month lead-time to have a title printed and delivered to us . certain inventory is maintained in a noncurrent classification . management continually estimates and calculates the amount of noncurrent inventory . noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle , due to minimum order requirements of our suppliers . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ½ years of anticipated sales is classified as noncurrent inventory . noncurrent inventory balances prior to valuation allowances were $ 0.9 million and $ 0.7 million at february 28 , 2019 and 2018 , respectively . consultants that meet certain eligibility requirements may request and receive inventory on consignment . we believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations at home story_separator_special_tag our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report . however , we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions . stock-based compensation we account for stock-based compensation whereby share-based payment transactions with employees , such as stock options and restricted stock , are measured at estimated fair value at the date of grant . for awards subject to service conditions , compensation expense is recognized over the vesting period on a straight-line basis . awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche . forfeitures are recognized when they occur . the restricted share awards granted under the 2019 long-term incentive plan ( “ 2019 lti plan ” ) contain both service and performance conditions . the company recognizes share compensation expense only for the portion of the restricted share awards that are considered probable of vesting . shares are considered granted , and the service inception date begins , when a mutual understanding of the key terms and conditions between the company and the employees have been established . the fair value of these awards is determined based on the closing price of the shares on the grant date . the probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment . for certain awards that provide discretion to adjust the allocation of the restricted shares , the service-inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions between the company and the employees has not yet been established . for awards in which the service-inception date precedes the grant date , compensation cost is accrued beginning on the service-inception date . the company estimates the award 's fair value on each subsequent reporting date , until the grant date , based on the closing market price of the company 's common stock . on the grant date , the award 's fair value is fixed , subject to the remaining performance conditions , and the cumulative amount of previously recognized compensation expense is adjusted to the fair value at the grant date . during fiscal year 2019 , the company recognized $ 0.4 million of compensation expense associated with the shares granted . revenue recognition sales associated with product orders are recognized and recorded when products are shipped . products are shipped fob shipping point . ubam 's sales are generally paid at the time the product is ordered . sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet . sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . estimated allowances for sales returns are recorded as sales are recognized . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily received from the retail stores of our publishing division . those damages occur in the stores , not in shipping to the stores , and we typically do not offer credit for damaged returns . it is industry practice to accept non-damaged returns from retail customers . management has estimated and included a reserve for sales returns of $ 0.2 million and $ 0.2 million for the fiscal years ended february 28 , 2019 and 2018 , respectively . 15 allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns ( collectively “ allowance for doubtful accounts ” ) . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 0.3 million and $ 0.3 million as of february 28 , 2019 and 2018 , respectively . included within this allowance is $ 0.1 million of reserve for vendor discounts to sell remaining inventory as of february 28 , 2019 and 2018. inventory our inventory contains over 2,000 titles , each with different rates of sale depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in europe , china , singapore , india , malaysia and dubai resulting in a four to six-month lead-time to have a title printed and delivered to us . certain inventory is maintained in a noncurrent classification . management continually estimates and calculates the amount of noncurrent inventory . noncurrent inventory arises due to occasional purchases of titles in quantities in excess of what will be sold within the normal operating cycle , due to minimum order requirements of our suppliers . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ½ years of anticipated sales is classified as noncurrent inventory . noncurrent inventory balances prior to valuation allowances were $ 0.9 million and $ 0.7 million at february 28 , 2019 and 2018 , respectively . consultants that meet certain eligibility requirements may request and receive inventory on consignment . we believe allowing our consultants to have consignment inventory greatly increases their ability to be successful in making effective presentations at home
| certain order types have larger discounts and result in lower gross margin , such as cards for a cause fundraisers and book fair orders . these order types also result in reduced sales commissions paid to the consultants . total ubam operating expenses increased $ 2.3 million , or 4.3 % , to $ 55.5 million during the fiscal year ending february 28 , 2019 , when compared with $ 53.2 million reported for fiscal year ending february 28 , 2018. operating expenses increased primarily as a result of increased sales commissions and increased freight costs associated with the increase in net revenues . operating income of our ubam division remained consistent totaling $ 19.3 million for fiscal year ending february 28 , 2019 , as compared to $ 19.4 million reported for fiscal year ending february 28 , 2018 . 11 publishing operating results the following table summarizes the operating results of the publishing segment for the twelve months ended february 28 : replace_table_token_6_th our publishing division 's net revenues increased $ 2.1 million , or 25.3 % , to $ 10.4 million for the fiscal year ended february 28 , 2019 , when compared with net revenues of $ 8.3 million reported for fiscal year ended february 28 , 2018. this increase primarily resulted from the increase in sales order volumes with our largest retail customers in fiscal year ending february 28 , 2019. sales orders increased this year primarily due to new in-store promotions that did not occur in the prior fiscal year . we have historically been awarded one or more in-store promotions with our largest customer on an annual basis . sales in our publishing segment are seasonal and our fiscal fourth and first quarters are traditionally lower than the second and third quarters . gross margin increased $ 1.4 million to $ 5.0 million for the fiscal year ended february 28 , 2019 , from $ 3.6 million reported for fiscal year ended february 28 ,
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million , respectively , to settle these claims , of which approximately 60 % was reinsured . policy acquisition costs policy acquisition costs relate to direct costs we incur to issue insurance policies , including commissions , premium taxes and compensation of our underwriters . the percentage of policy acquisition costs to net earned premium was 12.7 % in 2014 and 12.5 % in both 2013 and 2012. we record profit commissions due from reinsurers as an offset to policy acquisition costs . the higher percentage in 2014 related to lower profit commissions from reinsurers in 2014 and commissions on our growing short-term medical business . 39 other operating expense other operating expense increased 1 % in 2014 and 3 % in 2013. in 2014 , higher employee compensation and benefit costs were offset by the year-over-year fluctuation in foreign currency benefit/expense . we recognized a foreign currency benefit of $ 23.2 million in 2014 , compared to expense of $ 5.3 million and $ 6.2 million in 2013 and 2012. the foreign currency benefit/expense related to changes in the value of the british pound sterling and the euro relative to the u.s. dollar . in 2013 , higher employee compensation and benefit costs , compared to 2012 , were partially offset by a $ 5.1 million benefit related to an indemnification liability . we reduced the indemnification liability , which related to a 2001 subsidiary sale , due to favorable claims activity and successful subrogation recoveries . excluding the foreign currency benefit/expense and indemnification benefits , other operating expense increased 9 % in 2014 and 5 % in 2013 mainly due to increased employee compensation and benefits costs . our employee count grew to 1,983 at december 31 , 2014 from 1,900 at december 31 , 2013 , mainly due to the addition of new underwriting teams . in addition , our bonus expense increased in 2014 and 2013 due to higher pretax earnings . other operating expense included $ 25.1 million , $ 16.2 million and $ 13.2 million of stock-based compensation expense in the respective three years . stock-based compensation expense was higher in 2014 due to accelerated expense for certain unvested restricted stock awards for which the performance criteria were achieved in 2014 , as well as higher grant prices due to the increase in our stock price . in 2014 , we granted $ 17.4 million of restricted stock awards and units , with a weighted-average life of 2.9 years . at december 31 , 2014 , there was approximately $ 29.3 million of total unrecognized compensation expense related to unvested restricted stock awards and units , options and our employee stock purchase plan , which is expected to be recognized over a weighted-average period of 1.6 years . in 2015 , we expect to recognize $ 15.9 million of expense for all stock-based awards outstanding at year-end 2014. interest expense interest expense was $ 28.1 million , $ 26.2 million and $ 25.6 million in 2014 , 2013 and 2012 , respectively , and included $ 19.3 million per year for our senior notes . our interest expense has increased due to a higher amount of outstanding borrowings on our $ 825.0 million revolving loan facility , mainly to fund purchases of our common stock . income tax expense our income taxes are due to u.s. federal , state , local and foreign jurisdictions . our effective income tax rate was 30.7 % for 2014 , compared to 28.9 % for 2013 and 29.4 % for 2012. fluctuations in our effective tax rate are due to the relationship of pretax income and tax-exempt investment income . in 2014 , our pretax income was substantially higher and our tax-exempt investment income was flat compared to 2013. the lower effective rate in 2013 related to an increased benefit from tax-exempt investment income in that year . segment operations each of our insurance segments bears risk for insurance coverage written within its portfolio of insurance products . each segment generates income from premium written by our underwriting agencies , through third party agents and brokers , or on a direct basis . certain segments also write facultative or individual account reinsurance , as well as treaty reinsurance business . in some cases , we purchase reinsurance to limit our losses from both individual policy losses and multiple policy losses from catastrophic occurrences and from aggregate losses in a year . our segments maintain disciplined expense management and a streamlined management structure , which results in favorable expense ratios . the following provides operational information about our insurance underwriting segments , investing segment and corporate & other category . 40 u.s. property & casualty segment the following tables summarize the operations of the u.s. property & casualty segment . replace_table_token_15_th 41 our u.s. property & casualty segment pretax earnings increased 16 % in 2014 , compared to 2013 , primarily due to a lower net loss ratio in 2014. pretax earnings increased $ 51.1 million in 2013 , compared to 2012 , primarily due to : 1 ) net favorable loss development of $ 39.4 million in 2013 , compared to net adverse loss development of $ 2.3 million in 2012 and 2 ) net catastrophe losses of $ 2.0 million in 2013 , compared to $ 11.3 million in 2012. gross written premium was essentially flat in 2014 due to increased writings of our expanding casualty business ( included in liability ) , offset by cyclical reductions in disability and contingency ( included in sports & entertainment ) and title and residual value insurance ( included in other ) . the growth in 2013 , compared to 2012 , was due to higher writings in excess casualty , primary casualty and technical property , as well as higher writings for disability , residual value and title reinsurance . net written premium was flat in the three years due to continuing growth in liability , offset by reduced premium due to changes in reinsurance for the public risk line of business . story_separator_special_tag loss expense decreased in 2014 and 2013 , primarily due to favorable loss development in both years . in addition , the 2014 accident year loss ratio decreased due to lower losses from the public risk line of business , which we began to reunderwrite in late 2012. the net ( favorable ) adverse loss development recognized by line of business was as follows : replace_table_token_16_th the net loss development resulted from our annual review of reserves for this segment , which we conducted in the third quarter of each year . the majority of the lines of business in this segment provide primary coverage , and claims are reported and settled on a short to medium-term basis . accordingly , changes to our ultimate losses for a given underwriting year typically result from revised actuarial expectations , as compared to the prior year reserve review , with respect to the settlement value of known claims . in our aviation line of business , we recognized favorable development in 2014 and 2013 based on recording these reserves in line with actuarially-indicated results since the respective prior year annual review . in our liability line of business , we experienced lower losses in 2014 , compared to 2013 , due to higher favorable development in the professional lines , which include our e & o and employment practices liability products . in 2014 , we recognized favorable development in our professional lines based on better than expected actuarially-indicated results since our 2013 annual reserve review , primarily for underwriting years 2012 and prior . in 2013 , we recognized favorable development for underwriting years 2010 2011 due to better than expected actuarially-indicated results . in 2012 , we recognized adverse development related to underwriting years 2005 2010. our public risk line of business had a lower loss ratio in 2014 , primarily due to our expectation of lower ultimate losses in 2014 following our re-underwriting of this business . in addition , we recognized higher favorable development in 2014 based on better than expected actuarially-indicated results since our 2013 annual reserve review . in 2012 , we recognized adverse development due to deteriorating results related to underwriting years 2009 and 2010. in addition , public risk included catastrophe losses of : 1 ) 2013 $ 2.0 million for midwest tornadoes and 2 ) 2012 $ 3.8 million for superstorm sandy and $ 3.2 million for united states spring storms . the majority of the favorable loss development in other relates to the run off of an assumed quota share contract for business that we wrote from 2003 2008. we recognized $ 5.0 million in 2014 , $ 17.0 million in 2013 and $ 5.6 million in 2012 , due to continued better than expected results since the prior annual review . this assumed quota share contract is no longer earning premium , resulting in low or negative loss ratios in total for the other line . 42 professional liability segment the following tables summarize the operations of the professional liability segment . replace_table_token_17_th our professional liability segment pretax earnings decreased $ 28.0 million in 2014 , compared to 2013 , primarily due to $ 26.3 million of favorable loss development in 2013. pretax earnings increased $ 7.5 million in 2013 , compared to 2012 , due to an improved net loss ratio , primarily related to re-underwriting of our diversified financial products ( dfp ) line of business beginning in 2012. the segment 's premium decreased from 2012 to 2014 , primarily due to lower writings of dfp from re-underwriting this business . net written premium and net earned premium also reflect the impact of reinsurance during the past three years . the segment had net favorable ( adverse ) loss development of ( $ 1.0 ) million in 2014 , $ 26.3 million in 2013 and $ 25.9 million in 2012. the development in each year resulted from our annual review of reserves for this segment , which we conducted in the third quarter of each year . the majority of the insurance coverage in this segment is provided through claims made policies , and the final settlement value of these claims is not expected to be determined for several years due to the underlying complex nature of the claims . accordingly , changes to our ultimate losses for a given underwriting year typically result from management 's revised expectations , as compared to the prior year reserve review , with respect to the settlement value of known claims . in 2014 , we reduced reserves for our u.s. d & o product by $ 24.5 million related to underwriting years prior to 2007 , due to better than expected loss experience compared to our 2013 annual reserve review . we also strengthened reserves for underwriting year 2007 , due to indications of higher ultimate losses . the 2013 net favorable development consisted of $ 15.5 million for our u.s. d & o product and $ 10.8 million for our international d & o product . our 2013 reserve review indicated better than expected experience for underwriting years prior to 2007 as well as 2009 and 2010 ( totaling $ 64.2 million ) , partially offset by reserve strengthening of $ 37.9 million in underwriting years 2007 and 2008 , which were impacted by the worldwide financial crisis . the 2012 net favorable development consisted of $ 9.0 million for our u.s. d & o product and $ 16.9 million for our international d & o product . our 2012 reserve review indicated that incurred loss development , primarily for underwriting years 2005 and 2006 , was lower than expected as compared to our 2011 reserve review , primarily due to actual outcomes on reported claims . this favorable development was partially offset by higher estimates of ultimate losses in the 2008 underwriting year .
| 36 revenue we generate our revenue from five primary sources : risk-bearing earned premium produced by our insurance underwriting segments , investment income earned on our consolidated investment portfolio by our investing segment , fee and commission income received from third party insurers for premium produced for them by our underwriting agencies , transaction-based revenues , primarily related to residual value and mortgage reinsurance products in our u.s. property & casualty segment , and realized investment gains and losses related to our investment portfolio . total revenue increased $ 115.6 million in 2014 , compared to 2013 , due to an $ 84.4 million increase in net earned premium and higher net realized investment gains . the $ 11.1 million increase in total revenue in 2013 , compared to 2012 , related to higher net realized investment gains . gross written premium , net written premium and net earned premium are detailed below by segment . replace_table_token_12_th the 2014 and 2013 growth in gross written premium from our insurance underwriting segments occurred primarily in : 1 ) the accident & health segment , from the growth of our medical stop-loss and short-term medical products , 2 ) the international segment , from increased writings in our surety & credit and liability lines of business and 3 ) the u.s. property & casualty segment , from our growing casualty line of business . our net written premium increased in 2014 , compared to 2013 , due to growth in the accident & health segment and was flat in 2013 , compared to 2012 , due to increased reinsurance in 2013 , primarily in the u.s. property & casualty segment . net earned premium increased in 2014 as the medical stop-loss and short-term medical products were earned in less than twelve months . see the segment operations section below for further discussion of the relationship and changes in premium revenue within each insurance segment . 37 net investment income , which is included in our investing segment , was essentially flat in 2014 and 2013 as declining income from reduced reinvestment yields on fixed maturity securities was offset by increasing dividend income from equity securities . our investment expense
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on may 4 , 2017 , nustar energy completed the acquisition of navigator energy services , llc for approximately $ 1.5 billion ( the navigator acquisition ) . in order to fund the purchase price , nustar energy issued 14,375,000 common units for net proceeds of $ 657.5 million , nustar logistics issued $ 550.0 million of 5.625 % senior notes for net proceeds of $ 543.3 million and nustar energy issued 15,400,000 of its 7.625 % series b fixed-to-floating rate cumulative redeemable perpetual preferred units for net proceeds of $ 371.8 million . in conjunction with the navigator acquisition , nustar energy 's partnership agreement was amended and restated to , among other things , provide a waiver of certain quarterly distributions with respect to our incentive distribution rights . in april 2017 , we borrowed approximately $ 14.0 million under our revolving credit facility to fund a contribution to nustar energy in order to maintain our 2 % general partner interest in connection with nustar energy 's issuance of common units . please refer to note 4 of the notes to consolidated financial statements in item 8 . “ financial statements and supplementary data ” for a discussion of these transactions . martin terminal acquisition . on december 21 , 2016 , nustar energy acquired crude oil and refined product storage assets in corpus christi , tx for $ 95.7 million , including $ 2.1 million of capital expenditure reimbursements , from martin operating partnership l.p. the assets acquired include 900,000 barrels of crude oil storage capacity , 250,000 barrels of refined product storage capacity and exclusive use of the port of corpus christi 's new crude oil dock . linden acquisition . on january 2 , 2015 , nustar energy acquired full ownership of st linden terminal , llc , which owns a refined products terminal in linden , nj , for $ 142.5 million ( the linden acquisition ) . prior to the linden acquisition , the terminal operated as a joint venture between nustar energy and linden holding corp. , with each party owning 50 % . 34 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > historically , master limited partnerships ( mlps ) , like nustar energy , have typically funded strategic capital expenditures and acquisitions from external sources , primarily through borrowings under revolving credit agreements and issuance of equity and debt securities . in the past few years , the total number of , and aggregate amount raised by , mlp common equity issuances has dropped dramatically , and mlps with low coverage and high leverage have found it increasingly difficult to issue common equity . through the combination of the simplification and distribution reset discussed above , nustar energy expects to be able to fund a larger proportion of its capital projects with the cash generated by its operations , which should , over time , reduce its need to access capital markets to finance future growth opportunities . during 2017 , nustar energy 's legacy pipeline systems and storage assets , other than its permian crude system , faced several unanticipated challenges , on top of the continuing burden of the third year of sustained low crude prices . in september , hurricanes caused damage in the gulf of mexico and significant destruction in the caribbean . hurricane harvey 's heavy rainfall caused only minimal damage to nustar energy 's six affected gulf coast facilities , but hurricane irma passed almost directly over its facility at st. eustatius , causing a temporary shutdown and inflicting substantial damage . nustar energy received hurricane insurance proceeds of $ 12.5 million in the fourth quarter of 2017 and $ 87.5 million in january 2018. nustar energy expects to recognize a gain in its first quarter 2018 results equal to the amount by which the insurance proceeds received exceed its actual expense incurred during the period , or approximately $ 85 million . at this time , nustar energy expects that costs incurred , over and above its deductible amount , will be covered by the insurance proceeds it has already received . nustar energy expects these repairs to continue through next year and into 2020. due to that fact that some of nustar energy 's current committed shippers ' contracts on its south texas crude system expire in the second half of 2018 , as well as nustar energy 's assessment of the current market conditions in the eagle ford , its 2018 forecast reflects its expectation that some of those customers will decline to renew their commitments and demand rates lower than previously contracted rates . as a result , nustar energy is projecting lower throughput and rates for the south texas crude system in the second half of 2018 , which it expects to result in lower revenues for that system during 2018 as compared to 2017. since nustar energy agrees with the many energy experts who currently predict that backwardation , which tends to decrease demand for storage capacity , will continue through 2018 , nustar energy 's 2018 forecast reflects lower storage rates and contract renewals at certain of its facilities , which it expects to result in lower revenues for those facilities during 2018 as compared to 2017. in january 2018 , as a result of the widely reported economic strife in venezuela and the mounting financial and operational challenges facing nustar energy 's st. eustatius anchor tenant , petróleos de venezuela , s.a. ( pdvsa ) , nustar energy reduced its expectations for pdvsa 's utilization of the terminal during 2018 to reflect a more conservative outlook . in 2017 and this year so far , news outlets around the world have reported the dramatic deterioration of economic conditions in venezuela , and during 2017 , nustar energy saw pdvsa 's activity at the terminal decrease to levels well below their historical levels . story_separator_special_tag in addition , in august 2017 , the united states imposed sanctions against venezuela intended to limit pdvsa 's access to credit , and the trump administration has announced it may also ban imports of venezuelan crude into the u.s. and export of u.s. refined products to venezuela . if implemented , these additional sanctions , together with the current sanctions , could have a significant negative impact on venezuela and on pdvsa . largely due to the impact nustar energy believes those negative factors may have on pdvsa and pdvsa 's utilization of its facility , nustar energy 's 2018 forecast reflects that its 2018 results of operations of its storage segment will be lower than 2017 39 and that the current forecast properly reflects its conservative assessment of significant uncertainty and risk surrounding pdvsa 's ability to perform this year . that being said , since early january pdvsa 's activity at the terminal has increased , and , if they are able to continue this trend through all or a portion of the year , all other factors remaining constant , nustar energy could see improvement in its revenue generated for st. eustatius , in comparison with its current forecast for 2018 , as the year progresses . while nustar energy is hopeful that pdvsa will maintain its current activity and continues to work to retain them as an important customer , nustar energy also continues to closely monitor pdvsa 's activity and financial well-being and are working to diversify its st. eustatius facility customer base . while nustar energy 's outlook for 2018 reflects all the challenges it has described , nustar energy believes that the consummation of the merger and its board of director 's approval of its recommended reset to its distribution will immediately increase nustar energy 's cash available to pay for capital expenditures , and , over time , will improve its leverage metrics . nustar energy expects these steps to strengthen its balance sheet in 2018 and beyond . nustar energy also projects that the permian crude system will continue to grow , and expects its positive contributions to its pipeline segment 's overall results to grow accordingly . nustar energy 's earnings and the distributions we receive from nustar energy directly affect our results . nustar energy 's outlook , both overall and for any of its segments , may change , as nustar energy bases its expectations on its continuing evaluation of a number of factors , many of which are outside its control . these factors include , but are not limited to , the state of the economy and the capital markets , changes to its customers ' refinery maintenance schedules and unplanned refinery downtime , crude oil prices , the supply of and demand for crude oil , refined products and anhydrous ammonia , demand for its transportation and storage services and changes in laws or regulations affecting its assets . 40 liquidity and capital resources general our cash flows consist of distributions from nustar energy on our partnership interests , including the incentive distribution rights that we own . due to our ownership of nustar energy 's incentive distribution rights , our portion of nustar energy 's total distributions may exceed our ownership interest in nustar energy . our primary cash requirements are for distributions to members , capital contributions to maintain our 2 % general partner interest in nustar energy ( as defined in nustar energy 's partnership agreement ) in the event that nustar energy issues additional common units , debt service requirements , if any , and general and administrative expenses . in addition , because nustar gp , llc , a wholly owned subsidiary of nustar gp holdings , elected to be treated as a taxable entity in august 2006 , we may be required to pay income taxes , which may exceed the amount of tax expense recorded in the consolidated financial statements . we expect to fund our cash requirements primarily with the quarterly cash distributions we receive from nustar energy and , if necessary , borrowings under our revolving credit facility . pursuant to the merger agreement and at the effective time of the merger , nustar energy 's partnership agreement will be amended and restated to , among other things , cancel the incentive distribution rights and convert the 2 % general partner interest in nustar energy into a non-economic management interest . furthermore , the 10,214,626 nustar energy common units currently owned by us will be cancelled and will cease to exist . as a result , after the merger , we will no longer receive incentive distributions or quarterly cash distributions related to our ownership interest , from nustar energy . at the effective time of the merger , each of our outstanding common units will be converted into the right to receive 0.55 of a nustar energy common unit . all of our common units , when converted , will cease to be outstanding and will automatically be cancelled and no longer exist . nustar energy will pay off and cancel our obligations under our revolving credit agreement . additionally , on february 8 , 2018 , nustar energy announced that nustar energy 's management anticipates recommending to the board of directors of nustar gp , llc , and expects such board of directors to adopt , a reset of nustar energy 's quarterly distribution per common unit to $ 0.60 ( $ 2.40 on an annualized basis ) , starting with the first-quarter distribution payable in may 2018. we expect to adjust the quarterly distribution to our members accordingly . please refer to note 15 of the notes to consolidated financial statements in item 8 . “ financial statements and supplementary data ” for further discussion of the merger . cash distributions from nustar energy nustar energy distributes all of its available cash to its common limited partners and general partner within 45 days following the end of each quarter based on the partnership interests outstanding as of a record date that is set after the end of each quarter .
| accordingly , earnings allocated to our general and common limited partner interests for year ended december 31 , 2017 were reduced by the amount of nustar energy 's earnings allocated to the preferred limited partner interests , as well as to higher idrs . our equity in earnings of nustar energy related to our idrs increased as a result of nustar energy 's issuances of common units in 2016 and in april of 2017. our idrs in nustar energy entitle us to an increasing amount of nustar energy 's cash distributions . in connection with the navigator acquisition , we amended nustar energy 's partnership agreement to waive our idrs related to nustar energy 's common units issued in april of 2017 for ten consecutive quarters beginning with the distribution earned for the second quarter of 2017 up to a maximum of $ 22.0 million . please refer to notes 4 and 6 of the consolidated financial statements in item 8 . “ financial statements and supplementary data ” for a more detailed discussion of the incentive distribution waiver and of how nustar energy 's distributions are allocated . general for the years ended december 31 , 2017 and 2016 , we recognized other income , net of $ 41.9 million and $ 3.0 million , respectively , mainly due to gains resulting from nustar energy 's issuances of common units , calculated as if we had sold a proportionate share of our investment in nustar energy . income tax ( expense ) benefit changed by $ 1.9 million for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016 , primarily due to the u.s. corporate tax rate reduction from 35 % to 21 % due to the tax cuts and jobs act ( “ the act ” ) enacted on december 22 , 2017. please refer to note 13 of the notes to consolidated financial statements in item 8 . “ financial statements and supplementary data ” for a discussion on income taxes . 36 year ended december 31 , 2016 compared to year
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we provide these measures to our investors to allow them to also monitor operational efficiencies of our mines . we calculate these measures for both individual operating units and on a consolidated basis . 50 total cash cost per ounce and cash operating cost per ounce should be considered as non-gaap financial measures as defined in sec regulation s-k item 10 and in applicable canadian securities laws and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . there are material limitations associated with the use of such non-gaap measures . since these measures do not incorporate revenues , changes in working capital and non-operating cash costs , they are not necessarily indicative of operating profit or cash flow from operations as determined under gaap . changes in numerous factors including , but not limited to , mining rates , milling rates , gold grade , gold recovery , costs of labor , consumables and mine site general and administrative activities can cause these measures to increase or decrease . we believe that these measures are the same as , or similar to , the measures of other gold mining companies , but may not be comparable to similarly titled measures in every instance . business strategy and development our business and development strategy has been focused primarily on the acquisition of producing and development-stage gold properties in ghana and on the exploration , development and operation of these properties . we have also pursued exploration activities in south america and in other countries in west africa . we acquired bogoso in 1999 and have operated a nominal 1.5 million tonne per annum carbon-in-leach ( cil ) processing plant most of the time since then to process oxide and other non-refractory ores ( bogoso oxide plant ) . in 2001 , we acquired the prestea property located adjacent to our bogoso property and mined surface deposits at prestea from late 2001 to late 2006. in late 2002 , we acquired wassa , and constructed a new nominal 3.0 million tonne per annum cil processing plant at wassa , which began commercial operation in april 2005. in july 2007 , we completed construction and development of a new nominal 3.5 million tonnes per annum processing facility at bogoso/prestea that uses bio-oxidation technology to treat refractory sulfide ore ( bogoso sulfide plant ) . in late 2005 , we acquired the hbb properties consisting of the benso and hwini-butre properties . benso development activities started in late 2007 , and in the third quarter of 2008 , we began trucking ore from the benso mine to the wassa plant for processing . hwini-butre development was initiated in the fourth quarter of 2008 , and in may 2009 the hwini-butre mine began shipping ore to the wassa plant for processing . our overall objective is to grow our business to become a mid-tier gold producer . we continue to evaluate potential acquisition and merger opportunities that could further increase our annual gold production . however , we presently have no agreement or understanding with respect to any specific potential transaction . in addition to our gold mining and development activities , we actively explore for gold in west africa and south america , investing approximately $ 15.8 million on such activities during 2008 and approximately $ 9.0 million during 2009. we are conducting regional reconnaissance projects in ghana , cote d'ivoire and sierra leone and have drilled more advanced targets in ghana , niger and burkina faso . we are also evaluating gold properties in brazil . see item 2 description of properties for additional details on our assets . significant trends and events during 2009 gold prices gold prices have generally trended upward during the last eight years , from a low of $ 260 per ounce in 2001 to a high of $ 1,213 per ounce in late 2009. realized gold prices for our shipments averaged $ 978 per ounce during 2009 compared with $ 870 per ounce during 2008. hwini-butre development development work , which started at the hwini-butre mine in the fourth quarter of 2008 , was mostly completed by april 2009 , and this new operation has continuously sent ore to the wassa plant since start-up in may 2009. benso royalty purchase during the second quarter of 2009 , we purchased , from an unrelated party , a 1.5 % net smelter royalty payable on gold production from our benso mine for $ 3.6 million . the royalty agreement provided us with the option to buy the royalty at any time prior to 18 months after gold production was initiated , regardless of the ownership at that date , for a specified price of cdn $ 4.0 million . higher gold output and lower cost per ounce at wassa and bogoso the benso and hwini-butre mines , which commenced mining operations late in 2008 and may 2009 respectively , provided 60 % of the ore processed at wassa during 2009. the higher grade ores from benso and hwini-butre have resulted in a marked increase in wassa 's gold sales and revenues compared with 2008. wassa 's 2009 sales totaled 223,848 ounces , up from 125,427 ounces in 2008. the improved grade and resulting increase in ounces , along with lower power costs , reduced wassa 's 2009 average cash operating costs per ounce to $ 447 , down from an average of $ 554 in 2008 . 51 bogoso 's 2009 gold sales increased to 186,054 ounces , up from 170,499 ounces in 2008 , on higher tonnes processed and better gold recoveries . in addition to the improved gold sales , bogoso 's average cash operating costs fell to $ 705 per ounce , down from $ 837 per ounce in 2008. see the results of operations discussions below for additional details . story_separator_special_tag international financial reporting standards golden star has , since its inception , reported to security regulators in both canada and the us using canadian gaap financial statements with a reconciliation to us gaap . however , a change in sec position in late 2009 will require that after 2010 , canadian companies such as golden star , that do not qualify as private foreign issuers , must file their financial statements in the us using us gaap . we plan to continue using canadian gaap for us and canadian filings in 2010 and will adopt us gaap on january 1 , 2011 for all subsequent us and canadian filings . canada has announced that it will continue to accept us gaap financial statements . revolving credit facility on may 1 , 2009 , we finalized an agreement for a revolving credit facility ( the facility ) with standard chartered bank . the facility provides for a fully committed revolving credit line of $ 30 million , of which $ 15 million became immediately available at signing and an additional $ 15 million became available on july 30 , 2009. as of december 31 , there was $ 5.0 million drawn and outstanding on this new facility . the facility carries a term of three years from signing and bears interest at the higher of libor or the applicable lenders ' cost of funds rate ( which is capped at 1.25 % per annum above libor ) , plus a margin of 5 % per annum . the facility is secured by a pledge of shares in our significant subsidiaries and also provides for negative pledges on all other presently unsecured assets . proceeds of the facility will be used for working capital and general corporate purposes . the facility is described in more detail in our form 8-k filed may 5 , 2009. new ghanaian national stabilization levy at the end of july 2009 , the ghanaian government introduced a temporary levy ( scheduled to end on december 31 , 2010 ) on certain ghanaian industries , including mining , brewing , banking , communications and insurance . the law requires that companies subject to the levy , which includes all of our ghanaian subsidiaries , will pay an amount equal to 5 % of profits before tax , as disclosed on the statements of operations prepared in accordance with ghanaian gaap . no adjustments are allowed to the taxable income as defined above . we incurred a total of $ 1.7 million of tax expense for this new tax during 2009. paul isnard project the disputed title of the paul isnard property in french guiana was resolved during the fourth quarter of 2009 allowing the transfer to golden star of 100 percent of the common shares of the french company that holds the exploration rights to paul isnard . all legal activity related to the disputed title have been dropped by both sides . sale of south american assets on november 30 , 2009 , we entered into an agreement to sell our interest in the saramacca joint venture , which holds the saramacca properties in suriname , to its joint venture partner for approximately $ 8.0 million . completion of the transaction is pending the receipt of required governmental approvals and certain additional customary conditions . on november 18 , 2009 , we entered into a settlement agreement in respect of the outstanding litigation regarding the paul isnard properties in french guiana , pursuant to which the rights to this property is to be transferred to us , subject to receiving the required governmental approvals . on november 19 , 2009 , we entered into an agreement to sell all of our rights , title and interest in the bon espoir , iracoubo sud and paul isnard properties in french guiana for approximately $ 2.1 million , subject to government approval . equity offering on december 17 , 2009 , we closed an equity offering of 20 million common shares at a price of $ 3.75 per share resulting in $ 75.0 million in gross proceeds , or approximately $ 71.0 million in net proceeds after fees and offering expenses . 52 results of operations 2009 compared to 2008 story_separator_special_tag style= '' font-family : times new roman '' > while gold sales were 49,649 ounces above the 2007 level , and our average realized gold price was up $ 157 per ounce , increases in operating costs more than offset the improved revenues yielding a mine operating margin loss approximately $ 28.0 million larger than the 2007 operating margin loss . the increase in revenues versus 2007 was related mostly to higher gold prices and to a full year of output at the bogoso sulfide plant in 2008 as compared to a half year in 2007 following its july 2007 plant in-service date . operating costs were significantly higher in 2008 as compared to 2007. recognition of a full year 's operating costs at the bogoso sulfide plant in 2008 versus only six months of costs in 2007 was responsible for much of the operating cost increase . at the same time , several of our key operating inputs at both mines experienced significant cost increases in 2008. electric power costs increased from $ 0.06 per kilowatt hour in early 2007 to approximately $ 0.10 per kilowatt hour in late 2007 and to approximately $ 0.178 per kilowatt hour after june 30 , 2008. similarly , fuel costs trended up during most of 2008 reaching a high of $ 1.37 per liter by october . our fuel costs averaged $ 1.21 per liter in 2008 , up from $ 0.92 per liter in 2007. several other key inputs saw similar significant increases during 2008 including labor costs . general and administrative costs increased by $ 1.4 million to $ 15.2 million in 2008. the increase is primarily attributable to the cost of professional fees and severance costs related to management changes . interest expense totaled $ 14.6 million during 2008 , up from $ 6.0
| replace_table_token_18_th our 2009 general and administrative expense was down $ 1.1 million reflecting lower legal and tax audit costs than in 2008 and the cost cutting programs implemented in early 2009. property holding costs are mostly the costs incurred in care and maintenance activities at the prestea underground which was deemed impaired and written off at the end of 2008. higher derivative costs reflect the increased use of gold price derivatives during 2009 as compared to 2008. most of the increase in interest expense was related to scheduled increases in accretion of the convertible debentures equity component . bogoso/prestea operations 2009 compared to 2008 bogoso/prestea gold shipments increased to 186,054 ounces in 2009 at an average price of $ 978 per ounce , up from 170,499 ounces in 2008 at an average price of $ 873 per ounce . the increase in gold recovery to 70.7 % in 2009 from 66.5 % in 2008 was the major factor in the gold sales improvement . while the bogoso oxide plant processed refractory ore at various times during 2009 , there was no non-refractory ore processed at bogoso during the year . oxide ore mining remained on stand-by at pampe awaiting receipt of permits for prestea south . once prestea south permits are issued , we expect to mine oxide ore from both pampe and prestea south in amounts sufficient to run the bogoso oxide mill at capacity . 53 replace_table_token_19_th bogoso/prestea operations resulted in a $ 1.5 million operating margin loss , an improvement from its $ 47.2 million operating margin loss in 2008. cash operating costs fell from $ 142.7 million in 2008 to $ 131.2 million in 2009 on lower fuel , power and consumable costs . lower cash operating costs coupled with increases in gold output resulted in an improvement in unit costs to $ 705 per ounce , down from $ 837 per ounce in 2008. bogoso expects to continue its efforts to increase recovery and plant throughput during 2010 while continuing to manage its cost structure . the major capital expenditures in 2010 will be related to development of
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we utilize a raw material surcharge mechanism that is designed to mitigate the impact of increases or decreases in raw material costs , although generally with a lag effect . this timing effect can result in raw material spread whereby costs can be over- or under-recovered in certain periods . while the surcharge generally protects gross profit , it has the effect of diluting gross margin as a percent of sales . we value certain of our inventory utilizing the lifo inventory valuation method . changes in the cost of raw materials and production activities are recognized in cost of products sold in the current period even though these materials and other costs may have been incurred in different periods at significantly different values due to the length of time of our production cycle . in a period of rising raw material prices , cost of products sold expense recognized under lifo is generally higher than the cash costs incurred to acquire the inventory sold . conversely , in a period of declining raw material prices , cost of products sold recognized under lifo is generally lower than cash costs incurred to acquire the inventory sold . in periods of rising inventories and deflating raw material prices , the likely result will be a positive impact to net income . conversely , in periods of rising inventories and increasing raw materials prices , the likely result will be a negative impact to net income . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 19 % . the increase was driven by higher shipments in the industrial , energy and distribution market sectors . gross profit gross profit for the year ended december 31 , 2014 was $ 273.8 million , an increase of $ 50.6 million , or 23 % , compared to the year ended december 31 , 2013 . the increase was driven primarily by favorable sales volume of approximately $ 55 million , favorable price/mix of approximately $ 4 million and lower manufacturing expense of approximately $ 10 million resulting from better manufacturing performance . these items were partially offset by unfavorable raw material spread of approximately $ 13 million , increased lifo expense of approximately $ 5 million , negative weather-related costs and certain one-time expenses , including separation-related costs . as discussed previously , ship tons increased for the year ended december 31 , 2014 compared to the same period in 2013 as a result of higher customer demand . manufacturing costs were favorable due primarily to melt utilization improving to approximately 72 % for the year ended december 31 , 2014 from approximately 58 % for the year ended december 31 , 2013 . the favorable raw material spread was driven by timing associated with our customer surcharge mechanism as discussed above . our surcharge mechanism is designed to mitigate the impact of increases or decreases in raw material costs , although generally with a lag effect . this timing effect can result in raw material costs being over- or under-recovered in certain periods . while the surcharge generally protects gross profit , it had the effect of diluting gross margin as a percent of sales . selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses for the year ended december 31 , 2014 increased $ 20.3 million , or 22 % , compared to the year ended december 31 , 2013 . the increase was due primarily to costs to operate as a stand-alone independent organization . 24 provision for income taxes replace_table_token_12_th the increase in the effective tax rate in the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was due primarily to the tax benefit of the reversal of a reserve related to uncertain tax positions in 2013 , with no corresponding 2014 tax benefit . business segments replace_table_token_13_th industrial & mobile segment net sales increased 11 % in 2014 compared to 2013 . excluding surcharges , net sales increased 9 % . the increase was driven by strong demand in the industrial market sector . the increase was driven by higher ship tons of approximately 9 % for the year ended december 31 , 2014 compared to the same period of 2013 . ebit decreased 5 % in 2014 compared to 2013 due to higher selling , general and administrative costs needed to operate as a stand-alone independent organization , unfavorable raw material spread of approximately $ 9 million , unfavorable price/mix of approximately $ 2 million , partially offset by favorable volume of approximately $ 12 million as a result of the higher ship tons discussed above and favorable manufacturing utilization of approximately $ 7 million . replace_table_token_14_th energy & distribution segment net sales increased 38 % during the year ended december 31 , 2014 compared to 2013 . excluding surcharges , net sales increased 36 % . the increase was driven by higher ship tons of approximately 37 % for the year ended december 31 , 2014 compared to the same period of 2013 , in both the energy and distribution market sectors . ebit increased 69 % during the year ended december 31 , 2014 compared to 2013 . the increase was driven by higher volume of approximately $ 43 million , favorable price/mix of approximately $ 7 million and better manufacturing utilization of approximately $ 3 million , partially offset by higher raw material spread of approximately $ 4 million and selling , general and administrative expenses due to costs to operate as an independent organization . 25 replace_table_token_15_th corporate expenses are costs associated with strategy , corporate development , tax , treasury , legal , internal audit and general administration expenses . unallocated increased $ 4.8 million for the year ended december 31 , 2014 compared to the same period in 2013 primarily due to increased lifo expense . story_separator_special_tag non-gaap financial measures net sales , excluding surcharges this management 's discussion and analysis of financial condition and results of operations includes discussions of net sales adjusted to exclude raw material surcharges , which represents a financial measure that has not been determined in accordance with accounting principles generally accepted in the united states ( u.s. gaap ) . generally , as we experience fluctuations in our costs , we reflect them as price increases or surcharges to our customers with the goal of being essentially cost neutral . however , even if we are able to pass these raw material surcharges or price increases on to our customers , there may be a time lag between the time a cost increase goes into effect and our ability to implement surcharges or price increases . we believe presenting net sales to exclude surcharges provides a more consistent basis for comparing our core operating results . replace_table_token_16_th replace_table_token_17_th replace_table_token_18_th 26 the balance sheet the following discussion is a comparison of the consolidated balance sheets as of december 31 , 2015 and 2014 : replace_table_token_19_th refer to the “ liquidity and capital resources ” section in this management 's discussion and analysis of financial condition and results of operations for a discussion of the increase in cash and cash equivalents . accounts receivable , net as of december 31 , 2015 , decreased $ 86.2 million from december 31 , 2014 due primarily to decreased sales in the fourth quarter of 2015 as compared to the fourth quarter of 2014 . inventories decreased by $ 119.9 million in response to lower sales demand . deferred income taxes decreased $ 20.3 million from december 31 , 2014 due to the adoption of accounting standard updated ( asu ) 2015-17 , “ balance sheet classification of deferred taxes , ” which requires deferred taxes be classified as non-current . at december 31 , 2014 , prepaid expenses included a $ 24 million tax receivable that resulted from a reduction in taxes payable related to a change in tax law subsequent to payment of estimated taxes . replace_table_token_20_th property , plant and equipment , net decreased $ 2.6 million from december 31 , 2014 . replace_table_token_21_th pension assets increased $ 12.0 million from december 31 , 2014 primarily due to changes in the discount rate . replace_table_token_22_th current liabilities decreased to $ 104.2 million as of december 31 , 2015 as compared to $ 225.5 million as of december 31 , 2014 . the decrease was due to lower accounts payable resulting from lower purchases to meet our production requirements , lower capital spending , lower accrued salaries , wages and benefits as a result of lower variable pay and lower accrued pension and postretirement costs . long-term debt increased due to our net borrowings of $ 15.0 million under our credit facility to fund capital expenditures , to repurchase shares at a cost of $ 15.2 million , to fund cash dividends of $ 18.7 million paid to shareholders 27 and to fund our operations . the decrease in our deferred income taxes was due primarily to the 2015 net operating loss . refer to the consolidated statements of shareholders ' equity for details of the decrease in total shareholders ' equity . liquidity and capital resources as of december 31 , 2015 , we had $ 42.4 million of cash and cash equivalents on hand and $ 41.9 million in available borrowing capacity per the amended and restated credit agreement dated december 21 , 2015. on february 26 , 2016 , we entered into amendment no . 1 to the amended and restated credit agreement ( as amended the “ amended credit agreement ” ) in order to obtain relief from certain covenants and increase our flexibility as we pursue additional long-term financing opportunities . we believe that the borrowings available under our amended credit agreement will be sufficient to satisfy our working capital needs , capital expenditures and other liquidity requirements associated with our operations , including servicing our debt obligations , for at least the next twelve months . we will continue to evaluate additional financing opportunities . for more details on the amended and restated credit agreement , please refer to note 6 - “ financing arrangements ” in the notes to the consolidated financial statements . for more details on amendment no . 1 and any other material subsequent events , please refer to note 16 - “ subsequent events ” in the notes to the consolidated financial statements . cash flows the following table reflects the major categories of cash flows for years ended december 31 , 2015 , 2014 and 2013 . for additional details , please see the consolidated statements of cash flows contained elsewhere in this annual report . replace_table_token_23_th operating activities net cash provided by operating activities for the years ended december 31 , 2015 and 2014 was $ 107.1 million and $ 93.9 million , respectively . the $ 13.2 million increase was primarily the result of cash provided by the changes in our accounts receivable , inventories and prepaid expense balances , partially offset by a $ 176.8 million decrease in net income as well as an increased use of cash related to changes in our accounts payable and other accrued expense balances . net cash provided by operating activities for the years ended december 31 , 2014 and 2013 was $ 93.9 million and $ 175.1 million , respectively . the $ 81.2 million decrease was primarily the result of increased use of cash related to changes in our inventory and accounts receivable balances partially offset by higher net income and cash provided by the changes in our accrued expense balances . investing activities net cash used by investing activities for the years ended december 31 , 2015 , 2014 and 2013 was $ 77.8 million , $ 129.6 million , and $ 183.6 million , respectively . cash used for investing activities primarily relates to capital investments in our production processes .
| this timing effect can result in raw material costs being over- or under-recovered in certain periods . while the surcharge generally protects gross profit , it had the effect of diluting gross margin as a percent of sales . selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses for the year ended december 31 , 2015 decreased $ 1.1 million , or 1 % , compared to the year ended december 31 , 2014 due primarily to lower variable pay , offset by the fact that the first half of 2014 did not include costs required to operate on a stand-alone basis . impairment and restructuring charges during 2015 we approved and implemented two cost reduction plans , which resulted in the recognition of $ 5.6 million of restructuring charges for the year ended december 31 , 2015 . of the $ 5.6 million charge , $ 4.3 million related to the industrial & mobile segment and $ 1.3 million related to the energy & distribution segment . refer to note 14 — “ restructuring charges ” in the notes to the consolidated financial statements for details . during the year ended december 31 , 2015 , we recorded impairment charges of $ 0.9 million . 22 provision for income taxes replace_table_token_7_th the increase in the effective tax rate in the year ended december 31 , 2015 compared to the year ended december 31 , 2014 is due primarily to the loss of a tax benefit associated with the u.s. manufacturing deduction . business segments replace_table_token_8_th industrial & mobile segment net sales decreased $ 158.0 million or 16 % in 2015 compared to 2014 . excluding surcharges , net sales decreased 7 % . the decrease was driven by lower ship tons of approximately 22 % for the year ended december 31 , 2015 compared to the same period of 2014 in the industrial market sector , which was negatively impacted by global commodity market weakness . this decrease
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the increase in general and administrative expenses as a percentage of home sales revenues reflects additional costs realized from the increase in community count and one-time acquisition related transaction expenses associated with the wynn homes acquisition during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 . loss on extinguishment of debt . loss on extinguishment of debt for the year ended december 31 , 2018 was $ 3.6 million , due to debt issuance costs previously capitalized that were associated with the credit agreement . there was no loss on extinguishment of debt for the year ended december 31 , 2017 . operating income , net income before income taxes , and net income . operating income for the year ended december 31 , 2018 was $ 200.1 million , an increase of $ 30.3 million , or 17.9 % , from $ 169.8 million for the year ended december 31 , 2017 . net income before income taxes for the year ended december 31 , 2018 was $ 199.1 million , an increase of $ 27.7 million , or 16.2 % , over the year ended december 31 , 2017 . our reportable segments contributed the following amounts and percentages of net income before income taxes during 2018 : central - $ 104.6 million or 52.5 % ; northwest - $ 40.9 million or 20.5 % ; florida - $ 21.3 million or 10.7 % ; southeast - $ 29.1 million or 14.6 % ; and west - $ 13.6 million or 6.8 % . net income for the year ended december 31 , 2018 was $ 155.3 million , an increase of $ 42.0 million , or 37.1 % , from $ 113.3 million for the year ended december 31 , 2017 . the increases are primarily attributed to a 11.4 % increase in homes closed , a higher average sales price per home , and a decrease in the effective tax rate realized during 2018 as compared to 2017 . year ended december 31 , 2017 compared to the year ended december 31 , 2016 homes sales . our home sales revenues , home closings , average sales price ( asp ) , and ending community count by reportable segment for the years ended december 31 , 2017 and 2016 were as follows ( revenues in thousands ) : 35 replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th home sales revenues for the year ended december 31 , 2017 were $ 1,258.0 million , an increase of $ 419.6 million , or 50.1 % , from $ 838.3 million for the year ended december 31 , 2016. the increase in home sales revenues is primarily due to a 40.4 % increase in homes closed and an increase in the average selling price per home during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. we closed 5,845 homes during 2017 , as compared to 4,163 homes closed during 2016. this increase in home closings was largely due to the increase in the number of active communities in 2017. the average selling price per home closed during the year ended december 31 , 2017 was $ 215,220 , an increase of $ 13,846 , or 6.9 % , from the average selling price per home of $ 201,374 for the year ended december 31 , 2016. this increase in the average selling price per home was primarily due to changes in product mix , higher price points in certain new markets and a favorable pricing environment . we continued to diversify our operations outside of our central division during 2017. we increased our home sales revenues in our divisions other than our central division by $ 315.9 million during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 representing a 59.9 % increase in the number of homes closed in these divisions during 2017 as compared to 2016. our active selling communities at december 31 , 2017 increased to 78 from 63 at december 31 , 2016. ten of the fifteen active selling communities added during 2017 were outside of our central division , contributing to the further geographic diversification of our business . cost of sales and gross margin ( home sales revenues less cost of sales ) . cost of sales increased for the year ended december 31 , 2017 to $ 937.5 million , an increase of $ 320.8 million , or 52.0 % , from $ 616.7 million for the year ended december 31 , 2016. this increase is primarily due to a 40.4 % increase in homes closed during 2017 as compared to 2016 and , to a lesser degree , product mix . the increase in average cost of sales per home is primarily due to changes in construction costs associated with product mix and lot costs . gross margin for the year ended december 31 , 2017 was $ 320.4 million , an increase of $ 98.8 million , or 44.6 % , from $ 221.6 million for the year ended december 31 , 2016. gross margin as a percentage of home sales revenues was 36 25.5 % for the year ended december 31 , 2017 and 26.4 % for the year ended december 31 , 2016. this decrease in gross margin as a percentage of home sales revenues is primarily due to a combination of higher construction costs and lot costs partially offset by higher average home sales price for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 and , to a lesser extent , to 201 wholesale home closings during 2017 compared to no wholesale home closings during 2016. selling expenses . story_separator_special_tag selling expenses for the year ended december 31 , 2017 were $ 95.0 million , an increase of $ 28.0 million , or 41.8 % , from $ 67.0 million for the year ended december 31 , 2016. sales commissions increased to $ 50.2 million for the year ended december 31 , 2017 from $ 31.1 million during 2016 largely due to a 50.1 % increase in home sales revenues during 2017 as compared to 2016. selling expenses as a percentage of home sales revenues were 7.5 % and 8.0 % for the years ended december 31 , 2017 and 2016 , respectively , and generally reflect operating leverage realized relating to advertising costs . general and administrative . general and administrative expenses for the year ended december 31 , 2017 were $ 55.7 million , an increase of $ 12.5 million , or 29.0 % , from $ 43.2 million for the year ended december 31 , 2016. the increase in the amount of general and administrative expenses is primarily due to additional general and administrative compensation costs associated with an increase of active communities and home closings during 2017 as compared to 2016. general and administrative expenses as a percentage of home sales revenues were 4.4 % and 5.1 % for the years ended december 31 , 2017 and 2016 , respectively . the decrease in general and administrative expenses as a percentage of home sales revenues reflects leverage realized from the increase in home sales revenues during 2017 as compared to 2016. operating income , net income before income taxes , and net income . operating income for the year ended december 31 , 2017 was $ 169.8 million , an increase of $ 58.3 million , or 52.3 % , from $ 111.5 million for the year ended december 31 , 2016. net income before income taxes for the year ended december 31 , 2017 was $ 171.4 million , an increase of $ 57.7 million , or 50.8 % , over the year ended december 31 , 2016. our reportable segments contributed the following amounts and percentages of net income before income taxes during 2017 : central - $ 89.1 million or 52.0 % ; northwest - $ 34.2 million or 20.0 % ; florida - $ 25.7 million or 15.0 % ; southeast - $ 20.0 million or 11.6 % ; and west - $ 5.9 million or 3.4 % . net income for the year ended december 31 , 2017 was $ 113.3 million , an increase of $ 38.3 million , or 51.0 % , from $ 75.0 million for the year ended december 31 , 2016. the increases are primarily attributed to a 40.4 % increase in homes closed , a higher average sales price and improved leverage realized during 2017 as compared to 2016. non-gaap measures in addition to the results reported in accordance with u.s. gaap , we have provided information in this annual report on form 10-k relating to adjusted gross margin , ebitda and adjusted ebitda . adjusted gross margin is a non-gaap financial measure used by management as a supplemental measure in evaluating operating performance . we define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales . our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin . however , because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments , which have real economic effects and could impact our results , the utility of adjusted gross margin information as a measure of our operating performance may be limited . in addition , other companies may not calculate adjusted gross margin information in the same manner that we do . accordingly , adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance . the following table reconciles adjusted gross margin to gross margin , which is the gaap financial measure that our management believes to be most directly comparable ( dollars in thousands ) : replace_table_token_12_th ( a ) adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates . ( b ) calculated as a percentage of home sales revenues . ebitda and adjusted ebitda ebitda and adjusted ebitda are non-gaap financial measures used by management as supplemental measures in evaluating operating performance . we define ebitda as net income before ( i ) interest expense , ( ii ) income taxes , ( iii ) depreciation and amortization and ( iv ) capitalized interest charged to the cost of sales . we define adjusted ebitda as net income before ( i ) interest expense , ( ii ) income taxes , ( iii ) depreciation and amortization , ( iv ) capitalized interest charged to the cost of sales , ( v ) loss on extinguishment of debt , ( vi ) other income , net and ( vii ) adjustments resulting from the application of purchase accounting included in the cost of sales . our management believes that the presentation of ebitda and adjusted ebitda provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business . ebitda and adjusted ebitda provide indicators of general economic 37 performance that are not affected by fluctuations in interest rates or effective tax rates , levels of depreciation or amortization and items considered to be unusual or non-recurring . accordingly , our management believes that these measures are useful for comparing general operating performance from period to period . other companies may define these measures differently and , as a result , our measures of ebitda and adjusted ebitda may not be directly comparable to the measures of other companies .
| for the year ended december 31 , 2018 , we repurchased 39,000 shares of our common stock for $ 1.5 million to be held as treasury stock . during january 2019 , the board increased the authorized number of directors on the board from six directors to seven directors and appointed laura m. miller to fill the newly created directorship . 32 results of operations the following table sets forth our results of operations for the periods indicated : replace_table_token_5_th ( 1 ) gross margin is home sales revenues less cost of sales . ( 2 ) calculated as a percentage of home sales revenues . ( 3 ) adjusted gross margin is a non-gaap financial measure used by management as a supplemental measure in evaluating operating performance . we define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales . our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin . however , because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments , which have real economic effects and could impact our results , the utility of adjusted gross margin information as a measure of our operating performance may be limited . in addition , other companies may not calculate adjusted gross margin information in the same manner that we do . accordingly , adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance . please see “ —non-gaap measures ” for a reconciliation of adjusted gross margin to gross margin , which is the gaap financial measure that our management believes to be most directly comparable . ( 4 ) ebitda and adjusted ebitda are non-gaap financial measures used by management as supplemental measures in evaluating operating performance . we define ebitda as net income before ( i ) interest expense , ( ii ) income taxes , ( iii ) depreciation and amortization and ( iv ) capitalized interest charged to the cost of sales . we define adjusted
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also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . ernst & young llp houston , texas february 11 , 2020 insperity f-6 2019 form 10-k consolidated financial statements insperity , inc. — consolidated balance sheets replace_table_token_21_th replace_table_token_22_th see accompanying notes . insperity f-7 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of operations replace_table_token_23_th ( 1 ) revenues are comprised of gross billings less worksite employee ( “ wsee ” ) payroll costs as follows : replace_table_token_24_th see accompanying notes . insperity f-8 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of comprehensive income replace_table_token_25_th see accompanying notes . insperity f-9 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of stockholders ' equity replace_table_token_26_th see accompanying notes . insperity f-10 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of cash flows replace_table_token_27_th insperity f-11 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of cash flows ( continued ) replace_table_token_28_th see accompanying notes . insperity f-12 2019 form 10-k notes to the consolidated financial statements 1. accounting policies description of business insperity , inc. ( “ insperity ” or “ we ” , “ our ” , and “ us ” ) provides an array of human resources ( “ hr ” ) and business solutions designed to help improve business performance . since our formation in 1986 , we have evolved from being solely a professional employer organization ( “ peo ” ) , an industry we pioneered , to our current position as a comprehensive business performance solutions provider . we were organized as a corporation in 1986 and have provided peo services since inception . our most comprehensive hr services offerings are provided through our workforce optimization ® and workforce synchronization tm solutions ( together , our “ peo hr outsourcing solutions ” ) , which encompass a broad range of human resources functions , including payroll and employment administration , employee benefits , workers ' compensation , government compliance , performance management and training and development services , along with our cloud-based human capital management platform , insperity premier tm . in addition to our peo hr outsourcing solutions , we offer a comprehensive traditional payroll and human capital management solution , known as workforce acceleration . we also offer a number of other business performance solutions , including time and attendance , performance management , organizational planning , recruiting services , employment screening , expense management services , retirement services and insurance services , many of which are offered as a cloud-based software solution . these other products or services are offered separately or with our other solutions . we provide our peo hr outsourcing solutions by entering into a co-employment relationship with our clients , under which insperity and its clients each take responsibility for certain portions of the employer-employee relationship . insperity and its clients designate each party 's responsibilities through its client service agreement ( “ csa ” ) , under which insperity becomes an employer of the employees who work at the client 's location ( “ wsee ” ) for most administrative and regulatory purposes . as a co-employer of its wsees , we assume many of the rights and obligations associated with being an employer . we enter into an employment agreement with each wsee , thereby maintaining a variety of employer rights , including the right to hire or terminate employees , the right to evaluate employee qualifications or performance , and the right to establish employee compensation levels . typically , insperity only exercises these rights in consultation with its clients or when necessary to ensure regulatory compliance . the responsibilities associated with our role as employer include the following obligations with regard to our wsees : ( 1 ) to compensate its wsees through wages and salaries ; ( 2 ) to pay the employer portion of payroll-related taxes ; ( 3 ) to withhold and remit ( where applicable ) the employee portion of payroll-related taxes ; ( 4 ) to provide employee benefit programs ; and ( 5 ) to provide workers ' compensation insurance coverage . in addition to our assumption of employer status for our wsees , our peo hr outsourcing solutions also include other human resources functions for our clients to support the effective and efficient use of personnel in their business operations . to provide these functions , we maintain a significant staff of professionals trained in a wide variety of human resources functions , including employee training , employee recruiting , employee performance management , employee compensation and employer liability management . these professionals interact and consult with clients on a daily basis to help identify each client 's service requirements and to ensure that we are providing appropriate and timely personnel management services . revenue and direct cost recognition on january 1 , 2018 , we adopted accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) , using the modified retrospective approach . under this method , the guidance is applied only to the most current period presented in the financial statements . asu no . 2014-09 outlines a single comprehensive revenue recognition model for revenue arising from contracts with customers and superseded most of the previous revenue recognition guidance , including industry-specific guidance . under asu no . 2014-09 , an entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services . our revenue recognition policies remained substantially unchanged as a result of the adoption of asu no . story_separator_special_tag also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . ernst & young llp houston , texas february 11 , 2020 insperity f-6 2019 form 10-k consolidated financial statements insperity , inc. — consolidated balance sheets replace_table_token_21_th replace_table_token_22_th see accompanying notes . insperity f-7 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of operations replace_table_token_23_th ( 1 ) revenues are comprised of gross billings less worksite employee ( “ wsee ” ) payroll costs as follows : replace_table_token_24_th see accompanying notes . insperity f-8 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of comprehensive income replace_table_token_25_th see accompanying notes . insperity f-9 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of stockholders ' equity replace_table_token_26_th see accompanying notes . insperity f-10 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of cash flows replace_table_token_27_th insperity f-11 2019 form 10-k consolidated financial statements insperity , inc. — consolidated statements of cash flows ( continued ) replace_table_token_28_th see accompanying notes . insperity f-12 2019 form 10-k notes to the consolidated financial statements 1. accounting policies description of business insperity , inc. ( “ insperity ” or “ we ” , “ our ” , and “ us ” ) provides an array of human resources ( “ hr ” ) and business solutions designed to help improve business performance . since our formation in 1986 , we have evolved from being solely a professional employer organization ( “ peo ” ) , an industry we pioneered , to our current position as a comprehensive business performance solutions provider . we were organized as a corporation in 1986 and have provided peo services since inception . our most comprehensive hr services offerings are provided through our workforce optimization ® and workforce synchronization tm solutions ( together , our “ peo hr outsourcing solutions ” ) , which encompass a broad range of human resources functions , including payroll and employment administration , employee benefits , workers ' compensation , government compliance , performance management and training and development services , along with our cloud-based human capital management platform , insperity premier tm . in addition to our peo hr outsourcing solutions , we offer a comprehensive traditional payroll and human capital management solution , known as workforce acceleration . we also offer a number of other business performance solutions , including time and attendance , performance management , organizational planning , recruiting services , employment screening , expense management services , retirement services and insurance services , many of which are offered as a cloud-based software solution . these other products or services are offered separately or with our other solutions . we provide our peo hr outsourcing solutions by entering into a co-employment relationship with our clients , under which insperity and its clients each take responsibility for certain portions of the employer-employee relationship . insperity and its clients designate each party 's responsibilities through its client service agreement ( “ csa ” ) , under which insperity becomes an employer of the employees who work at the client 's location ( “ wsee ” ) for most administrative and regulatory purposes . as a co-employer of its wsees , we assume many of the rights and obligations associated with being an employer . we enter into an employment agreement with each wsee , thereby maintaining a variety of employer rights , including the right to hire or terminate employees , the right to evaluate employee qualifications or performance , and the right to establish employee compensation levels . typically , insperity only exercises these rights in consultation with its clients or when necessary to ensure regulatory compliance . the responsibilities associated with our role as employer include the following obligations with regard to our wsees : ( 1 ) to compensate its wsees through wages and salaries ; ( 2 ) to pay the employer portion of payroll-related taxes ; ( 3 ) to withhold and remit ( where applicable ) the employee portion of payroll-related taxes ; ( 4 ) to provide employee benefit programs ; and ( 5 ) to provide workers ' compensation insurance coverage . in addition to our assumption of employer status for our wsees , our peo hr outsourcing solutions also include other human resources functions for our clients to support the effective and efficient use of personnel in their business operations . to provide these functions , we maintain a significant staff of professionals trained in a wide variety of human resources functions , including employee training , employee recruiting , employee performance management , employee compensation and employer liability management . these professionals interact and consult with clients on a daily basis to help identify each client 's service requirements and to ensure that we are providing appropriate and timely personnel management services . revenue and direct cost recognition on january 1 , 2018 , we adopted accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) , using the modified retrospective approach . under this method , the guidance is applied only to the most current period presented in the financial statements . asu no . 2014-09 outlines a single comprehensive revenue recognition model for revenue arising from contracts with customers and superseded most of the previous revenue recognition guidance , including industry-specific guidance . under asu no . 2014-09 , an entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services . our revenue recognition policies remained substantially unchanged as a result of the adoption of asu no .
| this trend is primarily the result of many wsees ' medical plan deductibles being fully met by the fourth quarter , which increases our liability with respect to those claims . we have also experienced variability on a quarterly basis in medical claims costs based on the unpredictable nature of large claims . payroll taxes and associated billings are computed based on an employee 's annual taxable wage base . the annual payroll tax wage bases are frequently met in the first two quarters of each year depending on the employee 's compensation levels . as a result , the gross profit contribution from payroll taxes is typically higher in the first two quarters and declines in the latter half of each year . these historical trends may change and other seasonal trends may develop in the future . for further information related to our health insurance costs , please read “ —critical accounting policies and estimates—benefits costs. ” we believe the effects of inflation have not had a significant impact on our results of operations or financial condition . insperity 54 2019 form 10-k quantitive and qualitative
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historically , approximately 14 % -17 % of samples we have received for the afirma solution have yielded indeterminate results by cytopathology . of the fna samples sent for gec testing , approximately 5 % -10 % have insufficient rna from which to render a finding . we issue a patient report classifying the sample as gec benign , gec suspicious or gec no result . we bill for the gec benign and gec suspicious results only . after the gec is completed , we issue the cytopathology report for the indeterminate samples , and bill for the cytopathology portion of the test at this time . we incur costs of collecting and shipping the fnas and a portion of the costs of performing tests where we can not ultimately issue a patient report . because we can not bill for all samples received , the number of fnas received does not directly correlate to the total number of patient reports issued and the amount billed . continued adoption of and reimbursement for afirma we increased our list price for the gec from $ 4,275 to $ 4,875 per test in january 2014 , while our list price for routine cytopathology remained at $ 490 per test . to date only a portion of payers have reimbursed us at full list price . revenue growth depends on our ability to achieve broader reimbursement at increased levels from third-party payers and to expand our base of prescribing physicians . to drive increased adoption of afirma , we plan to increase our marketing efforts and to selectively increase our internal sales force in high-volume geographies domestically and to leverage our relationship with genzyme to accelerate afirma growth both in the united states and internationally . because many payers consider the gec experimental and investigational , we may not receive payment on many tests and payments may not be at acceptable levels compared to what we have billed . we expect our revenue growth will increase as more payers make a positive coverage decision , which should enhance our collections . if we are unable to expand the base of prescribing physicians at an acceptable rate , or if we are not able to execute our strategy for increasing reimbursement , we may not be able to effectively increase our revenue . how we recognize revenue a significant portion of our revenue is recognized when cash is received . medicare and three small commercial payers are the only payers with agreed upon reimbursement rates or expected payments and a predictable history of collections , which allows us to recognize the related revenue on an accrual basis . until we achieve a predictable pattern of collections and a consistent payment amount from a larger number of payers , we will recognize a large portion of our revenue upon the earlier of notification of payment or when cash is received . additionally , as we commercialize new products , we will need to achieve a predictable pattern of collections and a consistent payment amount for each payer for each new product offering prior to being able to recognize the related revenue on an accrual basis . because the timing and amount of cash payments received from payers is difficult to predict , we expect that our revenue will fluctuate significantly in any given quarter . in addition , even if we begin to accrue larger amounts of 63 revenue related to afirma , when we introduce new products we do not expect we will be able to recognize revenue from new products on an accrual basis for some period of time . this may result in continued fluctuations in our revenue . as of december 31 , 2012 , amounts billed for tests processed which were not recognized as revenue upon delivery of a patient report because our accrual revenue recognition criteria were not met and for which we have not recognized either notification of payment or collected cash , totaled $ 17.0 million . of this amount , we recognized revenue of $ 2.6 million in the year ended december 31 , 2013. as of december 31 , 2013 , amounts billed for tests processed which were not recognized as revenue upon delivery of a patient report because our accrual revenue recognition criteria were not met and for which we have not received either notification of payment or collected cash totaled $ 40.9 million . these amounts are cumulative as of the date referenced and include all amounts billed in prior periods that have not yet been paid or written off as uncollectible . it is difficult to predict future revenue from tests performed but where we have not been paid . accordingly , we can not provide any assurance as to when , if ever , or to what extent any of these amounts will be collected . because we are in the early stages of commercialization of afirma , we have had limited payment and collection history . notwithstanding our efforts to obtain payment for these tests , payers may deny our claims , in whole or in part , and we may never receive revenue from any previously performed but unpaid tests . revenue from these tests , if any , may not be equal to the billed amount due to a number of factors , including differences in reimbursement rates , the amounts of patient co-payments , the existence of secondary payers and claims denials . we incur expense for tests in the period in which the test is conducted and recognize revenue for tests in the period in which our revenue recognition criteria are met . accordingly , any revenue that we recognize as a result of cash collection in respect of previously performed but unpaid afirma tests will favorably impact our liquidity and results of operations in future periods . story_separator_special_tag impact of genzyme co-promotion agreement the $ 10.0 million fee we received from genzyme under our co-promotion agreement is being amortized over a four-year period beginning in 2012 , and is recorded as a reduction of selling and marketing expenses . under the agreement , we pay a portion of our cash receipts to genzyme for co-promoting afirma , and such amounts are recorded in selling and marketing expense . we incurred $ 8.6 million and $ 5.5 million in co-promotion fees in the years ended december 31 , 2013 and 2012 , respectively . the co-promotion agreement requires that we pay a certain percentage of our cash receipts to genzyme , which percentage decreases over time . in january 2013 , the percentage is 40 % , but it will decrease to 32 % on march 1 , 2014 and remain at that level thereafter . as our cash collections grow , both from volume growth as well as from increased reimbursement rates and collections for afirma , the total amount we pay to genzyme will increase in absolute dollars although the percentage of revenue we are required to pay genzyme decreases over time . we believe our relationship with genzyme will accelerate sales of afirma . as a result , our selling and marketing expense may be higher than what we would have incurred if we alone were marketing and promoting afirma . we also may receive up to an additional $ 3.0 million from genzyme , consisting of $ 0.6 million for each of up to five countries outside of the united states in which we obtain regulatory authorization to market afirma and achieve a specified level of reimbursement . genzyme has also agreed to spend $ 0.5 million to support clinical development expenses required for entry into the international markets covered by our agreement . this obligation expires in july 2014. our agreement with genzyme expires in 2027 and either party may terminate the agreement at any time without cause and with six months ' prior notice . if we terminate the agreement without cause between january 2014 and january 2015 , we will be required to repay 40 % of the $ 10.0 million fee we received . the percentage decreases to 30 % of such fee if we were to terminate the agreement between january 2015 and 64 january 2016. subsequent to january 2016 , we are not required to repay any portion of the fee in the event we terminate the agreement without cause . development of additional products we rely on sales of afirma to generate all of our revenue . our product development pipeline includes afirma malignancy classifiers , which we believe will serve our current base of prescribing physicians . we also plan to pursue development of products for additional diseases to increase and diversify our revenue . for example , we are pursuing a solution for interstitial lung disease , or ild , that will offer an alternative to surgery by developing a genomic signature to classify samples collected through less invasive bronchoscopy techniques . accordingly , we expect to continue to invest heavily in research and development in order to expand the capabilities of our solution and to develop additional products . our success in developing new products will be important in our efforts to grow our business by expanding the potential market for our products and diversifying our sources of revenue . timing of our research and development expenses we deploy state-of-the-art and costly genomic technologies in our biomarker discovery experiments , and our spending on these technologies may vary substantially from quarter to quarter . we also spend a significant amount to secure clinical samples that can be used in discovery and product development as well as clinical validation studies . the timing of these research and development activities is difficult to predict , as is the timing of sample acquisitions . if a substantial number of clinical samples are acquired in a given quarter or if a high-cost experiment is conducted in one quarter versus the next , the timing of these expenses can affect our financial results . we conduct clinical studies to validate our new products as well as on-going clinical studies to further the published evidence to support our commercialized test , afirma . as these studies are initiated , start-up costs for each site can be significant and concentrated in a specific quarter . spending on research and development , for both experiments and studies , may vary significantly by quarter depending on the timing of these various expenses . historical seasonal fluctuations in fna volume and collections our business is subject to fluctuations in fna volume throughout the year as a result of physician practices being closed for holidays or endocrinology and thyroid-related industry meetings which are widely attended by our prescribing physicians . like other companies in our field , vacations by physicians and patients tend to negatively affect our volumes more during the summer months and during the end of year holidays compared to other times of the year . additionally , we may receive fewer fnas in the winter months due to severe weather if patients are not able to visit their doctor 's office . our reimbursed rates and cash collections are also subject to seasonality . medicare normally makes downward adjustments in its fee schedules at the beginning of the year which may negatively affect our reimbursement . additionally , patient deductibles generally reset at the beginning of each year which means that patients early in the year are responsible for a greater portion of the cost of our tests , and we have lower collection rates from individuals than from third-party payers . later in the year , particularly in the fourth quarter , we experience better payment results as third-party payers tend to clear pending claims toward year end . this trend historically has increased our cash collections in the fourth quarter and decreased cash collections for the subsequent first quarter of the succeeding year .
| selling and marketing selling and marketing expense increased $ 4.1 million , or 48 % , for the year ended december 31 , 2013 compared to the same period in 2012. this increase was primarily due to a $ 3.0 million increase in net expense recognized under our co-promotion agreement with genzyme , partially offset by amortization of the deferred fee , a $ 0.5 million increase in personnel expenses related to a 28 % increase in headcount , a $ 0.5 million increase in marketing and promotional materials , and a $ 0.1 million increase in consulting expenses . general and administrative general and administrative expense increased $ 4.2 million , or 53 % , for the year ended december 31 , 2013 compared to the same period in 2012. this increase was primarily due to a $ 2.0 million increase in personnel expenses related to a 63 % increase in headcount , a $ 1.4 million increase in professional fees primarily due to non-capitalizable ipo related audit and legal services , a $ 0.4 million increase in stock-based compensation expense primarily related to 2013 option grants , a $ 0.4 million increase in rent and other facilities expenses primarily due to the opening of the austin , texas facility , and a $ 0.2 million increase in insurance expenses related to higher premiums associated with being a public company . interest income interest income increased 150 % for the year ended december 31 , 2013 compared to the same period in 2012 due primarily to the increase in cash in 2013 from the $ 59.2 million in net proceeds from the ipo , $ 12.9 million in net proceeds received from the sale of convertible preferred stock and $ 4.9 million in net borrowings under our loan and security agreement . interest expense interest expense increased $ 0.2 million for the year ended december 31 , 2013 compared to the same period in 2012. interest expense of $ 0.2 million for the year ended december 31 , 2013 is interest incurred on the initial june 2013 drawdown of $ 5.0 million under our loan and security agreement . we did not have any debt in the same period in 2012 . 71 other income ( expense ) , net other income ( expense ) , net , decreased $ 2.5 million in the year ended december 31 , 2013 compared to the same period in 2012 .
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we consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management 's judgment , with financial reporting results relying on estimation about the effect of matters that are inherently uncertain . we describe the specific risks for these critical accounting policies in the following paragraphs . for all of these policies , we caution that future events rarely develop exactly as forecast , and even the best estimates routinely require adjustment . revenue recognition a substantial portion of our revenues is derived from long-term contracts requiring development and delivery of complex equipment built to customer specifications . sales related to these contracts are accounted for under the authoritative guidance for the percentage-of-completion method of accounting ( asc 605-35 ) . sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred to date to total estimated costs expected to be incurred related to the contract , or as products are shipped under the units-of-delivery method . the percentage-of-completion method of accounting requires management to estimate the profit margin for each individual contract and to apply that profit margin on a uniform basis as sales are recorded under the contract . the estimation of profit margins requires management to make projections of the total sales to be generated and the total costs that will be incurred under a contract . these projections require management to make numerous assumptions and estimates relating to items such as the complexity of design and related development costs , performance of subcontractors , availability and cost of materials , labor productivity and cost , overhead and capital costs , and manufacturing efficiency . these contracts often include purchase options for additional quantities and customer change orders for additional or revised product functionality . purchase options and change orders are accounted for either as an integral part of the original contract or separately depending upon the nature and value of the item . for contract claims or similar items , we apply judgment in estimating the amounts and assessing the potential for realization . these amounts are only included in contract value when they can be reliably estimated and realization is considered probable . anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable . during fiscal years 2012 , 2011 and 2010 , we recorded losses of approximately $ 1.4 million , $ 12.1 million and $ 9.3 million , respectively , related to loss contracts . assuming the initial estimates of sales and costs under a contract are accurate , the percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract . changes in these underlying estimates due to revisions in sales and future cost estimates or the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised . we believe we have established appropriate systems and processes to enable us to reasonably estimate future cost on our programs through regular evaluations of contract costs , scheduling and technical matters by business unit personnel and management . historically , in the aggregate , we have not experienced significant deviations in actual costs from estimated program costs , and when deviations that result in significant adjustments arise , we disclose the related impact in management 's discussion and analysis of financial condition and results of operations . however , these estimates require significant management judgment and a significant change in future cost estimates on one or more programs could have a material effect on our results of operations . a one percent variance in our future cost estimates on open fixed-price contracts as of march 30 , 2012 would change our income before income taxes by approximately $ 0.5 million . we also derive a substantial portion of our revenues from contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with the authoritative guidance for revenue recognition ( asc 605 ) . under this standard , we recognize revenue when an arrangement exists , prices are fixed and determinable , collectability is reasonably assured and the goods or services have been delivered . we also enter into certain leasing arrangements with customers and evaluate the contracts in accordance with the authoritative guidance for leases ( asc 840 ) . our accounting for equipment leases involves specific determinations under the authoritative guidance , which often involve complex provisions and significant judgments . in accordance with the authoritative guidance for leases , we classify the transactions as sales type or operating leases based on ( 1 ) review for transfers of ownership of the property to the 37 lessee by the end of the lease term , ( 2 ) review of the lease terms to determine if it contains an option to purchase the leased property for a price which is sufficiently lower than the expected fair value of the property at the date of the option , ( 3 ) review of the lease term to determine if it is equal to or greater than 75 % of the economic life of the equipment , and ( 4 ) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90 % of the fair market value of the equipment at the inception of the lease . additionally , we consider the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception . revenue from sales type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site , if installation is required . revenues from equipment rentals under operating leases are recognized as earned over the lease term , which is generally on a straight-line basis . story_separator_special_tag when a sale involves multiple elements , such as sales of products that include services , the entire fee from the arrangement is allocated to each respective element based on its relative fair value in accordance with the authoritative guidance for accounting for multiple element revenue arrangements ( asc 605-25 ) , and recognized when the applicable revenue recognition criteria for each element have been met . the amount of product and service revenue recognized is impacted by our judgments as to whether an arrangement includes multiple elements and , if so , whether sufficient objective and reliable evidence of fair value exists for those elements . changes to the elements in an arrangement and our ability to establish evidence for those elements could affect the timing of revenue recognition . collections in excess of revenues and deferred revenues represent cash collected from customers in advance of revenue recognition and are recorded in accrued liabilities for obligations within the next twelve months . deferred revenues extending beyond the twelve months are recorded within other liabilities in the consolidated financial statements . warranty reserves we provide limited warranties on our products for periods of up to five years . we record a liability for our warranty obligations when we ship the products or they are included in long-term construction contracts based upon an estimate of expected warranty costs . amounts expected to be incurred within twelve months are classified as a current liability . for mature products , we estimate the warranty costs based on historical experience with the particular product . for newer products that do not have a history of warranty costs , we base our estimates on our experience with the technology involved and the types of failures that may occur . it is possible that our underlying assumptions will not reflect the actual experience , and in that case , we will make future adjustments to the recorded warranty obligation . property , equipment and satellites satellites and other property and equipment are recorded at cost or in the case of certain satellites and other property acquired , the fair value at the date of acquisition , net of accumulated depreciation . capitalized satellite costs consist primarily of the costs of satellite construction and launch , including launch insurance and insurance during the period of in-orbit testing , the net present value of performance incentives expected to be payable to the satellite manufacturers ( dependent on the continued satisfactory performance of the satellites ) , costs directly associated with the monitoring and support of satellite construction , and interest costs incurred during the period of satellite construction . we also construct gateway facilities , network operations systems and other assets to support our satellites , and those construction costs , including interest , are capitalized as incurred . at the time satellites are placed in service , we estimate the useful life of our satellites for depreciation purposes based upon an analysis of each satellite 's performance against the original manufacturers orbital design life , estimated fuel levels and related consumption rates , as well as historical satellite operating trends . in october 2011 , our new high-capacity ka-band spot-beam satellite , viasat-1 , was successfully launched into orbit . the satellite manufacturer handed over operation of the satellite to us in december 2011 , following the successful completion of the manufacturer 's in-orbit testing . in january 2012 , we commenced commercial operation of our exede broadband services . as a result of the acquisition of wildblue in december 2009 , we acquired the wildblue-1 satellite ( which had been placed into service in march 2007 ) and an exclusive prepaid lifetime capital lease of ka-band capacity on telesat canada 's anik f2 satellite ( which had been placed into service in april 2005 ) and related gateway and networking equipment on both satellites . the acquired assets also included the cpe units leased to subscribers under wildblue 's retail leasing program . occasionally , we may enter into capital lease arrangements for various machinery , equipment , computer-related equipment , software , furniture or fixtures . as of march 30 , 2012 and april 1 , 2011 , assets under capital lease totaled approximately $ 3.1 million . we record amortization of assets leased under capital lease arrangements within depreciation expense . 38 impairment of long-lived and other long-term assets ( property , equipment and satellites , and other assets , including goodwill ) in accordance with the authoritative guidance for impairment or disposal of long-lived assets ( asc 360 ) , we assess potential impairments to our long-lived assets , including property , equipment and satellites and other assets , when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable . we periodically review the remaining estimated useful life of the satellite to determine if revisions to the estimated life are necessary . we recognize an impairment loss when the undiscounted cash flows expected to be generated by an asset ( or group of assets ) are less than the asset 's carrying value . any required impairment loss would be measured as the amount by which the asset 's carrying value exceeds its fair value , and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations . no material impairments were recorded by us for fiscal years 2012 , 2011 and 2010. we account for our goodwill under the authoritative guidance for goodwill and other intangible assets ( asc 350 ) . we early adopted the provisions of asu 2011-08 , testing goodwill for impairment , during the fourth quarter of fiscal year 2012 , which permits us to make a qualitative assessment of whether it is more likely than not that a reporting unit 's fair value is less than its carrying amount before applying the two step goodwill impairment test .
| cost of service revenues increased from $ 160.6 million to $ 233.2 million during fiscal year 2012 when compared to fiscal year 2011 primarily from a $ 26.3 million cost of service revenue increase associated with our new viasat-1 satellite , data center , billing system and costs in connection with our exede broadband services , which commenced commercial operation in january 2012. in addition , cost of service revenue increased on a constant margin basis approximately $ 25.0 million due to increased service revenues . cost of product revenues increased from $ 389.9 million to $ 402.8 million during fiscal year 2012 when compared to fiscal year 2011 primarily due to increased product revenues , which caused an increase of approximately $ 13.5 million in cost of product revenues on a constant margin basis . cost of product and service revenues may fluctuate in future periods depending on the mix of products sold and services provided , competition , new product and service introduction costs and other factors . in the first quarter of fiscal year 2011 , we recorded an additional forward loss of $ 8.5 million on a government satellite communication program due to the significant additional labor and material costs for rework and testing required to complete the program requirements and specifications . selling , general and administrative expenses replace_table_token_6_th the increase in selling , general and administrative ( sg & a ) expenses of $ 17.5 million during fiscal year 2012 compared to fiscal year 2011 was primarily attributable to higher support costs of $ 9.2 million , as well as higher selling costs of $ 7.4 million . of the higher support costs , $ 4.6 million related to our commercial networks segment , $ 3.0 million related to our government systems segment and $ 1.6 million related to our satellite services segment . higher selling costs were incurred across all segments , $ 2.9 million within our government systems
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this preparation includes continuing the installation of our electronic clinical information system in our hospitals which allows for interfaces with all major acute care electronic medical record systems and health information exchanges and participating in bundling projects and accountable care organizations ( “ acos ” ) . during 2015 , net operating revenues increased by 31.5 % over 2014 due primarily to strong volume growth in both of our operating segments and included the effect of our acquisitions of encompass , reliant , and caresouth ( see note 2 , business combinations , to the accompanying consolidated financial statements ) . within our inpatient rehabilitation segment , discharge growth of 10.9 % coupled with a 1.1 % increase in net patient revenue per discharge in 2015 generated 11.6 % growth in revenue from our hospitals compared to 2014. discharge growth included a 3.2 % increase in same-store discharges . our inpatient rehabilitation quality and outcome measures , as reported through the uniform data system for medical rehabilitation ( the “ uds ” ) , remained well above the average for hospitals included in the uds database . the results of operations for our home health and hospice segment in 2014 included only the results of healthsouth 's legacy hospital-based home health agencies . thus , year-over-year growth in all operating results and performance metrics resulted from our acquisition of encompass . the quality of patient care star rating for our home health agencies continued to be well above the national average , as reported by the united states centers for medicare and medicaid services ( “ cms ” ) . in addition , 30-day readmission rates at our home health agencies continued to be well below the national average , as reported by avalere health and the association for home health quality . we experienced much success with our growth efforts in 2015. specifically , in october 2015 , we completed the previously announced acquisition of the operations of reliant hospital partners , llc and affiliated entities ( “ reliant ” ) . reliant operated a portfolio of 11 inpatient rehabilitation hospitals in texas , massachusetts , and ohio with a total of 902 beds . all of the reliant hospitals are leased , and seven of the leases are treated as capital leases for accounting purposes . we assumed all of these lease obligations . the amount of the capital lease obligation initially recognized on our balance sheet was approximately $ 210 million . at closing , one reliant hospital entity had a remaining minority limited partner interest of 0.5 % . the cash purchase price was reduced by the estimated fair value of this interest . we funded the cash purchase price in the reliant acquisition with proceeds from our august and september 2015 senior notes issuances ( as discussed below ) and borrowings under our senior secured credit facility . the total cash consideration delivered at closing was approximately $ 730 million . we believe this acquisition complements our existing networks in the highly competitive houston , dallas-fort worth , and austin markets while providing entry into new markets in abilene , texas ; dayton , ohio ; and the greater boston metropolitan areas . in 2014 , reliant 's operations generated revenues of approximately $ 249 million . the acquisition of the operations of reliant were immediately accretive , excluding transaction costs , to our earnings per share . 40 in addition to completing the reliant acquisition to expand our portfolio of inpatient rehabilitation hospitals , we : began operating the inpatient rehabilitation hospital at memorial university medical center in savannah , georgia with our joint venture partner , memorial health , on april 1 , 2015. the joint venture will build a new , 50-bed replacement inpatient rehabilitation hospital , which is expected to be completed in the first half of 2016 ; acquired cardinal hill rehabilitation hospital ( “ cardinal hill ” ) , comprised of 158 licensed inpatient rehabilitation beds and 74 licensed skilled nursing beds , in lexington , kentucky on may 1 , 2015 ; entered into an agreement , in may 2015 , with west tennessee healthcare to form a joint venture to own and operate a 48-bed inpatient rehabilitation hospital in jackson , tennessee . the agreement calls for the relocation of the existing inpatient rehabilitation unit at jackson-madison county general hospital to a free-standing hospital to be built by the joint venture , as well as joint ownership of our existing cane creek rehabilitation hospital in martin , tennessee . under the agreement , healthsouth assumed management of the existing rehabilitation unit on january 1 , 2016. construction of the new inpatient rehabilitation hospital will begin in 2016 , once the required state regulatory approvals are obtained ; entered into an agreement , in june 2015 , with mount carmel health system to begin construction of a new inpatient rehabilitation hospital in westerville , ohio . construction of the 60-bed joint venture hospital is expected to be completed by the first quarter of 2017 ; formed a joint venture , in june 2015 , with st. john health system to own and operate a 40-bed inpatient rehabilitation hospital in broken arrow , oklahoma . in the first quarter of 2016 , the joint venture plans to begin construction of the new 40-bed , free-standing hospital , with construction expected to be completed in the first quarter of 2017 ; entered into an agreement , in june 2015 , with chi st. vincent hot springs , a catholic health initiatives ' hospital , to jointly build , own , and operate a 40-bed inpatient rehabilitation hospital in hot springs , arkansas . initially , the joint venture will own and operate the 20-bed inpatient rehabilitation unit currently located on the campus of chi st. vincent hot springs . the joint venture 's operation of this unit began in february 2016 , and the unit was expanded to 27 beds . story_separator_special_tag additionally , the joint venture began construction of the new hospital in the fourth quarter of 2015 , with construction expected to be completed in the third quarter of 2016 ; entered into an agreement , in november 2015 , with st. joseph health system , a catholic health initiatives ' hospital , to jointly own and operate a 49-bed inpatient rehabilitation hospital in bryan , texas . the joint venture 's operation of this hospital is expected to begin in the second half of 2016 once the required state regulatory approvals are obtained ; began accepting patients at our newly built , 40-bed inpatient rehabilitation hospital in franklin , tennessee in december 2015 ; and continued development of the following de novo hospitals : location # of beds actual / expected construction start date expected operational date modesto , california 50 q1 2015 q2 2016 murrieta , california * 50 q2 2017 q4 2018 * in august 2014 , we acquired land and began the design and permitting process to build an inpatient rehabilitation hospital . we also continued our growth efforts in our home health and hospice segment . in november 2015 , encompass completed its previously announced acquisition of the home health agency operations of caresouth health system , inc. ( “ caresouth ” ) for a cash purchase price of approximately $ 170 million . caresouth operated a portfolio of 44 home health locations and 3 hospice locations in 7 states ( 35 of these locations are in con states ) and generated revenues of approximately $ 104 million in 2014. in addition , two of these home health locations operate as joint ventures which we account for using the equity method of accounting . we funded the cash purchase price in the acquisition with our term loan facility capacity and cash on hand . 41 the caresouth acquisition enables healthsouth to leverage the operating platform of encompass across home health locations in the new markets of alabama , georgia , north carolina , south carolina , and tennessee . caresouth also improves encompass ' market share position in the key states of florida and virginia . upon completion of this transaction , encompass became the fourth largest home health provider in virginia and the eighth largest home health provider in florida . these new home health locations overlap ( within a 30-mile radius ) with 14 of healthsouth 's existing inpatient rehabilitation hospitals . the addition of these assets allow healthsouth to better serve the post-acute needs of patients in those markets by offering both facility-based and home-based post-acute services . post the reliant and caresouth acquisitions , we have encompass home health locations in 71 of healthsouth 's 121 irf markets , or 59 % overlap . in addition to completing the caresouth acquisition , in 2015 , we opened four home health locations and two hospice locations and acquired ten home health locations and two hospice locations . the acquired locations included : integrity home health care , inc. - two locations in the las vegas , nevada area ( march 2015 ) ; harvey home health services , inc. - one location in houston , texas ( april 2015 ) ; heritage home health , llc - one location in texarkana , arkansas ( may 2015 ) ; cardinal hill - one location in lexington , kentucky ( may 2015 ) ; alliance home health - two locations in the fayetteville , arkansas area ( june 2015 ) ; southern utah home health , inc. - two home health locations and two hospice locations in southern utah ( july 2015 ) ; and orthopedic rehab specialist , llc - one location in ocala , florida ( july 2015 ) . to support our growth efforts , we took the following steps to increase the capacity and flexibility of our balance sheet . in january 2015 , we issued an additional $ 400 million of our 5.75 % senior notes due 2024 at a price of 102 % of the principal amount and used $ 250 million of the net proceeds to repay borrowings under our term loan facilities , with the remaining net proceeds used to repay borrowings under our revolving credit facility . in march 2015 , we issued $ 300 million of 5.125 % senior notes due 2023 at a price of 100 % of the principal amount and , in april 2015 , used the net proceeds from the issuance along with cash on hand to redeem all the outstanding principal of our 8.125 % senior notes due 2020. in june 2015 , we amended our credit agreement to ( 1 ) provide that the leverage ratio financial covenant be calculated on a pro forma basis to include the effects of investments , acquisitions , mergers , and other operational changes and ( 2 ) increase the amount of specifically permitted capital lease obligations from $ 200 million to $ 350 million . in july 2015 , we amended our credit agreement to ( 1 ) add $ 500 million of new term loan facilities to our existing $ 600 million revolving credit facility and $ 195 million of outstanding term loans , ( 2 ) change the maximum leverage ratio in the financial covenants applicable for the period july 2015 through june 2017 from 4.25x to 4.50x and to 4.25x from then until maturity , and ( 3 ) extend the maturity date for all borrowings to july 2020. under the terms of the amendment , our issuance of additional senior notes in august 2015 and september 2015 , as discussed below , reduced our availability under the new term loan facilities to $ 250 million . in august 2015 , we issued an additional $ 350 million of our 5.75 % senior notes due 2024 at a price of 100.50 % of the principal amount and used the net proceeds from the issuance to reduce borrowings under our revolving credit facility and , in october 2015 , to fund a portion of the reliant acquisition .
| ” this metric is determined by dividing the number of full-time equivalents , including an estimate of full-time equivalents from the utilization of contract labor , by the number of occupied beds during each period . the number of occupied beds is determined by multiplying the number of licensed beds by our occupancy percentage . net operating revenues net patient revenue from our hospitals was 12.1 % higher for 2015 compared to 2014. this increase included a 10.9 % increase in patient discharges and a 1.1 % increase in net patient revenue per discharge . discharge growth included a 3.2 % increase in same-store discharges . discharge growth from new stores resulted from three de novo hospitals that opened in the 58 fourth quarter of 2014 ( altamonte springs , florida ; newnan , georgia ; and middletown , delaware ) and one de novo hospital that opened in december 2015 ( franklin , tennessee ) , our acquisitions of reliant ( october 2015 ) , quillen rehabilitation hospital ( “ quillen ” ) in johnson city , tennessee ( november 2014 ) and cardinal hill in lexington , kentucky ( may 2015 ) , and our joint venture with memorial health in savannah , georgia ( april 2015 ) . while we experienced pricing growth from medicare and managed care payors , the pricing adjustments were negatively impacted by proportionally higher discharge growth in medicaid and managed care payors where our reimbursement is lower . in addition , our net patient revenue per discharge was negatively impacted in 2015 by approximately $ 5 million for updated ssi ratios published by cms for fiscal year 2013. see note 2 , business combinations , to the accompanying consolidated financial statements of this report for information regarding reliant , cardinal hill , quillen , fairlawn , and our joint venture with memorial health . adjusted ebitda the increase in adjusted ebitda in 2015 compared to 2014 primarily resulted from revenue growth from both same stores and new stores , as discussed above . adjusted ebitda in 2015 was also impacted by ( 1 ) an increase in salaries and benefits as a percent of revenue due to increases in group medical costs ,
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due to our limited historical experience with longer-term consumer loans , our prior model relied on extrapolations from the historical performance of shorter-term consumer loans to predict the timing of future net cash flows on longer-term consumer loans . we now have additional historical experience on these longer-term loans which we used to refine our estimate . the revision to our net cash flow timing forecast does not impact the amount of undiscounted net cash flows we expect to receive . as a result , the dollar amount of future net portfolio revenue ( finance charges less provision for credit losses ) is not impacted by the revision . however , the revision does impact the period in which those net revenues will be recorded as a portion of the impact of the revised timing estimate was recorded as a current period expense and a portion was recorded as a yield adjustment . for the fourth quarter of 2017 , the revision increased provision for credit losses by $ 41.6 million , reduced finance charge revenue by $ 7.3 million and reduced net income by $ 30.8 million . the revision reduced the yield on our loan portfolio by 90 basis points , which will impact the timing of revenue recognition in future periods . during the fourth quarter of 2016 , we enhanced our methodology for forecasting the amount and timing of future collections on consumer loans through the utilization of more recent data and new forecast variables . implementation of the enhanced forecasting methodology as of october 31 , 2016 did not have a material impact on provision for credit losses or net income ; however , it did reduce forecasted net cash flows by $ 1.8 million , all of which related to dealer loans . the implementation also decreased the forecasted collection rates for consumer loans assigned in 2015 and 2016 and increased the forecasted collection rates for consumer loans assigned in 2011 through 2013. the following table presents information on the average consumer loan assignment for each of the last ten years : replace_table_token_11_th ( 1 ) represents the repayments that we were contractually owed on consumer loans at the time of assignment , which include both principal and interest . ( 2 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program . payments of dealer holdback and accelerated dealer holdback are not included . forecasting collection rates accurately at loan inception is difficult . with this in mind , we establish advance rates that are intended to allow us to achieve acceptable levels of profitability , even if collection rates are less than we initially forecast . 25 the following table presents forecasted consumer loan collection rates , advance rates , the spread ( the forecasted collection rate less the advance rate ) , and the percentage of the forecasted collections that had been realized as of december 31 , 2017 . all amounts , unless otherwise noted , are presented as a percentage of the initial balance of the consumer loan ( principal + interest ) . the table includes both dealer loans and purchased loans . replace_table_token_12_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program as a percentage of the initial balance of the consumer loans . payments of dealer holdback and accelerated dealer holdback are not included . ( 2 ) presented as a percentage of total forecasted collections . the risk of a material change in our forecasted collection rate declines as the consumer loans age . for 2013 and prior consumer loan assignments , the risk of a material forecast variance is modest , as we have currently realized in excess of 90 % of the expected collections . conversely , the forecasted collection rates for more recent consumer loan assignments are less certain as a significant portion of our forecast has not been realized . the spread between the forecasted collection rate and the advance rate has ranged from 21.0 % to 35.6 % over the last 10 years . the spread was at the high end of this range in 2009 and 2010 , when the competitive environment was unusually favorable , and much lower during other years ( 2014 through 2017 ) when competition was more intense . the decline in the advance rate from 2016 to 2017 reflects the lower initial forecast on consumer loan assignments received in 2017 , partially offset by an increase in purchased loans as a percentage of total unit volume . the increase in the spread from 2016 to 2017 was the result of the performance of 2017 consumer loans , which has materially exceeded our initial estimates , partially offset by a change in the mix of consumer loan assignments received during 2017 , including an increase in purchased loans as a percentage of total unit volume . 26 the following table compares our forecast of consumer loan collection rates as of december 31 , 2017 with the forecasts at the time of assignment , for dealer loans and purchased loans separately . replace_table_token_13_th ( 1 ) the forecasted collection rates presented for dealer loans and purchased loans reflect the consumer loan classification at the time of assignment . under our portfolio program , certain events may result in dealers forfeiting their rights to dealer holdback . we transfer the dealer 's consumer loans from the dealer loan portfolio to the purchased loan portfolio in the period this forfeiture occurs . during 2017 , we changed the presentation of current forecasted collection rates for each consumer loan assignment year to exclude the impact of transfers . prior to 2017 , the presentation of current forecasted collection rates for each consumer loan assignment year reflected the current consumer loan classification . story_separator_special_tag the following table presents forecasted consumer loan collection rates , advance rates , and the spread ( the forecasted collection rate less the advance rate ) as of december 31 , 2017 for dealer loans and purchased loans separately . all amounts are presented as a percentage of the initial balance of the consumer loan ( principal + interest ) . replace_table_token_14_th ( 1 ) the forecasted collection rates and advance rates presented for dealer loans and purchased loans reflect the consumer loan classification at the time of assignment . under our portfolio program , certain events may result in dealers forfeiting their rights to dealer holdback . we transfer the dealer 's consumer loans from the dealer loan portfolio to the purchased loan portfolio in the period this forfeiture occurs . during 2017 , we changed the presentation of forecasted collection rates and advance rates for each consumer loan assignment year to exclude the impact of transfers . prior to 2017 , the presentation of forecasted collection rates and advance rates for each consumer loan assignment year reflected the current consumer loan classification . ( 2 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program as a percentage of the initial balance of the consumer loans . payments of dealer holdback and accelerated dealer holdback are not included . during the fourth quarter of 2017 , we transferred $ 89.0 million of dealer loans along with the related allowance for credit losses balance of $ 31.8 million to purchased loans . under our portfolio program , certain events may result in dealers forfeiting their rights to dealer holdback . substantially all of these transfers relate to dealers where events had occurred in prior periods that met our criteria for forfeiture . however , while we intended to exercise our rights to dealer holdback in the period the forfeiture event occurred , we did not exercise our rights for these dealers until the fourth quarter of 2017 . 27 although the advance rate on purchased loans is higher as compared to the advance rate on dealer loans , purchased loans do not require us to pay dealer holdback . the spread on dealer loans increased from 21.8 % in 2016 to 22.9 % in 2017 as a result of the performance of 2017 consumer loans in our dealer loan portfolio , which has exceeded our initial estimates , while those assigned to us in 2016 have declined from our initial estimates , partially offset by a change in the mix of consumer loan assignments . the spread on purchased loans increased from 18.9 % in 2016 to 21.3 % in 2017 as a result of the performance of 2017 consumer loans in our purchased loan portfolio , which exceeded our initial estimates by a greater margin than those assigned to us in 2016 , partially offset by a change in the mix of consumer loan assignments . access to capital our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to : ( 1 ) maintain consistent financial performance ; ( 2 ) maintain modest financial leverage ; and ( 3 ) maintain multiple funding sources . our funded debt to equity ratio was 2.0 to 1 as of december 31 , 2017 . we currently utilize the following primary forms of debt financing : ( 1 ) a revolving secured line of credit ; ( 2 ) warehouse facilities ; ( 3 ) term abs financings ; and ( 4 ) senior notes . consumer loan volume the following table summarizes changes in consumer loan assignment volume in each of the last three years as compared to the same period in the previous year : replace_table_token_15_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program . payments of dealer holdback and accelerated dealer holdback are not included . consumer loan assignment volumes depend on a number of factors including ( 1 ) the overall demand for our financing programs , ( 2 ) the amount of capital available to fund new loans , and ( 3 ) our assessment of the volume that our infrastructure can support . our pricing strategy is intended to maximize the amount of economic profit we generate , within the confines of capital and infrastructure constraints . unit volume declined 0.7 % while dollar volume grew 9.0 % during 2017 as the number of active dealers grew 9.6 % while average volume per active dealer declined 9.6 % . dollar volume grew while unit volume declined during 2017 due to an increase in the average advance paid per unit . this increase was the result of an increase in the average size of the consumer loans assigned primarily due to increases in the average initial loan term and average vehicle selling price and an increase in purchased loans as a percentage of total unit volume , partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned . unit and dollar volumes grew 10.9 % and 21.6 % , respectively , during 2016 as the number of active dealers grew 16.2 % while average volume per active dealer declined 4.6 % . dollar volume grew faster than unit volume during 2016 due to an increase in the average advance paid per unit . this increase was the result of an increase in the average size of the consumer loans assigned primarily due to an increase in the average initial loan term and an increase in purchased loans as a percentage of total unit volume , partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned .
| the increase of $ 29.9 million , or 13.3 % , was primarily due to the following : an increase in salaries and wages expense of $ 13.6 million , or 10.8 % , comprised of the following : an increase of $ 7.9 million in stock-based compensation expense primarily due to 2017 stock awards . a decrease of $ 4.8 million in cash-based incentive compensation expense primarily due to a decline in company performance measures . excluding the changes in stock-based and cash-based incentive compensation expenses , salaries and wages expense increased $ 10.5 million primarily related to an increase of $ 6.2 million for our servicing function and $ 3.9 million for our support function as a result of an increase in the number of team members . an increase in sales and marketing expense of $ 9.0 million , or 18.2 % , primarily due to an increase in the size of our sales force . an increase in general and administrative expense of $ 7.3 million , or 15.1 % , primarily as a result of an increase in legal fees . provision for credit losses . under accounting principles generally accepted in the united states of america ( “ gaap ” ) , when the present value of forecasted future cash flows declines relative to our expectations at the time of assignment , a provision for credit losses is recorded immediately as a current period expense and a corresponding allowance for credit losses is established . for purposes of calculating the required allowance , dealer loans are grouped by dealer and purchased loans are grouped by month of purchase . as a result , regardless of the overall performance of the portfolio of consumer loans , a provision can be required if any individual loan pool performs worse than expected . conversely , a previously recorded provision can be reversed if any previously impaired individual loan pool experiences an improvement in performance . during the year ended december 31 , 2017 , overall consumer loan performance was generally consistent with our expectations at the start of the year . however , the performance of
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critical accounting policies and estimates our consolidated financial statements are prepared based on the application of certain accounting policies , the most significant of which are described in note 1 to our consolidated financial statements for the year ended december 31 , 2016 , which are contained elsewhere in this report . certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may materially and adversely affect our reported results and financial position for the current period or future periods . the use of estimates , assumptions , and judgments are necessary when financial assets and liabilities are required to be recorded at , or adjusted to reflect , fair value . assets carried at fair value inherently result in more financial statement volatility . fair values and information used to record valuation adjustments for certain assets and liabilities are either based on quoted market prices or are provided by other independent third-party sources , when available . when such information is not available , management estimates valuation adjustments based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances . management evaluates our estimates and assumptions on an ongoing basis . changes in underlying factors , assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations . we have identified the following accounting policies and estimates that , due to the difficult , subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of our financial statements to those judgments and assumptions , are critical to an understanding of our financial condition and results of operations . we believe that the judgments , estimates and assumptions used in the preparation of our financial statements are reasonable and appropriate . allowance for loan and lease losses we record estimated probable inherent credit losses in the loan portfolio as an allowance for loan and lease losses . the methodologies and assumptions for determining the adequacy of the overall allowance for loan and lease losses involve significant judgments to be made by management . some of the more critical judgments supporting our allowance for loan and lease losses include judgments about the credit-worthiness of borrowers , estimated value of underlying collateral , assumptions about cash flow , determination of loss factors for estimating credit losses , and the impact of current events , conditions , and other factors impacting the level of inherent losses . under different conditions or using different assumptions , the actual or estimated credit losses ultimately realized by us may be different from our estimates . in determining the allowance , we estimate losses on individual impaired loans and on groups of loans that are not impaired , where the probable loss can be identified and reasonably estimated . on a quarterly basis , we assess the risk inherent in our loan portfolio based on qualitative and quantitative trends in the portfolio , including the internal risk classification of loans , historical loss rates , changes in the nature and volume of the loan portfolio , industry or borrower concentrations , delinquency trends , detailed reviews of significant loans with identified weaknesses , and the impacts of local , regional , and national economic factors on the quality of the loan portfolio . based on this analysis , we may record a provision for loan and lease losses in order to maintain the allowance at appropriate levels . for a more complete discussion of the methodology employed to calculate the allowance for loan and lease losses , see note 1 to our consolidated financial statements for the year ended december 31 , 2016 , which are included elsewhere in this report . investment securities impairment we assess on a quarterly basis whether there have been any events or economic circumstances to indicate that a security with respect to which there is an unrealized loss is impaired on an other-than-temporary basis . in any instance , 39 we would consider many factors , including the severity and duration of the impairment , our intent and ability to hold the security for a period of time sufficient for a recovery in value , recent events specific to the issuer or indus try , and , for debt securities , external credit ratings and recent downgrades . securities with respect to which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value . income taxes deferred income tax assets and liabilities are computed using the asset and liability method , which recognizes a liability or asset representing the tax effects , based on current tax law , of future deductible or taxable amounts attributable to events recognized in the financial statements . a valuation allowance may be established to the extent necessary to reduce the deferred tax asset to a level at which it is “ more likely than not ” that the tax asset or benefit will be realized . realization of tax benefits depends on having sufficient taxable income , available tax loss carrybacks or credits , the reversal of taxable temporary differences and or tax planning strategies within the reversal period , and that current tax law allows for the realization of recorded tax benefits . 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 . 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 loans are considered impaired , and the expected cash flows in excess of the amount paid are recorded as interest income over the remaining life of the loan . story_separator_special_tag the excess of the loan 's contractual principal and interest over expected cash flows is not recorded . we must estimate expected cash flows at each reporting date . subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses . subsequent increases in cash flows result in a reversal of the provision for loan and lease losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on interest income . purchased loans without evidence of credit deterioration are recorded at their initial fair value and adjusted as necessary for subsequent advances , pay downs , amortization or accretion of any premium or discount on purchase , charge-offs and additional provisions that may be required . story_separator_special_tag normal ; '' > similarly , loan commitment fees fluctuate based on customer activity . the 36.1 % increase in loan commitment fees in 2016 compared to 2015 is primarily due to a 30.5 % increase in outstanding commitments from december 31 , 2015 to december 31 , 2016. outstanding loan commitments increased 11.4 % from december 31 , 2014 to december 31 , 2015 ; however , loan commitment fees decreased 12.6 % primarily due to a shift in focus within our healthcare line of business from transaction-based activity to relationship generating activities . mortgage banking income consists of mortgage fee income from the origination and sale of mortgage loans . these mortgage fees are for loans originated in our markets that are subsequently sold to third-party investors . all of these loan sales transfer servicing rights to the buyer . mortgage origination fees will fluctuate from quarter to quarter as the rate environment changes . mortgage banking income increased 23.7 % in 2016 compared to 2015 and 46.6 % in 2015 compared to 2014 due to the continued benefit from purchase activity related to low mortgage rates and a vibrant residential real estate market in the nashville msa . noninterest expense our total noninterest expense increase reflects expenses that we have incurred as a result of recent growth and expected future growth . the following table presents the primary components of noninterest expense for the periods indicated ( dollars in thousands ) . replace_table_token_8_th the largest increase between periods within noninterest expense was related to employee costs as salaries and employee benefits increased due to our expanded presence in the nashville msa . at december 31 , 2016 , the number of our full-time equivalent employees had increased to 170 as compared to 162 and 157 at december 31 , 2015 and 2014 , respectively . data processing and software expense remained relatively flat in 2016 compared to 2015. at the end of 2014 , we renegotiated our core processing contract which was the primary driver of the $ 249,000 or 9.7 % decrease in expense for 2015 compared to 2014. equipment expense increased $ 145,000 , or 9.1 % , in 2016 compared to 2015 and $ 339,000 , or 26.9 % , in 2015 compared to 2014. the increases in each period are primarily due to outsourcing our information technology services at the end of 2014. we believe that outsourcing will allow us to better manage the costs and risks associated with information technology . regulatory fees increased $ 176,000 , or 19.2 % , in 2016 compared to 2015 primarily as a result of increasing fdic insurance expense . the fdic modified the way insurance assessments are calculated and this change took place in the third quarter of 2016 , increasing our expense compared to prior periods . increases in other noninterest expense of $ 548,000 , or 14.2 % , in 2016 compared to 2015 and $ 408,000 , or 11.8 % , in 2015 compared to 2014 was primarily the result of increasing contingent consideration expenses associated with our mortgage line of business . as mortgage origination volumes increase above our original estimates the resulting increase in contingent consideration is recorded in other noninterest expense . our efficiency ratio ( ratio of noninterest expense to the sum of net interest income and noninterest income ) was 66.9 % , 71.0 % and 71.7 % for 2016 , 2015 and 2014 , respectively . the efficiency ratio measures the amount of expense that is incurred to generate a dollar of revenue . the efficiency ratio for each year was positively impacted by 44 growth in our net interest income and noninterest income that outpaced our increases in expenses . for 2016 , our revenue base ( net interest income plus noninterest income ) grew at rate of approximately two times our noninterest expense . income taxes we recorded income tax expense of $ 4.5 million , $ 3.5 million and $ 2.4 million in 2016 , 2015 and 2014 , respectively . our effective income tax rate for 2016 , 2015 and 2014 was 33.1 % , 31.5 % and 32.6 % , respectively . our effective tax rate differs from the statutory tax rate by our investments in municipal securities , company-owned life insurance , state tax credits and net of the effect of certain non-deductible expenses . the increase in effective tax rate in 2016 from 2015 , and the decrease in 2015 from 2014 , is primarily the result of our utilization of one-time tax credits in 2015. financial condition total assets increased $ 126.9 million , or 10.5 % , from december 31 , 2015 to december 31 , 2016. loans and leases grew from $ 808.4 million at december 31 , 2015 to $ 935.3 million at december 31 , 2016 , a 15.7 % increase . all of this growth has been organic . total liabilities increased $ 96.3 million , or 8.8 % from december 31 , 2015 to december 31 , 2016. deposits increased from $ 1.038 billion at december 31 , 2015 to $ 1.129 billion at december 31 , 2016 , an 8.8 % increase , due primarily to growth in our correspondent banking deposits .
| ( 2 ) balances for investment securities exempt from federal income tax are not calculated on a tax equivalent basis . 41 ( 3 ) net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities . ( 4 ) net interest margin is net interest income divided by total interest-earning assets . the following table reflects , for the periods indicated , the changes in our net interest income due to changes in the volume of interest-earning assets and interest-bearing liabilities and the associated rates paid or earned on these assets and liabilities ( in thousands ) . replace_table_token_6_th our net interest income increased $ 3.7 million , or 10.6 % , from 2015 to 2016 , and $ 2.4 million , or 7.3 % , from 2014 to 2015 , primarily due to increasing loan growth , partially offset by the negative effects of declining loan yields and increasing deposit costs . our net interest margin was 3.17 % , 3.19 % and 3.20 % for 2016 , 2015 and 2014 , respectively . the decrease in net interest margin for each year is primarily due to declining loan yields . average loan yields have declined from 4.74 % in 2014 to 4.33 % in 2016 primarily due to lower rates on new loan production as compared to the average rate on the current loan portfolio , driven by continued competitive pricing pressures associated with securing the business of credit-worthy borrowers in the nashville msa . average loans for 2016 increased 19.4 % compared to 2015 , and increased 9.1 % from 2014 to 2015 , as a result of adding new bankers in the nashville msa and continued focus on attracting new clients . we funded this growth in loans through an increase in our funding sources of 10.5 % from 2015 to 2016 and shifting approximately 13.8 % of our investment securities to higher yielding loans . funding sources increased 7.1 % from 2014 to 2015. the primarily driver of our increased funding sources was growth in our average deposits of
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this compensation was paid on the same basis as the director chose from the options described above : chairman/lead director $ 25,000 audit committee $ 20,000 compensation committee $ 15,000 nominating and corporate governance committee $ 10,000 science and technology committee $ 24,000 newly appointed directors received an initial grant of options to purchase 50,000 shares of the company 's common stock , vesting monthly over four years . 46 effective june 23 , 2017 , the compensation plan for non-employee directors was as follows : director fees are paid in cash , restricted shares of the company 's common stock or a combination thereof , at the option of the director . option 1 : annual cash compensation of $ 40,000 , paid quarterly , option 2 : annual cash compensation of $ 13,333 , paid quarterly and $ 26,667 converted into common stock using the vwap of the stock for the last five days of the trading month ending each quarter ; or option 3 : no annual cash compensation but $ 40,000 converted into common stock using the vwap of the stock for the last five days of the trading month ending each quarter and paid quarterly . this option carries a 15 % premium , as there is no cash outlay to the company . the calculation would be $ 40,000 x 1.15 = $ 46,000/vwap . story_separator_special_tag the following discussion and analysis of our financial condition and results of our operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this form 10-k. our actual results could differ materially from those contained in forward-looking statements due to a number of factors . see “ forward-looking statements ” in this form 10-k. general overview we provide fully integrated , temperature controlled logistics solutions to the life sciences industry through a seamless combination of proprietary packaging , information technology , and specialized cold-chain logistics knowhow . our solutions integrate “ chain-of-condition , ” “ chain-of-custody ” , and chain of compliance tm information into a single data stream . our competencies and capabilities are used to develop solutions that are customized to our client 's requirements . we provide comprehensive and reliable technology-centric alternatives to traditional cold chain distribution/logistics solutions . our services are utilized for temperature controlled shipping and storage in the life sciences industry ; e.g. , personalized medicine , cell therapies , stem cells , cell lines , vaccines , diagnostic materials , semen , eggs , embryos , cord blood , bio-pharmaceuticals , infectious substances , and other commodities that require continuous exposure to certain ranges of precision controlled temperatures . as part of our services , our technologies provide the ability for us , or our client , to monitor location and other specified critical variables for each shipment in real time , which is recorded and archived for each shipment for scientific , quality assurance and regulatory purposes . this information enables an audit trail that can verify the ‘ in shipment ' condition of the life sciences commodity , material , product or therapy being shipped . included in our tailored solutions , cryoport 's technology is designed to support clinical trials , biologics license applications ( bla ) , investigational new drug applications and new drug application ( nda ) with the united states food and drug administration ( fda ) as well as commercial distribution . see the “ business ” section in part i , item 1 of this form 10-k for additional information . segment reporting operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance . the chief operating decision maker is our chief executive officer . in consideration of the financial accounting standards board 's ( “ fasb ” ) accounting standards codification ( “ asc ” ) 280 , segment reporting , we are not organized around specific products and services , geographic regions , or regulatory environments . accordingly , we currently operate in one reportable segment . story_separator_special_tag commodities through innovative and technology-based solutions . we supplement our internal engineering and development resources with subject matter experts and consultants . warrant inducement and repricing expense . warrant inducement and repricing expense increased $ 899,400 for the year ended december 31 , 2018 which was due to the repricing of certain warrants for the tender offer that was completed in february 2018. interest expense . interest expense increased $ 53,600 for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 due to the interest on the convertible note recorded in december 2018. interest expense for the year ended december 31 , 2017 included amortization of the debt discount on the related-party notes of $ 6,100 and the stated interest expense of $ 9,600. other income , net . the other income , net for the year ended december 31 , 2018 is primarily due to interest income on our cash and cash equivalents and short-term investments . results of operations for year ended december 31 , 2017 compared to the year ended december 31 , 2016 the following table summarizes certain information derived from our consolidated statements of operations : replace_table_token_5_th total revenues replace_table_token_6_th 33 revenues . we generated revenues from customers in all of our target life sciences markets , such as biopharma , animal health and reproductive medicine . story_separator_special_tag revenues increased $ 4.3 million or 55.7 % to $ 12.0 million for the year ended december 31 , 2017 , as compared to $ 7.7 million for the year ended december 31 , 2016. this increase was primarily driven by the continuing increase in the number of biopharmaceutical customers utilizing our services and frequency of shipments compared to the prior year . biopharmaceutical revenue increased $ 3.8 million or 71.9 % , to $ 9.1 million for the year ended december 31 , 2017 , as compared to $ 5.3 million for the same period in 2016. during the year ended december 31 , 2017 , we added approximately 83 new biopharmaceutical clients and , as of december 31 , 2017 , supported 237 clinical trials ( 214 in the americas and 23 in emea ) , of which 33 trials were in phase iii ( 26 in the americas and 7 in emea ) . this increased activity in the clinical trial space is expected to drive future revenue growth as these clinical trials advance and resulting therapies are commercialized . revenues in the reproductive medicine market increased by 11.4 % for the year ended december 31 , 2017 , as compared to the same period in 2016. this increase is driven by our activities in the u.s. market , with a 43.8 % increase in revenues in the u.s. through continued success of our targeted marketing campaigns , which was partially offset by a 32.5 % decrease in revenues in the international markets as a result of regulatory uncertainties . our revenues from animal health increased 34.3 % for the year ended december 31 , 2017 , as compared to the same period in 2016 , primarily driven by the international relocation of cell banks for a new client . gross margin and cost of revenues . gross margin for the year ended december 31 , 2017 was 49.9 % of revenues , as compared to 40.4 % of revenues for the same period in 2016. the increase in gross margin by almost ten percentage points was primarily due to the increased business volume and pricing adjustments combined with a reduction in freight as a percentage of revenues and a decrease of fixed manufacturing costs . our cost of revenues are primarily comprised of freight charges , payroll and related expenses related to our operations center in california , third-party charges for our european and asian staging centers in holland and singapore , depreciation expenses of our cryoport express ® shippers and supplies and consumables used for our solutions . cost of revenues increased $ 1.4 million , or 30.8 % , to $ 6.0 million for the year ended december 31 , 2017 , as compared to the same period in 2016. the increase in cost of revenues was primarily due to freight charges from the increased volume of shipments . general and administrative expenses . general and administrative expenses increased $ 971,600 for the year ended december 31 , 2017 or 15.1 % as compared to the same period in 2016. this increase is primarily due to an increase in public company related expenses in the amount of $ 429,600 , salaries and associated employee costs of $ 367,900 , stock-based compensation expense of $ 284,700 including legal fees , legal settlements of $ 162,700 , insurance premiums of $ 102,800 , implementation costs for a new erp system of $ 89,000 , patent and trademark legal fees of $ 74,400 , travel and lodging expenses of $ 36,800 and bank charges and fees of $ 19,400. these increases were partially offset by decreases in depreciation and amortization of $ 202,400 , allocated facility expenses of $ 172,900 , the 2016 disposal of components used to manufacture our shippers in the amount of $ 121,700 due to our decision to co-develop and outsource the manufacturing of our shippers that was not incurred in 2017 , a decrease of $ 33,500 for estimated bad debt , and a decrease in moving expenses incurred in 2016 of $ 10,000. sales and marketing expenses . sales and marketing expenses increased $ 412,200 or 8.6 % for the year ended december 31 , 2017 as compared to the same period in 2016. this increase is primarily due to salaries and associated employee costs of $ 522,600 , stock-based compensation expense of $ 95,700 , facility expenses of $ 73,900 , travel and lodging expense of $ 62,700 , implementation costs for a new erp system of $ 57,800 and marketing trade shows of $ 18,200. this increase was partially offset by a reduction in outsourced marketing consulting of $ 448,900 as a result of bringing this function in-house . engineering and development expenses . engineering and development expenses increased $ 607,600 or 101.6 % for the year ended december 31 , 2017 , as compared to the same period in 2016. the increase is primarily due to $ 303,700 in wages and associated employee costs to add a software development product manager , senior engineer and chief technology officer , $ 210,900 in testing expenses , facility expenses of $ 133,900 and an increase in stock-based compensation of $ 79,000. these increases were partially offset by a reduction of $ 148,100 in web portal expenses . we continually strive to improve and expand the features of our cryoport express ® solutions . our developments are directed towards facilitating the safe , reliable and efficient shipment of life science commodities through innovative and technology-based solutions .
| revenue for the commercial car-t therapies launched by novartis and kite in late 2017 were $ 2.1 million for the year ended december 31 , 2018. revenues in the reproductive medicine market increased by 27.3 % for the year ended december 31 , 2018 , as compared to 2017. this increase was driven by a 32.3 % increase in revenues in the u.s. market through continued success of our cryostork ® services offering and a 12.8 % increase in revenues in the international markets , which was primarily a result of growth during the third quarter of 2018. our revenues from animal health decreased 14.0 % for the year ended december 31 , 2018 , as compared to 2017. revenues from our largest animal health client , zoetis , increased by 9.4 % , however this increase was more than offset by the effect of a larger one-time laboratory move that was carried out during the second and third quarter of 2017 , as well as one of our clients discontinuing a trial towards the end of 2017. gross margin and cost of revenues . gross margin for the year ended december 31 , 2018 was 52.2 % of revenues , as compared to 49.9 % of revenues for the year ended december 31 , 2017. the increase in gross margin by approximately two percentage points is primarily due to economies of scale resulting from the increased business volume and pricing adjustments , which was partially offset by the running costs of our new global logistics centers in livingston , new jersey and hoofddorp , the netherlands that commenced operations during the third quarter of 2018. our cost of revenues are primarily comprised of freight charges , payroll and associated expenses related to our global logistics centers , third-party charges for our european and asian staging centers in the netherlands and singapore , depreciation expenses of our cryoport express ® shippers and supplies and consumables used for our solutions . cost of revenues
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our reserves include an additional component for potential future increases in the cost to finally resolve open injury claims and claims incurred in prior periods but not reported ( together , `` ibnr '' ) based on actuarial estimates provided by the company 's independent actuary . ibnr reserves , unlike specific case reserves , do not apply to a specific claim but rather apply to the entire population of claims arising from a specific time period . ibnr primarily covers costs relating to : future claim payments in excess of case reserves on recorded open claims ; additional claim payments on closed claims ; and claims that have occurred but have not yet been reported to us . the process of estimating unpaid claims and claims adjustment expense involves a high degree of judgment and is affected by both internal and external events , including changes in claims handling practices , modifications in reserve estimation procedures , changes in individuals involved in the reserve estimation process , inflation , trends in the litigation and settlement of pending claims , and legislative changes . our estimates are based on informed judgment , derived from individual experiences and expertise applied to multiple sets of data and analyses . we consider significant facts and circumstances known both at the time that loss reserves are initially established and as new facts and circumstances become known . due to the inherent uncertainty underlying loss reserve estimates , the expenses incurred through final resolution of our liability for our workers ' compensation claims will likely vary from the related loss reserves at the reporting date . therefore , as specific claims are paid out in the future , actual paid losses may be materially different from our current loss reserves . 23 a basic premise in most actuarial a nalyses is that historical data and past patterns demonstrated in the incurred and paid historical data form a reasonable basis upon which to project future outcomes , absent a material change . significant structural changes to the available data can materi ally impact the reserve estimation process . to the extent a material change affecting the ultimate claim liability becomes known , such change is quantified to the extent possible through an analysis of internal company data and , if available and when appro priate , external data . actuaries exercise a considerable degree of judgment in the evaluation of these factors and the need for such actuarial judgment is more pronounced when faced with material uncertainties . we believe that the amounts recorded for our estimated liabilities for workers ' compensation claims , which are based on informed judgment , analysis of data , actuarial estimates , and analysis of other trends associated with the company 's historical universe of claims data , are reasonable . nevertheless , adjustments to such estimates will be required in future periods if the development of claim costs varies materially from our estimates and such future adjustments may be material to our results of operations . recent accounting pronouncements for a discussion of recent accounting pronouncements and their potential effect on the company 's results of operations and financial condition , see “ note 1 - summary of operations and significant accounting policies ” to the consolidated financial statements in item 8 of part ii of this report . forward-looking information statements in this item or in items 1 , 1a , 3 and 9a of this report include forward-looking statements which are not historical in nature and are forward-looking statements within the meaning of the private securities litigation reform act of 1995. these forward-looking statements include , among others , discussion of economic conditions in our market areas and their effect on revenue levels , the competitiveness of our service offerings , our ability to attract and retain clients and to achieve revenue growth , the effect of changes in our mix of services on gross margin , the effect of tight labor market conditions , the adequacy of our workers ' compensation reserves , the effect of changes in estimates of our future claims liabilities on our workers ' compensation reserves , including the effect of changes in our reserving practices and claims management process on our actuarial estimates , expected levels of required surety deposits and letters of credit , the effects of recent federal tax legislation , our ability to generate sufficient taxable income in the future to utilize our deferred tax assets , the effect of our formation and operation of two wholly owned licensed insurance subsidiaries , the risks of operation and cost of our fronted insurance program with chubb , the financial viability of our excess insurance carriers , the effectiveness of our management information systems , our relationship with our primary bank lender and the availability of financing and working capital to meet our funding requirements , litigation costs , the effect of changes in the interest rate environment on the value of our investment securities and long-term debt , the adequacy of our allowance for doubtful accounts , and the potential for and effect of acquisitions . 24 all of our forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause the actual results , performance or achievements of the company or industry to be materially different f rom any future results , performance or achievements expressed or implied by such forward-looking statements . story_separator_special_tag such factors with respect to the company include our ability to retain current clients and attract new clients , difficulties associated with integr ating clients into our operations , economic trends in our service areas , the potential for material deviations from expected future workers ' compensation claims experience , the workers ' compensation regulatory environment in our primary markets , security b reaches or failures in the company 's information technology systems , collectability of accounts receivable , changes in effective payroll tax rates and federal and state income tax rates , the carrying values of deferred income tax assets and goodwill ( which may be affected by our future operating results ) , the impact of the patient protection and affordable care act , escalating medical costs , and other health care legislative initiatives on our business , the effect of conditions in the global capital markets on our investment portfolio , and the availability of capital , borrowing capacity on our revolving credit facility , or letters of credit necessary to meet state-mandated surety deposit requirements for maintaining our status as a qualified self-insured emp loyer for workers ' compensation coverage or our fronted insurance program . additional risk factors affecting our business are discussed in item 1a of part i of this report . we disclaim any obligation to publicly announce any revisions to any of the forward -looking statements contained herein to reflect future events or developments . results of operations the following table sets forth the percentages of total revenues represented by selected items in the company 's consolidated statements of operations for the years ended december 31 , 2019 , 2018 and 2017 , included in item 8 of part ii of this report . replace_table_token_4_th 25 we report peo revenues net of direct payroll costs because we are not the primary obligor for wage payments to our clients ' employees . however , management believes that gross billing amounts and wages are useful in understanding the volume of our business activity and serve as an important performance metric in managing our operations , including the preparation of internal operating forecasts and establishing executive compensation performance goals . we therefore present for purposes of analysis gross billing and wage information for the years ended december 31 , 2019 , 2018 and 2017 . replace_table_token_5_th because safety incentives represent consideration payable to peo customers , safety incentive costs are netted against peo revenue in our consolidated statements of operations . management considers safety incentives to be an integral part of our workers ' compensation program because they encourage client companies to maintain safe-work practices and minimize workplace injuries . we therefore present below for purposes of analysis non-gaap gross workers ' compensation expense , which represents workers ' compensation costs including safety incentive costs . we believe this non-gaap measure is useful in evaluating the total costs of our workers ' compensation program . replace_table_token_6_th in monitoring and evaluating the performance of our operations , management also reviews the following ratios , which represent selected amounts as a percentage of gross billings . management believes these ratios are useful in understanding the efficiency and profitability of our service offerings . replace_table_token_7_th the presentation of revenues on a net basis and the relative contributions of staffing and professional employer services revenues can create volatility in our gross margin percentage . a relative increase in professional employer services revenue will result in a higher gross margin percentage . improvement in gross margin percentage occurs because incremental client services revenue dollars are reported as revenue net of all related direct payroll and safety incentive costs . 26 yea rs ended december 31 , 2019 and 2018 net income for 2019 was $ 48.3 million compared to net income of $ 38.1 million for 2018. diluted income per share for 2019 was $ 6.27 compared to diluted income per share of $ 4.98 for 2018. revenues for 2019 totaled $ 942.3 million , an increase of $ 1.6 million or 0.2 % over 2018 , which reflects an increase in the company 's professional employer service fee revenue of $ 26.5 million or 3.3 % and a decrease in staffing services revenue of $ 24.9 million or 16.9 % . our growth in professional employer service revenues was attributable to both new and existing customers . due to continued strength in our referral channels , business from new customers during 2019 exceeded business lost from former customers . gross billings for peo services to continuing customers increased 4.4 % compared to 2018. this growth was primarily the result of increases in employee headcount and wage inflation . peo revenue is presented net of safety incentives of $ 31.7 million and $ 33.4 million in 2019 and 2018 , respectively , and a one-time customer incentive of $ 9.8 million in 2018. the decrease in staffing services revenue was due primarily to tight labor market conditions during the 2019 period . gross margin for 2019 totaled $ 208.3 million or 22.1 % of revenue compared to $ 186.7 million or 19.8 % of revenue for 2018. the increase in gross margin as a percentage of revenues is primarily due to a decrease in workers ' compensation expense as a percentage of revenues , as well as the decrease of staffing services within the mix of our customer base compared to 2018. direct payroll costs for 2019 totaled $ 92.5 million or 9.8 % of revenue compared to $ 111.4 million or 11.8 % of revenue for 2018. the decrease in direct payroll costs percentage was primarily due to the increase in professional employer services and the decrease of staffing services within the mix of our customer base compared to 2018. payroll taxes and benefits for 2019 totaled $ 429.7 million or 45.6 % of revenue compared to $ 407.0 million or 43.3 % of revenue for 2018. the increase in payroll taxes and benefits as a percentage of revenues is primarily due to the relative increase in peo services within the mix of our customer base compared to 2018.
| 28 liquidity and capita l resources the company 's cash balance of $ 273.3 million , which includes cash , cash equivalents , and restricted cash , increased $ 132.6 million for the twelve months ended december 31 , 2019 , compared to an increase of $ 20.5 million for the comparable period of 2018. the increase in cash at december 31 , 2019 as compared to december 31 , 2018 was primarily due to net income , increased accrued payroll , payroll taxes and related benefits , increased workers ' compensation claims liabilities , and proceeds from the sales and maturities of investments and restricted investments . net cash provided by operating activities in 2019 amounted to $ 77.1 million , compared to net cash provided of $ 69.8 million for the comparable period of 2018. in 2019 , cash flow from operating activities was primarily provided by net income of $ 48.3 million , increased workers ' compensation claims liabilities of $ 25.5 million , and increase in accrued payroll , payroll taxes , and related benefits of $ 17.9 million , partially offset by increased trade accounts receivable of $ 12.0 million and decreased other accrued liabilities of $ 11.7 million . net cash provided by investing activities totaled $ 66.3 million in 2019 , compared to net cash used of $ 39.3 million for the comparable period of 2018. in 2019 , cash provided by investing activities consisted primarily of proceeds from sales and maturities of investments and restricted investments of $ 141.3 million , partially offset by purchases of investments and restricted investments of $ 64.2 million and purchases of property , equipment and software of $ 10.8 million . net cash used in financing activities in 2019 was $ 10.8 million compared to net cash used of $ 9.9 million for the comparable period of 2018. in 2019 , cash was primarily used for dividend payments of $ 8.2 million and common stock repurchased on vesting of stock awards of $ 3.1 million . as part of its fronted workers ' compensation insurance program with chubb , the company makes monthly collateral payments into trust accounts ( the “ chubb trust accounts ” ) . the balance in the chubb trust accounts was $ 393.5 million and $ 451.0 million at december 31 , 2019 and december 31 , 2018 , respectively . included within the chubb trust account at december 31 , 2019 , is $ 195.4 million of restricted cash . the restricted cash accrues interest at the 3-month treasury bill yield rate plus 0.25 % . the chubb trust accounts balances
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summary of consolidated financial results gross premiums written gross premiums written were $ 696.9 million , $ 748.9 million , and $ 729.7 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . period over period changes in gross premiums earned during 2019 and 2018 were primarily related to our employers segment . see –summary of financial results by segment –employers . net premiums written net premiums written are gross premiums written less reinsurance premiums ceded . 27 net premiums earned net premiums earned are primarily a function of the amount and timing of net premiums previously written . net investment income and net realized and unrealized gains ( losses ) on investments we invest in fixed maturity securities , equity securities , other invested assets , short-term investments , and cash equivalents . net investment income includes interest and dividends earned on our invested assets and amortization of premiums and discounts on our fixed maturity securities , less bank service charges and custodial and portfolio management fees . we have established a high quality/short duration bias in our investment portfolio . net investment income was $ 88.1 million , $ 81.2 million , and $ 74.6 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . the increase in 2019 was primarily due to an increase in the allocation and yield of bank loans and other invested assets . the average pre-tax ending book yield on our invested assets was 3.3 % , 3.4 % , and 3.1 % at december 31 , 2019 , 2018 , and 2017 , respectively . the average ending tax-equivalent yield on our invested assets ( which adjusts the book yield of our investments in tax-advantaged securities to an equivalent pre-tax book yield ) was 3.5 % at each of december 31 , 2019 , 2018 , and 2017 . realized and certain unrealized gains and losses on our investments are reported separately from our net investment income . realized gains and losses on investments include the gain or loss on a security at the time of sale compared to its original or adjusted cost ( equity securities ) or amortized cost ( fixed maturity securities ) . realized losses are also recognized when securities are written down as a result of an other-than-temporary impairment . changes in fair value of equity securities ( for 2019 and 2018 ) and other invested assets are also included in net realized and unrealized gains ( losses ) on investments on our consolidated statements of comprehensive income . net realized and unrealized gains ( losses ) on investments were $ 51.1 million , $ ( 13.1 ) million , and $ 7.4 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . net realized and unrealized gains on investments in 2019 included $ 46.5 million of net realized and unrealized gains on equity securities , $ 3.9 million of net realized gains on fixed maturity securities , and $ 0.7 million of unrealized gains on other invested assets . net gains on equity securities were largely consistent with the performance of u.s. equity markets . realized gains and losses on fixed maturity securities were primarily related to sales associated with a reallocation of our investment portfolio . net realized and unrealized losses on investments in 2018 included $ 11.3 million of net realized and unrealized losses on equity securities and $ 1.8 million of net realized losses on fixed maturity securities . the net losses on equity securities for 2018 were primarily the result of volatility in equity markets . net losses on fixed maturity securities were primarily related to the sale of fixed maturity securities resulting from a rebalancing of our investment portfolio , offset by $ 3.3 million in other-than-temporary impairments of certain fixed maturity securities due to our intent to sell the securities . net gains on fixed maturity securities were primarily related to the sale of fixed maturity securities resulting from a rebalancing of our investment portfolio . net realized gains on investments in 2017 included $ 5.8 million of net realized gains on equity securities and $ 3.0 million of net realized gains on fixed maturity securities . the net gains were primarily related to sales of municipal securities , whose proceeds were reinvested in taxable fixed maturity securities , and sales of equity securities as part of a routine rebalancing of our equity portfolio . those gains were partially offset by $ 1.4 million in other-than temporary impairments of certain fixed maturity and equity securities due to our intent to sell those securities and or the severity and duration of the change in fair value of those securities . additional information regarding our investments is set forth under `` –liquidity and capital resources–investments '' and note 5 in the notes to our consolidated financial statements . gain on redemption of notes payable in may 2017 , we purchased one of epic 's outstanding notes payable in the amount of $ 12.0 million for $ 9.9 million , resulting in a $ 2.1 million gain . other income other income consists of net gains on fixed assets , non-investment interest , installment fee revenue , and other miscellaneous income . losses and lae losses and lae represents our largest expense item and includes claim payments made , amortization of the deferred gain , lpt reserve adjustments , lpt contingent commission adjustments , estimates for future claim payments and changes in those estimates for current and prior periods , and costs associated with investigating , defending , and adjusting claims . the quality of our financial reporting depends in large part on accurately predicting our losses and lae , which are inherently uncertain as they are estimates of the ultimate cost of individual claims based on actuarial estimation techniques . story_separator_special_tag our indemnity claims frequency ( the number of claims expressed as a percentage of payroll ) continued to decrease year-over-year in 2019 and 2018 ; however , medical and indemnity costs per claim increased over the same period . these trends are reflected 28 in our current accident year loss estimate . total claims costs have also been reduced by cost savings associated with increased claims settlement activity that continued through 2019. we believe our current accident year loss estimate is adequate ; however , ultimate losses will not be known with any certainty for many years . we assume that increasing medical and indemnity cost trends will continue to impact our long-term claims costs and current accident year loss estimate , which may be offset by rate increases . additional information regarding our reserves for losses and lae is set forth under `` –critical accounting policies –reserves for losses and lae . '' see also , `` –summary of financial results by segment –employers . '' commission expenses commission expenses include direct commissions to our agents and brokers , including our partnerships and alliances , for the premiums that they produce for us , as well as incentive payments , other marketing costs , and fees . see `` –summary of financial results by segment –employers . '' underwriting and general and administrative expenses underwriting expenses represent those costs that we incur to underwrite and maintain the insurance policies we issue , excluding commissions . direct underwriting expenses , such as premium taxes , policyholder dividends , and those expenses that vary directly with the production of new or renewal business , are recognized as the associated premiums are earned . indirect underwriting expenses , such as the operating expenses of each of the company 's subsidiaries , do not vary directly with the production of new or renewal business and are recognized as incurred . general and administrative expenses of the holding company are excluded in determining the underwriting expense ratios of our reportable segments . interest and financing expenses interest and financing expenses include surplus notes interest , letter of credit fees , finance lease interest , and other financing fees . other expenses we actively invest in technology and systems across our business with a view toward maximizing efficiency , facilitating customer self-service , and creating increased capacity that will allow us to lower our expense ratios while growing premiums . in 2017 , we wrote-off $ 7.5 million of previously capitalized costs relating to the development of information technology capabilities that had not yet been placed in service . this charge was the result of our continual evaluation of ongoing technology initiatives . income tax expense on january 1 , 2000 , eicn assumed the assets , liabilities , and operations of the fund pursuant to legislation passed in the 1999 nevada legislature ( the privatization ) . prior to the privatization , the fund was part of the state of nevada and therefore was not subject to federal income tax . accordingly , our pre-privatization loss and lae reserve adjustments , lpt reserve adjustments and deferred gain amortization impact our net income but do not change our taxable income . income tax expense was $ 36.7 million , $ 28.2 million ( $ 28.6 million excluding the impact of the tax cuts and jobs act on december 22 , 2017 ( enactment ) ) , and $ 42.8 million ( $ 35.8 million excluding the impact of enactment ) for the years ended december 31 , 2019 , 2018 , and 2017 , respectively , representing effective tax rates of 18.9 % , 16.6 % ( 16.8 % excluding the impact of enactment ) , and 29.7 % ( 24.9 % excluding the impact of enactment ) for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . enactment significantly revised u.s. corporate income tax law by , among other things , reducing the corporate statutory income tax rate from 35 % to 21 % , beginning january 1 , 2018. this reduction in the corporate statutory income tax rate required us to re-evaluate certain of our deferred tax assets and liabilities , as of the date of enactment , to reflect the revised income tax rates applicable to future periods . tax-advantaged investment income , lpt reserve adjustments , lpt contingent commission adjustments , deferred gain amortization and certain other adjustments reduced our income tax expense computed at a statutory rate of 21 % for 2019 and 2018 , and 35 % for 2017 by $ 4.0 million , $ 7.4 million , and $ 14.6 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . for the year ended december 31 , 2017 , the reductions were partially offset by a $ 7.0 million increase in our income tax expense due to the re-evaluation of our deferred tax assets and liabilities as of the date of enactment . for the year ended december 31 , 2017 , we were required to base certain of our income tax estimates and assumptions on incomplete information and or preliminary interpretations of the effects of enactment . as a result , we decreased our income tax expense by $ 0.4 million due to a further evaluation of our deferred tax assets and liabilities during the year ended december 31 , 2018. for additional information regarding our income tax expense see note 7 in the notes to our consolidated financial statements . 29 summary of financial results by segment employers the components of employers ' net income before income taxes are set forth in the following table : replace_table_token_10_th underwriting results gross premiums written gross premiums written were $ 696.8 million , $ 748.9 million , and $ 729.7 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively .
| 33 corporate and other the components of corporate and other 's net income ( loss ) before income taxes are set forth in the following table : replace_table_token_15_th net investment income and net realized and unrealized gains on investments see `` –results of operations –summary of consolidated financial results . '' losses and lae - lpt the table below reflects the impact of the lpt on losses and lae , which are recorded as a reduction to losses and lae incurred on our consolidated statements of comprehensive income . replace_table_token_16_th ( 1 ) lpt reserve adjustments result in a cumulative adjustment to the deferred gain , which is recognized in losses and lae incurred on our consolidated statements of comprehensive income , such that the deferred gain reflects the balance that would have existed had the revised reserves been recognized at the inception of the lpt agreement . ( see note 2 in the notes to our consolidated financial statements . ) ( 2 ) lpt contingent commission adjustments result in a cumulative adjustment to the deferred gain , which is recognized in losses and lae incurred on our consolidated statements of comprehensive income , such that the deferred gain reflects the balance that would have existed had the revised contingent profit commission been recognized at the inception of the lpt agreement . ( see note 2 in the notes to our consolidated financial statements . ) general and administrative expenses general and administrative expenses primarily consist of compensation related expenses , professional fees , and other corporate expenses at the holding company level . general and administrative expenses were $ 18.3 million , $ 17.6 million , and $ 15.1 million for the years ended december 31 , 2019 , 2018 , and 2017 , respectively . during the year ended december 31 , 2019 , our professional fees increased $ 0.5 million , and our compensation-related expenses increased $ 0.2 million , each as compared to 2018. during the year ended december 31 , 2018 , our compensation-related expenses increased $ 1.6 million , and our professional fees increased $ 1.0 million , each as compared to 2017. liquidity and capital resources holding company liquidity we are a holding company and our ability to fund our operations is contingent
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million as of december 31 , 2011 to become immediately due and payable , raised substantial doubt about the company 's ability to continue as a going 21 concern . the 2011 consolidated financial statements did not include any adjustments , if any , that would have resulted from the outcome of this uncertainty . as further described herein , although a change in the board composition took place during the second quarter of 2012 , the company negotiated an amendment to its credit agreement to exclude this change of board members from its definition of an event of default and the special meeting was cancelled . on april 24 , 2012 we reached the settlement agreement with the concerned stockholder group , resulting in a series of changes to the board and senior leadership . in accordance with section 141 ( b ) of the delaware general corporation law ( dgcl ) and section 2.2 of the company 's amended and restated bylaws , the total number of authorized directors on the board was increased from seven ( 7 ) to twelve ( 12 ) . these newly created vacancies were filled by john climaco , charles gillman , ryan morris , dilip singh and joseph whitters . timothy kopra , pat lavecchia , sean mcdevitt , jean-pierre millon and john voris ( old board members ) resigned as directors of the company . as a result of the above , in accordance with section 141 ( b ) of the dgcl and section 2.2 of the bylaws , the total number of authorized directors on the board was decreased from twelve ( 12 ) to seven ( 7 ) to be effective following the resignations of the old board members . in addition , mr. mcdevitt , the company 's then ceo resigned to pursue other interests and was replaced with mr. singh on an interim basis . mr. morris was appointed executive chairman . on february 9 , 2013 , the board announced the approval of the waiver of the application of the standstill provisions provided in section 2.2 of the settlement agreement to meson capital partners lp , meson capital partners llc and mr. morris . concurrent with and as a condition of the settlement agreement , on april 24 , 2012 , mr. mcdevitt entered into a consulting agreement with the company under which he resigned as ceo of the company and agreed to serve as a consultant until july 31 , 2012. under the consulting agreement , mr. mcdevitt received a consulting fee of $ 1.0 million , paid in shares of the company 's common stock . shares issued to mr. mcdevitt were issued from the company 's 2007 stock incentive plan , as amended , valued at the average closing price of a share on the nyse-mkt on the five trading days preceding the date of such issuance and totaled 0.5 million . per the terms of the consulting agreement , mr. mcdevitt 's share award agreement entered into on april 6 , 2010 with the company terminated , including the 2.0 million shares of common stock potentially issuable under such agreement . approximately $ 6.0 million in unrecognized compensation expense associated with such shares will not be recognized by the company in the future . as these shares were forfeited before the requisite service period for this award was rendered , previously recognized compensation expense of $ 1.3 million was reversed and recorded as a reduction of general and administrative expense during the three months ended june 30 , 2012. on november 30 , 2012 , the company entered into a credit facility with wells fargo as administrative agent and pennantpark as lenders , replacing the company 's credit agreement , dated as of june 15 , 2010 , as amended , with bank of america , n.a . as administrative agent and keybank national association as lender . the facility consisted of a $ 12.0 million term loan a ( provided by wells fargo ) , a $ 14.5 million term loan b ( provided by pennantpark ) and a $ 10.0 million revolving credit facility , all of which mature on november 30 , 2016 , collectively the ( credit facility ) . interest on the term loan is payable at the company 's choice of libor plus 7.25 % ( with a libor floor of 2.0 % ) or the wells fargo prime rate plus 6.25 % ( with a prime rate floor of 3.0 % ) . as of december 31 , 2012 , interest was payable at libor plus 7.25 % , which equaled 9.25 % . proceeds from the term loan were used for general corporate purposes as well as to repay the outstanding balance of the company 's bank of america credit agreement . during fiscal 2012 , the company 's board of director 's explored and evaluated potential strategic alternatives as previously disclosed on march 15 , 2012 , including a potential sale of the company or debt refinancing . as a result of these actions , the company incurred costs of $ 0.6 million , specifically relating to professional fees and other fees and expenses . on january 3 , 2013 , the company announced that the company 's board had formally ended its considerations of potential strategic alternatives initiated in march 2012. these costs are included within the general and administrative line in our consolidated statement of operations . 22 in addition , on january 3 , 2013 , the company announced the appointment of jan skonieczny as chief operating officer and the initiation of a search process for a permanent chief executive officer ( ceo ) to replace the company 's interim ceo , dilip singh . story_separator_special_tag as a result of that search , on march 14 , 2013 , the company announced its board of directors had appointed eric steen , who has more than 30 years of medical device and pharmaceutical industry experience , as chief executive officer , effective april 1 , 2013. dilip singh , who has served as the company 's interim ceo since april 2012 , will step down from that position on the same date . infusystem holdings , inc. results of operations for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 revenues our revenue for the year ended december 31 , 2012 was $ 58.8 million , an 8 % increase compared to $ 54.6 million for the year ended december 31 , 2011 , primarily in rental revenues . the increase in revenues is primarily related to the addition of larger customers , increased penetration into our existing customer accounts and the resolution of the oncology drug shortage affecting certain products which was having a negative effect on new patient start on pumps . during the fourth quarter of 2012 , a major group of third party payors revised their claim processing guidelines that affected all dme providers which pushed some of our claims from in-network billed directly to a third-party payor to out-of-network billed directly to the patient thereby increasing revenue based on the higher out-of-network rates . conversely , collecting a higher portion of reimbursement directly from patients increases our bad debt expense in selling , general and administrative expenses . gross profit gross profit for the year ended december 31 , 2012 was $ 42.9 million , an increase of 21 % compared to $ 35.4 million in the prior year . it represented 73 % of revenues in the current year compared to 65 % in the prior year . the increase in the gross margin as a percentage of revenue in 2012 was primarily related to the aforementioned increase in rental revenue , specifically third party billings , which generally have a higher gross profit margin . provision for doubtful accounts provision for doubtful accounts for the year ended december 31 , 2012 was $ 5.3 million , compared to $ 4.1 million for the year ended december 31 , 2011. it represented 9 % of revenues in the current year compared to 8 % in the prior year . the increase , as a percentage of revenues is primarily the result of the aforementioned recent changes by a major third party payor of their in-network process , which resulted in an additional write-off of approximately $ 1.0 million in the three months ended december 31 , 2012. amortization of intangible assets amortization of intangible assets for the year ended december 31 , 2012 was $ 2.7 million , which was consistent with the prior year end 2011. selling and marketing expenses for the year ended december 31 , 2012 , our selling and marketing expenses were $ 9.9 million compared to $ 9.4 million for the year ended december 31 , 2011. the increase in selling and marketing expenses is primarily related to expenses incurred by the increase in associated revenues as well as increased retention and travel costs in the sales and marketing departments . as compared to the prior year , these expenses remained consistent at 17 % of revenues . selling and marketing expenses during these periods consisted of sales salaries , commissions and associated fringe benefit and payroll-related items , marketing , share-based compensation , travel and entertainment and other miscellaneous expenses . 23 story_separator_special_tag width= '' 4 % '' > a ) the fixed charge coverage ratio is calculated in accordance with the agreement governing the credit facility . this covenant is first required to be reported as of march 31 , 2013 and has a minimum ratio at that time of 1.25:1. the required ratio varies quarterly for the remainder of the facility duration , from 1.25:1 to 2.00:1. b ) the leverage ratio is calculated in accordance with the agreement governing the credit facility . this covenant is first required to be reported as of march 31 , 2013 and has a maximum ratio at that time of 2.50:1. the required ratio varies quarterly for the remainder of the facility duration , from 2.50:1 to 1.00:1. c ) the credit facility includes an annual limitation on capital expenditures in accordance with the agreement governing the credit facility that is $ 1.25 million for the year ended december 31 , 2012 and $ 5.5 million for each year ending december 31 , 2013 through 2016 . 25 contractual obligations infusystem holding , inc. is a smaller reporting company as defined by rule 12b-2 of the exchange act and is not required to provide this information . contingent liabilities we do not have any contingent liabilities . off-balance sheet arrangements we do not have any material off-balance sheet arrangements . critical accounting policies and estimates the preparation of financial statements in conformity with gaap requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements , including the notes thereto . we consider critical accounting policies to be those that require more significant judgments and estimates in the preparation of our consolidated financial statements , including the following : revenue recognition , which includes contractual allowances ; accounts receivable and allowance for doubtful accounts ; warrants and derivative financial instruments ; income taxes ; and goodwill valuation . management relies on historical experience and other assumptions believed to be reasonable in making its judgment and estimates . actual results could differ materially from those estimates . management believes its application of accounting policies , and the estimates inherently required therein , are reasonable .
| for more information , refer to the discussion under summary of significant accounting policies warrants and derivative financial instruments included in note 2 and warrants and derivative financial instruments included in note 7 to our consolidated financial statements included in this annual report on form 10-k. during the year ended december 31 , 2012 , we recorded interest expense of $ 3.3 million , compared to $ 2.2 million for the year ended december 31 , 2011. these increased amounts are mainly attributed to the payment of a monthly ticking fee equal to 1 % of the aggregate amount outstanding on our credit agreement under our fifth amendment , which amounted to approximately $ 1.0 million for the year ended december 31 , 2012 and the remaining increase consisted primarily of interest paid on our term loans , cash payments associated with our terminated interest rate swap , amortization of deferred debt issuance costs and interest expense on capital leases . during the year ended december 31 , 2012 , we recorded an income tax benefit of $ 0.7 million , compared to a benefit of $ 23.1 million for the year ended december 31 , 2011. the effective tax rate for the year ended december 31 , 2012 was 30.84 % , compared to 33.63 % for the year ended december 31 , 2011. refer to the discussion under summary of significant accounting policies income taxes included in note 2 and income taxes included in note 9 to our consolidated financial statements included in this annual report on form 10-k. inflation management believes that there has been no material effect on our operations or financial condition as a result of inflation or changing prices of our ambulatory infusion pumps during the period from december 31 , 2011 through december 31 , 2012. liquidity and capital resources as of december 31 , 2012 , we had cash and cash equivalents of $ 2.3 million and
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non-gaap net gains on investment securities , net of noncontrolling interests and excluding gains on sales of certain available-for-sale securities were $ 32.7 million in 2011 , compared to $ 16.1 million in 2010. see results of operationsgains ( losses ) on investment securities , net for a reconciliation of non-gaap net gains on investment securities . an increase in net gains on equity warrant assets to $ 37.4 million , compared to net gains of $ 6.6 million in 2010. the net gains of $ 37.4 million in 2011 reflect increased ipo and m & a activity within the technology industry . an increase of $ 77.8 million in noninterest expense to $ 500.6 million , primarily reflecting higher incentive compensation costs based on our strong performance in 2011 , as well as increased expenses to support continued growth in our business through increased headcount and ongoing initiatives . overall , our liquidity remained strong based on our period end available-for-sale securities portfolio of $ 10.5 billion at december 31 , 2011 , compared to $ 7.9 billion at december 31 , 2010. the increase provided additional liquidity resources through current expected cash flow and through the ability to secure wholesale borrowings , if needed . overall , svb financial and the bank continued to maintain strong capital positions . the bank 's tier 1 leverage ratio increased by 5 basis points to 6.87 percent at december 31 , 2011 , compared to 6.82 percent at december 31 , 2010. the increase in the bank 's tier 1 leverage capital ratio was primarily the result of strong earnings , partially offset by growth of average deposits . 33 a summary of our performance in 2011 compared to 2010 is as follows : replace_table_token_4_th ( 1 ) to supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the united states ( gaap ) , we use certain non-gaap measures . see non-gaap net income and non-gaap diluted earnings per common share below for a reconciliation of these measures . ( 2 ) see results of operationsnoninterest income for a description and reconciliation of non-gaap noninterest income . 34 ( 3 ) see results of operationsnoninterest expense for a description and reconciliation of the non-gaap noninterest expense and non-gaap operating efficiency ratio . ( 4 ) ratio represents consolidated net income attributable to svbfg divided by average assets . ( 5 ) ratio represents consolidated net income available to common stockholders divided by average svb financial group ( svbfg ) stockholders ' equity . ( 6 ) the operating efficiency ratio is calculated by dividing total noninterest expense by total taxable equivalent net interest income plus noninterest income . ( 7 ) see capital resourcescapital ratios for a reconciliation of non-gaap tangible common equity to tangible assets and tangible common equity to risk-weighted assets . ( 8 ) book value per common share is calculated by dividing total svbfg stockholders ' equity by total outstanding common shares at period end . non-gaap net income and non-gaap diluted earnings per common share we use and report non-gaap net income and non-gaap diluted earnings per common share , which excludes ( when applicable ) gains from the sale of certain available-for-sale securities , as well as net gains from debt repurchases and termination of corresponding interest rate swaps . we believe these non-gaap financial measures , when taken together with the corresponding gaap financial measures , provide meaningful supplemental information regarding our performance by excluding certain items that do not occur every reporting period . our management uses , and believes that investors benefit from referring to , these non-gaap financial measures in assessing our operating results and related trends , and when planning , forecasting and analyzing future periods . however , these non-gaap financial measures should be considered in addition to , not as a substitute for or preferable to , financial measures prepared in accordance with gaap . 35 a reconciliation of gaap to non-gaap net income available to common stockholders and non-gaap diluted earnings per common share for 2011 and 2010 is as follows : replace_table_token_5_th ( 1 ) gain on the sales of $ 1.4 billion and $ 650.8 million of certain available-for-sale securities in 2011 and 2010 , respectively . ( 2 ) net gains of $ 3.1 million from the repurchase of $ 108.6 million of our 5.70 % senior notes and $ 204.0 million of our 6.05 % subordinated notes and the termination of the corresponding portions of interest rate swaps in 2011. critical accounting policies and estimates our accounting policies are fundamental to understanding our financial condition and results of operations . we have identified five policies as being critical because they require us to make particularly difficult , subjective and or complex judgments about matters that are inherently uncertain , and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . we evaluate our estimates and assumptions on an ongoing basis and we base these estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . our critical accounting policies include those that address the adequacy of the allowance for loan losses and reserve for unfunded credit commitments , measurements of fair value , the valuation of non-marketable securities and the recognition and measurement of income tax assets and liabilities . our senior management has discussed and reviewed the development , selection , application and disclosure of these critical accounting policies with the audit committee of our board of directors . allowance for loan losses and reserve for unfunded credit commitments allowance for loan losses the allowance for loan losses is management 's estimate of credit losses inherent in the loan portfolio at the balance sheet date . story_separator_special_tag we consider our accounting policy for the allowance for loan losses to be critical as 36 estimation of the allowance involves material estimates by our us and is particularly susceptible to significant changes in the near term . determining the allowance for loan losses requires us to make forecasts that are highly uncertain and require a high degree of judgment . our loan loss reserve methodology is applied to our loan portfolio and we maintain the allowance for loan losses at levels that we believe are appropriate to absorb estimated probable losses inherent in our loan portfolio . our allowance for loan losses is established for loan losses that are probable but not yet realized . the process of anticipating loan losses is imprecise . we apply a systematic process for the evaluation of individual loans and pools of loans for inherent risk of loan losses . on a quarterly basis , each loan in our portfolio is assigned a credit risk rating through an evaluation process , which includes consideration of such factors as payment status , the financial condition of the borrower , borrower compliance with loan covenants , underlying collateral values , potential loan concentrations , and general economic conditions . the allowance for loan losses is based on a formula allocation for similarly risk-rated loans by client industry sector and individually for impaired loans . our formula allocation is determined on a quarterly basis by utilizing a historical loan loss migration model , which is a statistical model used to estimate an appropriate allowance for outstanding loan balances by calculating the likelihood of a loan being charged-off based on its credit risk rating using historical loan performance data from our portfolio . the historical loan loss migration statistical model considers : ( i ) our quarterly historical loss experience since the year 2000 , both by risk-rating category and client industry sector , and ( ii ) our quarterly loss experience for the one- , three- , and five-year periods preceding the applicable reporting period . the resulting loan loss factors for each risk-rating category and client industry sector are ultimately applied to the respective period-end client loan balances for each corresponding risk-rating category by client industry sector to provide an estimation of the allowance for loan losses . we apply qualitative allocations to the results we obtained through our historical loan loss migration model to ascertain the total allowance for loan losses . these qualitative allocations are based upon management 's assessment of the risks that may lead to a loan loss experience different from our historical loan loss experience . these risks are aggregated to become our qualitative allocation . based on management 's prediction or estimate of changing risks in the lending environment , the qualitative allocation may vary significantly from period to period and includes , but is not limited to , consideration of the following factors : changes in lending policies and procedures , including underwriting standards and collections , and charge-off and recovery practices ; changes in national and local economic business conditions , including the market and economic condition of our clients ' industry sectors ; changes in the nature of our loan portfolio ; changes in experience , ability , and depth of lending management and staff ; changes in the trend of the volume and severity of past due and classified loans ; changes in the trend of the volume of nonaccrual loans , troubled debt restructurings , and other loan modifications ; reserve floor for portfolio segments that would not draw a minimum reserve based on the lack of historical loan loss experience ; reserve for large funded loan exposure ; and other factors as determined by management from time to time . a committee comprised of senior management evaluates the adequacy of the allowance for loan losses . reserve for unfunded credit commitments the level of the reserve for unfunded credit commitments is determined following a methodology that parallels that used for the allowance for loan losses . we consider our accounting policy for the reserve for unfunded credit commitments to be critical as estimation of the reserve involves material estimates by our 37 management and is particularly susceptible to significant changes in the near term . we record a liability for probable and estimable losses associated with our unfunded credit commitments . each quarter , every unfunded client credit commitment is allocated to a credit risk-rating category in accordance with each client 's credit risk rating . we use the historical loan loss factors described under our allowance for loan losses to calculate the possible loan loss experience if unfunded credit commitments are funded . separately , we use historical trends to calculate the probability of an unfunded credit commitment being funded . we apply the loan funding probability factor to risk-factor adjusted unfunded credit commitments by credit risk-rating to derive the reserve for unfunded credit commitments . the reserve for unfunded credit commitments may also include certain qualitative allocations as deemed appropriate by management . fair value measurements we use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures . our available-for-sale securities , derivative instruments , marketable securities and certain non-marketable securities are financial instruments recorded at fair value on a recurring basis . we disclose our method and approach for fair value measurements of assets and liabilities in note 2summary of significant accounting policies of the notes to consolidated financial statements under part ii , item 8 in this report . fair value is defined as the price that would be received to sell an asset or paid to transfer a liability ( the exit price ) in an orderly transaction between market participants at the measurement date . accounting standards codification ( asc ) 820 , fair value measurements and disclosures , establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value .
| for this table , changes that are not solely due to either volume or rate are allocated in proportion to the percentage changes in average volume and average rate . 2011 compared to 2010 2010 compared to 2009 year ended december 31 , increase ( decrease ) due to change in year ended december 31 , increase ( decrease ) due to change in ( dollars in thousands ) volume rate total volume rate total interest income : federal funds sold , securities purchased under agreements to resell and other short-term investment securities $ ( 6,017 ) $ 1,543 $ ( 4,474 ) $ 1,530 $ ( 360 ) $ 1,170 available-for-sale securities ( taxable ) 78,196 ( 40,169 ) 38,027 82,585 ( 36,699 ) 45,886 available-for-sale securities ( non-taxable ) ( 224 ) ( 62 ) ( 286 ) ( 344 ) ( 94 ) ( 438 ) loans , net of unearned income 93,713 ( 23,423 ) 70,290 ( 18,982 ) 2,716 ( 16,266 ) increase ( decrease ) in interest income , net 165,668 ( 62,111 ) 103,557 64,789 ( 34,437 ) 30,352 interest expense : now deposits 119 ( 57 ) 62 37 11 48 money market deposits 1,668 ( 1,845 ) ( 177 ) 2,466 ( 3,310 ) ( 844 ) money market deposits in foreign offices 124 ( 102 ) 22 110 ( 254 ) ( 144 ) time deposits ( 462 ) ( 222 ) ( 684 ) 43 ( 702 ) ( 659 ) sweep deposits in foreign offices ( 411 ) ( 4,728 ) ( 5,139 ) 3,277 ( 8,246
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selling and administrative expense increased by $ 10.1 million , or 3.5 % , to $ 298.4 million , or 29.0 % of net sales , in fiscal 2015 from $ 288.3 million , or 29.5 % of net sales , in fiscal 2014. the change in selling and administrative expense was primarily attributable to the following : · store-related expense , excluding occupancy , increased by $ 9.6 million due primarily to higher labor and employee benefit-related expense of $ 8.1 million that reflected an additional fiscal week of payroll expense , legislated minimum wage increases and personnel increases associated with new store openings , along with added operating expense for new stores . · administrative expense increased by $ 3.3 million , primarily reflecting expense associated with the following items : o higher employee labor and benefit-related expense of $ 2.3 million due , in part , to an additional fiscal week of payroll expense . o a publicly-disclosed proxy contest , which was settled on april 30 , 2015. the proxy contest and related matters negatively impacted our administrative expense during fiscal 2015 by approximately $ 1.6 million . o expenses of $ 0.4 million to evaluate store growth strategies and potential profit improvement opportunities . o a pre-tax charge of $ 0.4 million for a legal settlement in fiscal 2015. administrative expense in fiscal 2014 included pre-tax charges of $ 1.4 million for legal accruals . these charges are further discussed in note 13 to the consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k. o a pre-tax non-cash impairment charge of $ 0.2 million in fiscal 2015 related to an underperforming store . administrative expense in fiscal 2014 included a pre-tax non-cash impairment charge of $ 1.2 million related to certain underperforming stores . these charges are further discussed in note 4 to the consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k. · advertising expense for fiscal 2015 decreased by $ 2.8 million , due primarily to lower newspaper advertising , partially offset by increases in digital marketing programs to support sales . interest expense . interest expense increased by $ 0.2 million , or 7.4 % , to $ 1.8 million in fiscal 2015 from $ 1.6 million in fiscal 2014. the increase in interest expense reflects an increase in average debt levels of $ 6.3 million to $ 69.6 million in fiscal 2015 from $ 63.3 million in fiscal 2014. average interest rates remained unchanged at 1.9 % in fiscal 2015 compared with fiscal 2014. income taxes . the provision for income taxes was $ 9.5 million for fiscal 2015 compared with $ 8.6 million for fiscal 2014. this increase was primarily due to a higher effective tax rate and higher pre-tax income in fiscal 2015. our effective tax rate was 38.2 % for fiscal 2015 compared with 36.7 % for fiscal 2014. the higher effective tax rate year over year primarily resulted from a reduced amount of income tax credits for the current year . in the first and second quarters of fiscal 2016 , we anticipate writing off deferred tax assets related to share-based compensation , which we estimate will result in charges ranging between $ 0.6 million to $ 0.8 million and $ 0.1 million to $ 0.3 million , respectively , and will negatively impact our respective effective tax rates . 28 fiscal 2014 compared to fiscal 2013 net sales . net sales decreased by $ 15.4 million , or 1.6 % , to $ 977.9 million for fiscal 2014 from $ 993.3 million for fiscal 2013. the change in net sales was primarily attributable to the following : · same store sales decreased 2.9 % for fiscal 2014 versus fiscal 2013. our lower same store sales reflected reduced demand for firearm-related products , combined with lower sales of winter-related merchandise as a result of unseasonably warm and dry winter-weather conditions in our primary markets in the first quarter and fourth quarter of fiscal 2014. our sales comparisons to the prior year generally improved in the second half of fiscal 2014 as improved sales for a number of product categories offset the lower demand for firearm-related products compared to fiscal 2013 . · added sales from new stores reflected the opening of 33 new stores since december 30 , 2012 , partially offset by a reduction in closed store sales . · we experienced decreased customer transactions in our retail stores , and the average sale per transaction also declined slightly in fiscal 2014 compared to fiscal 2013 , primarily as a result of the reduced demand for firearm-related products in fiscal 2014. store count at the end of fiscal 2014 was 439 versus 429 at the end of fiscal 2013. we opened 16 new stores , four of which were relocations , and closed six stores , four of which were relocations , in fiscal 2014. gross profit . gross profit decreased by $ 15.3 million to $ 313.4 million , or 32.1 % of net sales , in fiscal 2014 from $ 328.7 million , or 33.1 % of net sales , in fiscal 2013. the change in gross profit was primarily attributable to the following : · net sales decreased by $ 15.4 million in fiscal 2014 compared to fiscal 2013 . · merchandise margins , which exclude buying , occupancy and distribution expense , decreased 27 basis points from fiscal 2013 , when merchandise margins increased 50 basis points versus fiscal 2012. the lower merchandise margins primarily reflected reduced sales of higher-margin winter-related products and increased sales promotions . · store occupancy expense for fiscal 2014 increased by $ 5.1 million , or 65 basis points , year over year due primarily to increased rent associated with store lease renewals and the increase in store count . story_separator_special_tag · distribution expense increased $ 0.5 million , or 12 basis points , primarily resulting from higher employee labor and benefit-related expense and increased trucking expense , partially offset by higher costs capitalized into inventory . selling and administrative expense . selling and administrative expense increased by $ 7.0 million , or 2.5 % , to $ 288.3 million , or 29.5 % of net sales , in fiscal 2014 from $ 281.3 million , or 28.3 % of net sales , in fiscal 2013. the change in selling and administrative expense was primarily attributable to the following : · store-related expense , excluding occupancy , increased by $ 6.4 million due primarily to higher employee benefit-related expense and higher operating expense to support the increase in store count . · administrative expense increased by $ 2.4 million , primarily reflecting higher employee labor and benefit-related expense . administrative expense in fiscal 2014 also included pre-tax charges of $ 1.4 million reflecting legal accruals and a pre-tax non-cash impairment charge of $ 1.2 million related to certain underperforming stores . administrative expense for fiscal 2013 included a pre-tax charge of $ 1.0 million related to legal accruals . · advertising expense for fiscal 2014 decreased by $ 1.9 million , due primarily to lower newspaper advertising , partially offset by increases in digital marketing programs and other advertising to support sales . interest expense . interest expense decreased by $ 0.1 million , or 4.5 % , to $ 1.6 million in fiscal 2014 from $ 1.7 million in fiscal 2013. the decrease in interest expense reflects the impact of lower average interest rates of 20 basis points to 1.9 % in fiscal 2014 from 2.1 % in fiscal 2013 , partially offset by an increase in average debt levels of $ 19.3 million to $ 63.3 million in fiscal 2014 from $ 44.0 million in fiscal 2013. income taxes . the provision for income taxes was $ 8.6 million for fiscal 2014 compared with $ 17.7 million for fiscal 2013. this decrease was primarily due to lower pre-tax income and a lower effective tax rate in fiscal 2014. our effective tax rate was 36.7 % for fiscal 2014 compared with 38.8 % for fiscal 2013. the lower effective tax rate year over year primarily resulted from increased income tax credits for the current year . the effective tax rate for fiscal 2013 included the retroactive reinstatement of the work opportunity tax credit ( “ wotc ” ) for 2012 , which resulted from enactment of the american taxpayer relief act of 2012. reinstatement of the wotc reduced the effective tax rate for the first quarter of fiscal 2013 by 137 basis points . 29 liquidity and capital resources our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash on hand , cash flows from operations and borrowings from our revolving credit facility . we believe our cash on hand , future cash flows from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months . we ended fiscal 2015 with $ 7.1 million of cash compared with $ 11.5 million in fiscal 2014. we decreased our long-term debt by $ 11.5 million , or 17.3 % , during fiscal 2015 to $ 54.8 million from $ 66.3 million at the end of fiscal 2014 , after increasing our long-term debt by $ 23.3 million , or 54.1 % , during fiscal 2014. the following table summarizes our cash flows from operating , investing and financing activities for each of the past three fiscal years : replace_table_token_10_th the seasonality of our business historically provides greater cash flows from operations during the holiday and winter selling season . we use operating cash flows and borrowings under our revolving credit facility to fund inventory increases in anticipation of the holidays and our inventory levels are normally at their highest in the months leading up to christmas . as holiday sales typically reduce inventory levels , this reduction , combined with net income , historically provides us with strong cash flows from operations at the end of our fiscal year . for fiscal 2015 , the level of inventory purchases in the months leading up to christmas was lower compared to the prior year , resulting in reduced inventory and accounts payable balances at the end of fiscal 2015 compared to fiscal 2014. additionally , improved net sales in fiscal 2015 compared to fiscal 2014 contributed to higher operating cash flows , which allowed us to significantly pay down debt balances year over year . for fiscal 2014 , we reduced the level of inventory purchases in the months leading up to christmas compared to the prior year due in part to a carryover of winter-related merchandise from the prior season as a result of unfavorable weather conditions . for the fiscal 2014 full year , our operating cash flow increased over fiscal 2013 as the impact of reduced inventory purchases in fiscal 2014 , due in part to lower sales levels , offset the effect of lower earnings . the increase in our debt at the end of fiscal 2014 primarily reflected our lower earnings , a significant reduction in outstanding check payable balances year over year from fiscal 2013 , along with amounts paid for cash dividends and to repurchase stock . for fiscal 2013 , while we increased inventory purchases in the months leading up to christmas , weaker-than-anticipated sales during the fourth quarter of fiscal 2013 resulted in higher-than-expected inventory levels and lower operating cash flows in the fourth quarter of fiscal 2013. however , healthy net sales and net income for the fiscal 2013 full year contributed sufficient levels of operating cash flows that allowed us to pay down debt balances year over year . operating activities .
| · selling and administrative expense for fiscal 2015 increased 3.5 % to $ 298.4 million , or 29.0 % of net sales , compared to $ 288.3 million , or 29.5 % of net sales , for fiscal 2014. the increase was primarily attributable to higher employee labor and benefit-related expense and higher operating expense to support new store openings , partially offset by a decrease in print advertising expense . our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash on hand , cash flows from operations and borrowings from our revolving credit facility . · operating cash flow for fiscal 2015 increased to $ 39.6 million from $ 28.5 million in fiscal 2014 . · capital expenditures for fiscal 2015 increased to $ 24.6 million from $ 22.6 million in fiscal 2014 . · we ended fiscal 2015 with a balance under our revolving credit facility of $ 54.8 million compared with $ 66.3 million at the end of fiscal 2014 . · we paid aggregate cash dividends in fiscal 2015 of $ 8.8 million , or $ 0.40 per share . · we repurchased 379,930 shares of common stock for $ 4.2 million in fiscal 2015 . 26 results of operations the following table sets forth selected items from our consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated : replace_table_token_9_th ( 1 ) fiscal 2015 included 53 weeks and fiscal 2014 and 2013 each included 52 weeks . ( 2 ) cost of sales includes the cost of merchandise , net of discounts or allowances earned , freight , inventory reserves , buying , distribution center expense , including depreciation , and store occupancy expense . store occupancy expense includes rent , amortization of leasehold improvements , common area maintenance , property taxes and insurance . ( 3 ) selling and administrative expense includes store-related expense , other than store occupancy expense , as well as advertising , depreciation and amortization , expense associated with operating our corporate headquarters and impairment charges , if any . ( 4 ) same
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brazil income taxes are based on sales , not pre-tax income which can cause significant changes to the effective tax rate . for information regarding additional matters related to our taxes , please see note 5 — `` income taxes '' to the consolidated financial statements included in this annual report . liquidity and capital resources the company had $ 2.8 million and $ 7.3 million of cash and cash equivalents as of december 31 , 2020 and 2019 , respectively . the company 's operating activities used net cash of $ 4.1 million in 2020 , and generated net cash of $ 4.3 million in 2019 and $ 7.9 million in 2018. investing activities used net cash of $ 0.9 million in 2020 , generated net cash of $ 2.1 million in 2019 and used net cash of $ 5.4 million in 2018. financing activities provided net cash of $ 0.5 million in 2020 and used $ 3.0 million in 2019 and $ 5.6 million in 2018. operating cash used in operations of $ 4.1 million in 2020 primarily reflected the net loss of $ 3.9 million adjusted for depreciation and amortization of $ 2.7 million , stock compensation expense of $ 0.6 million , and a decrease in net deferred tax liabilities of $ 0.3 million . cash used in operations was also affected by the following changes in assets and liabilities : a decrease in accounts receivable of $ 0.4 million , a decrease in accrued expenses of $ 1.8 million , and a decrease in prepaid expenses ( and other current assets ) of $ 1.6 million . the $ 8.4 million change in operating cash from a positive $ 4.3 million in 2019 to a negative $ 4.1 million in 2020 was primarily driven by lower net income in 2020. operating cash flow of $ 4.3 million in 2019 primarily reflected net income of $ 1.5 million adjusted for depreciation and amortization of $ 2.9 million , stock compensation expense of $ 0.8 million , and a decrease in net deferred tax liabilities of $ 0.4 million . operating cash flow was affected by the following changes in assets and liabilities : a decrease in accounts receivable of $ 1.0 million , an increase in accounts payable of $ 0.5 million , an increase in accrued expenses of $ 0.7 million , and an increase in prepaid expenses ( and other current assets ) of $ 0.4 million . the operating cash flow in 2019 was $ 3.6 million less than in 2018 primarily due to lower net income . 16 operating cash flow of $ 7.9 million in 2018 primarily reflected net income of $ 4.6 million adjusted for depreciation and amortization of $ 3.1 million , stock compensation expense of $ 0.6 million , and a decrease in net deferred tax liabilities of $ 0.3 million . operating cash flow was affected by the following changes in assets and liabilities : an increase in accounts receivable of $ 0.4 million , an increase in accounts payable of $ 0.1 million , an increase in accrued expenses of $ 0.1 million , and a decrease in prepaid expenses ( and other current assets ) of $ 0.1 million . the operating cash flow in 2018 was $ 1.2 million less than in 2018. cash used in investing activities principally reflected the purchase of capital expenditures . capital expenditures were $ 1.0 million , $ 1.7 million and $ 1.2 million in 2020 , 2019 and 2018 , respectively . in 2020 , the expenditures related principally to leasehold improvements , laboratory equipment and computer software . marketable securities transactions consisted of the sale of one certificate of deposit ( “ cd ” ) for $ 3.8 million in 2019 and the purchase of the same cd for $ 4.0 million in 2018. financing cash flow in 2020 principally reflected the proceeds from our ppp loan ( described further below ) of approximately $ 2.2 million , partially offset by repayments under the equipment loan arrangement . during 2020 , 2019 and 2018 , the company did not repurchase any shares of common stock for treasury . the company has authorized 750,000 shares for repurchase since june of 1998 , of which 250,000 shares of common stock were authorized in march of 2008 for repurchase . since 1998 , a total of 550,684 shares have been repurchased . the company also distributed cash dividends to its shareholders of $ 1.0 million in 2020 , $ 4.0 million in 2019 and $ 3.8 million in 2018. as of march 31 , 2020 , the company had paid dividends over the prior ninety-four quarters . following the first quarter of 2020 , our board of directors suspended our quarterly dividend payment as we prioritized our liquidity and balance sheet . the company 's intention is to reinstate the payment of dividends to the extent funds are available and not required for operating purposes or capital requirements . there can be no assurance that in the future the company will reinstate payment of a quarterly dividend payment , or the amount of any such dividend . at december 31 , 2020 , the company 's principal sources of liquidity included approximately $ 2.8 million of cash on hand . management currently believes that such funds , together with future operating profits , should be adequate to fund anticipated working capital requirements , including debt obligations , and capital expenditures for at least the next 12 months . depending upon the company 's results of operations , its future capital needs and available marketing opportunities , the company may use various financing sources to raise additional funds . story_separator_special_tag such sources could include but are not limited to , issuance of common stock or debt financing , lines of credit , or equipment leasing , although there is no assurance that such financings will be available to the company on terms it deems acceptable , if at all . on may 4 , 2020 , the company borrowed approximately $ 2.2 million from bank of america , n.a. , pursuant to the ppp , established under the cares act . the ppp loan is subject to forgiveness under the ppp upon the company 's request to the extent that the proceeds are used to pay expenses permitted by the ppp . on november 6 , 2020 , the company applied for forgiveness of the entire amount due on the loan . the application and recommendation from bank of america , n.a. , has been provided to the sba . notwithstanding our application for loan forgiveness , we are unable to predict the actual amount of loan forgiveness the sba will approve . as of december 31 , 2020 , we had approximately $ 2.2 million outstanding under the ppp loan and we were in full compliance with all requirements with respect to the ppp loan . see item 1a . risk factors of this annual report on form 10-k. purchase commitment operating leases consist of rent obligations for the company 's facilities and corporate office . the company has no significant contractual obligation for supply agreements as of december 31 , 2020. critical accounting policies the company 's significant accounting policies are described in note 2 to the consolidated financial statements included in item 8 of this annual report . management believes the most critical accounting policies are as follows : revenue recognition the company is in the business of performing drug testing services and reporting the results thereof . the company 's services are primarily drug and alcohol testing for its customers for an agreed-upon fee per unit tested . the revenues are recognized when the drug test is performed and reported to the customer . the company records revenue for the shipping of samples from the customer or independent hair collection facility to the laboratory for customers that choose to use the company 's shipping account . the company also records revenue for the collection of the hair sample for customers that choose to have the company manage this process at the same time the sample test is completed and results reported to the customer . the associated costs incurred in connection with these services is recorded as costs of revenue . the company records revenue for these services on a gross basis as it has determined it is the principal under these arrangements . the company also provides expert testimony , when and if necessary , to support the results of the tests , which is generally billed separately and recognized as the services are provided . 17 estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates , including bad debts , long-lived asset lives , income tax valuation , stock based compensation and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . capitalized development costs we capitalize costs related to significant software projects developed or obtained for internal use in accordance with u.s. generally accepted accounting standards . costs incurred during the preliminary project work stage or conceptual stage , such as determining the performance requirements , system requirements and data conversion , are expensed as incurred . costs incurred in the application development phase , such as coding , testing for new software and upgrades that result in additional functionality , are capitalized and are amortized using the straight-line method over the useful life of the software for 5 years . costs incurred during the post-implementation/operation stage , including training costs and maintenance costs , are expensed as incurred . we capitalized internally developed software costs of approximately $ 213 thousand , $ 234 thousand and $ 299 thousand during the years ended december 31 , 2020 , 2019 and 2018 , respectively . the software development is for primarily for two projects . determining whether particular costs incurred are more properly attributable to the preliminary or conceptual stage , and thus expensed , or to the application development phase , and thus capitalized and amortized , depends on subjective judgments about the nature of the development work , and our judgments in this regard may differ from those made by other companies . general and administrative costs related to developing or obtaining such software are expensed as incurred . allowance for doubtful accounts the allowance for doubtful accounts is based on management 's assessment of the ability to collect amounts owed to it by its customers . management reviews its accounts receivable aging for doubtful accounts and uses a methodology based on calculating the allowance using a combination of factors including the age of the receivable along with management 's judgment to identify accounts that may not be collectible . the company routinely assesses the financial strength of its customers and , as a consequence , believes that its accounts receivable credit risk exposure is limited . the company maintains an allowance for potential credit losses but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area . bad debt expense has been within management 's expectations . income taxes the company accounts for income taxes using the liability method , which requires the company to recognize a current tax liability or asset for current taxes payable or refundable and a net deferred tax liability for the estimated future tax effects of
| gross profit : the 70 % decrease in gross profit was primarily due to lower sales volume . this lower volume was the primary factor in the gross profit percentage reduction from 44 % in 2019 to 23 % in 2020. in addition , gross profit was also adversely impacted by a requirement that we retain certain levels of personnel to qualify for ppp loan forgiveness with no offsetting proportional revenue . the staffing levels we maintained did not support the volume sales noted above . general and administrative ( “ g & a ” ) expenses : g & a expenses decreased 16 % from 2019 to 2020 , primarily driven by reductions in personnel after the ppp loan covered period expired , cost-savings initiatives , including salary reductions , in response to the covid-19 pandemic and lower international tax expense . these decreases were partially offset by higher legal expenses related to the exploration of possible strategic alternatives in an effort to enhance shareholder value . marketing and selling expenses : marketing and selling expenses decreased 23 % from 2019 to 2020 , primarily driven by cost reduction initiatives ; specifically , lower personnel related costs ( including less travel and meals ) . in addition , lower recruiting fees and commissions from volume decline contributed to the comparative decrease . income taxes : during the year ended december 31 , 2020 , the company recorded a tax benefit of $ 2.3 million representing a tax rate of 38 % compared to a tax rate of 50 % in 2019. for information regarding additional matters related to our taxes , please see note 5 — `` income taxes '' to the consolidated financial statements included in this annual report . 15 results for the year ended december 31 , 2019 compared to results for the year ended december 31 , 2018 ( in thousands ) replace_table_token_7_th revenue : total revenue decline of 12 % was primarily due to an 11 % decrease in volume and a 1 % decrease in average revenue per sample . international
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the company 's management reviews and analyzes certain operating results in latin america on a constant currency basis because the company believes this better represents the company 's underlying business trends . constant currency results are non-gaap financial measures , which exclude the effects of foreign currency translation and are calculated by translating current-year results at prior-year average exchange rates . the scrap jewelry generated in latin america is sold and settled in u.s. dollars , and therefore , wholesale scrap jewelry sales revenue is not affected by foreign currency translation . a small percentage of the operating and administrative expenses in latin america are also billed and paid in u.s. dollars , which are not affected by foreign currency translation . 35 business operations in mexico , guatemala and colombia are transacted in mexican pesos , guatemalan quetzales and colombian pesos , respectively . the company also has operations in el salvador where the reporting and functional currency is the u.s. dollar . the following table provides exchange rates for the mexican peso , guatemalan quetzal and colombian peso for the current and prior-year periods : replace_table_token_9_th amounts presented on a constant currency basis are denoted as such . see “ non-gaap financial information ” for additional discussion of constant currency operating results . 36 the following table details income statement items as a percent of total revenue and other operating metrics : replace_table_token_10_th critical accounting policies the preparation of financial statements in conformity with gaap requires management to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities , related revenue and expenses , and disclosure of gain and loss contingencies at the date of the financial statements . such estimates , assumptions and judgments are subject to a number of risks and uncertainties , which may cause actual results to differ materially from the company 's estimates . the significant accounting policies that the company believes are the most critical to aid in fully understanding and evaluating its reported financial results include the following : customer loans and revenue recognition - receivables on the balance sheet consist of pawn loans and unsecured consumer loans . pawn loans are collateralized by pledged tangible personal property , which the company holds during the term of the loan plus a stated grace period . in certain markets , the company also provides pawn loans collateralized by automobiles , which remain in the company 's possession or in limited cases , remain in the possession of the customer . the company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn for all pawns for which the company deems collection to be probable based on historical pawn redemption statistics . the typical pawn loan term is generally 30 days plus an additional grace period of 14 to 90 days , depending on geographical markets and local regulations . pawn loans may be either paid in full with accrued pawn loan fees and service charges or , where permitted by law , may be renewed or extended by the customer 's payment of accrued pawn loan fees and service charges . if the pawn is not repaid upon expiration of the grace period , the principal amount loaned becomes the inventory carrying value of the forfeited collateral , which is typically recovered through sales of the forfeited items at prices well above the carrying value . 37 the company 's pawn merchandise sales are primarily retail sales to the general public in its pawn stores . the company typically acquires pawn merchandise inventory through forfeited pawn loans and through purchases of used goods directly from the general public . the company records sales revenue at the time of the sale . the company presents merchandise sales net of any sales or value-added taxes collected . the company does not provide direct financing to customers for the purchase of its merchandise , but does permit its customers to purchase merchandise on an interest-free “ layaway ” plan . should the customer fail to make a required payment pursuant to a layaway plan , the item is returned to inventory and all or a portion of previous payments are typically forfeited to the company . interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as retail merchandise sales revenue when the merchandise is delivered to the customer upon receipt of final payment or when previous payments are forfeited to the company . some jewelry is processed at third-party facilities and the precious metal and diamond content is sold at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer . the company records revenue from these wholesale scrap jewelry transactions when a price has been agreed upon and the company ships the commodity to the buyer . the company recognizes service fee income on unsecured consumer loan transactions on a constant-yield basis over the life of the loan . unsecured consumer loans have terms that typically range from 7 to 45 days . the company recognizes credit services fees ratably over the life of the extension of credit made by the independent lender . the extensions of credit made by the independent lender to credit services customers typically have terms of 7 to 180 days . credit loss provisions - the company has determined no allowance related to credit losses on pawn loans is required , as the fair value of the pledged collateral is significantly in excess of the pawn loan amount . the company maintains an allowance for credit losses on unsecured consumer loans on an aggregate basis at a level it considers sufficient to cover estimated losses in the collection of its unsecured consumer loans . the allowance for credit losses is periodically reviewed by management with any changes reflected in current operations . story_separator_special_tag under the cso program , the company assists customers in applying for a short-term extension of credit from an independent lender and issues the independent lender a guarantee for the repayment of the extension of credit . the company is required to recognize , at the inception of the guarantee , a liability for the estimated fair value of the obligation undertaken by issuing the guarantee , which is included in accrued liabilities . the estimated fair value of the liability is periodically reviewed by management with any changes reflected in current operations . inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the general public . the company also retails limited quantities of new or refurbished merchandise obtained directly from wholesalers and manufacturers . inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods , exclusive of accrued interest . inventories purchased directly from customers , wholesalers and manufacturers are recorded at cost . the cost of inventories is determined on the specific identification method . inventories are stated at the lower of cost or net realizable value and , accordingly , inventory valuation allowances are established if inventory carrying values are in excess of estimated selling prices , net of direct costs of disposal . management has evaluated inventories and determined that a valuation allowance is not necessary . goodwill and other indefinite-lived intangible assets - goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination . the company performs its goodwill impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company 's reporting units , which are tested for impairment , are u.s. operations and latin america operations . the company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors , including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for the company 's products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel , and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the company proceeds to the two-step impairment testing methodology . the company 's material indefinite-lived intangible assets consist of trade names and pawn licenses . the company performs its indefinite-lived intangible asset impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . 38 foreign currency transactions - the company has significant operations in latin america , where in mexico , guatemala and colombia the functional currency is the mexican peso , guatemalan quetzal and colombian peso , respectively . accordingly , the assets and liabilities of these subsidiaries are translated into u.s. dollars at the exchange rate in effect at each balance sheet date , and the resulting adjustments are accumulated in other comprehensive income ( loss ) as a separate component of stockholders ' equity . revenues and expenses are translated at the average exchange rates occurring during the respective period . prior to translation , u.s. dollar-denominated transactions of the foreign subsidiaries are remeasured into their functional currency using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities . gains and losses from remeasurement of dollar-denominated monetary assets and liabilities in mexico , guatemala and colombia are accumulated in ( gain ) loss on foreign exchange in the consolidated statements of income . deferred taxes are not currently recorded on cumulative foreign currency translation adjustments , as the company indefinitely reinvests earnings of its foreign subsidiaries . the company also has operations in el salvador where the reporting and functional currency is the u.s. dollar . results of operations 2019 consolidated operating results highlights the following table sets forth revenue , net income , diluted earnings per share , adjusted net income , adjusted diluted earnings per share , ebitda and adjusted ebitda for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 ( in thousands , except per share amounts ) : replace_table_token_11_th see “ non-gaap financial information—adjusted net income and adjusted diluted earnings per share and —earnings before interest , taxes , depreciation and amortization ( ebitda ) and adjusted ebitda ” below . the following are the results from 2019 the company believes are key indicators of its operating performance when compared to 2018 . see “ non-gaap financial information ” for additional discussion of non-gaap financial measures . consolidated revenue increased 5 % and totaled $ 1.9 billion . revenue from core pawn operations , which includes retail merchandise sales and pawn fees , increased $ 123.6 million , or 8 % . net revenue ( gross profit ) increased $ 51.6 million with a 30 basis point increase in the gross margin to 55 % of revenues . pre-tax profit margin increased 50 basis points to 12.0 % and adjusted pre-tax profit margin , which is calculated using a non-gaap financial measure , increased 30 basis points to 12.3 % . net income increased $ 11.4 million , or 7 % , and adjusted net income , a non-gaap financial measure , increased $ 9.6 million , or 6 % . diluted earnings per share increased 12 % to $ 3.81 and adjusted diluted earnings per share , a non-gaap financial measure , increased 10 % to $ 3.89 . adjusted ebitda , a non-gaap financial measure , increased 7 % and totaled $ 303.8 million .
| the increase in the effective tax rate was due in part to an increase in certain non-deductible expenses resulting from the tax cuts and jobs act , the increasing share of earnings from latin america where corporate tax rates are higher than those in the u.s. and a reduced foreign permanent tax benefit related to a reduced inflation index adjustment allowed in mexico for 2019. in addition , the 2018 effective income tax rate includes a $ 1.5 million non-recurring income tax benefit as a result of the company 's finalization of certain estimates and tax positions related to the tax cuts and jobs act . see note 11 of notes to consolidated financial statements . liquidity and capital resources as of december 31 , 2019 , the company 's primary sources of liquidity were $ 46.5 million in cash and cash equivalents , $ 161.7 million of available and unused funds under the company 's revolving unsecured credit facility , $ 417.0 million in customer loans and fees and service charges receivable and $ 265.3 million in inventories . as of december 31 , 2019 , the amount of cash associated with indefinitely reinvested foreign earnings was $ 19.6 million , which is primarily held in mexican pesos . the company had working capital of $ 538.1 million as of december 31 , 2019 . during the period from january 1 , 2019 through december 19 , 2019 , the company maintained an unsecured line of credit with a group of u.s. based commercial lenders ( the “ credit facility ” ) in the amount of $ 425.0 million , which was scheduled to mature in october 2023. the credit facility charged interest , at the company 's option , at either ( 1 ) the prevailing london interbank offered rate ( “ libor ” ) ( with interest periods of 1 week or 1 , 2 , 3 or 6 months at the company 's option ) plus a fixed spread of 2.5 % or
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overview net revenue in fiscal 2012 decreased 6.8 % , or $ 122.4 million , to $ 1,682.1 million from $ 1,804.5 million in fiscal 2011. net revenue in fiscal 2012 consisted of $ 754.8 million , or approximately 44.9 % of net revenue , from commtest , $ 701.6 million , or approximately 41.7 % of net revenue , from ccop , and $ 225.7 million , or approximately 13.4 % of net revenue , from aot . gross margin in fiscal 2012 decreased 1.6 percentage points to 42.2 % from 43.8 % in fiscal 2011. the decrease in gross margin was primarily due to decreased sales in our ccop and commtest segments , reduced absorption of manufacturing costs and decreased operating efficiency due to a decline in volume in our ccop segment , and pricing reductions impacting certain product lines in our ccop and aot segments . r & d expense in fiscal 2012 increased 2.5 % , or $ 6.1 million , to $ 246.0 million from $ 239.9 million in fiscal 2011. the increase was primarily due to increased investment in r & d projects to develop new product platforms and drive future growth , particularly in our ccop segment . as a percentage of revenue , r & d expense increased to 14.6 % from 13.3 % in fiscal 2011. sg & a expense in fiscal 2012 decreased 1.9 % , or $ 8.1 million , to $ 429.0 million from $ 437.1 million in fiscal 2011. the decrease was primarily a result of decreased variable incentive pay and lower sales commissions due to a decrease in operating income , partially offset by increased investment in information technology and a litigation settlement . as a percentage of revenue , sg & a expenses increased to 25.5 % from 24.2 % in fiscal 2011. recently issued accounting pronouncements in december 2011 , the financial accounting standards board ( `` fasb '' ) issued authoritative guidance that requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position . this guidance will be effective for the company beginning in the first quarter of fiscal 2014. the adoption of this guidance may expand existing disclosure requirements , which the company is currently evaluating . in june 2011 , the fasb issued amended guidance on the presentation of comprehensive income . the amended guidance eliminates one of the presentation options provided by current u.s. gaap that is to present the components of other comprehensive income as part of the statement of changes in stockholders ' equity . in addition , it gives an entity the option to present the total of comprehensive income , the components of net income , and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . this guidance is effective for the company beginning in the first quarter of fiscal 2013 , and will be applied retrospectively . the adoption of this guidance will expand existing disclosure requirements but will not have a material impact on the consolidated financial statements . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , net revenue and expenses , and the related disclosures . we 37 base our estimates on historical experience , our knowledge of economic and market factors and various other assumptions that we believe to be reasonable under the circumstances . estimates and judgments used in the preparation of our financial statements are , by their nature , uncertain and unpredictable , and depend upon , among other things , many factors outside of our control , such as demand for our products and economic conditions . accordingly , our estimates and judgments may prove to be incorrect and actual results may differ from these estimates under different estimates , assumptions or conditions . we believe the following critical accounting policies are affected by significant estimates , assumptions and judgments used in the preparation of our consolidated financial statements : revenue recognition we recognize revenue when it is realized or realizable and earned . we consider revenue realized or realizable and earned when there is persuasive evidence of an arrangement , delivery has occurred , the sales price is fixed or determinable , and collectability is reasonably assured . delivery does not occur until products have been shipped or services have been provided , risk of loss has transferred and in cases where formal acceptance is required , customer acceptance has been obtained or customer acceptance provisions have lapsed . in situations where a formal acceptance is required but the acceptance only relates to whether the product meets its published specifications , revenue is recognized upon shipment provided all other revenue recognition criteria are met . the sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved . we reduce revenue for rebates and other similar allowances . revenue is recognized only if these estimates can be reliably determined . our estimates are based on historical results taking into consideration the type of customer , the type of transaction and the specifics of each arrangement . in addition to the aforementioned general policies , the following are the specific revenue recognition policies for multiple-element arrangements and for each major category of revenue . multiple-element arrangements in october 2009 , the fasb issued authoritative guidance that applies to arrangements with multiple deliverables . the guidance eliminates the residual method of revenue recognition , on non-software arrangements , and allows the use of management 's best estimate of selling price ( `` besp '' ) for individual elements of an arrangement when vendor-specific objective evidence ( `` vsoe '' ) or third-party evidence ( `` tpe '' ) is unavailable . story_separator_special_tag in addition , the fasb issued authoritative guidance which removes non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance , resulting in the recognition of revenue similar to that for other tangible products . we have adopted these standards at the beginning of our first quarter of fiscal 2011 on a prospective basis for applicable transactions originating or materially modified on or after july 3 , 2010. when a sales arrangement contains multiple deliverables , such as sales of products that include services , the multiple deliverables are evaluated to determine the units of accounting , and the entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price . under this approach , the selling price of a unit of accounting is determined by using a selling price hierarchy which requires the use of vsoe of fair value if available , tpe if vsoe is not available , or besp if neither vsoe nor tpe is available . revenue is recognized when the revenue recognition criteria for each unit of accounting are met . we establish vsoe of selling price using the price charged for a deliverable when sold separately and , in remote circumstances , using the price established by management having the relevant authority . tpe of selling price is established by evaluating similar and interchangeable competitor goods or 38 services in sales to similarly situated customers . when vsoe or tpe are not available then we use besp . generally , we are not able to determine tpe because our product strategy differs from that of others in our markets , and the extent of customization varies among comparable products or services from our peers . we establish besp using historical selling price trends and considering multiple factors including , but not limited to geographies , market conditions , competitive landscape , internal costs , gross margin objectives , and pricing practices . when determining besp , we apply significant judgment in establishing pricing strategies and evaluating market conditions and product lifecycles . the determination of besp is made through consultation with and approval by the segment management . segment management may modify or develop new pricing practices and strategies in the future . as these pricing strategies evolve , we may modify our pricing practices in the future , which may result in changes in besp . the aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element arrangements from the current fiscal quarter , which may change the pattern and timing of revenue recognition for these elements but will not change the total revenue recognized for the arrangement . to the extent that a deliverable ( s ) in a multiple-element arrangement is subject to specific guidance ( for example , software that is subject to the authoritative guidance on software revenue recognition ) we allocate the fair value of the units of accounting using relative selling price and that unit of accounting is accounted for in accordance with the specific guidance . some of our product offerings include hardware that are integrated with or sold with software that delivers the functionality of the equipment . we believe that this equipment is not considered software related and would therefore be excluded from the scope of the authoritative guidance on software revenue recognition . if the transactions entered into or materially modified on or after july 3 , 2010 were subject to the previous accounting guidance , the reported net revenue amount during the year ended july 2 , 2011 , would decrease by approximately $ 7 million . hardware revenue from hardware sales is recognized when the product is shipped to the customer and when there are no unfulfilled company obligations that affect the customer 's final acceptance of the arrangement . any cost of warranties and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized . services revenue from services and system maintenance is typically recognized on a straight-line basis over the term of the contract . revenue from time and material contracts is recognized at the contractual rates as labor hours are delivered and direct expenses are incurred . revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line basis over the delivery period . we also generate service revenue from hardware repairs and calibration which is recognized as revenue upon completion of the service . software our software arrangements generally consist of a perpetual license fee and post-contract support ( `` pcs '' ) . generally we have established vsoe of fair value for pcs contracts based on the renewal rate or the bell curve methodology . revenue from maintenance , unspecified upgrades and technical support is recognized over the period such items are delivered . in multiple-element revenue arrangements that include software , software related and non software-related elements are accounted for in accordance with the following policies . 39 non software and software related products are bifurcated based on a relative selling price software related products are separated into units of accounting if all of the following criteria are met : the functionality of the delivered element ( s ) is not dependent on the undelivered element ( s ) . there is vsoe of fair value of the undelivered element ( s ) . delivery of the delivered element ( s ) represents the culmination of the earnings process for that element ( s ) . if these criteria are not met , the software revenue is deferred until the earlier of when such criteria are met or when the last undelivered element is delivered . if there is vsoe of the undelivered item ( s ) but no such evidence for the delivered item ( s ) , the residual method is used to allocate the arrangement consideration . under the residual method , the amount of consideration allocated to the delivered item ( s ) equals the total arrangement consideration less the aggregate vsoe of the undelivered elements .
| during the second fiscal quarter of 2012 flooding in thailand temporarily suspended operations of fabrinet , one of ccop 's 47 primary manufacturing partners , affecting net revenue by approximately $ 15 million . net revenue in our aot segment decreased $ 5.0 million due primarily due to reduced demand for our gesture recognition products , which was partially offset by increases in our currency products . net revenue in fiscal 2011 increased 32.3 % , or $ 440.6 million , to $ 1,804.5 million from $ 1,363.9 million in fiscal 2010. this increase was primarily due to an increased demand for our products driven by a broad based improvement in the global macro-economic environment , and specifically in the markets in which our segments operate . the significant yearly revenue increase was magnified relative to fiscal 2010 , because fiscal 2010 net revenue was adversely impacted by the worldwide global recession in the first half of fiscal 2010. we saw the recovery from this recession begin during the second half of fiscal 2010 and continue at an increasing pace in fiscal 2011. in addition to the impact of the improvements in the global macro-economic environment on demand for our products , there were other factors which contributed to our increase in net revenue , as discussed below . commtest revenue increased $ 160.3 million largely due to the nsd acquisition in may 2010 , the fourth quarter of fiscal 2010 , which contributed $ 112.3 million of the increase in revenue in fiscal 2011. the overall improvements in the macro-economic environment in fiscal 2011 helped drive an increase in revenues across a broad portfolio of our product lines , including fiber , video broadband & access and metro/transport . ccop revenue increased $ 271.5 million primarily due to improvements in the economic environment of the optical communication industry in fiscal 2011 that led to an increase in demand and volume of our pluggables , high powered lasers , modulators , tunables , roadms , commercial lasers and circuit pack product lines . another factor in the fiscal 2011 increase in revenue was the
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we remain responsible for clinical development , regulatory and manufacturing activities for the licensed products globally , including in the dse territory . on june 18 , 2020 , we entered into an amendment to the license and collaboration agreement , or lca amendment , with dse . in june 2020 , we completed the transfer of the maas for nilemdo and nustendi . pursuant to the terms of the amendment , dse paid us the second $ 150 million milestone based on completion of the nustendi maa transfer rather than the first product sale in the eu . prior to the execution of the lca amendment , the milestone payment was due upon the first commercial sale in europe . additionally , we and dse have agreed to expand the territory in which dse has exclusive commercialization rights to nilemdo and nustendi to include turkey . dse 's designated affiliate in turkey will be solely responsible , at its sole cost and expense , for all regulatory matters relating to such products in turkey , including obtaining regulatory approval for such product in turkey . on june 26 , 2019 , we entered into a revenue interest purchase agreement , or ripa , with eiger ii sa llc , or oberland , an affiliate of oberland capital llc , and the purchasers named therein . pursuant to the ripa , oberland paid us $ 125.0 million on closing , less certain issuance costs and $ 25.0 million in march 2020 upon receiving regulatory approval of nexletol . subject to the ripa , we are eligible for an additional $ 50.0 million at our option upon reaching certain sales thresholds . as consideration for the payments , oberland has the right to receive certain revenue interests from us based on the net sales of certain products , once approved , which will be tiered payments initially ranging from 2.5 % to 7.5 % of our net sales in the covered territory . the initial mid-single digit repayment rate on u.s. revenue steps down to less than one percent rate upon certain revenue achievements . esperion reacquires 100 % revenue rights upon repayment completion . refer to note 11 to our audited financial statements appearing elsewhere in this annual report on form 10-k. on november 16 , 2020 , we issued $ 250.0 million aggregate principal amount of 4.00 % convertible senior subordinated notes due 2025 to certain financial institutions as the initial purchasers of the convertible notes . an additional $ 30.0 million of additional convertible notes ( collectively , the `` convertible notes '' ) , which were issued pursuant to the exercise of the initial purchasers ' option to purchase such convertible notes , closed on november 16 , 2020. in connection with the offering of the convertible notes , we entered into a prepaid forward stock repurchase transaction ( “ prepaid forward ” ) with a financial institution and entered into privately-negotiated capped call transactions with one of the initial purchasers of the convertible notes or its affiliate and certain other financial institutions . pursuant to the prepaid forward , the company used approximately $ 55.0 million and $ 46.0 million of the net proceeds from the offering of the convertible notes to fund the prepaid forward and the capped call , respectively . refer to note 12 to our audited financial statements appearing elsewhere in this annual report on form 10-k. we are conducting a global cardiovascular outcomes trial , or cvot , – known as c holesterol l owering via b e mpedoic acid , an a cl-inhibiting r egimen ( clear ) outcomes . the trial is designed to evaluate whether treatment with bempedoic acid reduces the risk of cardiovascular events in patients who are statin averse and who have cvd or are at high risk for cvd . we initiated the clear outcomes cvot in december 2016 and fully enrolled the study with over 14,000 patients in august 2019. the primary endpoint of the study is the effect of bempedoic acid on four types of major adverse cardiovascular events , or mace ( cardiovascular death , non-fatal myocardial infarction , non-fatal stroke , or coronary revascularization ; also referred to as `` four-component mace '' ) . clear outcomes is an event-driven trial and will conclude once the predetermined number of mace endpoints occur . based on estimated cardiovascular event rates , we expect to meet the target number of events in the second half of 2022. we intend to use positive results from this cvot to support submissions for a cv risk reduction indication in the u.s. , europe and other territories . we were incorporated in delaware in january 2008 , and commenced our operations in april 2008. since our inception , we have focused substantially all of our efforts and financial resources on developing bempedoic acid and the bempedoic acid / ezetimibe tablet . in february 2020 , the fda approved nexletol and nexlizet . nexletol was commercially available in the u.s. on march 30 , 2020 and nexlizet was commercially available in the u.s. on june 4 , 2020. we have funded our operations to date primarily through proceeds from sales of preferred stock , convertible promissory notes and warrants , public offerings of common stock , the incurrence of indebtedness , through collaborations with third parties and revenue interest purchase agreements . we have incurred losses in each year since our inception . we have never been profitable and our net losses were $ 143.6 million , $ 97.2 million and $ 201.8 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . substantially all of our net losses resulted from costs incurred in connection with research and development programs , selling , general and administrative costs associated with our operations . we expect to incur significant expenses and operating losses for the foreseeable future . story_separator_special_tag we expect our expenses to increase in connection with our ongoing activities , including , among others : commercializing nexletol and nexlizet tablets in the u.s ; and completing the clinical development activities for the clear outcomes cvot . 71 accordingly , we may need additional financing to support our continuing operations and further the development of our products . we may seek to fund our operations and further development activities through collaborations with third parties , strategic alliances , licensing arrangements , permitted debt financings , permitted royalty-based financings , permitted public or private equity offerings or through other sources . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy or continue operations . we will need to generate significant revenues to achieve profitability , and we may never do so . product overview nexletol is a first-in-class atp citrate lyase , or acl , inhibitor that lowers ldl-c by reducing cholesterol biosynthesis and up-regulating the ldl receptors . completed phase 3 studies conducted in more than 3,000 patients , with over 2,000 patients treated with nexletol , demonstrated an average 18 percent placebo corrected ldl-c lowering when used in patients on moderate or high-intensity statins . nexletol was approved by the fda in february 2020 as an adjunct to diet and maximally tolerated statin therapy for the treatment of adults with hefh or established ascvd who require additional lowering of ldl-c. nexlizet contains bempedoic acid and ezetimibe and lowers elevated ldl-c through complementary mechanisms of action by inhibiting cholesterol synthesis in the liver and absorption in the intestine . phase 3 data demonstrated nexlizet lowered ldl-c by a mean of 38 percent compared to placebo when added on to maximally tolerated statins . nexlizet was approved by the fda in february 2020 as an adjunct to diet and maximally tolerated statin therapy for the treatment of adults with hefh or established ascvd who require additional lowering of ldl-c. nilemdo is a first-in-class acl inhibitor that lowers ldl-c by reducing cholesterol biosynthesis and up-regulating the ldl receptors . nilemdo was approved by the ec in march 2020 for use in adults with primary hypercholesterolemia ( heterozygous familial and non-familial ) or mixed dyslipidemia , as an adjunct to diet in combination with a statin or statin with other lipid-lowering therapies in adult patients unable to reach ldl-c goals with the maximum tolerated dose of a statin , or alone or in combination with other lipid-lowering therapies as an adjunct to diet in adult patients who are statin-intolerant , or for whom a statin is contraindicated . nustendi contains bempedoic acid and ezetimibe and lowers elevated ldl-c through complementary mechanisms of action by inhibiting cholesterol synthesis in the liver and absorption in the intestine . nustendi was approved by the ec in march 2020 for use in adults with primary hypercholesterolemia ( heterozygous familial and non-familial ) or mixed dyslipidemia , as an adjunct to diet in combination with a statin in adult patients unable to reach ldl-c goals with the maximum tolerated dose of a statin in addition to ezetimibe , alone in patients who are either statin-intolerant or for whom a statin is contraindicated , and are unable to reach ldl-c goals with ezetimibe alone , or as an adjunct to diet in adult patients already being treated with the combination of bempedoic acid and ezetimibe as separate tablets with or without statin . during the year ended december 31 , 2020 , we incurred $ 70.4 million in expenses related to our clear outcomes cvot and other ongoing clinical studies . during the year ended december 31 , 2019 , we incurred $ 108.9 million in expenses related to our clear outcomes cvot , our open-label extension study , and our 1002-fdc-058 study . during the year ended december 31 , 2018 , we incurred $ 121.7 million in expenses related to the four studies in our global pivotal phase 3 ldl-c lowering program , our clear outcomes cvot , our 1002fdc-053 study , our open-label extension study , our 1002-fdc-058 study and our phase 2 ( 1002-39 ) clinical study of bempedoic acid when added-on to an injectable proprotein convertase subtilisin/kexin type 9 inhibitor , or pcsk9i , therapy in patients with hypercholesterolemia . the covid-19 pandemic the full extent to which the covid-19 pandemic , or the future outbreak of any other highly infectious or contagious diseases , may impact our business , including our cvot and commercialization efforts will depend on continuously changing circumstances , which are highly uncertain and can not be predicted at this time , such as the duration of such pandemic including future waves of infection or the broad availability of an effective vaccine , the actions taken to contain the pandemic or mitigate its impact , and the direct and indirect economic effects of the pandemic and containment measures , among others . the ongoing fluidity of this situation precludes any prediction as to the full impact of the covid-19 pandemic but it could have a material adverse effect on our business , financial condition , and results of operations . the covid-19 pandemic may also have the effect of heightening the risks to which we are subject , including various aspects of our ongoing cvot , the reliance on third parties 72 in our supply chain for materials and manufacturing of our drugs and drug candidates , disruptions in health regulatory agencies ' operations globally , the volatility of our common stock , our ability to access capital markets , and our ability to successfully commercialize and generate revenue from our approved drugs .
| research and development expenses research and development expenses for the year ended december 31 , 2020 , were $ 146.9 million compared to $ 175.6 million for the year ended december 31 , 2019 , a decrease of $ 28.7 million . the decrease in research and development expenses was primarily attributable to a decline in costs related to the completion of enrollment of our clear cvot , which was fully 77 enrolled during the third quarter of 2019 , and a decline in costs related to our regulatory submission activities completed in 2019 , partially offset by $ 12.5 million in 2020 from the definitive agreement with serometrix to in-license its oral , small molecule pcsk9 inhibitor program . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2020 , were $ 199.6 million compared to $ 65.9 million for the year ended december 31 , 2019 , an increase of approximately $ 133.8 million . the increase in selling , general and administrative expenses was primarily attributable to salaries and benefits , including stock based compensation , from the build out of our customer-facing team and other costs to support the commercialization of nexletol and nexlizet in the u.s. interest expense interest expense for the year ended december 31 , 2020 , was $ 22.7 million , compared to $ 8.1 million for the year ended december 31 , 2019. interest expense for the year ended december 31 , 2020 was related to our ripa with oberland and our convertible notes , which we entered into in november 2020. interest expense for the year ended december 31 , 2019 was related to our ripa with oberland , which was entered into on june 26 , 2019. other income , net other income , net for the year ended december 31 , 2020 , was $ 0.5 million compared to $ 4.1 million for the year ended december 31 , 2019. this decrease was primarily related to lower interest income on our cash , cash equivalents , and investments
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the year-over-year increase was primarily due to a full year of these costs compared to the partial year of 2016. for the year ended december 31 , 2016 , we incurred $ 1.5 million of certain costs relating to payroll and relocation costs . the predecessor did not have any general and administrative expenses for the year ended december 31 , 2015. non-operating expenses total non-operating expenses for the year ended december 31 , 2017 and 2016 were $ 181.9 million and $ 116.2 million , respectively , primarily related to interest expense on our senior secured credit facility and senior notes , which included amortization and write-off of debt issuance costs and cash flow hedge amortization of $ 12.5 million for the year ended december 31 , 2017 and amortization of debt issuance costs of $ 7.2 million for the year ended december 31 , 2016. interest expense increased in the current year primarily due to the issuance of $ 350 million in aggregate principal amount of 4.50 % senior notes due 2028 in september 2017. there were no non-operating expenses for the year ended december 31 , 2015 . 34 supplemental data : 2016 results of operations subsequent to the formation transactions the following table summarizes the combined and consolidated results of operations of mgp and the operating partnership for the year ended december 31 , 2016 : replace_table_token_12_th non-gaap measures funds from operations ( “ ffo ” ) is net income ( computed in accordance with u.s. gaap ) , excluding gains and losses from sales or disposals of property ( presented as property transactions , net ) , plus real estate depreciation , as defined by the national association of real estate investment trusts ( “ nareit ” ) . adjusted funds from operations ( “ affo ” ) is ffo as adjusted for amortization and write-off of financing costs and cash flow amortization , the net amortization of the above market lease , non-cash compensation expense , acquisition related expenses , provision for income taxes and the net effect of straight-line rents and amortization of deferred revenue . adjusted ebitda is net income ( computed in accordance with u.s. gaap ) as adjusted for gains and losses from sales or disposals of property ( presented as property transactions , net ) , real estate depreciation , interest income , interest expense ( including amortization of financing costs and cash flow hedge amortization ) , write-off of financing costs , the net amortization of the above market lease , non-cash compensation expense , acquisition related expenses , provision for income taxes and the net effect of straight-line rents and amortization of deferred revenue . ffo , ffo per unit , affo , affo per unit and adjusted ebitda are supplemental performance measures that have not been prepared in conformity with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) that management believes are useful to investors in comparing operating and financial results between periods . management believes that this is especially true since these measures exclude real estate depreciation and amortization expense and management believes that real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time . the company believes such a presentation also provides investors with a meaningful measure of the company 's operating results in comparison to the operating results of other reits . adjusted ebitda is useful to investors to further supplement affo and ffo and to provide investors a performance metric which excludes interest expense . in addition to non-cash items , the company adjusts affo and adjusted ebitda for acquisition-related expenses . while we do not label these expenses as non-recurring , infrequent or unusual , management believes that it is helpful to adjust for these expenses when they do occur to allow for comparability of results between periods because 35 each acquisition is ( and will be ) of varying size and complexity and may involve different types of expenses depending on the type of property being acquired and from whom . ffo , ffo per unit , affo , affo per unit and adjusted ebitda do not represent cash flow from operations as defined by u.s. gaap , should not be considered as an alternative to net income as defined by u.s. gaap and are not indicative of cash available to fund all cash flow needs . investors are also cautioned that ffo , ffo per unit , affo , affo per unit and adjusted ebitda as presented , may not be comparable to similarly titled measures reported by other reits due to the fact that not all real estate companies use the same definitions . the following table presents a reconciliation of net income to ffo , affo and adjusted ebitda : replace_table_token_13_th the following table presents ffo and affo per diluted operating partnership unit : replace_table_token_14_th liquidity and capital resources property rental revenue is our sole source of cash from operations and is dependent on the tenant 's ability to pay rent . all of our indebtedness is held by the operating partnership and mgp does not guarantee any of the operating partnership 's indebtedness . mgp 's principal funding requirement is the payment of distributions on its class a shares , and its principal source of funding for 36 these distributions is the distributions it receives from the operating partnership . mgp 's liquidity is therefore dependent upon the operating partnership 's ability to make sufficient distributions to it . the operating partnership 's primary uses of cash include payment of operating expenses , debt service and distributions to us . we believe that the operating partnership currently has sufficient liquidity to satisfy all of its commitments , including its distributions to mgp , and in turn , that we currently have sufficient liquidity to satisfy all our commitments in the form of $ 259.7 million in cash and cash story_separator_special_tag the year-over-year increase was primarily due to a full year of these costs compared to the partial year of 2016. for the year ended december 31 , 2016 , we incurred $ 1.5 million of certain costs relating to payroll and relocation costs . the predecessor did not have any general and administrative expenses for the year ended december 31 , 2015. non-operating expenses total non-operating expenses for the year ended december 31 , 2017 and 2016 were $ 181.9 million and $ 116.2 million , respectively , primarily related to interest expense on our senior secured credit facility and senior notes , which included amortization and write-off of debt issuance costs and cash flow hedge amortization of $ 12.5 million for the year ended december 31 , 2017 and amortization of debt issuance costs of $ 7.2 million for the year ended december 31 , 2016. interest expense increased in the current year primarily due to the issuance of $ 350 million in aggregate principal amount of 4.50 % senior notes due 2028 in september 2017. there were no non-operating expenses for the year ended december 31 , 2015 . 34 supplemental data : 2016 results of operations subsequent to the formation transactions the following table summarizes the combined and consolidated results of operations of mgp and the operating partnership for the year ended december 31 , 2016 : replace_table_token_12_th non-gaap measures funds from operations ( “ ffo ” ) is net income ( computed in accordance with u.s. gaap ) , excluding gains and losses from sales or disposals of property ( presented as property transactions , net ) , plus real estate depreciation , as defined by the national association of real estate investment trusts ( “ nareit ” ) . adjusted funds from operations ( “ affo ” ) is ffo as adjusted for amortization and write-off of financing costs and cash flow amortization , the net amortization of the above market lease , non-cash compensation expense , acquisition related expenses , provision for income taxes and the net effect of straight-line rents and amortization of deferred revenue . adjusted ebitda is net income ( computed in accordance with u.s. gaap ) as adjusted for gains and losses from sales or disposals of property ( presented as property transactions , net ) , real estate depreciation , interest income , interest expense ( including amortization of financing costs and cash flow hedge amortization ) , write-off of financing costs , the net amortization of the above market lease , non-cash compensation expense , acquisition related expenses , provision for income taxes and the net effect of straight-line rents and amortization of deferred revenue . ffo , ffo per unit , affo , affo per unit and adjusted ebitda are supplemental performance measures that have not been prepared in conformity with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) that management believes are useful to investors in comparing operating and financial results between periods . management believes that this is especially true since these measures exclude real estate depreciation and amortization expense and management believes that real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time . the company believes such a presentation also provides investors with a meaningful measure of the company 's operating results in comparison to the operating results of other reits . adjusted ebitda is useful to investors to further supplement affo and ffo and to provide investors a performance metric which excludes interest expense . in addition to non-cash items , the company adjusts affo and adjusted ebitda for acquisition-related expenses . while we do not label these expenses as non-recurring , infrequent or unusual , management believes that it is helpful to adjust for these expenses when they do occur to allow for comparability of results between periods because 35 each acquisition is ( and will be ) of varying size and complexity and may involve different types of expenses depending on the type of property being acquired and from whom . ffo , ffo per unit , affo , affo per unit and adjusted ebitda do not represent cash flow from operations as defined by u.s. gaap , should not be considered as an alternative to net income as defined by u.s. gaap and are not indicative of cash available to fund all cash flow needs . investors are also cautioned that ffo , ffo per unit , affo , affo per unit and adjusted ebitda as presented , may not be comparable to similarly titled measures reported by other reits due to the fact that not all real estate companies use the same definitions . the following table presents a reconciliation of net income to ffo , affo and adjusted ebitda : replace_table_token_13_th the following table presents ffo and affo per diluted operating partnership unit : replace_table_token_14_th liquidity and capital resources property rental revenue is our sole source of cash from operations and is dependent on the tenant 's ability to pay rent . all of our indebtedness is held by the operating partnership and mgp does not guarantee any of the operating partnership 's indebtedness . mgp 's principal funding requirement is the payment of distributions on its class a shares , and its principal source of funding for 36 these distributions is the distributions it receives from the operating partnership . mgp 's liquidity is therefore dependent upon the operating partnership 's ability to make sufficient distributions to it . the operating partnership 's primary uses of cash include payment of operating expenses , debt service and distributions to us . we believe that the operating partnership currently has sufficient liquidity to satisfy all of its commitments , including its distributions to mgp , and in turn , that we currently have sufficient liquidity to satisfy all our commitments in the form of $ 259.7 million in cash and cash
| net cash provided by financing activities for the year ended december 31 , 2016 was $ 201.7 million , which was primarily attributable to net proceeds of $ 3.6 billion from the issuance of indebtedness by the operating partnership and net proceeds of $ 1.1 billion received from the issuance of class a shares , partially offset by the $ 4.5 billion repayment of the bridge facilities that were assumed by the operating partnership in connection with the formation transactions and the borgata transaction . net cash provided by financing activities for the year ended december 31 , 2015 was $ 187.8 million , respectively , which represents the net amounts transferred from mgm related to the predecessor . dividends and distributions the following table presents the distributions declared and paid by the operating partnership and the distributions declared and paid by mgp . mgp pays its dividends with the receipt of its share of the operating partnership 's distributions . replace_table_token_15_th ( 1 ) amount is based on a distribution and dividend of $ 0.3575 per operating partnership unit and class a share for a full quarter . principal debt arrangements as of december 31 , 2017 , we had $ 4.0 billion principal amount of indebtedness in the form of the operating partnership 's ( i ) senior secured credit facilities and ( ii ) $ 1.05 billion principal amount of 5.625 % senior notes due 2024 , $ 500 million principal amount 37 of 4.50 % senior notes due 2026 and $ 350 million principal amount of 4.50 % senior unsecured notes due 2028 ( collectively , the “ senior notes ” ) . the operating partnership 's senior secured credit facilities include a $ 273.8 million term loan a facility which matures in 2021 , a $ 1.8 billion term loan b facility which matures in 2023 and a $ 600.0 million revolving credit facility which also matures in 2021. no amounts were drawn under the revolving credit facility as of december 31 , 2017. in february 2017 , mgp 's corporate family rating was upgraded which resulted in the operating partnership receiving a reduction in pricing to libor plus 2.50 % , with a libor floor of
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with the benefit of 20/20 hindsight , it appears that the negative impact on revenues from the fire continued to drag beyond the company 's initial estimates , well into fiscal 2016. while the pace of fannie may 's recovery was below expectations throughout the year , the company was able to offset this impact to earnings as it recovered its inventory lost to the fire through its property and business interruption policies , recognizing a gain of $ 19.6 million upon settlement in the first quarter of fiscal 2016. in addition to the lingering effects of the fire , the company effectively steered its way through the challenging date placement of valentine 's day , which moved from saturday in fiscal 2015 , already a difficult date placement , to sunday in fiscal 2016 , recognized in the e-commerce floral industry as the worst date placement within the week . this shift presented not only logistical challenges related to sunday deliveries , but also reduced overall demand as customers may forgo flowers in favor of other options such as dining out or going to the movies . fiscal 2016 was also negatively impacted by a year-over-year reduction in store count , as well as significant increases in labor costs associated with the tightening employment market for seasonal workers and mandated minimum wage increases . recognizing the need to balance the company 's short and long-term operating and financial objectives , a key tenet of the company 's fiscal 2017 strategy , now that harry & david has been substantially integrated , is to continue to focus on execution of its identified cost synergy savings opportunities , which are expected to generate annual savings in excess of $ 20.0 million by fiscal 2018 , while now pursuing revenue generating synergies such as cross-brand marketing , mining of customer databases through our expanded suite of crm tools and in business gift services and wholesale channels . tempered by the continuing challenging economic climate , the company expects consolidated revenue growth in the range of 4-to-5 % during fiscal 2017. in terms of bottom-line results , the company expects ebitda growth in a range of 8-10 % , and eps growth in a range of 5-10 % , compared with adjusted ebitda of $ 85.8 million and adjusted eps of $ 0.43 reported for fiscal 2016 ( fiscal 2016 adjusted ebitda and adjusted eps exclude the impact of certain one-time costs – see ca tegory information below for details of the adjustments ) . category information the following table presents the net revenues , gross profit and category contribution margin from each of the company 's business segments , as well as consolidated ebitda and adjusted ebitda . as noted previously , the company 's e-commerce and procurement businesses of its winetasting network subsidiary , which had previously been included within its gourmet foods & gift baskets category , have been classified as discontinued operations and therefore excluded from category information below for fiscal 2014 . ( due to certain one-time items , the following non-gaap reconciliation tables have been included within md & a . ) 30 years ended reported july 3 , 2016 harry & david integration costs litigation settlement severance costs adjusted july 3 , 2016 reported june 28 , 2015 impact of warehouse fire purchase accounting adjustment to deferred revenue purchase accounting adjustment for inventory fair value step-up harry & david acquisition costs harry & david integration costs harry & david severance costs annualization of acquisition of harry & david adjusted june 28 , 2015 reported june 29 , 201 4 ( dollars in thousands ) net revenues : 1-800-flowers.com consumer floral $ 418,492 $ - $ - $ - $ 418,492 $ 422,199 $ - $ - $ - $ - $ - $ - $ - $ 422,199 $ 421,336 bloomnet wire service 85,483 85,483 85,968 350 - - - - - - 86,318 84,199 gourmet food & gift baskets 670,453 670,453 613,953 16,934 1,621 - - - - 29,393 661,901 251,990 corporate 1,066 1,066 1,020 - - - - - - - 1,020 797 intercompany eliminations ( 2,470 ) ( 2,470 ) ( 1,634 ) - - - - - - - ( 1,634 ) ( 1,977 ) total net revenues $ 1,173,024 $ - $ - $ - $ 1,173,024 $ 1,121,506 $ 17,284 $ 1,621 $ - $ - $ - $ - $ 29,393 $ 1,169,804 $ 756,345 gross profit : 1-800-flowers.com consumer floral $ 170,536 $ - $ - $ - $ 170,536 $ 165,677 $ - $ - $ - $ - $ - $ - $ - $ 165,677 $ 164,792 40.8 % 40.8 % 39.2 % - - - - - - - 39.2 % 39.1 % bloomnet wire service 48,169 48,169 47,924 70 - - - - - - 47,994 44,900 56.3 % 56.3 % 55.7 % - - - - - - - 55.6 % 53.3 % gourmet food & gift baskets 297,782 297,782 272,690 6,745 1,621 4,760 - - - 12,701 298,517 105,092 44.4 % 44.4 % 44.4 % - - - - - - - 45.1 % 41.7 % corporate ( a ) 971 971 904 - - - - - - - 904 889 91.1 % 91.1 % 88.6 % - - - - - - - 88.6 % 111.5 % total gross profit $ 517,458 $ - $ - $ - $ 517,458 $ 487,195 $ 6,815 $ 1,621 $ 4,760 $ - $ - $ - $ 12,701 $ 513,092 $ 315,673 44.1 % - - - 44.1 % 43.4 % 39.4 % - - - - 43.9 % 41.7 % category contribution margin : 1-800-flowers.com consumer floral $ 50,773 $ - $ - $ - $ 50,773 $ 43,529 $ - $ - $ - $ - $ - $ - $ - $ 43,529 $ 40,252 bloomnet wire service 30,629 30,629 29,398 70 - - - - - - 29,468 26,715 gourmet food & gift baskets 79,398 79,398 74,889 6,486 1,621 4,760 1,238 - 1,989 ( 7,441 ) 83,542 27,122 category contribution margin story_separator_special_tag subtotal 160,800 - - - 160,800 147,816 6,556 1,621 4,760 1,238 - 1,989 ( 7,441 ) 156,539 94,089 corporate ( a ) ( 85,134 ) 828 1,500 1,437 ( 81,369 ) ( 81,075 ) - - - 2,910 3,039 468 ( 7,397 ) ( 82,055 ) ( 50,535 ) ebitda 75,666 828 1,500 1,437 79,431 66,741 6,556 1,621 4,760 4,148 3,039 2,457 ( 14,838 ) 74,484 43,554 add : stock-based compensation 6,343 6,343 5,962 - - - - - 5,962 4,664 ebitda , excluding stock-based compensation $ 82,009 $ 828 $ 1,500 $ 1,437 $ 85,774 $ 72,703 $ 6,556 $ 1,621 $ 4,760 $ 4,148 $ 3,039 $ 2,457 $ ( 14,838 ) $ 80,446 $ 48,218 31 replace_table_token_5_th years ended discontinued operations : j uly 3 , 2016 june 28 , 2015 june 29 , 2014 net revenues from discontinued operations $ - $ - $ 1,669 gross profit from discontinued operations $ - $ - $ 429 ebitda from discontinued operations $ - $ - $ ( 868 ) 32 replace_table_token_6_th ( a ) corporate expenses consist of the company 's enterprise shared service cost centers , and include , among other items , information technology , human resources , accounting and finance , legal , executive and customer service center functions , as well as stock-based compensation . in order to leverage the company 's infrastructure , these functions are operated under a centralized management platform , providing support services throughout the organization . the costs of these functions , other than those of the customer service center , which are allocated directly to the above categories based upon usage , are included within corporate expenses as they are not directly allocable to a specific segment . ( b ) performance is measured based on segment contribution margin or segment adjusted ebitda , reflecting only the direct controllable revenue and operating expenses of the segments . as such , management 's measure of profitability for these segments does not include the effect of corporate overhead , described above , depreciation and amortization , other income ( net ) , nor does it include one-time charges or gains . management utilizes ebitda , and adjusted financial information , as a performance measurement tool because it considers such information a meaningful supplemental measure of its performance and believes it is frequently used by the investment community in the evaluation of companies with comparable market capitalization . the company also uses ebitda and adjusted financial information as one of the factors used to determine the total amount of bonuses available to be awarded to executive officers and other employees . the company 's credit agreement uses ebitda and adjusted financial information to measure compliance with covenants such as interest coverage and debt incurrence . ebitda and adjusted financial information is also used by the company to evaluate and price potential acquisition candidates . ebitda and adjusted financial information have 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 gaap . some of these limitations are : ( a ) ebitda does not reflect changes in , or cash requirements for , the company 's working capital needs ; ( b ) ebitda does not reflect the significant interest expense , or the cash requirements necessary to service interest or principal payments , on the company 's debts ; and ( c ) although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and ebitda does not reflect any cash requirements for such capital expenditures . because of these limitations , ebitda should only be used on a supplemental basis combined with gaap results when evaluating the company 's performance . 33 story_separator_special_tag the prior year . net revenues during the fiscal year ended june 28 , 2015 increased 0.2 % primarily due to the incremental volume provided by iflorist , which was acquired in december 2013 , offset by lower order volume resulting from the saturday placement of valentine 's day . excluding the impact of the acquisition of iflorist , revenue of the 1-800-flowers.com consumer floral segment decreased by 0.2 % in comparison to fiscal 2014 . the bloomnet wire service segment includes revenues from membership fees as well as other product and service offerings to florists . net revenues during the fiscal year ended july 3 , 2016 decreased 0.6 % due to lower transaction and ancillary fee revenues as a result of unfavorable shop to shop order volume sent through the network due in part to the sunday date placement of valentine 's day , partially offset by increased revenue as a result of bloomnet initiatives including the annualization of a florist transaction program implemented in the 3rd quarter of fiscal 2015. net revenues during the fiscal year ended june 28 , 2015 increased 2.1 % , as a result of higher membership and transaction fees , including the implementation of a new florist transaction program , and increased ancillary service revenue including directory advertising , partially offset by lower product sales as a result of decreased demand and the west coast dock strike . the gourmet food & gift baskets segment includes the operations of harry & david , wolferman 's , stockyards , cheryl 's , fannie may , harry london , the popcorn factory and 1-800-baskets/designpac . revenue is derived from the sale of gourmet fruits , cookies , baked gifts , premium chocolates and confections , gourmet popcorn , gift baskets , and prime steaks and chops through the company 's e-commerce sales channels ( telephonic and online sales ) and company-owned and operated retail stores under the harry & david , cheryl 's and fannie may brand names , as well as wholesale operations .
| during the year ended june 28 , 2015 , net revenues increased 48.3 % in comparison to the prior year primarily as a result of the incremental revenue generated by harry & david , which was acquired on september 30 , 2014 , as well as growth across all three of the company 's business segments . after adjusting for lost revenue associated with the thanksgiving day fire at the company 's fannie may warehouse and distribution center , estimated to be $ 17.3 million during the year ended june 28 , 2015 , and for the impact of purchase accounting adjustments to reduce the acquired value of harry & david 's deferred revenue of $ 1.6 million during the year ended june 28 , 2015 , pro forma revenue increased by 50.8 % during the year ended june 28 , 2015. excluding the impact of acquisitions , organic revenue , adjusted for the estimated lost revenue from the fannie may warehouse fire , increased 2.8 % during the year ended june 28 , 2015 , despite the loss of revenue from the shift in the valentine 's day holiday to a saturday in fiscal 2015. e -commerce revenues ( combined online and telephonic sales channels ) increased 3.9 % , during the year ended july 3 , 2016 compared to the prior year , due to growth within the gourmet food and gift baskets segment , as a result of the incremental revenue generated by harry & david , which was acquired on september 30 , 2014 , the impact on prior year revenues of the thanksgiving day fannie may warehouse fire , organic growth within the 1-800-flowers.com cheryl 's brands , and the impact of the 53rd week , and partially offset by the impact of the dispositions of iflorist and fine stationery in october 2015 and june 2015 , respectively , and the anticipated decline in revenues due to the sunday date placement of valentine 's day . the company fulfilled approximately 12.2 million e-commerce orders , with an average order value of $ 72.64 , representing
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consumable sales increased 3.2 % , although they were affected by uneven patient demand for dental services as a result of the weak economy . while the economic recovery has been slow , it is believed the fundamentals of the north american dental market continued to strengthen as fiscal 2011 progressed . dental equipment and software sales increased 3.6 % in fiscal 2011 to $ 734.7 million . sales of basic dental equipment and software grew 5.4 % , led by sales of digital sensors and cone beam and panoramic imaging systems . sales of cerec dental systems declined 2.4 % . as market fundamentals have started to improve , dentists are believed to have gradually become more confident about investing in their practices . in addition , additional marketing programs were implemented at the beginning of the fourth quarter of fiscal 2011. these two factors helped in reaching sales growth of 11.2 % in the fourth quarter . other dental sales , consisting primarily of technical service parts and labor , software support services and artificial teeth , increased 2.0 % in fiscal 2011. webster veterinary sales grew 4.9 % to $ 674.9 million . sales of consumables were 4.0 % higher in fiscal 2011 and equipment and software sales of $ 34.3 million represented an increase of 16.8 % compared to fiscal 2010. the veterinary equipment business has been growing at solid rates in recent quarters , and we intend to 39 continue investing in this relatively new portion of webster 's operation that has expanded the unit 's full-service platform . patterson medical sales of $ 504.7 million were 18.4 % higher than fiscal 2010. acquisitions , primarily that of the health care business of dcc plc , contributed 15.3 % of sales growth . internally generated sales growth , which excludes the contribution of acquisitions and a 0.4 % negative impact from foreign currency translation rates , was 3.5 % in fiscal 2011. gross margin . consolidated gross margin was 33.5 % in fiscal 2011 and 33.7 % in fiscal 2010. the dental segment 's gross margin decreased 30 basis points to 36.5 % in fiscal 2011. lower vendor rebates and a higher level of promotional activities as compared to fiscal 2010 contributed to the decline . gross margin of the veterinary unit was 19.3 % , a decrease of 20 basis points from 19.5 % in fiscal 2010. price increases on a line of pharmaceutical products by a manufacturer and lower vendor rebates were primary factors in the decline in gross margin . patterson medical 's gross margin of its historical operations expanded during fiscal 2011 ; however , these improvements were offset by the lower gross margins of the dcc healthcare acquisitions . for the year , gross margin declined 10 basis points to 39.1 % . operating expenses . the consolidated operating expense ratio in fiscal 2011 was 22.5 % , or 20 basis points lower than fiscal 2010. the dental unit 's operating expense ratio decreased 30 basis points , reflecting expense controls and leverage gained from higher sales on fixed costs . the ratio of the veterinary unit 's operating expenses as a percent of sales decreased 80 basis points , due to leverage on higher sales and cost savings from the integration of the october , 2008 columbus serum acquisition . those integration activities were completed in fiscal 2010. patterson medical 's operating expense ratio increased 80 basis points in fiscal 2011 due to the cost structure of the dcc acquisition . integration of the dcc entities has progressed throughout the year and is largely complete . operating income . operating income was $ 376.0 million in fiscal 2011 , or 5.8 % higher compared to $ 355.3 million in fiscal 2010. operating margin was 11.0 % in fiscal years 2011 and 2010 , respectively . interest expense . interest expense was $ 25.8 million in fiscal 2011 compared to $ 25.7 million in fiscal 2010. other income , net . other income , net of other expenses , was $ 5.7 million in fiscal 2011 compared to $ 9.4 million in fiscal 2010. the decrease was due to losses related to the veterinary unit 's equity interest in vetsource . interest income totaled $ 8.2 million in fiscal 2011 , compared to $ 8.6 million in fiscal 2010. income taxes . the effective income tax rate was 36.7 % in fiscal 2011 as compared to 37.4 % in fiscal 2010. a portion of the dividends paid on shares held by our employee stock ownership plan are deductible on our income tax return . as there were more dividends paid in fiscal 2011 than in fiscal 2010 , the deductible amount was larger , resulting in a lower effective income tax rate in fiscal 2011. net income and earnings per share . net income increased 6.2 % to $ 225.4 million in fiscal 2011 due primarily to the increase in operating income as discussed above . earnings per diluted share and dilutive shares outstanding were $ 1.89 and 119.1 , respectively , in fiscal 2011 and $ 1.78 and 119.2 million , respectively , in fiscal 2010 . 40 liquidity and capital resources patterson 's operating cash flow has been our principal source of liquidity in the last three fiscal years . during fiscal 2012 , we used our revolving credit facility periodically as a source of liquidity in addition to operating cash flow . operating activities generated cash of $ 321.2 million in fiscal 2012 , compared to $ 262.6 million in fiscal 2011 and $ 265.5 million in fiscal 2010. in fiscal 2012 , 2011 and 2010 , we invested in financing programs to support marketing efforts directed at the equipment product lines , particularly in the dental segment . capital expenditures were $ 29.7 , $ 36.9 and $ 29.8 million in fiscal years 2012 , 2011 and 2010 , respectively . story_separator_special_tag significant expenditures in these years included the purchase and expansion of distribution facilities to accommodate multiple business units , the construction of a new facility for the patterson technology center , the expansion of the general office building and continuing investments in information systems . in fiscal 2012 , a project to build-out a purchased building in indiana was completed , the building serves as a distribution facility used by all three business units . this facility is replacing several smaller distribution facilities . in addition , the patterson technology center facility in illinois was completed in fiscal 2012. this 100,000 square foot state-of-the-art facility replaced a nearby leased location and opened in the second quarter of fiscal 2012. we expect to invest approximately $ 23 million in capital expenditures during fiscal 2013 , our main investment is in information systems . cash used for acquisitions and equity investments totaled $ 22.6 million in fiscal 2012 , $ 52.2 million in fiscal 2011 and $ 53.7 million in fiscal 2010. the majority of the cash used for acquisitions in fiscal 2012 related to the acquisitions of avsc and surgical synergies . the medical segment 's acquisition of the healthcare assets of dcc plc . accounted for the majority of the cash used in fiscal 2011 , while the acquisition of the rehabilitation business of empi therapy solutions and the investment in strategic pharmdba vetsource accounted for the majority of the cash used in fiscal 2010. in fiscal 2012 we entered in to a new debt agreement for $ 325 million ; see note 7 of the consolidated financial statements , long-term debt. footnote for further information . there were neither issuances of , nor payments on , debt during fiscal 2011. in fiscal 2010 , patterson fully paid the $ 22 million that was outstanding under a revolving credit facility at the end of fiscal 2009. a maximum of $ 300 million is available under this facility , which expires in fiscal 2013. in the fourth quarter of fiscal 2010 , we declared and paid an initial quarterly cash dividend of $ 0.10 per share , which was increased to $ 0.12 per share in the fourth quarter of fiscal 2011 and the dividend continued at this rate through the third quarter of fiscal 2012. the dividend was increased to $ 0.14 per share in the fourth quarter of fiscal 2012. total dividends paid in fiscal 2012 and fiscal 2011 were $ 54.7 million and $ 50.0 million , respectively . we expect to continue to pay a quarterly cash dividend for the foreseeable future . in addition , during fiscal 2012 we repurchased approximately 12.0 million shares of common stock for approximately $ 361 million . in fiscal 2011 we repurchased approximately 3.3 million shares of common stock for approximately $ 99 million . under a share repurchase plan authorized by the board of directors , as of april 28 , 2012 , patterson may repurchase up to an additional 11 million shares of its common stock . this authorization remains in effect through march 15 , 2016. management expects funds generated from operations and existing cash to be sufficient to meet our working capital needs for the next fiscal year . we have approximately $ 189 million in foreign bank accounts . none of which are subject to any withdrawal restrictions . see note 11 , income taxes for further information regarding our intention to permanently reinvest these funds . we expect to continue to obtain liquidity from the sale of equipment finance contracts . patterson 's existing debt facilities are believed to be adequate as a supplement to internally generated cash flows to fund anticipated expansion plans and strategic initiatives , including acquisitions . 41 patterson sells a significant portion of our finance contracts to a commercial paper funded conduit managed by a third party bank , and as a result , commercial paper is indirectly an important source of liquidity for patterson . patterson is allowed to participate in the conduit due to the quality of our finance contracts and our financial strength . cash flow could be impaired if our financial strength diminishes to a level that precluded us from taking part in this facility or other similar facilities . also , market conditions outside of our control could adversely affect the ability for us to sell the contracts . customer financing arrangements patterson is a party to two arrangements under which we have sold finance contracts received from our customers to outside financial institutions . these arrangements provide sources of liquidity for us that would have to be replaced should any of the current financial institutions be unable or unwilling to continue under them . in december 2010 , the receivables purchase agreement was amended to make the bank of tokyo-mitsubishi ufj , ltd. ( btmu ) the managing agent . as of april 28 , 2012 , the capacity under this agreement is $ 500 million , $ 300 million with btmu and the remainder with royal bank of canada [ rbc ] . in august 2011 , fifth third bank [ ftb ] replaced u.s. bank national association as the agent under the contract purchase agreement , which has a capacity of $ 75 million as of april 28 , 2012. our financing business is described in further detail in note 6 of the notes to the consolidated financial statements in item 8 of this form 10-k. note 6 , customer financing , discusses the nature and business purpose of the arrangements and the activity under each arrangement during fiscal 2012 , including the amount of finance contracts sold and the holdback receivable owed to us . contractual obligations a summary of patterson 's contractual obligations as of april 28 , 2012 follows ( in thousands ) : replace_table_token_10_th patterson is unable to determine its contractual obligations by year related to the provisions of asc topic 740 , income taxes , as the ultimate amount or timing of settlement of its reserves for income taxes can not be reasonably estimated .
| other dental sales , consisting primarily of technical service parts and labor , software support services and artificial teeth , increased 4.1 % in fiscal 2012. webster sales grew 12.6 % to $ 734.4 million . sales of consumables were 10.9 % higher in fiscal 2012 and equipment and software sales of $ 38.3 million represented an increase of 13.4 % compared to fiscal 2011. acquisitions added 1.5 % to sales in fiscal 2012. consumable sales in this segment have benefited from a higher percentage of pharmaceutical sales made under buy-sell versus agency distribution agreements , and an earlier and more severe flea and tick season . we have been investing in the veterinary segment 's equipment and technical service offering to expand this unit 's full-service platform . patterson medical sales of $ 513.3 million were 3.3 % higher than fiscal 2011. acquisitions , contributed 2.3 % of sales growth . the positive impact from foreign currency translation rates was 0.6 % in fiscal 2012. the capital equipment portion of this segment was negatively impacted by uncertainty in the market caused by regulatory changes in healthcare gross margin . consolidated gross margin was 32.9 % in fiscal 2012 and 33.5 % in fiscal 2011. the dental segment 's gross margin decreased 30 basis points to 36.2 % in fiscal 2012. this decrease is mainly due to sales mix as equipment growth outpaced consumable growth during the year . gross margin of the veterinary unit was 18.3 % , a decrease of 100 basis points from 19.3 % in fiscal 2011. sales mix was the primary factor in the decline as a higher percentage of revenue came from pharmaceutical sales , which have a lower margin . patterson medical 's gross margin declined 10 basis points to 39.0 % . this was driven by a slight decrease in point of sale margin and an increase in freight rates , both domestically and internationally . operating expenses . the consolidated operating expense ratio in fiscal 2012 was 22.8 % , or 30 basis points higher than fiscal 2011. on a comparable basis , after adjusting
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the followings are highlights of our operating results : total revenue was $ 1,363.3 million , up 12.9 % from fiscal 2012. license revenue was $ 279.6 million , down 4.8 % from fiscal 2012. gaap-based eps , diluted , was $ 2.51 compared to $ 2.13 in fiscal 2012. non-gaap-based eps , diluted , was $ 5.57 compared to $ 4.60 in fiscal 2012. gaap-based operating margin was 14.5 % compared to 12.4 % in fiscal 2012. non-gaap-based operating margin was 29.3 % compared to 27.3 % in fiscal 2012. operating cash flow was $ 318.5 million , up 19.5 % from fiscal 2012. cash and cash equivalents was $ 470.4 million as of june 30 , 2013 , compared to $ 559.7 million as of june 30 , 2012 . during fiscal 2013 we declared our first ever quarterly dividend at the rate of $ 0.30 per common share , equivalent to a cash payout of approximately $ 17 million . see `` use of non-gaap financial measures '' below for a reconciliation of non-gaap-based measures to gaap-based measures . acquisitions our competitive position in the marketplace requires us to maintain a complex and evolving array of technologies , products , services and capabilities . in light of the continually evolving marketplace in which we operate , we regularly evaluate various acquisition opportunities within the eim market . we made three acquisitions during fiscal 2013. on may 23 , 2013 , we acquired iccm professional services limited ( iccm ) , a provider of it service management software solutions , based in malmesbury , united kingdom , for $ 18.9 million . on march 5 , 2013 , we acquired resonate kt limited ( rkt ) , a company based in cardiff , united kingdom , for $ 20.0 million . rkt is a leading provider of software that enables organizations to visualize unstructured data , create new user experiences for ecm and xecm for sap , as well as build industry based applications that maximize unstructured data residing within content server , a key component of the opentext ecm suite . on july 2 , 2012 , we acquired easylink services international corporation ( easylink ) , a company based in georgia , usa and a global provider of cloud-based electronic messaging and business integration services for $ 342.3 million . we believe our acquisitions support our long-term strategic direction , strengthen our competitive position , expand our customer base , provide greater scale to accelerate innovation , grow our earnings and increase shareholder value . we expect to continue to strategically acquire companies , products , services and technologies to augment our existing business . see note 18 “ acquisitions ” to our consolidated financial statements for more details . outlook for fiscal 2014 we believe we have a strong position in the eim market . our goal is to build on our leadership in ecm , bpm , cem , and ix and to expand our position in discovery , while continuing to expand our leadership in eim . we continue to have approximately 50 % of our revenues from customer support revenues , which are generally a recurring source of income , and we expect this trend will continue . also , in fiscal 2013 we recognized cloud services revenue and we expect this service to be an important growth driver in the future . we also believe that our diversified geographic profile helps strengthen our position and helps to reduce our impact from a downturn in the economy that may occur in any one specific region . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. gaap requires us to make estimates , judgments and assumptions that affect the amounts reported in the consolidated financial statements . these estimates , judgments and assumptions are evaluated on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time , 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 materially from those estimates . the accounting policies that reflect our more significant estimates , judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following : ( i ) revenue recognition , ( ii ) goodwill , 28 ( iii ) acquired intangibles , ( iv ) restructuring charges , ( v ) business combinations , ( vi ) foreign currency , and ( vii ) income taxes . revenue recognition license revenues we recognize revenues in accordance with asc topic 985-605 , “ software revenue recognition ” ( topic 985-605 ) . we record product revenues from software licenses and products when persuasive evidence of an arrangement exists , the software product has been shipped , there are no significant uncertainties surrounding product acceptance by the customer , the fees are fixed and determinable , and collection is considered probable . we use the residual method to recognize revenues on delivered elements when a license agreement includes one or more elements to be delivered at a future date if evidence of the fair value of all undelivered elements exists . if an undelivered element for the arrangement exists under the license arrangement , revenues related to the undelivered element is deferred based on vendor-specific objective evidence ( vsoe ) of the fair value of the undelivered element . our multiple-element sales arrangements include arrangements where software licenses and the associated post contract customer support ( pcs ) are sold together . we have established vsoe of the fair value of the undelivered pcs element based on the contracted price for renewal pcs included in the original multiple element sales arrangement , as substantiated by contractual terms and our significant pcs renewal experience , from our existing worldwide base . story_separator_special_tag our multiple element sales arrangements generally include irrevocable rights for the customer to renew pcs after the bundled term ends . the customer is not subject to any economic or other penalty for failure to renew . further , the renewal pcs options are for services comparable to the bundled pcs and cover similar terms . it is our experience that customers generally exercise their renewal pcs option . in the renewal transaction , pcs is sold on a stand-alone basis to the licensees one year or more after the original multiple element sales arrangement . the exercised renewal pcs price is consistent with the renewal price in the original multiple element sales arrangement , although an adjustment to reflect consumer price changes is not uncommon . if vsoe of fair value does not exist for all undelivered elements , all revenues are deferred until sufficient evidence exists or all elements have been delivered . we assess whether payment terms are customary or extended in accordance with normal practice relative to the market in which the sale is occurring . our sales arrangements generally include standard payment terms . these terms effectively relate to all customers , products , and arrangements regardless of customer type , product mix or arrangement size . exceptions are only made to these standard terms for certain sales in parts of the world where local practice differs . in these jurisdictions , our customary payment terms are in line with local practice . cloud revenues cloud revenues consist of subscription revenues for our software as a service offering . the majority of the contracts for our software as a service offering are based on customers ' usage over a period and the revenue associated with those contracts are recognized once the usage has been measured , the fee fixed and determinable and collection is probable . some of the contracts for our software as a service offering have an established fixed periodic fee and the revenue associated with those contracts are recognized ratably over the term of the contract . the majority of our hosting services contracts have an established fixed periodic fee and the revenue associated with those are recognized ratably over the term of the contract . service revenues service revenues consist of revenues from consulting , implementation , training and integration services . these services are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary as a result of the inclusion or exclusion of these services . for those contracts where the services are not essential to the functionality of any other element of the transaction , we determine vsoe of fair value for these services based upon normal pricing and discounting practices for these services when sold separately . these consulting and implementation services contracts are primarily time and materials based contracts that are , on average , less than six months in length . revenues from these services are recognized at the time such services are rendered . 29 we also enter into contracts that are primarily fixed fee arrangements wherein the services are not essential to the functionality of a software element . in such cases , the proportional performance method is applied to recognize revenues . revenues from training and integration services are recognized in the period in which these services are performed . customer support revenues customer support revenues consist of revenues derived from contracts to provide pcs to license holders . these revenues are recognized ratably over the term of the contract . advance billings of pcs are not recorded to the extent that the term of the pcs has not commenced and payment has not been received . deferred revenues deferred revenues primarily relate to support agreements which have been paid for by customers prior to the performance of those services . generally , the services will be provided in the twelve months after the signing of the agreement . long-term sales contracts we entered into certain long-term sales contracts involving the sale of integrated solutions that include the modification and customization of software and the provision of services that are essential to the functionality of the other elements in this arrangement . as prescribed by asc topic 985-605 , we recognize revenues from such arrangements in accordance with the contract accounting guidelines in asc topic 605-35 , “ construction-type and production-type contracts ” ( topic 605-35 ) , after evaluating for separation of any non-topic 605-35 elements in accordance with the provisions of asc topic 605-25 , “ multiple-element arrangements ” ( topic 605-25 ) . when circumstances exist that allow us to make reasonably dependable estimates of contract revenues , contract costs and the progress of the contract to completion , we account for sales under such long-term contracts using the percentage-of-completion ( poc ) method of accounting . under the poc method , progress towards completion of the contract is measured based upon either input measures or output measures . we measure progress towards completion based upon an input measure and calculate this as the proportion of the actual hours incurred compared to the total estimated hours . for training and integration services rendered under such contracts , revenues are recognized as the services are rendered . we will review , on a quarterly basis , the total estimated remaining costs to completion for each of these contracts and apply the impact of any changes on the poc prospectively . if at any time we anticipate that the estimated remaining costs to completion will exceed the value of the contract , the resulting loss will be recognized immediately . when circumstances exist that prevent us from making reasonably dependable estimates of contract revenues , we account for sales under such long-term contracts using the completed contract method . sales to resellers and channel partners we execute certain sales contracts through resellers and distributors ( collectively , resellers ) and also large , well-capitalized partners such as sap ag and accenture inc. ( collectively , channel partners ) .
| 35 fiscal 2012 compared to fiscal 2011 : license revenues increased by $ 24.5 million , which was geographically attributable to an increase in americas of $ 5.7 million , an increase in emea of $ 10.1 million , and an increase in asia pacific of $ 8.7 million . overall in fiscal 2012 we experienced an increase in the number of deals greater than $ 1 million ( 24 deals in fiscal 2012 compared to 23 in fiscal 2011 ) along with an increase in the proportion of revenues that came from our partner program ( 45 % in fiscal 2012 compared to 41 % in fiscal 2011 ) . additionally , license revenue was favourably influenced by the impact of acquisitions . cost of license revenues decreased slightly by $ 0.3 million . the decrease in costs was primarily due to lower third party technology costs . overall gross margin percentage on cost of license revenues remained relatively stable . 2 ) cloud services : cloud services revenues consist of services arrangements primarily attributable to our acquisition of easylink . these arrangements allow our customers to make use of legacy easylink and opentext software , services and content over internet enabled networks supported by opentext data centers . these web applications allow customers to transmit a variety of content between various mediums and to securely manage enterprise information without the commitment of investing in related hardware infrastructure . revenues are generated on several transactional usage-based models , are typically billed monthly in arrears , and can therefore fluctuate from period to period . certain service fees are occasionally charged to customize hosted software for some customers and are either amortized over the expected economic life of the contract , in the case of setup fees , or recognized in the period they are provided . cost of cloud services revenues is comprised primarily of third party network usage fees , maintenance of in-house data hardware centers , technical support personnel-related costs and some third party royalty costs . replace_table_token_8_th fiscal 2013 compared to fiscal 2012 : as a result of our easylink acquisition on july 2 , 2012 , during the first quarter of fiscal 2013 we adopted
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the next step requires additional fda input and guidance that we expect to obtain during a type c meeting scheduled in the second quarter of 2018. we believe further fda input from the upcoming meeting will facilitate ( i ) finalization of our phase 3 strategy and ( ii ) conclusion and execution of a definitive agreement with the third party . as outlined in the details of the november 2017 non-binding term sheet , the exclusivity period between ourselves and the third party expired in early march 2018. we continue to collaborate with the third party on all aspects of the phase 3 program design and are actively working towards finalization of the definitive agreement . we are targeting these activities to be substantially complete prior to the upcoming fda meeting so that sb204 can be advanced after the fda 's feedback is fully incorporated into the final phase 3 strategy . the finalized third-party business structure may differ from what was envisioned in the non-binding term sheet due to the fluidity of the regulatory feedback , the continued assessment of the optimal strategy as well as the challenging set of co-primary efficacy endpoints . as a result , the business structure may include a blend of capital providers , including corporate and institutional investors . in addition , we may retain an option to participate in some portion of the funding . both novan and the third party continue to evaluate the optimal path forward for the asset and believe that feedback from the upcoming fda meeting will help to provide clarity around that path . we intend to continue to evaluate various risk/benefit scenarios as we determine how to deploy capital for development in the acne space . we remain highly focused on managing the dynamic process of balancing the upside optionality and the near-term risk that accompanies the anticipated business structure . we target substantially completing a strategic arrangement , consistent with the expected timing for completion of our phase 3 program design , so that the remaining components of the phase 3 program could commence during the third quarter of 2018 if the parties agree that the risk/benefit assessment is appropriate to move forward . sb206 is a first-in-class , topical antiviral gel that we are developing for the treatment of viral skin infections , with a current focus on genital and perianal warts caused by human papillomavirus , or hpv , and molluscum contagiosum , a contagious skin infection caused by the molluscipoxvirus . o molluscum contagiosum – in the fourth quarter of 2017 , we submitted an investigational new drug application , or ind , for this indication and , in the first quarter of 2018 , we initiated a phase 2 clinical trial utilizing sb206 for the treatment of molluscum . top line results from this phase 2 trial are targeted in the fourth quarter of 2018. we will evaluate the results from this phase 2 trial and consider our financial priorities before determining how best to progress with the development of sb206 in this indication . o external genital warts – in 2017 , we advanced sb206 through the completion of a clinically successful phase 2 dose-ranging trial in patients with external genital and perianal warts and held a positive end-of-phase 2 meeting with the fda . sb206 is currently positioned for phase 3 pivotal trials in patients with external genital warts . we expect future advancement of sb206 in this indication to occur after the formation of a partnering relationship , which we are actively exploring , or another form of additional funding . in addition to the aforementioned current focus areas , we are also evaluating whether to conduct development activities for sb206 as a therapy for hpv-associated sexually transmitted infections , or stis . 65 we may further consider selecting and performing pre-clinical development of an nce for the treatment of high risk neoplasias , including cervical and anal neoplasias , caused by hpv-16 and hpv-18 . sb208 is a broad-spectrum antifungal gel for the treatment of superficial cutaneous fungal infections of the skin and nails , such as tinea pedis and onychomycosis . we reported positive top-line results from a phase 2 proof-of-concept trial in patients with clinical signs and symptoms of tinea pedis in the second quarter of 2017. we are currently exploring potential partnerships , collaborations or other strategic relationships to further advance sb208 in tinea pedis and onychomycosis indications . sb414 is a topical cream-based product candidate that we are developing for the treatment of inflammatory skin diseases , with a current focus on the treatment of psoriasis and atopic dermatitis ( eczema ) . in 2017 , we completed all necessary pre-clinical studies , submitted an ind to the fda , and initiated two phase 1b clinical trials in the field of immunology . we have fully enrolled and completed patient treatment in a phase 1b clinical trial to evaluate sb414 cream for the treatment of psoriasis . we are targeting complete results , including biomarker data , in the second quarter of 2018. we have also initiated a phase 1b trial with sb414 in adults with atopic dermatitis and top line results are targeted in the third quarter of 2018. we expect to evaluate the results from these two trials comprehensively during the second half of 2018 and will then determine the appropriate developmental next steps for sb414 . corporate updates—organizational and governance structure alignment with current strategy board of directors we added three new directors to our board during 2017 and early 2018 to increase scientific , development , and manufacturing expertise critical to the oversight of our drug development strategy . our board also recently formed a science and technology committee , consisting of members of the board in consultation with the company 's executive management team . this committee will assist the board in evolving and overseeing the strategic direction and medical applications of our proprietary nitric oxide-based technology . story_separator_special_tag in february 2018 , eugene sun was appointed to the board of directors as a non-employee director and chairperson of our science and technology committee . in september 2017 , machelle sanders was appointed to the board of directors as a non-employee director and , in november 2017 , was also appointed to our compensation committee . in august 2017 , paula brown stafford , our chief development officer , was appointed to the board of directors . executive management team during 2017 and early 2018 we repositioned our organizational structure to align with the aforementioned drug development strategy . in addition to the changes described below , we expect certain targeted repositioning activities will continue during 2018 in alignment with our strategy . in june 2017 , g. kelly martin , one of our directors , assumed the role of our chief executive officer on an interim basis . at the same time , nathan stasko , formerly president and chief executive officer , began his new role of president and chief scientific officer . following the departure of richard peterson , our former chief financial officer , william l. hodges was appointed as our chief financial officer and principal financial and accounting officer on an interim basis in march 2017. mr. hodges served throughout the remainder of 2017 and then stepped down following the completion of our public offering in january 2018. jeff n. hunter , our chief business officer , was appointed to fill the role of interim chief financial officer and principal financial and accounting officer upon mr. hodges stepping down . we are planning to hire a permanent chief financial officer in the first half of 2018. we expanded other portions of our executive and senior management team , including the appointment of paula brown stafford as chief development officer , the promotion of jeff n. hunter to executive vice 66 president and chief business officer and the appointment of tomoko maeda-chubachi , m.d. , ph.d. as vice president of medical dermatology . in may 2017 , m. joyce rico , m.d. , our former chief medical officer , departed the company , and in january 2018 , brian johnson , our former chief commercial officer , departed the company . corporate updates—other shelf registration filing on october 2 , 2017 , we filed a shelf registration statement on form s-3 with the sec , which the sec declared effective on october 10 , 2017 , or the shelf registration . the shelf registration contained a prospectus which covers : ( i ) the offering , issuance and sale by us of up to a maximum aggregate offering price of $ 150 million of our common stock , preferred stock , debt securities , warrants , and units , including those that may be issued upon conversion of , in exchange for or upon exercise of any such securities ; and ( ii ) the offering , issuance and sale of up to 2,623,485 shares of our common stock held by malin life sciences holdings limited , or malin , our largest stockholder at december 31 , 2017. these common stock shares represent malin 's total shareholding in novan as of october 2 , 2017. malin requested that we register all of the shares it held to facilitate its ability to utilize the shares as collateral . at the time we filed the shelf registration , malin represented to our board of directors that it had no present intention to sell its shares or monetize its shareholding but reserves its right to manage its balance sheet and equity positions going forward . malin confirmed it remained supportive of the management team and board of novan , the potential application of the underlying technology platform in broad dermatological indications and the value proposition of the company . january 2018 offering on january 9 , 2018 , we completed a public offering of our common stock and warrants , or the january 2018 offering , under a prospectus supplement to our effective shelf registration . we sold an aggregate of 10,000,000 shares of common stock and warrants to purchase up to 10,000,000 shares of our common stock at a public offering price of $ 3.80 per share of common stock and accompanying warrant . the warrant exercise price is $ 4.66 per share and will expire four years from the date of issuance . net proceeds from the offering were approximately $ 35.2 million after deducting underwriting discounts and commissions and estimated offering expenses of approximately $ 2.8 million . 2016 incentive award plan amendment in june 2017 , our stockholders approved an amendment to our 2016 incentive award plan , or the 2016 plan , to increase the number of shares that may be issued under the 2016 plan by 1,200,000 shares . amendments to sublicenses with know bio in october 2017 , we completed a transaction with know bio , llc , or know bio , granting us exclusive worldwide rights for certain oncovirus applications of nitric oxide-based products . an oncovirus is a virus that causes cancer , including the neoplasias and carcinomas caused by high-risk hpv . the intellectual property rights also allow for potential future translations of nitric oxide as a treatment for rare and orphan diseases caused by other double stranded dna viruses including kaposi 's sarcoma-associated herpesvirus ( hhv-8 ) and merkel cell polyomavirus ( mcv ) . the terms of this transaction are further described in “ note 4—collaboration arrangements ” to the accompanying consolidated financial statements included in this annual report on form 10-k. our acquis ition of these intellectual property rights to treat viral malignancies with nitric oxide enables the potential expansion of our product candidate pipeline in the field of virology using existing and new nces , as described in the “ overview—product candidate development outlook ” section above .
| we also had an increase of $ 5.8 million in unallocated internal research and development expenses due to a $ 3.2 million increase in research and development personnel costs , of which $ 1.3 million represents non-cash stock compensation expense , and a $ 2.6 million increase in facility and manufacturing costs . the $ 3.2 million increase in personnel costs includes $ 0.6 million in cash severance costs associated with a workforce reduction and the departure of certain officers and employees , which was incurred in the second quarter of 2017 , and a related $ 0.2 million increase in non-cash stock compensation expense associated with the accelerated vesting of option awards . the remaining increase in personnel costs includes an increase in stock compensation expense of $ 1.1 million associated with awards recently granted to our research and development personnel and $ 1.3 million associated with the targeted expansion of our organizational structure in support of our current development strategy . the $ 2.6 million increase in facility and manufacturing costs is primarily due to a full year of operations in our current office , laboratory and manufacturing facility in morrisville , north carolina , which we began to occupy in october 2016. general and administrative expenses general and administrative expenses were $ 13.1 million for the year ended december 31 , 2017 , compared to $ 13.3 million during the year ended december 31 , 2016. the decrease of approximately $ 0.2 million was primarily due to decreases of $ 1.9 million in market research and related costs , a $ 0.1 million in personnel costs and $ 0.4 million in general corporate costs . these decreases were partially offset by an increase of $ 2.2 million in professional services , insurance , board compensation and other administrative costs necessary to support our operations as a public company . the $ 0.1 million net decrease in personnel costs included certain cost increases and decreases that ultimately resulted in a net decrease . for example , in 2017 , we incurred discrete severance costs related to a
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story_separator_special_tag iv > 22 severance and other charges in 2015 , in response to lower commodity pricing for crude oil and reduced spending by our clients on their oil and gas fields , we reduced our cost structure , primarily through a reduction in our workforce , to better align with the decreasing activity levels into the foreseeable future . as a result of these cost reductions , we recorded severance charges of $ 8.8 million , of which approximately $ 0.5 million were accrued and remaining to be paid at december 31 , 2016. additionally , in 2015 the company recorded a charge to income associated with the impairment of certain equipment and intangible assets and facility exit costs of $ 5.5 million . also during 2015 , we recorded loss contingencies for various ongoing legal issues of $ 8.6 million . see note 11 of the notes to consolidated financial statements . interest expense interest expense decreased by $ 0.8 million to $ 11.6 million in 2016 compared to 2015 primarily due to decreased borrowings on our revolving credit facility . income tax expense our effective tax rate was 14.4 % , 22.7 % , and 23.0 % for 2016 , 2015 , and 2014 , respectively . income tax expense of $ 10.7 million in 2016 decreased by $ 23.0 million compared to $ 33.8 million in 2015 due to a decrease in taxable income in 2016 , primarily in the united states . income tax expense associated with taxable income recognized in the united states decreased by $ 16.1 million in 2016 compared to 2015 . no other jurisdiction in which we operate had a material change in income tax expense . see note 9 of the notes to consolidated financial statements for further detail of income tax expense . segment analysis the following charts and tables summarize the annual revenue and operating results for our three complementary business segments . segment revenue 23 segment revenue replace_table_token_7_th segment operating income for the years ended december 31 , ( dollars in thousands ) 2016 % change 2015 % change 2014 reservoir description $ 75,148 ( 32.3 ) % $ 111,032 ( 22.7 ) % $ 143,624 production enhancement 8,891 ( 74.6 ) % 35,027 ( 78.8 ) % 165,204 reservoir management 2,043 ( 86.9 ) % 15,655 ( 57.9 ) % 37,220 corporate and other ( 1 ) 97 nm ( 644 ) nm 483 operating income $ 86,179 ( 46.5 ) % $ 161,070 ( 53.5 ) % $ 346,531 ( 1 ) “ corporate and other '' represents those items that are not directly relating to a particular segment . `` nm '' means not meaningful . segment operating income margins ( 1 ) for the years ended december 31 , 2016 2015 2014 margin margin margin reservoir description 18.6 % 23.5 % 27.7 % production enhancement 5.4 % 13.1 % 35.3 % reservoir management 7.7 % 27.5 % 37.7 % total company 14.5 % 20.2 % 31.9 % ( 1 ) calculated by dividing `` operating income '' by `` revenue . '' reservoir description revenue for our reservoir description segment decreased to $ 404.1 million in 2016 compared to $ 473.4 million in 2015 and $ 519.0 million in 2014 . the decrease in revenues in 2016 was primarily due to the reduced international and deepwater drilling activity levels . the decrease in revenues in 2015 was primarily due to the strengthening of the u.s. dollar against certain currencies such as the euro , australian dollar , canadian dollar , british pound , and russian ruble , in which we invoice a portion of our revenue . this segment 's operations continue to work on large-scale , long-term , crude-oil and lng projects with an emphasis on producing fields located in offshore developments and international markets . we continue to focus on large-scale core analyses and reservoir fluids characterization studies in the asia-pacific areas , offshore west and east africa , the eastern mediterranean region and the middle east , including kuwait and the united arab emirates . operating income decreased to $ 75.1 million in 2016 from $ 111.0 million in 2015 and $ 143.6 million in 2014 . the decreases in operating income in 2016 and 2015 as compared to each corresponding prior year were due to lower activity levels . operating income in 2015 includes additional charges for severance , asset impairments , and an accrual for contingent losses . operating margins were 18.6 % in 2016 down from 23.5 % in 2015 and 27.7 % in 2014 . production enhancement revenue for our production enhancement segment decreased to $ 164.0 million in 2016 compared to $ 267.2 million in 2015 and $ 467.6 million in 2014 . the decreases in north america industry activity during 2016 and 2015 , when compared to the respective prior year , reduced demand for our products associated with land-based completion of oil wells in u.s. unconventional developments . the revenue decrease of 43 % in 2015 compared to 2014 was less than the decrease in the u.s. horizontal rig count of 62 % during 2015 . 24 operating income for this segment decreased to $ 8.9 million in 2016 from $ 35.0 million in 2015 and $ 165.2 million in 2014 . operating margins were 5.4 % in 2016 down from 13.1 % in 2015 and 35.3 % in 2014 . the decreases in operating income and operating margin in 2016 and 2015 compared to the respective prior year were primarily due to decreased revenue and the impact of our fixed-cost structure on lower revenue in these years . reservoir management revenue for our reservoir management segment decreased to $ 26.6 million in 2016 compared to $ 56.9 million in 2015 and $ 98.7 million in 2014 . the decrease in revenue in 2016 compared to 2015 was primarily due to lower oil commodity prices which , as a result , greatly reduced or eliminated discretionary spending by our oil and gas clients . story_separator_special_tag our clients continue to express interest in our existing multi-client reservoir studies such as the avalon basin study and the tight oil reservoirs of the midland basin study , both within the larger area of the permian basin acreage , as well as our new joint-industry projects in the mississippian-aged meramac and osage formations , which overlay the silurian-aged woodford formation in the stack-b play , which includes blaine county . operating income for this segment decreased to $ 2.0 million in 2016 compared to $ 15.7 million in 2015 and $ 37.2 million in 2014 . operating margins decreased to 7.7 % in 2016 , from 27.5 % and 37.7 % in 2015 and 2014 , respectively . the decrease in operating income in 2016 compared to 2015 and 2014 was due primarily to decreased revenue and the impact of our fixed costs over lower revenue . we are still focused on our current joint industry projects , including the utica , duvernay , and mississippi lime studies and the marcellus , niobrara , wolfcamp and eagle ford plays , our new proposed studies in tight-oil unconventional reservoirs and a revisit to the deepwater gulf of mexico , and the sale of fully completed studies . liquidity and capital resources general we have historically financed our activities through cash on hand , cash flows from operations , bank credit facilities , equity financing and the issuance of debt . cash flows from operating activities provides the primary source of funds to finance operating needs , capital expenditures and our dividend and share repurchase programs . if necessary , we supplement this cash flow with borrowings under bank credit facilities to finance some capital expenditures and business acquisitions . as we are a netherlands holding company , we conduct substantially all of our operations through subsidiaries . our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us . there are no restrictions preventing any of our subsidiaries from repatriating earnings , and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances . as of december 31 , 2016 , approximately $ 13.7 million of our $ 14.8 million of cash was held by our foreign subsidiaries . our financial statements are prepared in conformity with generally accepted accounting principles in the u.s. ( `` u.s. gaap '' or `` gaap '' ) . we utilize the non-gaap financial measure of free cash flow to evaluate our cash flows and results of operations . free cash flow is defined as net cash provided by operating activities ( which is the most directly comparable gaap measure ) less cash paid for capital expenditures . management believes that free cash flow provides useful information to investors regarding the cash that was available in the period that was in excess of our needs to fund our capital expenditures and operating activities . free cash flow is not a measure of operating performance under gaap , and should not be considered in isolation nor construed as an alternative to operating profit , net income ( loss ) or cash flows from operating , investing or financing activities , each as determined in accordance with gaap . free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure . moreover , since free cash flow is not a measure determined in accordance with gaap and thus is susceptible to varying interpretations and calculations , free cash flow , as presented , may not be comparable to similarly titled measures presented by other companies . the following table reconciles this non-gaap financial measure to the most directly comparable measure calculated and presented in accordance with u.s. gaap for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_8_th 25 free cash flow as a percent of net income continued to be strong even though free cash flow decreased in 2016 compared to 2015 and 2014. these decreases were primarily due to the decrease in cash flow from operating activities as a result of lower activity levels for the oil and gas industry . cash flows the following table summarizes cash flows for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_9_th the decreases in cash provided by operating activities in 2016 compared to 2015 and in 2015 compared to 2014 were primarily attributable to the industry downturn resulting in year-over-year decreases in net income , offset by reductions in working capital . cash flow used in investing activities in 2016 decreased $ 24.9 million compared to 2015 primarily as a result of less cash used for capital expenditures and business acquisitions . cash flow used in investing activities in 2015 decreased $ 2.4 million compared to 2014 primarily as a result of lower company-owned life insurance premiums . cash flow used in financing activities in 2016 decreased $ 55.4 million compared to 2015 . cash flow used in financing activities in 2015 decreased $ 82.8 million compared to 2014 . during 2016 , we spent $ 7.2 million to repurchase our common shares , $ 95.1 million to pay dividends , and decreased our debt balance by $ 215 million through the issuance of new shares . during 2015 , we spent $ 159.7 million to repurchase our common shares and $ 94.2 million to pay dividends , offset by a net increase in our debt balance of $ 77 million . during 2014 , we spent $ 264.4 million to repurchase our common shares and $ 89.1 million to pay dividends , offset by a net increase in our debt balance of $ 89 million . during the year ended december 31 , 2016 , we repurchased 62,000 shares of our common stock for an aggregate amount of $ 7.2 million , or an average price of $ 115.51 per share .
| wells must be drilled and or completed , stimulated , cored and have reservoir fluid samples collected , before we see the benefits of the increased commodity prices . our continued focus on worldwide crude oil related and large natural gas liquefaction projects , especially those related to the development of deepwater fields off west and east africa and the eastern mediterranean , prevented services revenue from declining further . product sales revenue product sales revenue , which is tied more to demand in north america , decreased to $ 124.5 million for 2016 , from $ 185.6 million for 2015 and $ 304.4 million in 2014 . although average rig count for the u.s. and canada declined 48 % during 2016 compared to 2015 , our product sales revenue decreased only 33 % during this same time period . the average rig count for the u.s. and canada declined 48 % during 2015 as compared to 2014 , however , our product sales revenue decreased only 39 % during this time period . these results were due to our differentiated well completion product sales holding up better than the industry activity levels in north america . 21 cost of services , excluding depreciation cost of services decreased to $ 331.7 million for 2016 from $ 387.7 million for 2015 and $ 449.5 million for 2014 . as a percentage of services revenue , cost of services increased to 71 % in 2016 from 63 % in 2015 and 58 % in 2014 . these increases are primarily due to our fixed-cost structure not being fully absorbed on lower revenues in 2016 when compared to 2015 and in 2015 when compared to 2014. we took actions to reduce our cost structure in response to the sharp decline in global activity during 2015. see section `` severance and other charges '' below . cost of product sales , excluding depreciation cost of product sales decreased to $ 111.0 million for 2016 from $ 144.9 million for 2015 and $ 215.8 million for 2014 . as
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41 liquidity and capital as of december 31 , 2020 , we had approximately $ 3.3 billion in liquidity , including availability under our revolving credit facility and cash and cash equivalents on hand , with no borrowings outstanding under our commercial paper program and negligible near-term debt maturing . in april 2020 , we raised $ 500.0 million through the issuance of 4.75 % senior notes due 2030. in october 2020 , we reduced near-term debt maturities by retiring $ 236.3 million aggregate principal amount then outstanding of our 3.25 % senior notes due 2022 at 104.14 % of par value , plus accrued and unpaid interest to the payment date . during 2020 , we sold an aggregate of 1.5 million shares of common stock under our “ at-the-market ” equity offering program for average gross proceeds of $ 44.88 per share . in january 2021 , we entered into an amended and restated unsecured credit facility ( the “ new credit facility ” ) comprised of a $ 2.75 billion unsecured revolving credit facility initially priced at libor plus 82.5 basis points . in february 2021 , in order to reduce near-term maturities , we issued a make whole redemption for the entirety of the $ 400 million outstanding aggregate principal amount of 3.10 % senior notes due january 2023. the redemption is expected to settle in march 2021 , principally using cash on hand . portfolio in july 2020 , we entered into a revised master lease agreement ( the “ brookdale lease ” ) and certain other agreements ( together with the brookdale lease , the “ agreements ” ) with brookdale senior living . in april 2020 , we completed a transaction with affiliates of holiday retirement ( with its affiliates , collectively , “ holiday ” ) , including entry into a new , terminable management agreement for our 26 independent living assets that were previously subject to a triple-net lease ( the “ holiday lease ” ) with holiday . environmental , social and governance during 2020 , we continued our leadership in esg , receiving numerous accolades , including the 2020 nareit health care “ leader in the light ” award for a fourth consecutive year , the 2020 bloomberg gender-equality index for the second consecutive year , the 2020 dow jones sustainability world index for the second consecutive year and maintaining our industry-leading position in gresb . critical accounting policies and estimates our consolidated financial statements included in part ii , item 8 of this annual report have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) set forth in the accounting standards codification ( “ asc ” ) , as published by the financial accounting standards board ( “ fasb ” ) . gaap requires us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we base these estimates on our experience and assumptions we believe to be reasonable under the circumstances . however , if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different , we may have applied a different accounting treatment , resulting in a different presentation of our financial statements . we periodically reevaluate our estimates and assumptions , and in the event they prove to be different from actual results , we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain . we believe that the critical accounting policies described below , among others , affect our more significant estimates and judgments used in the preparation of our financial statements . for more information regarding our critical accounting policies , see “ note 2 – accounting policies ” of the notes to consolidated financial statements included in part ii , item 8 of this annual report . 42 principles of consolidation the consolidated financial statements included in part ii , item 8 of this annual report include our accounts and the accounts of our wholly owned subsidiaries and the joint venture entities over which we exercise control . all intercompany transactions and balances have been eliminated in consolidation , and our net earnings are reduced by the portion of net earnings attributable to noncontrolling interests . gaap requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities ( “ vies ” ) . a vie is broadly defined as an entity with one or more of the following characteristics : ( a ) the total equity investment at risk is insufficient to finance the entity 's activities without additional subordinated financial support ; ( b ) as a group , the holders of the equity investment at risk lack ( i ) the ability to make decisions about the entity 's activities through voting or similar rights , ( ii ) the obligation to absorb the expected losses of the entity , or ( iii ) the right to receive the expected residual returns of the entity ; and ( c ) the equity investors have voting rights that are not proportional to their economic interests , and substantially all of the entity 's activities either involve , or are conducted on behalf of , an investor that has disproportionately few voting rights . we consolidate our investment in a vie when we determine that we are its primary beneficiary . we may change our original assessment of a vie upon subsequent events such as the modification of contractual arrangements that affects the characteristics or adequacy of the entity 's equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary . story_separator_special_tag we identify the primary beneficiary of a vie as the enterprise that has both : ( i ) the power to direct the activities of the vie that most significantly impact the entity 's economic performance ; and ( ii ) the obligation to absorb losses or the right to receive benefits of the vie that could be significant to the entity . we perform this analysis on an ongoing basis . accounting for real estate acquisitions when we acquire real estate , we first make reasonable judgments about whether the transaction involves an asset or a business . our real estate acquisitions are generally accounted for as asset acquisitions as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets . regardless of whether an acquisition is considered a business combination or an asset acquisition , we record the cost of the businesses or assets acquired as tangible and intangible assets and liabilities based upon their estimated fair values as of the acquisition date . we estimate the fair value of buildings acquired on an as-if-vacant basis or replacement cost basis and depreciate the building value over the estimated remaining life of the building , generally not to exceed 35 years . we determine the fair value of other fixed assets , such as site improvements and furniture , fixtures and equipment , based upon the replacement cost and depreciate such value over the assets ' estimated remaining useful lives as determined at the applicable acquisition date . we determine the value of land either by considering the sales prices of similar properties in recent transactions or based on internal analyses of recently acquired and existing comparable properties within our portfolio . we generally determine the value of construction in progress based upon the replacement cost . however , for certain acquired properties that are part of a ground-up development , we determine fair value by using the same valuation approach as for all other properties and deducting the estimated cost to complete the development . during the remaining construction period , we capitalize project costs until the development has reached substantial completion . construction in progress , including capitalized interest , is not depreciated until the development has reached substantial completion . intangibles primarily include the value of in-place leases and acquired lease contracts . we include all lease-related intangible assets and liabilities within acquired lease intangibles and accounts payable and other liabilities , respectively , on our consolidated balance sheets . the fair value of acquired lease-related intangibles , if any , reflects : ( i ) the estimated value of any above or below market leases , determined by discounting the difference between the estimated market rent and in-place lease rent ; and ( ii ) the estimated value of in-place leases related to the cost to obtain tenants , including leasing commissions , and an estimated value of the absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the acquired space was vacant . we amortize any acquired lease-related intangibles to revenue or amortization expense over the remaining life of the associated lease plus any assumed bargain renewal periods . if a lease is terminated prior to its stated expiration or not renewed upon expiration , we recognize all unamortized amounts of lease-related intangibles associated with that lease in operations over the shortened lease term . we estimate the fair value of purchase option intangible assets and liabilities , if any , by discounting the difference between the applicable property 's acquisition date fair value and an estimate of its future option price . we do not amortize the resulting intangible asset or liability over the term of the lease , but rather adjust the recognized value of the asset or liability 43 upon sale . in connection with an acquisition , we may assume rights and obligations under certain lease agreements pursuant to which we become the lessee of a given property . we generally assume the lease classification previously determined by the prior lessee absent a modification in the assumed lease agreement . we assess assumed operating leases , including ground leases , to determine whether the lease terms are favorable or unfavorable to us given current market conditions on the acquisition date . to the extent the lease terms are favorable or unfavorable to us relative to market conditions on the acquisition date , we recognize an intangible asset or liability at fair value and amortize that asset or liability to interest or rental expense in our consolidated statements of income over the applicable lease term . where we are the lessee , we record the acquisition date values of leases , including any above or below market value , within operating lease assets and operating lease liabilities on our consolidated balance sheets . we estimate the fair value of noncontrolling interests assumed consistent with the manner in which we value all of the underlying assets and liabilities . we calculate the fair value of long-term assumed debt by discounting the remaining contractual cash flows on each instrument at the current market rate for those borrowings , which we approximate based on the rate at which we would expect to incur a replacement instrument on the date of acquisition , and recognize any fair value adjustments related to long-term debt as effective yield adjustments over the remaining term of the instrument . impairment of long-lived and intangible assets we periodically evaluate our long-lived assets , primarily consisting of investments in real estate , for impairment indicators . if indicators of impairment are present , we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations . in performing this evaluation , we consider market conditions and our current intentions with respect to holding or disposing of the asset .
| see “ government regulation—governmental response to the covid-19 pandemic ” in part i , item 1 of this annual report . during the fourth quarter of 2020 , we received $ 34.3 million and $ 0.8 million in grants in connection with our phase 2 and phase 3 applications , respectively , and recognized these grants within property-level operating expenses in our consolidated statements of income . subsequent to december 31 , 2020 , we received $ 13.6 million in grants in connection with our phase 3 applications , which we expect to recognize in 2021. while we have received all amounts under our phase 2 applications and have begun to receive amounts under our phase 3 applications , there can be no assurance that our remaining applications will be approved or that additional funds will ultimately be received . any grants that are ultimately received and retained by us are not expected to fully offset the losses incurred in our senior living operating portfolio that are attributable to covid-19 . further , although we continue to monitor and evaluate the terms and conditions associated with the provider relief fund distributions , we can not assure you that we will be in compliance with all requirements related to the payments received under the provider relief fund . capital conservation actions . in response to the covid-19 pandemic , we took precautionary steps to increase liquidity and preserve financial flexibility in light of the resulting uncertainty . see “ —liquidity and capital resources ; recent capital conservation actions. ” as of february 16 , 2021 , we had approximately $ 3.0 billion in liquidity , including availability under our revolving credit facility and cash and cash equivalents on hand , with no borrowings outstanding under our commercial paper program and negligible near-term debt maturing . continuing impact . the trajectory and future impact of the covid-19 pandemic remains highly uncertain . the extent of the pandemic 's continuing and ultimate effect on our operational and financial performance
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the increase in product revenue of over 1000 % from fiscal 2015 to 2016 is due to our acquisitions of those products , which occurred late in fiscal 2015 and early fiscal 2016 , respectively , and expanded marketing of those products . as is customary in the pharmaceutical industry , our gross product sales are subject to a variety of deductions in arriving at reported net product sales . provisions for these deductions are recorded concurrently with the recognition of gross product sales revenue and include discounts , chargebacks , distributor fees , processing fees , as well as allowances for returns and medicaid rebates . provision balances relating to estimated amounts payable to direct customers are netted against accounts receivable and balances relating to indirect customers are included in accounts payable and accrued liabilities . the provisions recorded to reduce gross product sales and net product sales are as follows : 71 replace_table_token_2_th license revenue during fiscal 2016 and fiscal 2015 , we recognized $ 512,000 and $ 86,000 , respectively , in license revenue . in 2012 , we received a payment of $ 500,000 for our license agreement of zertane with a korean pharmaceutical company . this payment was deferred and was being recognized over 10 years . in 2014 , we received a payment of $ 250,000 for our license agreement of zertane with a canadian-based supplier . this payment was deferred and was being recognized over seven years . at june 30 , 2016 , aytu determined that the zertane asset has no value as aytu does not have the resources to complete the necessary clinical trials and bring it to market before the patents expire . therefore , the remaining unamortized deferred revenue of $ 426,000 which was outstanding as of the date it was determined not to proceed with the clinical trials was recognized as of june 30 , 2016. expenses cost of sales the cost of sales of $ 957,000 and $ 88,000 recognized for fiscal 2016 and fiscal 2015 , respectively , are related to the prostascint and primsol products and the redoxsys and mioxsys systems . we expect to see cost of sales to continue to increase in the year ending june 30 , 2017 ( “ fiscal 2017 ” ) as we expect our sales to continue to grow . research and development research and development costs consist of clinical trials and sponsored research , manufacture transfer expense , labor , stock-based compensation , sponsored research – related party and consultants and other . these costs relate solely to research and development without an allocation of general and administrative expenses and are summarized as follows : replace_table_token_3_th comparison of years ended june 30 , 2016 and 2015 research and development expenses increased $ 2.9 million , or 84.6 % , in fiscal 2016 over fiscal 2015. this was due primarily to switching our manufacturing process for our prostascint product to a new manufacturer , which is still in progress as of june 30 , 2016 offset by a $ 428,000 reduction in stock-based compensation . we expect that the research and development expenses will decrease in fiscal 2017 as compared to fiscal 2016 since the transfer of the prostascint manufacturing is almost complete and since we should have no more clinical cost related to zertane . 72 general and administrative general and administrative expenses consist of personnel costs for employees in executive , business development and operational functions and director fees ; stock-based compensation ; patents and intellectual property ; professional fees including legal , auditing , accounting , investor relations , shareholder expense and printing and filing of sec reports ; occupancy , travel and other including rent , governmental and regulatory compliance , insurance , and professional subscriptions . these costs are summarized as follows : replace_table_token_4_th comparison of years ended june 30 , 2016 and 2015 general and administrative costs increased $ 4.5 million , or 103.5 % , in fiscal 2016 over fiscal 2015. the increase in labor costs , stock-based compensation , and occupancy , travel and other primarily relates to increased costs related to the increase in professional staffing during fiscal 2016 as compared to fiscal 2015 , bonuses earned , increased travel expense and stock options granted as well as the continuing vesting of stock option awards granted in previous years . we expect general and administrative expenses to increase in fiscal 2017 due to the expected overall growth of our company . impairment of intangible assets impairment of intangible assets was $ 7.5 million for fiscal 2016 related to the impairment of the zertane in process research and development ( iprd ) ( see note 2 ) . we did not recognize any impairment expense in fiscal 2015. amortization of intangible assets amortization of intangible assets was $ 665,000 and $ 45,000 for fiscal 2016 and fiscal 2015 , respectively . this expense increased due to the acquisition of the prostascint and primsol businesses in late fiscal 2015 and early fiscal 2016 , respectively , and the corresponding amortization of their finite-lived intangible assets . as we continue to license and purchase additional assets as part of our business strategy we would expect this non-cash expense to continue to grow . net cash used in operating activities during fiscal 2016 , our operating activities used $ 10.7 million in cash . story_separator_special_tag the use of cash was approximately $ 17.5 million lower than the net loss due primarily to non-cash charges for asset impairment , amortization of the beneficial conversion feature , stock-based compensation , depreciation , amortization and accretion , unrecognized loss on investment , noncash interest expense , amortization of prepaid research and development related party , an increase in accounts payable and accrued liabilities and an increase accrued compensation offset by an increase to inventory and a decrease to deferred revenue . during fiscal 2015 , our operating activities used $ 6.6 million in cash . the use of cash was approximately $ 1.1 million lower than the net loss due primarily to non-cash charges for stock-based compensation , depreciation and amortization , amortization of prepaid research and development-related party , an increase in accounts payable and an increase in contingent consideration related to the prostascint asset purchase . cash used in operating activities also included a $ 24,000 deferred tax benefit and a $ 607,000 decrease in payable to ampio . net cash used in investing activities during fiscal 2016 , cash was used to acquire natesto , primsol , our investment in acerus , the purchase of fixed assets as well as the refund of a deposit for office space . during fiscal 2015 , cash was used to acquire prostascint as well as deposits for office space . 73 net cash from financing activities net cash of $ 16.7 million provided by financing activities during fiscal 2016 was primarily related to our registered public offering of $ 7.5 million of common stock and warrants offset by issuance costs of $ 905,000 , the issuance of convertible promissory notes which reflects gross proceeds of $ 5.2 million offset by the cash portion of the debt issuance costs of $ 298,000 , as well as the $ 5.0 million stock subscription payment from ampio and $ 200,000 for a sale of stock subscriptions in january 2016 as well as the issuance costs of $ 30,000 related to the debt conversion . net cash provided by financing activities in fiscal 2015 was $ 12.4 million which reflects a $ 7.4 million loan from ampio which was later converted to stock , a $ 5.0 million stock subscription payment from ampio , $ 27,000 paid out to luoxis option holders pursuant to the merger and $ 20,000 paid out for liabilities pursuant to the merger . contractual obligations and commitments information regarding our contractual obligations and commitments is contained in note 7 to the financial statements . liquidity and capital resources we are a relatively young company and we have not yet generated substantial revenue as our primary activities are focused on commercializing our approved products , acquiring products and developing our product candidates , and raising capital . as of june 30 , 2016 , we had cash and cash equivalents totaling $ 8.1 million available to fund our operations offset by an aggregate of $ 8.9 million in accounts payable and accrued liabilities and the natesto payables . in april 2016 , we spent $ 2.0 million for the natesto licensing agreement and approximately $ 2.0 million to purchase 12,245,411 shares of acerus common stock . we have a remaining commitment of $ 6.0 million during fiscal year 2017. in may 2016 , we completed a registered public offering of common stock and warrants for $ 6.3 million in proceeds , net of expenses . based upon our resources at june 30 , 2016 , and assuming we can access the $ 10.0 million purchase agreement with lincoln park capital entered into in july 2016 , we believe we have adequate capital to continue operations into the second quarter of fiscal 2017. we intend to raise up to an additional $ 12.5 million in fiscal 2017 , which , if successful , we believe would provide adequate capital to continue operations through fiscal 2017 and into 2018. we also intend to seek additional capital within the next 12 months to help acquire new products as well as to support general operations . we will evaluate the capital markets from time to time to determine when to raise additional capital in the form of equity , convertible debt or other financing instruments , depending on market conditions relative to our need for funds at such time . we will seek to raise additional capital at such time as we conclude that such capital is available on terms that we consider to be in the best interests of our company and our stockholders . we have prepared a budget for fiscal 2017 which reflects cash requirements from operations of approximately $ 3.0 million per quarter . depending on the availability of capital , we may expend additional funds for the purchase of assets and commercialization of products . accordingly , it may be necessary to raise additional capital and or enter into licensing or collaboration agreements . at this time , we expect to satisfy our future cash needs through private or public sales of our securities or debt financings . we can not be certain that financing will be available to us on acceptable terms , or at all . over the last three years , including recently , volatility in the financial markets has adversely affected the market capitalizations of many bioscience companies and generally made equity and debt financing more difficult to obtain . this volatility , coupled with other factors , may limit our access to additional financing . if we can not raise adequate additional capital in the future when we require it , we could be required to delay , reduce the scope of , or eliminate one or more of our commercialization efforts or our research or development programs . we also may be required to relinquish greater or all rights to product candidates at less favorable terms than we would otherwise choose . this may lead to impairment or other charges ,
| we also paid an additional $ 500,000 within five days after transfer for the prostascint-related product inventory and $ 227,000 was paid on september 30 , 2015 ( which represents a portion of certain fda fees ) . we also will pay 8 % on net sales made after october 31 , 2017 , payable up to a maximum aggregate payment of an additional $ 2.5 million . in october 2015 , we entered into an asset purchase agreement with fsc laboratories , inc. , or fsc . pursuant to the agreement , we purchased assets related to fsc 's product known as primsol ( trimethoprim solution ) , including certain intellectual property and contracts , inventory , work in progress and all marketing and sales assets and materials related solely to primsol ( together , the ‘ ‘ primsol business '' ) , and assumed certain of fsc 's liabilities , including those related to the sale and marketing of primsol arising after the closing . we paid $ 500,000 at closing for the primsol business and we paid an additional $ 142,000 , of which $ 102,000 went to inventory and $ 40,000 towards the primsol business , for the transfer of the primsol-related product inventory . we also paid $ 500,000 on april 1 , 2016 and $ 500,000 on july 1 , 2016 , and must pay $ 250,000 no later than september 30 , 2016 ( together , the ‘ ‘ installment payments '' ) , for a total purchase price of $ 1,892,000. in october 2015 , we and biovest international , inc. , or biovest , ( whose contract manufacturing business is now known as cell culture company , or c3 ) entered into a master services agreement , pursuant to which biovest is to provide manufacturing services to us for our product prostascint . the agreement provides that we may engage biovest from time to time to provide services in accordance with mutually agreed upon project addendums and purchase orders for prostascint . we expect to use the agreement from time to time for manufacturing services , including without limitation ,
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reserves , ( ii ) increased net book value on new reserves added , ( iii ) higher total production levels and ( iv ) increased capitalized costs for new wells completed in 2012. we expect depletion of proved oil and natural gas properties to continue to increase as our focus remains on drilling higher-valued oil-rich assets . impairment expense . we incurred impairment expense of approximately $ 0.2 million for the year ended december 31 , 2011 to reflect our materials and supplies inventory at the lower of cost or market value calculated as of december 31 , 2011. it was determined for the years ended december 31 , 2012 and 2010 , that a lower of cost or market adjustment was not needed for materials and supplies . we evaluate the impairment of our oil and natural gas properties on a quarterly basis according to the full cost method prescribed by the sec . if the carrying amount exceeds the calculated full cost ceiling , we reduce the carrying amount of the oil and natural gas properties to the calculated full cost ceiling amount , which is determined to be their estimated fair value . for the years ended december 31 , 2012 , 2011 and 2010 , it was determined that our oil and natural gas properties were not impaired . non-operating income and expense . the following table sets forth the components of non-operating income and expense for the periods presented : replace_table_token_20_th commodity derivative financial instruments . the realized and unrealized gains and losses on commodity derivative financial instruments for the periods presented : replace_table_token_21_th 58 realized gains on commodity derivative financial instruments increased by approximately $ 23.3 million for the year ended december 31 , 2012 compared to 2011 and decreased by $ 19.0 million for the year ended december 31 , 2011 compared to 2010 , based on the cash settlement prices of our commodity derivative contracts compared to the prices specified in those contracts . the unrealized gains on commodity derivative financial instruments experienced during the year ended december 31 , 2011 converted to unrealized losses for the year ended december 31 , 2012 as a result of the changing relationships between our contract prices and the associated forward curves used to calculate the fair value of our commodity derivative financial instruments in relation to expected market prices . in general , we experience unrealized gains during periods of decreasing market prices and unrealized losses during periods of increasing market prices . additionally , at december 31 , 2012 , we had 27 commodity derivatives contracts with associated deferred premiums totaling approximately $ 25.5 million . the estimated fair value of our total deferred premiums was approximately $ 24.7 million at december 31 , 2012 compared to $ 18.9 million at december 31 , 2011 and $ 12.5 million at december 31 , 2010. the fair market value of these premiums is netted against the fair market value of the underlying commodity derivative financial instruments at each period end and contributed the majority of our overall unrealized loss positions for the year ended december 31 , 2012. see notes b.5 , f and g to our audited consolidated financial statements included elsewhere in this annual report on form 10-k and “ item 7a . quantitative and qualitative disclosures about market risk ” for additional information regarding our commodity derivative financial instruments . interest expense and realized and unrealized gains and losses on interest rate swaps . interest expense increased by approximately $ 35.0 million , or 69 % , for the year ended december 31 , 2012 compared to 2011 , and $ 32.1 million , or 174 % , for the year ended december 31 , 2011 compared to 2010. these increases are largely due to the issuance of ( i ) $ 200.0 million in 9 1/2 % senior unsecured notes due 2019 in october of 2011 in addition to the previously outstanding $ 350.0 million 9 1/2 % senior unsecured notes due in 2019 , and ( ii ) $ 500.0 million in 7 3/8 % senior unsecured notes due 2022 in april of 2012. the table below shows the changes in the significant components of interest expense for periods presented : replace_table_token_22_th _ ( 1 ) the term loan was entered into on july 7 , 2010 and was paid in full and terminated on january 20 , 2011 . ( 2 ) the broad oak credit facility was paid-in-full and terminated on july 1 , 2011 in connection with the broad oak acquisition . we have entered into certain variable-to-fixed interest rate derivatives that hedge our exposure to interest rate variations on our variable interest rate debt . at december 31 , 2012 , we had one interest rate swap and one interest rate cap outstanding for a total notional amount of $ 100.0 million with fixed pay rates ranging from 1.11 % to 3.00 % and terms expiring through september 2013. at december 31 , 2011 , we had interest rate swaps and one interest rate cap outstanding for a notional amount of $ 260.0 million with fixed pay rates ranging from 1.11 % to 3.41 % and terms expiring through september 2013 . 59 the table below shows our realized and unrealized losses related to interest rate swaps for the periods presented : replace_table_token_23_th write-off of deferred loan costs . in january 2011 , we used a portion of the net proceeds from the issuance of our senior unsecured notes to pay in full and retire our term loan . additionally , concurrent with the issuance of our senior unsecured notes , the borrowing base on our senior secured credit facility was lowered from $ 220.0 million to $ 200.0 million . as a result , we took a charge to expense for the debt issuance costs attributable to our term loan and a proportionate percentage of the costs incurred for our senior secured credit story_separator_special_tag reserves , ( ii ) increased net book value on new reserves added , ( iii ) higher total production levels and ( iv ) increased capitalized costs for new wells completed in 2012. we expect depletion of proved oil and natural gas properties to continue to increase as our focus remains on drilling higher-valued oil-rich assets . impairment expense . we incurred impairment expense of approximately $ 0.2 million for the year ended december 31 , 2011 to reflect our materials and supplies inventory at the lower of cost or market value calculated as of december 31 , 2011. it was determined for the years ended december 31 , 2012 and 2010 , that a lower of cost or market adjustment was not needed for materials and supplies . we evaluate the impairment of our oil and natural gas properties on a quarterly basis according to the full cost method prescribed by the sec . if the carrying amount exceeds the calculated full cost ceiling , we reduce the carrying amount of the oil and natural gas properties to the calculated full cost ceiling amount , which is determined to be their estimated fair value . for the years ended december 31 , 2012 , 2011 and 2010 , it was determined that our oil and natural gas properties were not impaired . non-operating income and expense . the following table sets forth the components of non-operating income and expense for the periods presented : replace_table_token_20_th commodity derivative financial instruments . the realized and unrealized gains and losses on commodity derivative financial instruments for the periods presented : replace_table_token_21_th 58 realized gains on commodity derivative financial instruments increased by approximately $ 23.3 million for the year ended december 31 , 2012 compared to 2011 and decreased by $ 19.0 million for the year ended december 31 , 2011 compared to 2010 , based on the cash settlement prices of our commodity derivative contracts compared to the prices specified in those contracts . the unrealized gains on commodity derivative financial instruments experienced during the year ended december 31 , 2011 converted to unrealized losses for the year ended december 31 , 2012 as a result of the changing relationships between our contract prices and the associated forward curves used to calculate the fair value of our commodity derivative financial instruments in relation to expected market prices . in general , we experience unrealized gains during periods of decreasing market prices and unrealized losses during periods of increasing market prices . additionally , at december 31 , 2012 , we had 27 commodity derivatives contracts with associated deferred premiums totaling approximately $ 25.5 million . the estimated fair value of our total deferred premiums was approximately $ 24.7 million at december 31 , 2012 compared to $ 18.9 million at december 31 , 2011 and $ 12.5 million at december 31 , 2010. the fair market value of these premiums is netted against the fair market value of the underlying commodity derivative financial instruments at each period end and contributed the majority of our overall unrealized loss positions for the year ended december 31 , 2012. see notes b.5 , f and g to our audited consolidated financial statements included elsewhere in this annual report on form 10-k and “ item 7a . quantitative and qualitative disclosures about market risk ” for additional information regarding our commodity derivative financial instruments . interest expense and realized and unrealized gains and losses on interest rate swaps . interest expense increased by approximately $ 35.0 million , or 69 % , for the year ended december 31 , 2012 compared to 2011 , and $ 32.1 million , or 174 % , for the year ended december 31 , 2011 compared to 2010. these increases are largely due to the issuance of ( i ) $ 200.0 million in 9 1/2 % senior unsecured notes due 2019 in october of 2011 in addition to the previously outstanding $ 350.0 million 9 1/2 % senior unsecured notes due in 2019 , and ( ii ) $ 500.0 million in 7 3/8 % senior unsecured notes due 2022 in april of 2012. the table below shows the changes in the significant components of interest expense for periods presented : replace_table_token_22_th _ ( 1 ) the term loan was entered into on july 7 , 2010 and was paid in full and terminated on january 20 , 2011 . ( 2 ) the broad oak credit facility was paid-in-full and terminated on july 1 , 2011 in connection with the broad oak acquisition . we have entered into certain variable-to-fixed interest rate derivatives that hedge our exposure to interest rate variations on our variable interest rate debt . at december 31 , 2012 , we had one interest rate swap and one interest rate cap outstanding for a total notional amount of $ 100.0 million with fixed pay rates ranging from 1.11 % to 3.00 % and terms expiring through september 2013. at december 31 , 2011 , we had interest rate swaps and one interest rate cap outstanding for a notional amount of $ 260.0 million with fixed pay rates ranging from 1.11 % to 3.41 % and terms expiring through september 2013 . 59 the table below shows our realized and unrealized losses related to interest rate swaps for the periods presented : replace_table_token_23_th write-off of deferred loan costs . in january 2011 , we used a portion of the net proceeds from the issuance of our senior unsecured notes to pay in full and retire our term loan . additionally , concurrent with the issuance of our senior unsecured notes , the borrowing base on our senior secured credit facility was lowered from $ 220.0 million to $ 200.0 million . as a result , we took a charge to expense for the debt issuance costs attributable to our term loan and a proportionate percentage of the costs incurred for our senior secured credit
| the total increase in oil and natural gas revenues of approximately $ 77.3 million , or 15 % , for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 is largely due to a 42 % increase in oil production and a 23 % increase in natural gas production volumes attributable mainly to our permian and anadarko granite wash areas , which were offset by lower prices received for oil and natural gas . the total increase in oil and natural gas revenues of approximately $ 266.5 million , or 111 % , for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 is largely due to a 104 % increase in oil production and a 48 % increase in natural gas production volumes as well as an increase in both oil and natural gas prices realized for the year . natural gas transportation and treating . our revenues related to natural gas transportation and treating increased by $ 0.5 million during the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 and increased by $ 1.8 million during the year ended december 31 , 2011 as compared to the year ended december 31 , 2010. these increases were due to the sale of oil condensate from our pipeline assets during each respective period , which occurs on an infrequent basis , as well as an increase in the volumes transported through our pipeline . 55 costs and expenses the following table sets forth information regarding costs and expenses and average costs per boe for the periods presented : replace_table_token_18_th _ ( 1 ) general and administrative includes non-cash stock-based compensation of $ 10.1 million , $ 6.1 million and $ 1.3 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . excluding stock-based compensation from the above metric results in general and administrative cost per boe of $ 4.61 , $ 5.19 and $ 5.69 for the years ended december 31 , 2012 , 2011 and 2010 , respectively . lease operating expenses . lease operating expenses , which include workover expenses , increased by $ 24.0 million , or
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these factors include assumptions about the discount rate used to calculate and determine benefit obligations and expected return on plan assets within certain guidelines . the actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions , higher or lower withdrawal rates , or longer or shorter life spans of participants . these differences may significantly affect the amount of pension income or expense recorded by us in future periods . story_separator_special_tag short-term borrowings of $ 1,805,000. the company 's financing activities used cash of $ 5,549,000 during fiscal year 2014 for payment of $ 1,780,000 toward the purchase of the noncontrolling interest in a subsidiary , repayment of short-term borrowings of $ 3,847,000 , cash dividends of $ 1,122,000 paid to stockholders , and cash dividends of $ 38,000 paid to minority interest holders . this was partially offset by a net increase in long-term debt of $ 1,146,000 in conjunction with the replacement of the company 's long-term debt with a new lender . see note 3 and note 10 of the notes to consolidated financial statements included in item 8 of this annual report for additional information concerning our credit facility and the purchase of the noncontrolling interest in our subsidiary . the company 's financing activities used cash of $ 1,718,000 during fiscal year 2013 , primarily for cash dividends of $ 1,035,000 paid to stockholders , and cash dividends of $ 744,000 paid to minority interest holders . the majority of the april 30 , 2015 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2016 , with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner . as discussed above , no further benefits have been , or will be , earned under our pension plans after april 30 , 2005 , and no additional participants have been , or will be , added to the plans . we estimate that contributions of $ 60,000 will be made to the plans in fiscal year 2016. we made contributions of $ 775,000 and $ 300,000 to the plans in fiscal years 2015 and 2014 , respectively . capital expenditures were $ 2.6 million , $ 2.0 million and $ 2.4 million in fiscal years 2015 , 2014 and 2013 , respectively . capital expenditures in fiscal year 2015 were funded primarily from operations . fiscal year 2016 capital expenditures are anticipated to be approximately $ 2.5 million , with the majority of these expenditures for manufacturing equipment . the fiscal year 2016 expenditures are expected to be funded primarily by operating activities , supplemented as needed by borrowings under our revolving credit facility . working capital was $ 27.7 million at april 30 , 2015 , up from $ 27.2 million at april 30 , 2014 , and the ratio of current assets to current liabilities was 2.3-to-1.0 at april 30 , 2015 and 2.7-to-1.0 at april 30 , 2014. the increase in working capital for fiscal year 2015 was primarily due to the increase in receivables , partially offset by the decrease in accounts payable and other accrued expenses . we paid cash dividends of $ 0.47 per share in fiscal year 2015. we paid cash dividends of $ 0.44 and $ 0.40 per share in fiscal years 2014 and 2013 , respectively . we expect to pay dividends in the future in line with our actual and anticipated future operating results . recent accounting standards new accounting standards in february 2013 , the fasb issued asu 2013-02 , comprehensive income ( topic 220 ) reporting of amounts reclassified out of accumulated other comprehensive income. this guidance adds new disclosure requirements for items reclassified out of accumulated other comprehensive income ( aoci ) , including changes in aoci balances by component 12 and significant items reclassified out of aoci . this guidance does not amend any existing requirements for reporting net income or aoci in the financial statements . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in march 2013 , the fasb issued asu 2013-05 foreign currency matters ( topic 830 ) parent 's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. this guidance issued amendments to address the accounting for the cumulative translation adjustment when a parent entity sells or transfers either a subsidiary or group of assets within a foreign entity . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in july 2013 , the fasb issued asu no . 2013-11 income taxes ( topic 740 ) presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists. this guidance requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credits carryforwards that would be used to settle the position with a tax authority . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in may 2014 , the fasb issued asu 2014-9 revenue from contracts with customers ( topic 606 ) . this guidance requires an entity to 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 or services story_separator_special_tag these factors include assumptions about the discount rate used to calculate and determine benefit obligations and expected return on plan assets within certain guidelines . the actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions , higher or lower withdrawal rates , or longer or shorter life spans of participants . these differences may significantly affect the amount of pension income or expense recorded by us in future periods . story_separator_special_tag short-term borrowings of $ 1,805,000. the company 's financing activities used cash of $ 5,549,000 during fiscal year 2014 for payment of $ 1,780,000 toward the purchase of the noncontrolling interest in a subsidiary , repayment of short-term borrowings of $ 3,847,000 , cash dividends of $ 1,122,000 paid to stockholders , and cash dividends of $ 38,000 paid to minority interest holders . this was partially offset by a net increase in long-term debt of $ 1,146,000 in conjunction with the replacement of the company 's long-term debt with a new lender . see note 3 and note 10 of the notes to consolidated financial statements included in item 8 of this annual report for additional information concerning our credit facility and the purchase of the noncontrolling interest in our subsidiary . the company 's financing activities used cash of $ 1,718,000 during fiscal year 2013 , primarily for cash dividends of $ 1,035,000 paid to stockholders , and cash dividends of $ 744,000 paid to minority interest holders . the majority of the april 30 , 2015 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2016 , with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner . as discussed above , no further benefits have been , or will be , earned under our pension plans after april 30 , 2005 , and no additional participants have been , or will be , added to the plans . we estimate that contributions of $ 60,000 will be made to the plans in fiscal year 2016. we made contributions of $ 775,000 and $ 300,000 to the plans in fiscal years 2015 and 2014 , respectively . capital expenditures were $ 2.6 million , $ 2.0 million and $ 2.4 million in fiscal years 2015 , 2014 and 2013 , respectively . capital expenditures in fiscal year 2015 were funded primarily from operations . fiscal year 2016 capital expenditures are anticipated to be approximately $ 2.5 million , with the majority of these expenditures for manufacturing equipment . the fiscal year 2016 expenditures are expected to be funded primarily by operating activities , supplemented as needed by borrowings under our revolving credit facility . working capital was $ 27.7 million at april 30 , 2015 , up from $ 27.2 million at april 30 , 2014 , and the ratio of current assets to current liabilities was 2.3-to-1.0 at april 30 , 2015 and 2.7-to-1.0 at april 30 , 2014. the increase in working capital for fiscal year 2015 was primarily due to the increase in receivables , partially offset by the decrease in accounts payable and other accrued expenses . we paid cash dividends of $ 0.47 per share in fiscal year 2015. we paid cash dividends of $ 0.44 and $ 0.40 per share in fiscal years 2014 and 2013 , respectively . we expect to pay dividends in the future in line with our actual and anticipated future operating results . recent accounting standards new accounting standards in february 2013 , the fasb issued asu 2013-02 , comprehensive income ( topic 220 ) reporting of amounts reclassified out of accumulated other comprehensive income. this guidance adds new disclosure requirements for items reclassified out of accumulated other comprehensive income ( aoci ) , including changes in aoci balances by component 12 and significant items reclassified out of aoci . this guidance does not amend any existing requirements for reporting net income or aoci in the financial statements . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in march 2013 , the fasb issued asu 2013-05 foreign currency matters ( topic 830 ) parent 's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. this guidance issued amendments to address the accounting for the cumulative translation adjustment when a parent entity sells or transfers either a subsidiary or group of assets within a foreign entity . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in july 2013 , the fasb issued asu no . 2013-11 income taxes ( topic 740 ) presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists. this guidance requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credits carryforwards that would be used to settle the position with a tax authority . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in may 2014 , the fasb issued asu 2014-9 revenue from contracts with customers ( topic 606 ) . this guidance requires an entity to 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 or services
| the decrease in gross profit margin for fiscal year 2015 was primarily due to very competitive pricing in the americas laboratory furniture marketplace , particularly the large higher education projects . the increase in gross profit margin for fiscal year 2014 was primarily due to a more favorable product sales mix . operating expenses were $ 16.5 million , $ 16.1 million and $ 17.0 million in fiscal years 2015 , 2014 and 2013 , respectively , and 13.9 % , 14.5 % and 14.5 % of sales , respectively . the increase in operating expense dollars in fiscal year 2015 as compared to fiscal year 2014 resulted primarily from an increase in operating expenses of $ 640,000 attributed to the growth in international business , partially offset by decreases in pension expense of $ 214,000 and bad debt expense of $ 61,000. the decrease in operating expense dollars in fiscal year 2014 as compared to fiscal year 2013 resulted primarily from a decreased expense of $ 425,000 in corporate salary and benefit costs . other income was $ 484,000 , $ 395,000 and $ 306,000 in fiscal years 2015 , 2014 and 2013 , respectively . the increase in other income in fiscal years 2015 and 2014 was primarily due to increases in interest income earned from cash on hand at the international subsidiaries . interest expense was $ 325,000 , $ 373,000 and $ 362,000 in fiscal years 2015 , 2014 and 2013 , respectively . the decrease in interest expense for fiscal year 2015 was primarily due to lower levels of bank borrowings . interest expense in fiscal year 2014 was flat as compared to fiscal year 2013. income tax expense was $ 1,745,000 , $ 1,983,000 and $ 1,540,000 in fiscal years 2015 , 2014 and 2013 , respectively , or 32.4 % , 33.1 % and 29.5 % of pretax earnings , respectively . the effective tax rate for each of these years is lower than the statutory rate due to the favorable impact of tax rates
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the company is deliberate in its efforts to maintain adequate liquidity under prevailing and expected conditions , and strives to maintain a balanced and appropriate mix of loans , securities , core deposits , brokered deposits and borrowed funds . 34 material risks and challenges in its normal course of business , the company faces many risks inherent with providing banking and financial services . among the more significant risks managed by the company are losses arising from loans not being repaid , commonly referred to as credit risk , and losses of income arising from movements in interest rates , commonly referred to as interest rate and market risk. the company is also exposed to national and local economic conditions , downturns in the economy , or adverse changes in real estate markets , which could negatively impact its business , financial condition , results of operations or liquidity . management has numerous policies and control processes in place that provide for the monitoring and mitigation of risks based upon and driven by a variety of assumptions and actions which , if changed or altered , could impact the company 's business , financial condition , results of operations or liquidity . the foregoing matters are more fully discussed in part i , item 1a , risk factors , and throughout this annual report on form 10-k. summary financial results for the year ended december 31 , 2012 , the company reported net income of $ 12,466 compared with $ 11,043 for the year ended december 31 , 2011 , representing an increase of $ 1,423 , or 12.9 % . the company 's 2012 diluted earnings per share amounted to $ 3.18 compared with $ 2.85 in 2011 , representing an increase of $ 0.33 , or 11.6 % . the company 's 2012 return on average shareholders ' equity amounted to 9.93 % compared with 9.94 % in 2011. the company 's 2012 return on average assets amounted to 1.00 % , compared with 0.96 % in 2011. as previously announced , on august 10 , 2012 the bank acquired substantially all assets and assumed certain liabilities including all deposits of border trust company ( border trust ) , a subsidiary of border bancshares , inc. , headquartered in augusta , maine . the bank acquired $ 38,520 of deposits and $ 33,606 in loans , as well as three branch offices ( two of which were leased ) located in kennebec and sagadahoc counties . the bank paid a core deposit premium of 3.85 % , or $ 1,115 , and purchased the loan portfolio , excluding selected non-performing loans , at a discount of 2.16 % , or $ 749. in connection with this transaction , the bank recorded estimated goodwill of $ 1,777 and an estimated core deposit intangible of $ 783 , or 2.7 % of core deposits . the bank also recorded $ 863 in non-recurring expenses , including employee severance , professional fees , and other conversion and integration related expenses . application of critical accounting policies management 's discussion and analysis of the company 's financial condition and results of operations are based on the consolidated financial statements , which are prepared in accordance with u.s. generally accepted accounting principles . the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . management evaluates its estimates , including those related to the allowance for loan losses , on an ongoing basis . management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources . actual results could differ from the amount derived from management 's estimates and assumptions under different assumptions or conditions . the company 's significant accounting policies are more fully enumerated in note 1 to the consolidated financial statements included in item 8 of this annual report on form 10-k. the reader of the financial statements should review these policies to gain a greater understanding of how the company 's financial 35 performance is reported . management believes the following critical accounting policies represent the more significant estimates and assumptions used in the preparation of the consolidated financial statements : allowance for loan losses : the allowance for loan losses ( allowance ) is a significant accounting estimate used in the preparation of the company 's consolidated financial statements . the allowance , which is established through a provision for loan loss expense , is based on management 's evaluation of the level of allowance required in relation to the estimated inherent risk of probable loss in the loan portfolio . management regularly evaluates the allowance for adequacy by taking into consideration factors such as previous loss experience , the size and composition of the portfolio , current economic and real estate market conditions and the performance of individual loans in relation to contract terms and estimated fair values of collateral . the use of different estimates or assumptions could produce different provisions for loan losses . a smaller provision for loan losses results in higher net income , and when a greater amount of provision for loan losses is necessary , the result is lower net income . refer to part ii , item 7 , allowance for loan losses and provision , and part ii , item 8 , note 4 , loans and allowance for loan losses , of the consolidated financial statements , in this annual report on form 10-k , for further discussion and analysis concerning the allowance . other-than-temporary impairments on securities : one of the significant estimates related to investment securities is the evaluation of other-than-temporary impairments . story_separator_special_tag 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 an 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 cause of the impairment ; ( 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 fair value ; ( e ) performance indicators of the underlying assets in the security including default rates , delinquency rates , percentage of non-performing assets , loan to collateral value ratios , third party guarantees , current levels of subordination , vintage , and geographic concentration and ; ( f ) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred , including the expectation of the receipt of all principal and interest due . for securitized financial assets with contractual cash flows , such as private-label mortgage-backed securities , the company periodically updates its best estimate of cash flows over the life of the security . the company 's best estimate of cash flows is based upon assumptions consistent with an economic recession , similar to those the company believes market participants would use . if the fair value of a securitized financial asset is less than its cost or amortized cost and there has been an adverse change in timing or amount of anticipated future cash flows since the last revised estimate to the extent that the company does not expect to receive the entire amount of future contractual principal and interest , an other-than-temporary impairment charge is recognized in earnings representing the estimated credit loss if management does not intend to sell the security and believes it is more-likely-than-not the company will not be required to sell the security prior to recovery of cost or amortized cost . estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain assumptions and judgments regarding the future performance of the underlying collateral . in addition , projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral . 36 refer to part ii , item 7 , impaired securities , and part ii , item 8 , note 1 of the consolidated financial statements in this annual report on form 10-k , for further discussion and analysis concerning other-than-temporary impairments . income taxes : the company estimates its income taxes for each period for which a statement of income is presented . this involves estimating the company 's actual current tax liability , as well as assessing temporary differences resulting from differing timing of recognition of expenses , income and tax credits , for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included in the company 's consolidated balance sheets . the company must also assess the likelihood that any deferred tax assets will be recovered from historical taxes paid and future taxable income and , to the extent that the recovery is not likely , a valuation allowance must be established . significant management judgment is required in determining income tax expense , and deferred tax assets and liabilities . as of december 31 , 2012 and 2011 , there was no valuation allowance for deferred tax assets , which are included in other assets on the consolidated balance sheet . goodwill and identifiable intangible assets : in connection with acquisitions , the company generally records as assets on its consolidated financial statements both goodwill and identifiable intangible assets , such as core deposit intangibles . the company evaluates whether the carrying value of its goodwill has become impaired , in which case the value is reduced through a charge to its earnings . goodwill is evaluated for impairment at least annually , or upon a triggering event using certain fair value techniques . goodwill impairment testing is performed at the segment ( or reporting unit ) level . goodwill is assigned to reporting units at the date the goodwill is initially recorded . once goodwill has been assigned to the reporting units , it no longer retains its association with a particular acquisition , and all of the activities within a reporting unit , whether acquired or organically grown , are available to support the value of the goodwill . goodwill represents the excess of the purchase price over the fair value of net assets acquired in accordance with the purchase method of accounting for business combinations . goodwill is not amortized but , instead , is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount . the company completes its annual goodwill impairment test as of december 31 of each year . the impairment testing process is conducted by assigning assets and goodwill to each reporting unit . currently , the company 's goodwill is evaluated at the entity level as there is only one reporting unit . the company first assesses certain qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value .
| increases in the cash value of the policies , as well as insurance proceeds received in excess of the cash value , are recorded in other non-interest income , and are not subject to income taxes . the cash surrender value of the boli is included on the company 's consolidated balance sheet . at december 31 , 2012 , the cash surrender value of boli amounted to $ 7,633 , compared with $ 7,377 at december 31 , 2011 , representing an increase of $ 256 , or 3.5 % , compared with december 31 , 2011. other assets the company 's other assets are principally comprised of accrued interest receivable , prepaid fdic insurance assessments , deferred income taxes and other real estate owned . at december 31 , 2012 total other assets amounted to $ 12,984 , compared with $ 13,391 at december 31 , 2011 , representing a decline of $ 407 , or 3.0 % . the decline in other assets principally attributed to a decline in prepaid fdic insurance assessments . 55 funding sources the bank utilizes various traditional sources of funding to support its earning asset portfolios . funding sources principally consist of retail deposits and , to a lesser extent , borrowings from the federal home loan bank of boston ( fhlb ) of which it is a member , and certificates of deposit obtained from the national market . deposits historically , the banking business in the bank 's market area has been seasonal , with lower deposits in the winter and spring and higher deposits in the summer and autumn . these seasonal swings have been fairly predictable and have not had a materially adverse impact on the bank . seasonal swings in deposits have been typically absorbed by the bank 's strong liquidity position , including borrowing capacity from the fhlb , brokered certificates of deposit obtained from the national market and cash flows from its securities portfolio . total deposits : at december 31 , 2012 , total deposits amounted to $ 795,012 compared with $ 722,890 at
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that increase in operating income reflects the impact of lower special charges , estimated at $ 15 million in 2019 compared to $ 16.3 million in 2018 , and the absence of $ 22.5 million of transaction and integration expenses incurred in 2018. excluding special charges and , in 2018 , transaction and integration expenses , we expect 2019 's adjusted operating income to increase 7 % to 9 % , which includes an estimated 2 % unfavorable impact from currency rates , or 9 % to 11 % on a constant currency basis . our cci-led cost savings target in 2019 is approximately $ 110 million . in 2019 , we expect to support our sales growth with a brand marketing investment comparable with the 2018 level , after consideration of the impact on both years of the adoption of the new accounting standards previously described . our underlying effective tax rate is projected to be higher in 2019 than in 2018 as the u.s. tax act was not fully effective for us , as a non-calendar year end company , in 2018. absent the impact of discrete tax items , we estimate our underlying tax rate to be approximately 24 % in 2019. including the impact of a discrete tax item that occurred in december 2018 , we estimate that our consolidated effective tax rate will approximate 22 % in fiscal 2019. in 2018 , we recognized a net non-recurring tax benefit of $ 301.5 million upon the enactment of the u.s. tax act . excluding that benefit and taxes associated with special charges and transaction and integration expenses , our adjusted effective tax rate was approximately 19.6 % in 2018. we expect our adjusted effective tax rate in 2018 to approximate our effective tax rate under u.s. gaap of 22 % . diluted earnings per share was $ 7.00 in 2018. diluted earnings per share for 2019 are projected to range from $ 5.09 to $ 5.19. excluding the per share impact of the non-recurring benefit from the u.s. tax act of $ 2.26 , special charges of $ 0.10 and transaction and integration expenses of $ 0.13 in 2018 , adjusted diluted earnings per share was $ 4.97 in 2018. adjusted diluted earnings per share ( excluding an estimated $ 0.08 per share impact from special charges ) are projected to be $ 5.17 to $ 5.27 in 2019. we expect adjusted diluted earnings per share in 2019 to grow 4 % to 6 % , which includes a 2 % unfavorable impact from currency rates , or to grow 6 % to 8 % in constant currency over adjusted diluted earnings per share of $ 4.97 in 2018. we expect this growth rate to be mainly driven by increased adjusted operating income which we expect to be partially offset by a higher adjusted effective tax rate in 2019. results of operations—2018 compared to 2017 replace_table_token_2_th sales for 2018 increased by 11.9 % from 2017 and by 10.7 % on a constant currency basis ( that is , excluding the impact of foreign currency exchange as more fully described under the caption , non-gaap financial measures ) . both the consumer and flavor solutions segments drove higher volume and product mix that added 2.2 % to sales . this was driven by new products as well as growth in the base business . the incremental impact of pricing actions added 0.5 % to sales , as compared to 2017. the incremental impact of the rb foods acquisition added 8.0 % to sales during 2018. a favorable impact from foreign currency exchange rates increased sales by 1.2 % compared to 2017 and is excluded from our measure of sales growth of 10.7 % on a constant currency basis . replace_table_token_3_th in 2018 , our gross profit margin rose 220 basis points to 43.8 % from 41.6 % in 2017. while this expansion in 2018 includes the accretive impact from our acquisition of the rb foods business , together with the absence of related transaction and integration expenses of $ 20.9 million that depressed our 2017 gross profit margin by 40 basis points , our core business was also a driver of that expansion . in 2018 , cci-led cost savings and the shift in our core product portfolio to more value-added products continued to drive profit expansion across both of our segments . excluding the effect of those transaction and integration expenses in 2017 , adjusted gross profit margin rose 180 basis points from 42.0 % in 2017 to 43.8 % in 2018. replace_table_token_4_th selling , general and administrative ( `` sg & a '' ) expense was $ 1,429.5 million in 2018 compared to $ 1,244.8 million in 2017 , an increase of $ 184.7 million . that increase in sg & a expense was driven by the incremental impact of the rb foods acquisition , together with increased brand marketing and higher distribution costs , including freight , which was offset in part by cci-led cost savings , including the benefits from the organization and streamlining actions described in note 3 of the accompanying financial statements . as a result , sg & a expense as a percentage of net sales was 26.4 % , a 60-basis point increase from 2017. replace_table_token_5_th we regularly evaluate whether to implement changes to our organization structure to reduce fixed costs , simplify or improve processes , and improve our competitiveness , and we expect to continue to evaluate such actions in the future . from time to time , those changes are of such significance in terms of both up-front costs and organizational/ structural impact that we obtain advance approval from our management committee and classify expenses related to those changes as special charges in our financial statements . special charges of $ 16.3 million were recorded in 2018 and $ 22.2 million in 2017 to enable us to implement these changes . story_separator_special_tag during 2018 , we recorded $ 16.3 million of special charges , consisting primarily of : ( i ) $ 11.5 million related to our multi-year ge initiative , consisting of $ 7.5 million of third party expenses , $ 1.0 million of employee severance charges and a non-cash asset impairment charge of $ 3.0 million ( that non-cash asset impairment charge was related to the write-off of certain software assets that are incompatible with our future move , approved in the second quarter of 2018 , to a new global enterprise resource planning platform to facilitate planned actions under our ge initiative to align and simplify our end-to-end processes to support our future growth ) ; ( ii ) a one-time payment , in the aggregate amount of $ 2.2 million , made to eligible u.s. hourly employees to distribute a portion of the non-recurring net income tax benefit recognized in connection with the enactment of the u.s. tax act ; ( iii ) $ 1.0 million related to employee severance benefits and other costs directly associated with the relocation of one of our chinese manufacturing facilities ; and ( iv ) $ 1.6 million related to employee severance benefits and other costs related to the transfer of certain manufacturing operations in our asia/pacific region to a newly constructed facility in thailand . during 2017 , we recorded $ 22.2 million of special charges , consisting primarily of $ 12.7 million related to third party expenses incurred as part of our evaluation of changes relating to our ge initiative , $ 2.8 million related to employee severance benefits and other costs associated with the relocation of one of our chinese manufacturing facilities , $ 2.5 million for severance and other exit costs associated with the closure of our manufacturing plant in portugal , and $ 1.7 million related to employee severance benefits and other costs associated with actions related to the transfer of certain manufacturing operations to a new facility under construction in thailand . see note 3 of the accompanying financial statements for more details on these charges and our basis for classifying amounts as special charges . replace_table_token_6_th transaction and integration expenses related to our rb foods acquisition totaled $ 22.5 million and $ 77.1 million in 2018 and 2017 , respectively . in 2018 , these costs primarily consisted of outside advisory , service and consulting costs ; employee-related costs ; and other costs related to the acquisition . in 2017 , these expenses consisted of amortization of the acquisition-date fair value adjustment of inventories of $ 20.9 million that was included in cost of goods sold ; outside advisory , service and consulting costs ; employee-related costs ; and other costs related to the acquisition , including the costs related to the bridge financing commitment of $ 15.4 million that was included in other debt costs . replace_table_token_7_th interest expense for 2018 of $ 174.6 million was sharply higher than the prior year level , primarily due to higher average borrowings in 2018 related to our incurrence of $ 3.7 billion in debt in august 2017 to finance the acquisition of rb foods ( see note 6 of the accompanying financial statements ) . other income , net , for 2018 of $ 12.6 million was significantly higher than the 2017 level principally due to a gain of $ 6.3 million recognized on the sale in 2018 of a building vacated as part of our move to a new global headquarters in maryland ; higher interest income and lower non-operating foreign currency transaction losses recognized in 2018 as compared to 2017 also contributed to this increase . replace_table_token_8_th the provision for income taxes is based on the then-current estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the fiscal period . we record tax expense or tax benefits that do not relate to ordinary income in the current fiscal year discretely in the period in which such items occur pursuant to the requirements of u.s. gaap . examples of such types of discrete items not related to ordinary income of the current fiscal year include , but are not limited to , excess tax benefits associated with share-based payments to employees , changes in estimates of the outcome of tax matters related to prior years ( including reversals of reserves upon the lapsing of statutes of limitations ) , provision-to-return adjustments , and the settlement of tax audits . as more fully described in note 12 of the accompanying financial statements , the u.s. tax act was enacted in december 2017. the u.s. tax act significantly changed u.s. corporate income tax laws by , among other things , reducing the u.s. corporate income tax rate to 21 % beginning on january 1 , 2018 and creating a territorial tax system with a one-time transition tax on previously deferred post-1986 foreign earnings of u.s. subsidiaries . under gaap ( specifically , asc topic 740 , income taxes ) , the effects of changes in tax rates and laws on deferred tax balances are recognized in the period in which the new legislation is enacted . we recorded a net benefit of $ 301.5 million associated with the u.s. tax act during 2018. this amount includes a $ 380.0 million benefit from the revaluation of our net u.s. deferred tax liabilities as of january 1 , 2018 , based on the new lower corporate income tax rate offset , in part , by an estimated net transition tax impact of $ 78.5 million .
| through digital marketing , we are connecting with consumers in a personalized way to deliver recipes , provide cooking advice and discover new products . new products –for our consumer segment , we believe that scalable and differentiated innovation continues to be one of the best ways to distinguish our brands from our competition , including private label . we are introducing products for every type of cooking occasion , from gourmet , premium items to convenient and value-priced flavors . for flavor solutions customers , we are developing seasonings for snacks and other food products , as well as flavors for new menu items . we have a solid pipeline of flavor solutions aligned with our customers ' new product launch plans , many of which include “ better-for-you ” innovation . with over 20 product innovation centers around the world , we are supporting the growth of our brands and those of our flavor solutions customers with products that appeal to local consumers . acquisitions –acquisitions are expected to approximate one-third of our sales growth over time . since the beginning of 2015 , we have completed seven acquisitions , which are driving sales in both our consumer and flavor solutions segments . we focus on acquisition opportunities that meet the growing demand for flavor and health . geographically , our focus is on acquisitions that build scale where we currently have presence in both developed and emerging markets . our acquisitions have included bolt-on opportunities and the august 17 , 2017 acquisition of reckitt benckiser 's food division ( `` rb foods '' ) from reckitt benckiser group plc . for approximately $ 4.2 billion , net of acquired cash . the acquired market-leading brands of rb foods include french's® , frank 's redhot® and cattlemen's® , which are a natural strategic fit with our robust global branded flavor portfolio . we believe that these additions move us to a leading position in the attractive u.s. condiments category and provide significant international growth opportunities for our consumer and flavor solutions segments . the rb foods acquisition resulted in
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the requirements for separate accounting must be applied retrospectively to previously issued cash-settleable convertible instruments as well as prospectively to newly issued instruments , negatively affecting both net income and earnings per share for issuers of the instruments . the staff position is effective for financial statements issued for fiscal years beginning after december 15 , 2008. the company is currently evaluating the impact that the adoption of fsp apb 14-1 will have on its consolidated financial statements . 14 in june 2008 , the fasb issued fsp eitf no . 03-6-1 , determining whether instruments granted in share-based payment transactions are participating securities. the fsp addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in sfas no . 128 , earnings per share. the fsp requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share . the fsp is effective for fiscal years beginning after december 15 , 2008 ; earlier application is not permitted . the company is currently evaluating the impact that the adoption of eitf 03-6-1 will have , if any , on its consolidated financial statements . in june 2008 , the fasb issued eitf 07-5 , determining whether an instrument ( or embedded feature ) is indexed to an entity 's own stock . eitf 07-5 provides guidance in assessing whether an equity-linked financial instrument ( or embedded feature ) is indexed to an entity 's own stock for purposes of determining whether the appropriate accounting treatment falls under the scope of sfas 133 , `` accounting for derivative instruments and hedging activities '' and or eitf 00-19 , `` accounting for derivative financial instruments indexed to , and potentially settled in , a company 's own stock '' . eitf 07-5 is effective for financial statements issued for fiscal years beginning after december 15 , 2008 and early application is not permitted . the company is currently evaluating the impact that the adoption of eitf 07-5 will have , if any , on its consolidated financial statements . in october 2008 , the fasb issued fas 157-3 , determining the fair value of a financial asset when the market for that asset is not active. this fasb staff position ( fsp ) clarifies the application of fasb statement no . 157 , fair value measurements , in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active . this fsp shall be effective upon issuance , including prior periods for which financial statements have not been issued . we evaluated the new statement and have determined that it does not have a significant impact on the determination or reporting of our financial results . critical accounting policies and estimates the sec defines critical accounting policies as those that require application of management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . our significant accounting policies are described in note 1 in the notes to consolidated financial statements . not all of these significant accounting policies require management to make difficult , subjective or complex judgments or estimates . however , the following policies could be deemed to be critical within the sec definition . environmental remediation liability on april 6 , 2000 , officials of the new jersey department of environmental protection ( dep ) inspected the company 's leased storage site in buena , new jersey , and issued notices of violation ( novs ) relating to the storage of waste materials in a number of trailers at the site . the company established a disposal and cleanup schedule and completed the removal of materials from the site . in march 2006 , the company received a judge 's decision from the office of administrative law ( oal ) of a fine in the amount of $ 35,000 in respect to the novs the company received from the dep . due to the criminal settlement that was reached between the company and the dep in 2002 , the company had a credit of $ 40,000 to be used against any fines determined as a result of the civil matter , therefore , the company did not have to pay any money to the dep for the settlement amount . the dep subsequently issued a final decision , which accepted the violation findings but rejected the oal judge 's penalty recommendation , reinstituting a previously proposed penalty by the dep of $ 215,000 , less the $ 40,000 credit previously mentioned or $ 175,000. the company appealed this to the superior court of the nj appellate division , which determined that the commission 's decision was reasonable thus affirming the dep commissioner 's decision . this amount of $ 175,000 was accrued for in the fourth quarter of 2007. the company reached a settlement with dep commissioner and agreed to pay the above amount in six equal installments . the final installment is due on june 30 , 2009. on march 2 , 2001 , the company became aware of environmental contamination resulting from an unknown heating oil leak at its companion pet products manufacturing facility . the company immediately notified the new jersey department of environmental protection and the local authorities , and hired a contractor to assess the exposure and required clean up costs . the total estimated costs for the clean up and remediation is $ 652,000 , of which $ 50,000 remains accrued as of december 31 , 2008. based on information provided to the company from story_separator_special_tag the requirements for separate accounting must be applied retrospectively to previously issued cash-settleable convertible instruments as well as prospectively to newly issued instruments , negatively affecting both net income and earnings per share for issuers of the instruments . the staff position is effective for financial statements issued for fiscal years beginning after december 15 , 2008. the company is currently evaluating the impact that the adoption of fsp apb 14-1 will have on its consolidated financial statements . 14 in june 2008 , the fasb issued fsp eitf no . 03-6-1 , determining whether instruments granted in share-based payment transactions are participating securities. the fsp addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in sfas no . 128 , earnings per share. the fsp requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share . the fsp is effective for fiscal years beginning after december 15 , 2008 ; earlier application is not permitted . the company is currently evaluating the impact that the adoption of eitf 03-6-1 will have , if any , on its consolidated financial statements . in june 2008 , the fasb issued eitf 07-5 , determining whether an instrument ( or embedded feature ) is indexed to an entity 's own stock . eitf 07-5 provides guidance in assessing whether an equity-linked financial instrument ( or embedded feature ) is indexed to an entity 's own stock for purposes of determining whether the appropriate accounting treatment falls under the scope of sfas 133 , `` accounting for derivative instruments and hedging activities '' and or eitf 00-19 , `` accounting for derivative financial instruments indexed to , and potentially settled in , a company 's own stock '' . eitf 07-5 is effective for financial statements issued for fiscal years beginning after december 15 , 2008 and early application is not permitted . the company is currently evaluating the impact that the adoption of eitf 07-5 will have , if any , on its consolidated financial statements . in october 2008 , the fasb issued fas 157-3 , determining the fair value of a financial asset when the market for that asset is not active. this fasb staff position ( fsp ) clarifies the application of fasb statement no . 157 , fair value measurements , in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active . this fsp shall be effective upon issuance , including prior periods for which financial statements have not been issued . we evaluated the new statement and have determined that it does not have a significant impact on the determination or reporting of our financial results . critical accounting policies and estimates the sec defines critical accounting policies as those that require application of management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . our significant accounting policies are described in note 1 in the notes to consolidated financial statements . not all of these significant accounting policies require management to make difficult , subjective or complex judgments or estimates . however , the following policies could be deemed to be critical within the sec definition . environmental remediation liability on april 6 , 2000 , officials of the new jersey department of environmental protection ( dep ) inspected the company 's leased storage site in buena , new jersey , and issued notices of violation ( novs ) relating to the storage of waste materials in a number of trailers at the site . the company established a disposal and cleanup schedule and completed the removal of materials from the site . in march 2006 , the company received a judge 's decision from the office of administrative law ( oal ) of a fine in the amount of $ 35,000 in respect to the novs the company received from the dep . due to the criminal settlement that was reached between the company and the dep in 2002 , the company had a credit of $ 40,000 to be used against any fines determined as a result of the civil matter , therefore , the company did not have to pay any money to the dep for the settlement amount . the dep subsequently issued a final decision , which accepted the violation findings but rejected the oal judge 's penalty recommendation , reinstituting a previously proposed penalty by the dep of $ 215,000 , less the $ 40,000 credit previously mentioned or $ 175,000. the company appealed this to the superior court of the nj appellate division , which determined that the commission 's decision was reasonable thus affirming the dep commissioner 's decision . this amount of $ 175,000 was accrued for in the fourth quarter of 2007. the company reached a settlement with dep commissioner and agreed to pay the above amount in six equal installments . the final installment is due on june 30 , 2009. on march 2 , 2001 , the company became aware of environmental contamination resulting from an unknown heating oil leak at its companion pet products manufacturing facility . the company immediately notified the new jersey department of environmental protection and the local authorities , and hired a contractor to assess the exposure and required clean up costs . the total estimated costs for the clean up and remediation is $ 652,000 , of which $ 50,000 remains accrued as of december 31 , 2008. based on information provided to the company from
| the increase in our cost of sales was primarily due to our underutilized manufacturing capacity which led to higher cost of sales due to the unabsorbed overhead expenses . replace_table_token_2_th the increase in selling , general and administrative expenses in 2008 compared to the comparable period in 2007 related to an increase in stock-based compensation expense of $ 270,000 in accordance with sfas 123 ( r ) as discussed under summary of significant accounting policies ( footnote 1 ) and stock-based compensation ( footnote 9 ) and an increase in bad debt expense of $ 55,000. these expenses were 68 % of total revenues for 2008 compared to 53 % in 2007. for the years ended interest december 31 , 2008 december 31 , 2007 $ change % change ( in thousands ) interest expense , net $ 15 $ 48 ( $ 33 ) ( 69 % ) 11 interest expense decreased in 2008 as a result of a decrease in the company 's average short-term notes payable principal balance and a reduction in the company 's average interest rate on its short-term notes payable in 2008. the amounts in other income , net in 2008 were $ 28,000 of miscellaneous income . the amounts in other income in 2007 were insurance proceeds received as reimbursement for the employee theft that was discovered in 2007 in the amount of $ 58,000 and $ 6,000 of miscellaneous income . the tax benefit of $ 196,000 in 2008 and $ 453,000 in 2007 was the result of a sale of a portion of the company 's state tax operating loss carry forwards to a third party . the gain from discontinued operations of $ 5,000 in 2007 was related to the sale of the equipment for the operations that were shutdown and discontinued in 2006. liquidity and capital resources our business operations have been partially funded over the past four years through equity transactions . during 2007 , the company entered into three ( 3 ) equity transactions : ( i ) with pharmachem laboratories for 1,500,000 shares of common stock for gross proceeds of $ 1,500,000 ,
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the rate change would not become the final and binding decision of the iub until its written decision is issued on or before february 28 , 2014. the iub does have the discretion to alter or reverse its position on the verbal decision in the final written order thus the permanent annual base rate increase of $ 3.9 million may be adjusted . if the verbal iub decision is confirmed by final written order after taking into account the interim increase of $ 2.7 million such an award would result in an additional $ 1.2 million over revenue generated by interim rates . on january 24 , 2014 , we filed a general rate case in indiana requesting additional annualized revenues of $ 19.6 million . the rate case filing is using a fully forecasted test year for the first time . on january 1 , 2014 , additional annualized revenues of $ 0.9 million , $ 10.1 million and $ 2.1 million resulting from infrastructure charges in our new york , new jersey and illinois subsidiaries became effective . on january 17 , 2014 and january 31 , 2013 we filed for additional annualized revenue of $ 0.7 million and $ 0.2 million , respectively , from infrastructure charges in our new york subsidiary . on february 25 , 2014 our missouri subsidiary filed for additional revenues from infrastructure charges in the amount of $ 3.1 million . other regulatory activities occurring in 2013 that allow us to address regulatory lag include our tennessee subsidiary which on october 4 , 2013 filed for approval of a qualified infrastructure investment program rider , an economic development investment rider and a safety and environmental compliance rider totaling $ 0.5 million . our tennessee subsidiary is also filing for approval of a production costs and other pass-throughs mechanism which cover over or under collection of authorized expenses for purchased power , chemicals , waste disposal , purchased water including wheeling charges , and the tennessee regulatory authority inspection fee . this petition is pending regulatory approval . our missouri subsidiary proposed a rule addressing an environmental cost adjustment mechanism to pass through expenses and capital costs of mandated environmental compliance measures by a utility . the rulemaking was unanimously approved by the public service commission on april 4 , 2013. it was adopted on january 3 , 2014 and will become effective 30 days after publication in the code of state regulations . as of february 25 , 2014 , we are awaiting final orders in three states requesting additional annualized revenue of approximately $ 58.4 million . continuing improvement in o & m efficiency ratio for our regulated businesses we continued to improve on our o & m e fficiency ratio during 2013. our o & m efficiency ratio was 38.7 % for the year ended december 31 , 2013 compared to 40.1 % and 42.4 % for the years ended december 31 , 2012 and 2011 , respectively . our o & m efficiency ratio ( a non-gaap measure ) is defined as our regulated operation and maintenance expense divided by regulated operating revenues , where both o & m expense and operating revenues are adjusted to eliminate purchased water expense . we also exclude from the o & m expense the allocable portion of non-o & m support services cost , mainly depreciation and general taxes , that are reflected in the regulated businesses segment as o & m costs but for consolidated financial reporting purposes are categorized within other lines in the statement of operations . management believes that this calculation better reflects the regulated businesses segment 's o & m efficiency ratio . we evaluate our operating performance using this measure , as it is the primary measure of the efficiency of our regulated operations . this information is intended to enhance an investor 's overall understanding of our operating performance . o & m efficiency ratio is not a measure defined under gaap and may not be comparable to other companies ' operating 38 measures or deemed more useful than the gaap information provided elsewhere in this report . the following table provides a reconciliation between operation and maintenance expense and operating revenues , as determined in accordance with gaap , and to those amounts utilized in the calculation of our o & m efficiency ratio for the years ended december 31 , 2013 , 2012 and 2011 : regulated o & m efficiency ratio ( a non-gaap measure ) replace_table_token_10_th * note calculation assumes purchased water revenues approximate purchased water expenses . making efficient use of capital we invested approximately $ 950 million and $ 983 million in company-funded capital improvements in 2013 and 2012 , respectively . these capital investments are needed on an ongoing basis to comply with existing and new regulations , renew aging treatment and network assets , provide capacity for new growth and ensure system reliability , security and quality of service . the need for continuous investment presents a challenge due to the potential for regulatory lag , or the delay in recovering our operating expenses and earning an appropriate rate of return on our invested capital and obtaining a return of our invested capital . in conjunction with our capital investment program , management continued its focus on reducing regulatory lag during 2013. in may 2013 , we implemented the first wave of phase ii of our business transformation project in certain of our regulated subsidiaries . in october 2013 , we implemented phase ii in our remaining regulated subsidiaries . phase ii consisted of the roll-out of a new enterprise asset management system , which will manage an asset 's lifecycle , and a customer information system , which will contain all billing and data pertaining to american water 's customers for our regulated segment . story_separator_special_tag with the final implementation of phase ii in october 2013 , our business transformation project was substantially complete at december 31 , 2013. through december 31 , 2013 , we have spent $ 322.8 million , including afudc , on this business transformation project with $ 65.8 million of that amount spent in 2013. expanding markets and developing new offerings during 2013 , our regulated business completed the purchase of ten water systems and five wastewater systems . these acquisitions added approximately 30,0 00 customers to our regulated operations . the largest of these acquisitions was the acquisition of dale service corporation ( “ dale ” ) by our virginia subsidiary on november 14 , 2013. the service area of dale overlapped with virginia american water 's existing water service in prince william county . with the dale acquisition , we added approximately 20,100 wastewater customers to our existing customer base . also , during 2013 , our market-based operations , through our homeowner services group ( “ hos ” ) expanded its water and sewer line protection programs into 10 additional states and washington , d.c. 39 in january , 2014 , our military services group , part of our contract operations group within the market-based operations was awarded a contract for ownership , operation and maintenance of the water and wastewater systems at hill ai r force base in utah . according to the agreement the award is estimated at approximately $ 288 million over a 50-year period . we have begun the transition of the facility , which will be fully transitioned to us by september 1 , 2014 , when we will commence our operations of the facility under the contract . also , in january 2014 , hos announced that it has expanded its water line and sewer line protection programs into three additional states , maine , minnesota and oklahoma . other matters west virginia event on january 9 , 2014 , a chemical storage tank owned by freedom industries , inc. leaked two substances used for processing coal , 4-methylcyclohexane methanol , or mchm , and pph , a mix of polyglycol ethers , into the elk river near the west virginia-american water company ( `` wvawc '' ) treatment plant in charleston , west virginia . after having been alerted to the leak by the dep , w vawc took immediate steps to gather more information about the chemical , augment its treatment as a precaution , and begin consultations with federal , state , and local public health officials . as soon as possible after it was determined that the augmented treatment process would not fully remove the chemical , a joint decision was reached in consultation with the west virginia bureau for public health to issue a “ do not use ” order to approximately 300,000 people in parts of nine west virginia counties . the order addressed the use of water for drinking , cooking , washing and bathing , but did not affect continued use of water for sanitation and fire protection . over the next several days , wvawc and an interagency team of state and federal officials engaged in extensive testing to determine if levels of mchm were below one part per million ( 1 ppm ) , a level that the u.s. centers for disease control and prevention ( cdc ) and u.s. environmental protection agency indicated would be protective of public health . based on the results of continued testing , the do not use order was lifted in stages , beginning on january 13 , 2014. by january 18th , none of wvawc 's customers were subject to the do not use order , although cdc guidance suggesting that pregnant women avoid consuming the water until the chemicals are at non-detectable levels remained in place . in addition , based on re-analysis of previously saved samples , pph was no longer detected at any sampling locations as of january 18 , 2014. on february 21 , 2014 , wvawc announced that all points of testing throughout its water distribution system indicated that levels of mchm are below 10 parts per billion ( 10 ppb ) . the interagency team established 10 ppb as the “ non-detect ” level of mchm in the water distribution system based on the measurement capabilities of the multiple laboratories used . wvawc is continuing sampling and testing in an effort to pinpoint its flushing activities and address odor issues . to date , an aggregate of 50 lawsuits have been filed against wvawc with respect to this matter in the united states district court for the southern district of west virginia , and west virginia circuit courts in kanawha , boone , and putman counties , many of which also name freedom industries ( which is now in bankruptcy ) and a few also name the company or other company affiliates . the complaints generally seek class action status ; raise claims based on a variety of tort , statutory and contract theories ; and seek a combination of compensatory damages , punitive damages , medical monitoring , and other equitable relief . additionally , investigations with respect to the matter have been initiated by the chemical safety board , the u.s. attorney 's office for the southern district of west virginia , the west virginia attorney general , and other governmental entities . the company and wvawc believe that wvawc has responded appropriately to , and has no responsibility for , the freedom industries spill , and the company , wvawc and other company-affiliated entities named in any of the lawsuits have valid , meritorious defenses to the lawsuits . the company , wvawc and the other company affiliates inten d to vigorously contest the lawsuits . nevertheless , an adverse outcome in one or more of the lawsuits could have a material adverse effect on the company 's financial condition , results of operations , cash flows , liquidity and reputation .
| ( 6 ) amount includes a $ 3.0 million increase effective april 1 , 2012 , with the remainder of $ 1.4 million and $ 1.2 million becoming effective april 1 , 2013 and april 1 , 2014 , respectively . the effective dates for the more significant increases granted in 2012 were january 1 , 2012 , april 1 , 2012 , may 1 , 2012 and october 1 , 2012 for our california , missouri , new jersey , and illinois subsidiaries , respectively . the effective date for the 2011 pennsylvania rate increase was november 11 , 2011. the 2011 increase in virginia was effective in march 2011 while the tennessee and west virginia increases were effect ive in april 2011 . 45 as previously noted , an increasing number of states are permitting rates to be adjusted outside of a general rate case for certain costs , such as mechanisms that permit a return on capital investments to replace aging infrastructure . the following table details additional annualized revenue authorized through infrastructure surcharge mechanisms which were granted in 2013 , 2012 and 2011. as these surcharges are typically rolled into the new base rates and therefore are reset to zero when new base rates are effective , certain of these charges may also be reflected in the total general rate case amounts awarded in the table above if the order date was following the infrastructure surcharge filing date : replace_table_token_14_th ( 1 ) quarterly filings made with puc . $ 6.7 million , $ 3.7 million , $ 2.9 million and $ 6.5 million effective october 1 , 2013 , july 1 , 2013 , april 1 , 2013 and january 1 , 2013 , respectively . ( 2 ) effective july 1 , 2013 . ( 3 ) $ 5.4 million effective june 21 , 2013 and $ 2.5 million effective december 14 , 2013 . ( 4 ) effective december 18 , 2013 . ( 5 ) effective october 1 , 2013. comparison of results of operations for the years ended december 31 , 2013 and 2012 operating
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in periods of economic growth , demand for temporary services generally increases , and the need to recruit , screen , train , retain and manage a labor pool matching the skills required by particular customers becomes critical . conversely , during an economic downturn , competitive pricing pressures can pose a threat to retaining a qualified temporary workforce . accordingly , the slow recovery from recession in the u.s. has impacted all staffing firms over the last several years . we believe the on-demand temporary labor market creates a unique competitive niche for us . on-demand labor store operations : at december 26 , 2014 , we operated 55 on-demand labor stores serving approximately 3,400 customers and employing approximately 32,400 temporary employees . as the economic environment continues to improve , we plan to grow through revenue increases at existing offices , as well as opening and acquiring new locations . our target markets will include locations that we believe are underserved by competitors , areas where there is growing demand for on-demand services , and where we can increase business from current national accounts . additional sales growth may result from selected acquisition opportunities , as well as the development of new national accounts , and by providing services in new business sectors . with growth , we expect to leverage our existing cost structure over increased revenue . this may enable us to further reduce our operating costs as a percentage of revenue . increasing our selling efforts and developing our business by targeting new customer development remains one of our top priorities the following table reflects operating results in 2014 compared to 2013 ( in thousands , except per share amounts and percentages ) . percentages indicate line items as a percentage of total revenue . the table serves as the basis for the narrative discussion that follows . replace_table_token_3_th 13 earnings before interest , taxes , depreciation and amortization , and the change in fair value of our derivative liabilities ( “ ebitda-d ” ) is a non-gaap measure that represents net income attributable to ccni before interest expense , income tax expense , depreciation and amortization , and the change in fair value of our derivative liabilities . we utilize ebitda-d as a financial measure , as management believes investors find it a useful tool to perform more meaningful comparisons of past , present and future operating results and as a means to evaluate our operational results . we believe it is a complement to net income and other financial performance measures . ebitda-d is not intended to represent net income as defined by gaap , and such information should not be considered as an alternative to net income or any other measure of performance prescribed by gaap . we use ebitda-d to measure our financial performance because we believe interest , taxes , depreciation and amortization , and the change in fair value of our derivative liabilities bear little or no relationship to our operating performance . by excluding interest expense , ebitda-d measures our financial performance irrespective of our capital structure or how we finance our operations . by excluding taxes on income , we believe ebitda-d provides a basis for measuring the financial performance of our operations excluding factors that our branches can not control . by excluding depreciation and amortization expense , ebitda-d measures the financial performance of our operations without regard to their historical cost . by excluding the change in fair value of our derivative liabilities , ebitda-d provides a basis for measuring the financial performance of our operations excluding factors that are beyond our control . for all of these reasons , we believe that ebitda-d provides us and investors with information that is relevant and useful in evaluating our business . however , because ebitda-d excludes depreciation and amortization , it does not measure the capital we require to maintain or preserve our fixed assets . in addition , because ebitda-d does not reflect interest expense , it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our financing or changes in interest rates . ebitda-d , as defined by us , may not be comparable to ebitda-d as reported by other companies that do not define ebitda-d exactly as we define the term . because we use ebitda-d to evaluate our financial performance , we reconcile it to net income , which is the most comparable financial measure calculated and presented in accordance with gaap . the following is a reconciliation of ebitda-d to net income for the periods presented : replace_table_token_4_th results of operations 52 weeks end ed december 26 , 2014 story_separator_special_tag funds otherwise made available to us under this agreement . operating activities : net cash provided by operating activities totaled approximately $ 7.8 million in 2014 , an increase of $ 2.6 million compared to approximately $ 5.2 million in 2013. this was primarily driven by a decrease in accounts payable of approximately $ 1.6 million and an increase in our deferred tax asset of approximately $ 3.9 million . investing activities : net cash used by investing activities totaled approximately $ 246,000 in 2014 , approximately a $ 227,000 increase from approximately $ 19,000 used in 2013 . 15 financing activities : net cash used by financing activities totaled approximately $ 4.7 million in 2014 compared to approximately $ 1.0 million in 2013. financing activity relates almost exclusively the reduction in the balance of our factoring liability . story_separator_special_tag critical accounting policies management 's discussion and analysis of financial conditions and results of operations provides a narrative discussion of our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . management believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements . basis of presentation : the consolidated financial statements include the accounts of command center , inc. and all of our wholly-owned subsidiaries . all significant intercompany balances and transactions have been eliminated in consolidation . the consolidated financial statements and accompanying notes are prepared in accordance with gaap . use of estimates : the preparation of consolidated financial statements in conformity with gaap requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . fiscal year end : our consolidated financial statements are presented on a 52/53-week fiscal year end basis , with the last day of the fiscal year being the last friday of each calendar year . in fiscal years consisting of 53 weeks , the final quarter will consist of 14 weeks . fiscal years 2014 and 2013 both consisted of 52 weeks . revenue recognition : we generate revenues primarily from providing on-demand labor services . revenue from services is recognized at the time the service is performed and is net of adjustments related to customer credits . revenues are reported net of customer credits and taxes collected from customers that are remitted to taxing authorities . cost of staffing services : cost of services includes the wages of temporary employees , related payroll taxes , workers ' compensation expenses , and other direct costs of services . accounts receivable and allowance for doubtful accounts : accounts receivable are carried at their estimated recoverable amount , net of allowances . we regularly review our accounts receivable for collectability . the allowance for doubtful accounts is determined based on historical write-off experience , age of receivable , other qualitative factors and current economic data and represents our best estimate of the amount of probable losses on our accounts receivable . the allowance for doubtful accounts is reviewed monthly . generally , we refer overdue balances to a collection agency at 120 days and the collection agent typically pursues collection for another 60 or more days . at december 26 , 2014 and december 27 , 2013 , our allowance for doubtful accounts was approximately $ 550,000 and $ 637,000 , respectively . workers ' compensation reserves : in accordance with the terms of our workers ' compensation liability insurance policy , we maintain reserves for workers ' compensation claims to cover our cost of all claims . we use third party actuarial estimates of the future costs of the claims and related expenses , discounted by a 3 % present value interest rate , to determine the amount of our reserves . we evaluate the reserves quarterly and make adjustments as needed . if the actual cost of the claims incurred and related expenses exceed the amounts estimated , additional reserves may be required . in monopolistic states , we utilize the state funds for our workers ' compensation insurance and pay our premiums in accordance with the state plans . goodwill and other intangible assets : goodwill represents the excess purchase price over the fair value of identifiable assets received attributable to business acquisitions and combinations . goodwill and other intangible assets are measured for impairment at least annually and or whenever events and circumstances arise that indicate impairment may exist , such as a significant adverse change in the business climate . in assessing the value of goodwill , assets and liabilities are assigned to the reporting units and the appropriate valuation methodologies are used to determine fair value at the reporting unit level . identified intangible assets are amortized using the straight-line method over their estimated useful lives which are estimated to be between three and seven years . fair value of financial instruments : we carry financial instruments on the consolidated balance sheet at the fair value of the instruments as of the consolidated balance sheet date . at the end of each period , management assesses the fair value of each instrument and adjusts the carrying value to reflect its assessment . at december 26 , 2014 and december 27 , 2013 , the carrying values of accounts receivable and accounts payable approximated their fair values due to relatively short maturities . 16 derivatives : from time to time , we may enter into transactions which contain conversion privileges , the settlement of which may entitle the holder or us to settle the obligation ( s ) by issuance of our securities . when we enter into transactions which allow us to settle obligations by the issuance of our securities , fair value is estimated each reporting period . income taxes : deferred tax assets and liabilities are recognized for the effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . in addition , deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized . a number of estimates and judgments are necessary to determine deferred tax assets , deferred tax liabilities and valuation allowances . we recognize the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position . the calculation of our
| our workers ' compensation costs as a percentage of revenue quarter by quarter for the last two years were as follows : replace_table_token_5_th gross margin : the factors affecting gross margin in 2014 are discussed under the cost of staffing services above . in the aggregate , cost of staffing services decreased to 72.2 % of revenue in 2014 compared to 74.1 % of revenue in 2013 yielding gross margins of 27.8 % and 25.9 % , respectively . selling , general and administrative expenses ( sg & a ) : sg & a expenses decreased to 20.1 % of revenue in 2014 compared to 20.8 % of revenue in 2013. during 2013 we took several steps to reduce our sg & a expense including a change in our organizational structure and the successful recovery of receivables previously written off . in 2014 we continued to carefully manage all of our expenses and determined that we required some additions to our sg & a expense to effectively manage the business and prepare us for future growth . liquidity and capital resources as of december 26 , 2014 , our current assets exceeded our current liabilities by approximately $ 14.4 million . we had total current assets of approximately $ 21.4 million and current liabilities of $ 6.9 million . included in current assets are cash of approximately $ 8.6 million , trade accounts receivable of $ 9.0 million , and the current portion of workers ' compensation deposits of approximately $ 1.1 million . included in current liabilities is our factoring liability of approximately $ 2.9 million , accrued wages and benefits of approximately $ 1.7 million , and the current portion of workers ' compensation premiums and claims liability of approximately $ 1.3 million . the factoring liability of approximately $ 2.9 million and $ 8.1 at december 26 , 2014 and december 27 , 2013 , respectively , were used to fund operating needs . the current financing agreement is an account purchase agreement with wells fargo bank , n.a . which allows us to sell eligible
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the risks and uncertainties involved in applying the principles related to intangible impairment include , but are not limited to , the following : we estimate fair value using a discounted cash flow model specific to the applicable cole reits . we monitor factors that could impact fair value including the ability to timely reinstate certain selling agreements , timing of and aggregate capital raised and deployed on behalf of the cole reits , the actual timing of closing an offering or executing a liquidity event on behalf of a cole reit and operations of future managed real estate programs . we utilized the income approach in evaluation for impairment , which requires management to make key assumptions related to future cash flows and a discount rate . see note 10 – fair value measures for discussion regarding our sensitivity analysis performed around these assumptions . real estate investment impairment we invest in real estate assets and subsequently monitor those investments quarterly for impairment , including the review of real estate properties subject to direct financing leases . additionally , we record depreciation and amortization related to our investments . the risks and uncertainties involved in applying the principles related to real estate investments include , but are not limited to , the following : the estimated useful lives of our depreciable assets affects the amount of depreciation and amortization recognized on our investments . the review of impairment indicators and subsequent determination of the undiscounted future cash flows could require us to reduce the value of assets and recognize an impairment loss . the fair value of held for sale assets is estimated by management . this estimated value could result in a reduction of the carrying value of the asset . changes in assumptions based on actual results may have a material impact on the company 's financial results . loans held for investment impairment we evaluate loans held for investment on a quarterly basis . as a first step in the notes receivable impairment process , we must determine , based on current information and events , if it is probable that we will be unable to collect the amounts due in accordance with the loan agreement . the risks and uncertainties involved in applying the principles related to notes receivable include , but are not limited to , the following : evaluating the financial condition and other current obligations of the borrower involves judgment in assessing their liquidity and financial stability . program development costs we assess the collectability of the program development costs , considering the offering period and historical and forecasted sales of shares under the cole reits ' respective offerings and reserve for any balances considered not collectible . additional reserves are generally recorded if actual proceeds raised from the offerings and corresponding program development costs incurred differ from management 's assumptions . the risks and uncertainties involved in applying the principles related to program development costs include , but are not limited to , the following : 35 estimating recoverability for each program which involves an analysis of expected reimbursement revenue and projected organization and offering costs . utilizing assumptions to calculate impairment charges related to goodwill and impairment , as discussed above . assessing the impact of the change in calculations of recoverability percentages . consolidation of equity investments we hold equity investments in unconsolidated joint ventures and each of the cole reits and account for these investments using the equity method of accounting as we have the ability to exercise significant influence , but not control , over operating and financial policies of these investments . we must continually evaluate these and other non-controlling interests for consolidation based on standards set forth in u.s. gaap . for legal entities being evaluated , we must first determine whether the interests that we hold and fees we receive qualify as variable interests in the entity , as discussed in “ note 2 – summary of significant accounting policies ” to our consolidated financial statements . the difference between consolidating the vie and accounting for it using the equity method could be material to the company 's consolidated financial statements . the risks and uncertainties involved in applying the principles related to equity investments include , but are not limited to , the following : consideration for variable interest entities involves determining their ability to finance their operations without additional subordinated financial support , whether the equity holders lack the characteristic of controlling financial interest , or whether the entity is established with non-substantive voting rights . we perform significance calculations based on investments , total assets and income , on an individual basis or on an aggregated basis , by any combination of unconsolidated subsidiaries and equity-method investees . allocation of purchase price of business combinations , including acquired properties in connection with our acquisition of properties , we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their respective estimated fair values . tangible assets consist of land , buildings , fixtures and tenant improvements . intangible assets consist of above- and below- market lease values and the value of in-place leases . our purchase price allocations are developed utilizing third-party appraisal reports , industry standards and management experience . the risks and uncertainties involved in applying the principles related to purchase price allocations include , but are not limited to , the following : the value allocated to land as opposed to buildings , fixtures and tenant improvements affects the amount of depreciation expense we record . story_separator_special_tag if more value is attributed to land , depreciation expense is lower than if more value is attributed to buildings , fixtures and tenant improvements ; intangible lease assets and liabilities can be significantly affected by estimates , including market rent , lease term including renewal options at rental rates below estimated market rental rates , carrying costs of the property during a hypothetical expected lease-up period , and current market conditions and costs , including tenant improvement allowances and rent concessions ; and we determine whether any financing assumed is above- or below- market based upon comparison to similar financing terms for similar investment properties . income taxes as a reit , the general partner generally is not subject to federal income tax on taxable income that it distributes to its shareholders as long as it distributes at least 90 % of its annual taxable income ( computed without regard to the deduction for dividends paid and excluding net capital gains ) , with the exception of its trs entities . however , the general partner , including its trs entities , and the operating partnership are still subject to certain state and local income and franchise taxes in the various jurisdictions in which they operate . we provide for income taxes in accordance with current authoritative accounting and tax guidance . the tax provision or benefit related to significant or unusual items is recognized in the quarter in which those items occur . in addition , the effect of changes in enacted tax laws , rates or tax status is recognized in the quarter in which the change occurs . the risks and uncertainties involved in applying the principles related to income taxes include , but are not limited to , the following : our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in the application of complex tax laws and regulations across the tax jurisdictions where we operate ; we file income tax returns in the u.s. federal jurisdiction , the canadian federal jurisdiction and various state and local jurisdictions , and are subject to routine examinations by the respective tax authorities . we may be challenged upon review by the applicable taxing authorities , and positions we have taken may not be sustained ; and the accounting estimates used to compute the provision for or benefit from income taxes may change as new events occur , additional information is obtained or the tax environment changes . 36 recently issued accounting pronouncements recently issued accounting pronouncements are described in “ note 2 – summary of significant accounting policies ” to our consolidated financial statements . operating highlights and key performance indicators 2016 activity acquired controlling financial interests in eight commercial properties for an aggregate purchase price of $ 100.2 million . disposed of 301 properties and one property owned by an unconsolidated joint venture for an aggregate sales price of $ 1.20 billion , of which our share was $ 1.14 billion , resulting in consolidated proceeds of $ 1.00 billion after closing costs , $ 55.0 million of debt assumptions and $ 57.0 million of debt repayments by the unconsolidated joint venture . closed on a public offering to sell 69.0 million shares of common stock , as defined in note 1 – organization , for net proceeds , after underwriting discounts and offering costs , of $ 702.5 million . closed the 2016 bond offering of $ 1.0 billion and entered into a $ 300.0 million 2016 term loan , as defined in note 11 – debt , to the consolidated financial statements , which was subsequently repaid . registered a continuous offering program allowing for the issuance of up to $ 750.0 million in shares of common stock over three years . total debt decreased by $ 1.7 billion , from $ 8.1 billion to $ 6.4 billion , comprised of unsecured bonds of $ 0.3 billion , unsecured credit facility of $ 1.0 billion , and secured debt of $ 0.4 billion . declared a quarterly dividend of $ 0.1375 per share of common stock for each quarter of 2016 , representing an annualized dividend rate of $ 0.55 per share . 37 real estate portfolio metrics in managing our portfolio , we are committed to diversification by property type , tenant , geography and industry . below is a summary of our property type diversification and our top ten concentrations as of december 31 , 2016 , based on annualized rental income of $ 1.2 billion for the year ended december 31 , 2016 . 38 our financial performance is influenced by the timing of acquisitions and dispositions and the operating performance of our real estate properties . the following table shows the property statistics of our real estate assets , excluding properties owned through our unconsolidated joint ventures as of december 31 , 2016 , 2015 and 2014 : replace_table_token_3_th ( 1 ) economic occupancy rate equals the sum of square feet leased ( including month-to-month ) divided by total square feet . ( 2 ) investment-grade tenants are those with a credit rating of bbb- or higher by standard & poor 's rating services or a credit rating of baa3 or higher by moody 's investor service , inc. the ratings may reflect those assigned by standard & poor 's rating services or moody 's investor service , inc. to the lease guarantor or the parent company , as applicable . the following table shows the economic metrics of our real estate assets , excluding properties owned through our unconsolidated joint ventures , as of and for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_4_th ( 1 ) based on annualized rental income of our real estate portfolio as of the respective reporting date . ( 2 ) through the end of the next five years measured as of the end of each reporting period .
| the company reallows 100 % of selling commissions and may reallow all or a portion of our dealer manager and distribution and stockholder servicing fees to participating broker-dealers as a marketing and due diligence expense reimbursement , based on factors such as the volume of shares sold by such participating broker-dealers and the amount of marketing support provided by such participating broker-dealers . the following table represents offering-related fees and reimbursements as well as amounts reallowed for the periods presented and the dollar amount change year over year ( in thousands ) . replace_table_token_10_th 2016 vs 2015 – the increase in offering-related fees and reimbursements , net of reallowed fees and commissions of $ 5.1 million during the year ended december 31 , 2016 was a direct result of a $ 216.2 million increase in capital raise to $ 487.2 million during the year ended december 31 , 2016 from $ 271.0 million during the year ended december 31 , 2015 . the increase in capital raise was due to new broker-dealer relationships , as well as certain broker-dealers lifting the suspension of their selling agreements . 42 2015 vs 2014 – the net decrease in offering-related fees and reimbursements of $ 12.7 million for the year ended december 31 , 2015 was a direct result of the decrease in capital raise related to the suspension of certain selling agreements , as discussed above . additionally , the decrease was partly due to the closing of the offering of cole credit property trust iv , inc. in the first quarter of 2014. transaction service fees and reimbursements 2016 vs 2015 – transaction service fees and reimbursement revenue consist primarily of acquisition and disposition fees earned from acquiring and selling properties on behalf of the cole reits and other real estate programs . the decrease of $ 17.2 million during the year ended december 31 , 2016 , was due to a decrease in property acquisitions from $ 992.2 million , during the year ended december 31 , 2015 , to $ 660.2 million for the year ended december 31 , 2016 . in addition , disposition fee revenue decreased as the company received $ 4.4 million of such fees relating to
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an important element of virco 's business model is the company 's emphasis on developing and maintaining key manufacturing , warehousing , distribution , delivery , project management and service capabilities . the company has developed a comprehensive product offering for the furniture , fixtures and equipment ( ff & e ) needs of the k-12 education market , enabling a school to procure all of its ff & e requirements from one source . virco 's product offering consists primarily of items manufactured by virco , complemented with products sourced from other furniture manufacturers to fill any gaps in product manufactured by the company . the company has served the education industry for over 70 years and over this time developed products to address a variety classroom management trends , from collaborative learning to individual and combination desks facilitating distancing and classroom control . the pandemic caused a noticeable change in the types of product requested by educators . although total sales were lower than last year , we experienced a significant increase in the demand for individual desks . our product offerings are continually enhanced with an ongoing new product development program that incorporates internally developed products as well as product lines developed with accomplished designers . finally , management continues to hone virco 's ability to forecast , finance , manufacture , warehouse , deliver and install furniture within the relatively narrow delivery window associated with the highly seasonal demand for education sales . in fiscal 2021 and 2020 , approximately 52 % and 49 % respectively of the company 's total sales were delivered in june , july and august . average weekly shipments during july and august can be as great as six times the level of average weekly shipments in the winter months . virco 's substantial warehouse space allows the company to build and ship adequate inventories to service this narrow delivery window for the education market . 24 the budgetary pressures directly impact the demand for the company 's products , as the demand for educational furniture largely depends upon : ( 1 ) available funding in a school 's general operating fund and ( 2 ) the completion of bond-funded projects , which is directly impacted by the amount of bond financing issued to fund new school construction , to renovate older schools , and to fully equip new and renovated schools . we believe that a significant majority , approximately 80-85 % , of a school 's operating budget is for the salaries and benefits for school teachers and administrators . increasing costs for medical insurance , combined with pressures from unfunded post-retirement medical and pension obligations reduces funds available for other purposes . in response to these budgetary pressures , schools typically elect to retain teachers and spend less on repairs , maintenance and replacement furniture , which in turn reduces the demand for , and sales of , the company 's products . prior to covid-19 , there had been an improvement in state and local tax collections . the impact of covid-19 combined with potential federal relief is not clear at this time . the significant budgetary challenges faced by the education industry have had an impact on the company 's business model over this time frame and have created opportunities as well . in response to their budgetary challenges , many school districts closed warehouses and reduced janitorial and support staff in order to retain accredited teachers . selling efforts must now reach school principals and administrative staff in addition to the district business offices . sales priced under national contracts or buying groups are displacing competitive bids administered by professional purchasing departments . distribution has become a more meaningful component of our business as most deliveries are to school sites , and often include delivery into the classroom . this evolution adds to the seasonal challenges of our business , but also creates opportunities to suppliers that can execute during the short summer delivery window . the company 's operating results can be impacted significantly by cost and volatility of commodities , especially steel , plastic , wood and energy . because a majority of the company 's sales are generated under annual contracts in which the company has limited ability to raise the price of its products during the term of the contract , if the costs of the company 's raw materials increase suddenly or unexpectedly , the company can not be certain that it will be able to implement immediate corresponding increases in its sales prices in order to offset such increased costs . the company moderates this exposure by building significant quantities of finished goods and component parts during the first and second quarters . during fiscal 2021 commodities were reasonably stable . during the year ended january 31 , 2020 ( `` fiscal 2020 '' ) , the company incurred an additional 15 % increase tariffs on components sourced from china , but other commodities were stable , and in some cases slightly lower . the majority of virco 's sales include freight to the customer facility and the cost or availability of transportation equipment can adversely impact both profitability and customer service . significant cost increases in manufacturing or distributing products during a given contract period can adversely impact operating results and have done so during prior years . the company typically benefits from any decreases in raw material or distribution costs under the contracts described above . during the year ending january 31 , 2022 ( `` fiscal 2022 '' ) , the company anticipates continued uncertainty and volatility in commodity costs , particularly with respect to steel and other raw materials , transportation and energy . the global pandemic related to covid-19 is expected to continue to disrupt global and domestic supply chains . while the company anticipates challenging economic conditions to continue to impact its core customer base in the near term , there are certain underlying demographics , customer responses and changes in the competitive landscape that provide opportunities . story_separator_special_tag first , the underlying demographics of the student population are stable compared to the volatility of school budgets and the related level of furniture and equipment purchases . this volatility is attributable to the financial health of the school systems . virco management believes that there is a pent-up demand for quality school furniture ( though it is unclear when and to what extent that pent-up demand will be converted into a meaningful increase in purchases ) . second , management believes that parents and voters will make quality education an ongoing priority for future government spending . third , many schools have responded to the budget strains by reducing their support infrastructure . this change provides opportunities to provide services to schools , such as project management for new or renovated schools , delivery to individual school sites rather than truckload deliveries to central warehouses and delivery of furniture into classrooms . moreover , this change offers opportunities for virco to promote its complete product assortment which allows one-stop shopping as opposed to sourcing furniture needs from a variety of suppliers . fourth , many suppliers previously shut down or dramatically curtailed their domestic manufacturing capabilities , making it difficult for competitors to adapt to dynamic fluctuations in demand or provide custom colors or finishes during a narrow seasonal summer delivery window when they are reliant upon a supply chain extending to asia or elsewhere . meanwhile , virco has continued to invest in automation at its domestic manufacturing facilities , adding flat metal forming processes to its manufacturing capabilities and bringing production into its factories of items formerly sourced from other suppliers ( both domestic and international ) . domestic production facilitates our product development process , enabling the company to more rapidly develop new products , release extensions of product families and offer customized variants of our product offering . virco views its domestic factories as a strategic resource for providing its customers with timely delivery of a broad selection of colors , finishes , laminates , and product styles . 25 critical accounting policies and estimates this discussion and analysis of virco 's financial condition and results of operations is based upon the company 's consolidated financial statements ( “ financial statements ” ) , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires virco management to make estimates and judgments that affect the company 's reported assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . certain of these estimates are considered critical accounting estimates . on an on-going basis , management evaluates such critical estimates , including those related to valuation of inventory and related excess and obsolescence reserves , self-insured retention for workers ' compensation insurance , liabilities under defined benefit and other compensation programs , and estimates related to deferred tax assets and liabilities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . this forms the basis of judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . factors that could cause or contribute to these differences include the factors discussed above under item 1 , business , and elsewhere in this annual report on form 10-k. virco 's critical accounting policies and estimates are as follows : inventory valuation : inventory is valued at the lower of cost or net realizable value ( determined on a first-in , first-out basis ) and includes material , labor and factory overhead . the company records valuation adjustments for the excess cost of the inventory over its estimated net realizable value . valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated percentage applied to inventories based on a physical inspection of the product in connection with a physical inventory , a review of slow-moving products and component stage , inventory category , historical and forecasted consumption of sales , and consideration of active marketing programs . the market for education furniture is traditionally driven by value , not style , and the company has not typically incurred significant obsolescence expenses . if market conditions are less favorable than those anticipated by management , additional valuation adjustments may be required . due to reductions in sales volume in the past years , the company 's manufacturing facilities are operating at reduced levels of capacity . the company records the cost of excess capacity as a period expense , not as a component of capitalized inventory valuation . self-insured retention : for fiscal 2021 and 2020 the company was self-insured for product and general liability losses ranging up to $ 250,000 per occurrence , workers ' compensation losses up to $ 250,000 per occurrence and auto liability up to $ 50,000 per occurrence . the company obtains quarterly or semi-annual actuarial valuations for the self-insured retentions . product liability , workers ' compensation and auto reserves for known and unknown incurred but not reported ( “ ibnr ” ) losses are recorded at the net present value of the estimated losses using a risk-free discount rate of 4 % for fiscal 2021 and 2020. given the relatively short term over which the known losses and ibnr losses are discounted , the sensitivity to the discount rate is not significant . estimated workers ' compensation losses were funded during the insurance year and subject to retroactive loss adjustments . the company 's exposure to self-insured retentions varies depending upon the market conditions in the insurance industry and the availability of cost-effective insurance coverage . self-insured retentions for fiscal 2022 will be comparable to the retention levels for fiscal 2021. defined benefit obligations : the company has two defined benefit plans , the virco employees retirement plan ( “ employee plan ” ) and the virco important performers plan ( “ vip plan ” ) , which provide retirement benefits to employees .
| the anticipated government revenue shortfall may be offset significantly or in part by a variety of federal government programs . the company anticipates that the budgetary challenges for state and local governments will continue to affect our growth in net sales . the company intends to increase selling prices to recover volatile and increasing commodity and freight costs . as we have throughout this economic cycle , the company 27 continues to focus on strategies to develop and strengthen its brand with an aggressive product development campaign . we will continue to use our domestic factories to provide greater flexibility for custom specifications such as laminates , colors and on-time delivery . the company will continue to emphasize the value , design , variety of its products , the value of its distribution , delivery , classroom delivery and project management capabilities , and the importance of timely deliveries during the peak-seasonal delivery period . the company plans to increase selling prices to recover increased costs of commodities and to improve gross margins . to increase or maintain market share during fiscal 2022 , when market conditions warrant , the company may selectively compete based on direct prices to build or maintain its market share . estimates of sales volume for the next year may continue to be impacted by the covid-19 pandemic . demand for project business is anticipated to be stable compared to pre-covid-19 levels . short term transactional business may increase when schools re-open . the potential impact of government stimulus programs and possible failures of competitors can not be reasonably estimated as of the date of this report . cost of sales cost of sales was 64.1 % of net sales in fiscal 2021 and 62.9 % of net sales in fiscal 2020. the increase in cost of sales as a percentage of sales was primarily attributable to an increase in manufacturing overhead variances related to reduced levels of production . in the first quarter of fiscal 2021 , the company increased selling prices to recover increased costs incurred in
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the combined operation benefits from a standardized fleet , two person flight crew , improved reliability of the boeing 767 and 757 aircraft and from a common pilot type rating . additionally , we have reduced administrative and overhead costs as a result of combining positions , information technology and facilities . the company has two reportable segments : acmi services , which primarily includes the cargo transportation operations of its airlines , and the cam segment . the company 's other business operations , which primarily provide support services to the transportation industry , include aircraft maintenance , aircraft parts sales , ground equipment leasing and mail handling services . these operations do not constitute reportable segments due to their size . results of operations summary the consolidated net loss from continuing operations was $ 19.6 million for 2013 compared with net earnings of $ 41.6 million for 2012. the pre-tax loss from continuing operations was $ 0.4 million for 2013 compared with pre-tax earnings from continuing operations of $ 66.3 million for 2012. the decrease in earnings from continuing operations in 2013 as compared to 2012 was primarily due to the recognition of a goodwill impairment charge of $ 52.6 million that is not deductible for u.s. federal income tax purposes . adjusted pre-tax earnings from continuing operations , a non-gaap measure ( a definition and reconciliation of adjusted pre-tax earnings follows ) , after removing the impairment charges was $ 51.6 million for 2013 compared to $ 64.4 million for 2012. adjusted pre-tax earnings from continuing operations for 2013 declined compared to 2012 due to lower revenues , primarily in the acmi services segment , as well as higher depreciation expenses , due to additional aircraft in service condition . total customer revenues from continuing operations decreased by $ 27.4 million to $ 580.0 million during 2013 compared to 2012. revenues were negatively impacted by faa requirements which delayed the deployment of boeing 757 aircraft and the training of the related flight crews , as well as continued softness in international cargo markets . excluding directly reimbursed revenues , customer revenues decreased 4 % , or by $ 20.4 million during 2013 compared with 2012. total operating expenses , without impairment charges , declined as we restructured the ati airline , falling 3 % during 2013 compared with 2012. due to recent events and market changes , we do not expect ati to generate as much net cash flow from ati 's boeing 767 operations as previously expected . in december 2013 and in january 2014 , the company received notification from dhl that it would cease using three ati boeing 767 aircraft for services in the middle east by the end of february 2014. further , as a result of persistent stagnant growth conditions and excess airlift capacity , including the recent projections published by the u.s. military that reflect continued reductions in their demand for cargo ( non combi ) airlift , we plan to allocate fewer boeing 767 aircraft to ati than previously projected . we expect instead to deploy more boeing 767 aircraft with other airlines , including atlantic airline ltd. , an airline owned by west atlantic , ab , for which the company acquired a 25 % equity interest in january 2014. as a result , we recorded an impairment charge of $ 52.6 million at the end of 2013 to write-off ati 's goodwill . 23 a summary of our revenues and pre-tax earnings from continuing operations is shown below ( in thousands ) : replace_table_token_4_th reimbursable revenues include certain operating costs that are reimbursed to the airlines by their customers . such costs include fuel expense , landing fees and certain aircraft maintenance expenses . the types of costs that are reimbursed varies by customer operating agreement . adjusted pre-tax earnings , a non-gaap measure , is pre-tax earnings excluding asset impairment charges , interest rate derivative gains and losses and the write-off of debt issuance costs . management uses adjusted pre-tax earnings to compare the performance of core operating results between periods . adjusted pre-tax earnings should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . cam through the cam subsidiary , we offer aircraft leasing to external customers and also lease aircraft internally to the company 's airlines . aircraft leases normally cover a term of five to seven years . in a typical leasing agreement , customers pay rent and maintenance deposits on a monthly basis . as of december 31 , 2013 , cam had 49 freighter aircraft in service condition , 29 of them leased internally to the company 's airlines . cam 's revenues grew $ 5.8 million during 2013 compared to 2012 , as a result of additional internal aircraft leases . cam 's revenues from the company 's airlines totaled $ 88.7 million during 2013 , compared to $ 80.0 million for 2012. since the beginning of 2012 , cam has placed one boeing 767-200 freighter aircraft , four boeing 767-300 freighter aircraft , one boeing 757-200 freighter aircraft and three boeing 757 combi aircraft under leases with internal airlines . as of december 31 , 2013 and 2012 , cam leased 20 aircraft to external customers . revenues from external customers decreased $ 3.0 million for 2013 compared to 2012. during the fourth quarter of 2012 , a regional 24 carrier returned a boeing 767-200 aircraft to cam before the end of the original lease term . the aircraft was redeployed internally within acmi services . cam 's pre-tax earnings , inclusive of an interest expense allocation were $ 66.2 million and $ 68.5 million during 2013 and 2012 , respectively . story_separator_special_tag reduced earnings reflect additional internal lease revenues offset by higher depreciation expense for boeing 767 and boeing 757 aircraft , increased expenses to place and support the larger fleet of boeing 767 and 757 aircraft and higher allocated interest expense compared to 2012. during 2014 , cam 's fourth and final boeing 757 combi aircraft completed its airworthiness certification and began operations for ati . additionally , we expect cam to complete the modification of a boeing 767-300 in the first quarter of 2014. while we do not have a customer commitment for this boeing 767 aircraft , interest in the boeing 767 aircraft for its reliability and cost effectiveness in medium range markets remains strong . the lease of additional aircraft , however , could be affected by continued low growth economic conditions and excess industry airlift capacity . acmi services segment the acmi services segment provides airline operations to its customers , typically under contracts providing for a combination of aircraft , crews , maintenance and insurance ( `` acmi '' ) . our customers are usually responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses , such as landing fees , ramp expenses and certain aircraft maintenance expenses . aircraft charter agreements , including those for the u.s. military , usually require the airline to provide full service , including fuel and other operating expenses for a fixed , all-inclusive price . as of december 31 , 2013 , acmi services included 48 in-service aircraft , including 29 leased internally from cam , six leased from external providers and 13 cam-owned freighter aircraft which are under lease to dhl and operated by abx under the cmi agreement . revenues from acmi services were $ 444.5 million and $ 479.0 million during 2013 and 2012 , respectively . acmi services incurred pre-tax losses of $ 78.2 million during 2013 , compared to pre-tax losses of $ 14.5 million for 2012. excluding asset impairment charges of $ 52.6 million recorded during 2013 , acmi services incurred pre-tax losses of $ 25.6 million in 2013. larger pre-tax losses in 2013 compared to 2012 were primarily a result of lower revenues . revenues from acmi services declined $ 34.5 million during 2013 compared with 2012. airline services revenues from external customers , which do not include revenues for the reimbursement of fuel and certain operating expenses , declined $ 26.2 million . lower revenues resulted from operating fewer international cargo lanes for our customers , including the u.s. military , as well as fewer ad hoc charters . since mid 2012 , some of our aircraft have been replaced by our customer 's own airlift capacity on certain international cargo lanes . block hours flown for the u.s. military were down 4 % compared to 2012 , primarily due to the phase-in of the boeing 757 combi aircraft , which replaced the dc-8 combi aircraft operated by ati . revenues for the u.s. military were negatively impacted by delays in faa approvals for the boeing 757 combi aircraft and the pilot training program . before the boeing 757 combi aircraft could begin operations , the aircraft had to be certified by the faa and our pilots trained to conduct boeing 757 passenger operations . additionally , during the phase-in of the boeing 757 aircraft , we experienced reduced availability of combi aircraft as the dc-8 combi airframe maintenance requirements became due . in addition , expenses for non-reimbursed airframe maintenance checks increased $ 3.6 million compared to 2012. the increase is primarily due to a larger required work scope for the checks scheduled in 2013 compared to 2012. billable block hours declined 13 % for 2013 compared to 2012. revenues declined relatively less than block hours declined because a larger portion of our 2013 revenues were derived from shorter express routes instead of longer international routes flown during 2012. the effective average revenue rates per block hour paid by non-military customers are higher for express routes in which aircraft utilization is lower , compared to lower rates per block hour for longer , international routes . operating expense for acmi services declined $ 15.1 million during 2013 compared to 2012 , excluding impairment charges , due partially to combining the ati and ccia operations , which resulted in a 28 % reduction in airline related headcount compared to the beginning of 2012. operating expenses for landings , ramp and travel declined due to the lower level of international block hours flown . these expense reductions , which were related to personnel and the level of flights , were partially offset by higher aircraft depreciation expense and aircraft rent expense , which increased due to the addition of boeing 767-300 aircraft . 25 as noted above , during the first quarter of 2014 , dhl ended acmi agreements for three boeing 767 aircraft that we provided to its middle east operation . since the third quarter of 2013 , three boeing 767 aircraft have been redeployed under agreements with customers . we deployed an additional aircraft for dhl , connecting panama to their domestic network , another was deployed for a european airline on a transatlantic route , and the third was deployed for a miami based airline serving the caribbean . two of these operations could be converted into aircraft leases between cam and the customer . currently , the acmi services segment has five aircraft that are underutilized . improved aircraft utilization and revenue growth for acmi services depends on the cost competitiveness of the airlines , aircraft reliability , market preferences for the type of aircraft that we operate , airlift capacity in the markets , regulatory approvals and general economic conditions . continued stagnant economic conditions and market uncertainty may slow the pace of aircraft deployments into incremental revenue operations . when new deployments of aircraft begin , typically start-up expenses are incurred , including those for proving flights , route authorities , overfly rights , travel and other activities which may impact future operating results .
| excluding directly reimbursed revenues , customer revenues decreased by $ 37.0 million during 2012 compared to 2011. revenue from the deployment of additional boeing 767 and boeing 757 aircraft by acmi services during 2012 , was more than offset by the revenue decline from the discontinuation of the bax/schenker air network . during the third quarter of 2011 , in conjunction with the phase-out of bax/schenker 's dedicated airlift in north america , which relied on operations provided by ati and ccia , we tested the carrying values of aircraft , spare parts , goodwill and other intangibles . as a result , we recorded pre-tax impairment charges totaling $ 27.1 million to reduce the carrying values of the company 's boeing 727 and dc-8 freighters , goodwill and customer relationship intangible assets to their individual fair values . the lower fair value of these aircraft and bax/schenker 's july 2011 decision to terminate its dedicated air network were the result of prolonged recessionary conditions and trends toward higher fuel prices . demand for boeing 727 and dc-8 aircraft had diminished because these older aircraft are less fuel efficient and generally not as reliable as more modern aircraft . cam as of december 31 , 2012 , cam had 48 aircraft in serviceable condition , 28 of them leased internally to the company 's airlines . cam 's revenues grew $ 14.1 million during 2012 compared to 2011 , as a result of additional aircraft leases executed over the previous two years . during 2012 , cam completed the modification of one boeing 767-200 freighter aircraft and three boeing 767-300 freighter aircraft , and placed those aircraft under leases with internal customers . as of december 31 , 2012 and 2011 , cam leased 20 and 21 aircraft to external customers , respectively . revenues from external customers accounted for $ 6.8 million of the increased revenue for 2012 , due primarily to four additional aircraft leases placed with external customers throughout 2011. during the fourth quarter of 2012 , a regional carrier returned a boeing 767-200 aircraft to cam before the end of the original lease term . the aircraft was subsequently redeployed in acmi services . cam 's revenues from the company 's airlines totaled
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revenue from ppas for the year ended december 31 , 2019 increased $ 3.0 million , or 13.0 % , to $ 25.9 million from $ 22.9 million for the year ended december 31 , 2018. included within revenue was provision for common stock warrants of $ 1.5 million and $ 0.3 million for the years ended december 31 , 2019 and 2018 , respectively . the increase in revenue from ppas for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 was attributable to the increase in the number of units under ppa arrangements , partially offset by the increase in provision for common stock warrants . the remaining increase was due to the increased number of sites the company had deployed under ppa arrangements . the average number of sites under ppa arrangements was 39 in 2019 , as compared to 33 in 2018. the 18.2 % increase in the average number of sites under ppa arrangements for the year december 31 , 2019 compared to the year ended december 31 , 2018 was relatively consistent with the increase in revenue during the same period , partially offset by the increase in provision for common stock warrants . revenue – fuel delivered to customers . revenue associated with fuel delivered to customers represents the sale of hydrogen to customers that has been purchased by the company from a third party . as part of the genkey solution , the company contracts with fuel suppliers to purchase liquid hydrogen , which is then sold to its customers . at december 31 , 2019 , there were 76 sites associated with fuel contracts , as compared to 72 at december 31 , 2018. the sites generally are the same as those which had purchased hydrogen installations within the genkey solution . revenue associated with fuel delivered to customers for the year ended december 31 , 2019 increased $ 6.6 million , or 29.5 % , to $ 29.1 million from $ 22.5 million for the year ended december 31 , 2018. included within revenue was provision for common stock warrants of $ 2.2 million and $ 3.1 million for the years ended december 31 , 2019 and 2018 , respectively , contributing to the increase in revenue . the remaining increase in revenue was primarily due to an increase in sites taking fuel deliveries in 2019 , compared to 2018 , as well as an increase in the price of fuel . the average 29 number of sites receiving fuel deliveries was 74 for the year ended december 31 , 2019 , as compared to 68 for the year ended december 31 , 2018. cost of revenue cost of revenue – sales of fuel cell systems and related infrastructure . cost of revenue from sales of fuel cell systems and related infrastructure includes direct materials , labor costs , and allocated overhead costs related to the manufacture of our fuel cells such as gendrive units and gensure stationary backup power units , as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations . cost of revenue from sales of fuel cell systems and related infrastructure for the year ended december 31 , 2019 increased $ 12.4 million , or 14.7 % , to $ 96.9 million , compared to $ 84.4 million for the year ended december 31 , 2018. this increase was primarily driven by an increase in the number of gendrive units recognized as revenue , partially offset by the decrease in hydrogen infrastructure installations recognized as revenue . there were 6,058 gendrive units recognized as revenue during the year ended december 31 , 2019 , compared to 4,426 for the year ended december 31 , 2018. there were 12 sites associated with hydrogen fueling infrastructure revenue for the year ended december 31 , 2019 compared to 17 for the year ended december 31 , 2018. gross margin generated from sales of fuel cell systems and related infrastructure was 35.4 % for the year ended december 31 , 2019 , up from 21.3 % for the year ended december 31 , 2018 , primarily due to an increase in gendrive units recognized as revenue and decrease in the number of hydrogen infrastructure sites deployed , as well as a reduction of provision for common stock warrants . the provision for common stock warrants from sales of fuel cells and related infrastructure for the years ended december 31 , 2019 and 2018 had a 1.3 % and 4.4 % negative impact on revenue , respectively . cost of revenue – services performed on fuel cell systems and related infrastructure . cost of revenue from services performed on fuel cell systems and related infrastructure includes the labor , material costs and allocated overhead costs incurred for our product service and hydrogen site maintenance contracts and spare parts . cost of revenue from services performed on fuel cell systems and related infrastructure for the year ended december 31 , 2019 increased $ 5.1 million , or 21.5 % , compared to $ 23.7 million for the year ended december 31 , 2018. gross margin declined to ( 14.2 % ) for the year ended december 31 , 2019 compared to ( 7.7 % ) for the year ended december 31 , 2018 primarily due to program investments targeting performance improvement and variation in maintenance cycles . cost of revenue – power purchase agreements . cost of revenue from ppas includes payments made to financial institutions for leased equipment , depreciation of leased property , and related service costs . leased units are primarily associated with sale/leaseback transactions in which the company sells fuel cell systems and related infrastructure to a third party , leases them back , and operates them at customers ' locations that are parties to ppas with the company . in some instances , the company will hold the equipment and finance it under other arrangements , such as finance leases . story_separator_special_tag for those situations , the company recognizes the depreciation and service cost of the assets as cost of revenue from ppas . cost of revenue from ppas for the year ended december 31 , 2019 increased $ 3.9 million , or 10.8 % , to $ 40.1 million from $ 36.2 million for the year ended december 31 , 2018. the increase was a result of an increase in the number of customer sites party to these agreements . gross margin improved to ( 54.9 % ) for the year ended december 31 , 2019 compared to ( 58.1 % ) for the year ended december 31 , 2018 , primarily due to an increase in leased units subject to sale/leaseback agreements with third party financial institutions and associated service cost improvements as we add units , which results in improved service cost per unit . cost of revenue – fuel delivered to customers . cost of revenue from fuel delivered to customers represents the purchase of hydrogen from suppliers that ultimately is sold to customers . as part of the genkey solution , the company contracts with fuel suppliers to purchase liquid hydrogen and separately sells it to its customers when delivered or dispensed . at december 31 , 2019 , there were 76 sites associated with fuel contracts , as compared to 72 at december 31 , 2018. the sites generally are the same as those which had purchased hydrogen installations within the genkey solution . cost of revenue from fuel delivered to customers for the year ended december 31 , 2019 increased $ 8.6 million , or 31.2 % , to $ 36.4 million from $ 27.7 million for the year ended december 31 , 2018. the increase was due primarily to higher volume of liquid hydrogen delivered to customer sites as a result of an increase in the number of hydrogen installations completed under genkey agreements and higher fuel costs . gross margin declined to ( 24.9 % ) during the year ended december 31 , 2019 compared to ( 23.3 % ) during the year ended december 31 , 2018 primarily due to an increase 30 in fuel costs and depreciation on tanks and related fuel equipment due to investments made to improve fuel system efficiency , partially offset by a decrease in provision for common stock warrants . the provision for common stock warrants from fuel delivered to customers for the year ended december 31 , 2019 and 2018 had a 7.0 % and 12.1 % negative impact on revenue , respectively . expenses research and development expense . research and development expense includes : materials to build development and prototype units , cash and non-cash compensation and benefits for the engineering and related staff , expenses for contract engineers , fees paid to consultants for services provided , materials and supplies consumed , facility related costs such as computer and network services , and other general overhead costs associated with our research and development activities . research and development expense for the year ended december 31 , 2019 was relatively unchanged , as it decreased $ 232 thousand , or 0.7 % , to $ 33.7 million from $ 33.9 million for the year ended december 31 , 2018. selling , general and administrative expenses . selling , general and administrative expenses includes cash and non-cash compensation , benefits , amortization of intangible assets , and related costs in support of our general corporate functions , including general management , finance and accounting , human resources , selling and marketing , information technology and legal services . selling , general and administrative expenses for the year ended december 31 , 2019 increased $ 6.1 million , or 16.1 % , to $ 44.3 million from $ 38.2 million for the year ended december 31 , 2018. this increase was primarily related to an increase in performance and stock-based compensation during the year ended december 31 , 2019 , and by a decrease in the legal accrual during the year ended december 31 , 2018. interest and other expense , net . interest and other expense , net consists of interest and other expenses related to our long-term debt , convertible senior notes , obligations under finance leases and our finance obligations , as well as foreign currency exchange losses , offset by interest and other income consisting primarily of interest earned on our cash and cash equivalents , restricted cash , foreign currency exchange gains and other income . the company entered into a series of finance leases with generate lending llc during 2018. approximately $ 50.0 million of these finance leases were terminated and replaced with long-term debt with generate lending llc in march 2019. additionally , in september of 2019 and march of 2018 , the company issued convertible senior notes in a private placement to qualified institutional buyers pursuant to rule 144a under the securities act . net interest and other expense for the year ended december 31 , 2019 , increased $ 13.4 million or 60.4 % , as compared to the year ended december 31 , 2018. this increase was attributed to the increase in finance leases/long-term debt during 2019 and the issuance of convertible senior notes in september 2019 and march of 2018 , as mentioned above . common stock warrant liability change in fair value of common stock warrant liability . the company accounts for common stock warrants as common stock warrant liability with changes in the fair value reflected in the consolidated statement of operations as change in the fair value of common stock warrant liability .
| during the fourth quarter of 2019 , the company adopted asu 2019-08 , with retrospective adoption as of january 1 , 2019. as a result , the amount recorded as a reduction of revenue was measured based on the grant-date fair value of the warrants . previously , this amount was measured based on vesting date fair value with estimates of fair value determined at each financial reporting date for unvested warrant shares considered to be probable of vesting . except for the third tranche , all existing unvested warrants are using a measurement date january 1 , 2019 , the adoption date , in accordance asu 2019-08. for the third tranche , the exercise price will be determined once the second tranche vests . the measurement date will be determined at that time . the amount of provision for common stock warrants recorded as a reduction of revenue during the years ended december 31 , 2019 and 2018 , respectively , is shown in the table below ( in thousands ) : replace_table_token_3_th revenue , cost of revenue , gross profit/ ( loss ) and gross margin for the years ended december 31 , 2019 and 2018 , were as follows ( in thousands ) : replace_table_token_4_th 28 net revenue revenue – sales of fuel cell systems and related infrastructure . revenue from sales of fuel cell systems and related infrastructure represents revenue from the sale of our fuel cells , such as gendrive units and gensure stationary backup power units , as well as hydrogen fueling infrastructure referred to at the site level as hydrogen installations . revenue from sales of fuel cell systems and related infrastructure for the year ended december 31 , 2019 increased $ 42.6 million , or 39.7 % , to $ 149.9 million from $ 107.3 million for the year ended december 31 , 2018. included within revenue was provision for common stock warrants of $ 2.0 million and $ 4.9 million for the years ended december 31 , 2019 and
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replace_table_token_17_th ( 1 ) weighted average rent of mall stores as of december 31 , 2012 and 2011. rent is presented on a cash basis and consists of minimum rent , common area costs and real estate taxes for tenants less than 10,000 square feet . ( 2 ) represents contractual obligations for space in regional malls or predominantly retail centers and excludes traditional anchor stores . ( 3 ) comparative rolling twelve month tenant sales for mall stores less than 10,000 square feet . 35 lease spread metrics the following table summarizes signed leases that were scheduled to commence in 2012 compared to expiring leases for the prior tenant in the same suite . replace_table_token_18_th ( 1 ) represents initial rent or average rent over the term consisting of base minimum rent , common area costs and real estate taxes . ( 2 ) represents expiring rent at end of lease consisting of base minimum rent , common area costs and real estate taxes . ( 3 ) represents new leases where downtime between the new and old tenant in the suite was less than nine months . story_separator_special_tag align= '' center '' > replace_table_token_20_th the base minimum rents have increased $ 40.7 million primarily due to increased permanent occupancy from 85.5 % as of december 31 , 2010 to 87.5 % as of december 31 , 2011 and increasing in-place rents . the changes in straight-line rent and above-and below-market tenant leases , net reflect the impact of the application of acquisition accounting in the fourth quarter of 2010. lease termination income decreased due to fewer lease terminations . tenant recoveries remained flat for the year ended december 31 , 2011 increasing only $ 0.7 million . overage rents increased $ 12.2 million for the year ended december 31 , 2011 primarily due to increased tenant sales from $ 468 per square foot in 2010 to $ 512 per square foot in 2011. management fees and other corporate revenues decreased $ 2.1 million for the year ended december 31 , 2011 due to a $ 1.4 million decrease in management fees resulting from the sale of our third-party management business in july 2010. in addition , development fees and specialty lease fees decreased $ 1.5 million for the year ended december 31 , 2011 due to lower fees earned as a result of delays in projects at three properties owned by our unconsolidated real estate affiliates . other revenues increased $ 4.8 million primarily due to higher advertising and promotion revenue . 38 real estate taxes increased $ 2.8 million for the year ended december 31 , 2011 primarily due to the amortization of an intangible asset related to real estate taxes at one property , which was partially offset by a favorable real estate tax settlement that resulted in lower expense in 2010. marketing costs increased $ 1.6 million for the year ended december 31 , 2011 primarily due to increased marketing efforts related to internal and external advertising , which was partially offset by a decrease in national advertising . other property operating costs increased $ 0.4 million for the year ended december 31 , 2011 primarily due to an $ 8.6 million increase in utilities and a $ 2.1 million increase in outside professional services , which were partially offset by an $ 11.6 million decrease in payroll , benefits and incentive compensation . the provision for doubtful accounts decreased $ 7.5 million for the year ended december 31 , 2011 primarily due to improved collections of outstanding accounts receivable during 2011. in addition , the provision was higher in 2010 as the result of tenant bankruptcies and weaker economic conditions . property management and other costs increased $ 23.1 million for the year ended december 31 , 2011 due to a $ 7.8 million increase in professional services primarily related to the rpi spin-off , a $ 12.4 million increase in severance as part of the realignment of the company , a $ 12.1 million increase in incentive compensation and a $ 2.3 million increase in occupancy costs . these increases were partially offset by a $ 7.5 million decrease in benefits . general and administrative expenses decreased by $ 15.7 million for the year ended december 31 , 2011 primarily due to the reversal of previously accrued bankruptcy costs and gains on bankruptcy settlements of $ 23.8 million , which were offset by a $ 13.0 million increase in stock based compensation due to an increase in executive stock grants issued in 2011. provision for impairment included charges of $ 0.9 million related to one non-income producing asset for the year ended december 31 , 2011 ( note 3 ) . based on the results of the predecessor 's evaluations for impairment , we recognized impairment charges related to operating properties and properties under development of $ 4.5 million for the period from january 1 , 2010 through november 9 , 2010 ( note 3 ) . depreciation and amortization increased $ 259.6 million for the year ended december 31 , 2011 primarily due to the impact of the application of the acquisition accounting in the fourth quarter of 2010. interest expense decreased $ 414.1 million for the year ended december 31 , 2011 primarily as we refinanced 12 properties , resulting in a lower average debt balance and lower weighted average interest expense in 2011. the warrant liability adjustment was income of $ 55.0 million for the year ended december 31 , 2011 due to the non-cash income recognized as a result of the change in the fair value of the warrant liability ( note 10 ) . story_separator_special_tag the decrease in the fair value was primarily due to the decrease our stock price and the change in implied volatility from 38 % in 2010 to 37 % in 2011. the provision for income taxes was $ 8.7 million for the year ended december 31 , 2011 and the benefit for income taxes was $ 70.0 million for the year ended december 31 , 2010. the change was primarily due to changes in liabilities pursuant to uncertain tax positions primarily related to hhc , which was spun off on the effective date . the decrease in equity in ( loss ) income of unconsolidated real estate affiliates for the year ended december 31 , 2011 of $ 18.5 million was primarily due to a $ 47.3 million decrease in amortization of intangible assets and liabilities , including above and below market lease amortization . 39 this is offset by $ 21.1 million related to the impairment of our investment in turkey in 2010 and an increase in our share of income of the unconsolidated real estate affiliates . liquidity and capital resources our primary source of cash is from day-to-day ownership and management of the regional malls . we may also raise cash from refinancings or borrowings under our revolving credit facility . our primary uses of cash include payment of operating expenses , working capital , debt service , including principal and interest , reinvestment in properties , redevelopment of properties , tenant allowances and dividends . our capital plan is to obtain financial flexibility by lowering our borrowing costs , managing our future maturities , cross collateralizations and corporate guarantees and providing the necessary capital to fund growth . we believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of $ 624.8 million of consolidated unrestricted cash and $ 1.0 billion of available credit under our credit facility as of december 31 , 2012 , as well as anticipated cash provided by operations . our key financing and capital raising objectives include the following : continue to refinance our maturing debt , and certain debt prepayable without penalty , with the goal of lowering our overall borrowing costs , managing future maturities and reducing amount of debt recourse to us ; and dispose of properties in our portfolio that do not fit within our long-term strategy , including certain of our office properties , strip centers and regional malls . we may also raise capital through public or private issuances of debt securities , preferred stock , common stock , common units of the operating partnership or other capital raising activities . during 2012 , we executed the following refinancing and capital transactions ( at our proportionate share ) : completed the rpi spin-off , decreasing our outstanding mortgage loans by $ 1.1 billion ( note 5 ) ; refinanced $ 7.0 billion of mortgage notes at an average interest rate of 4.20 % and average term of 9.4 years . the average interest rate of the original loans was 5.30 % and the remaining term-to-maturity was 2.6 years . these refinancings included the financings of ala moana , a $ 1.4 billion secured interest-only mortgage note , the grand canal shoppes/the shoppes at the palazzo , a $ 625.0 million secured interest-only financing , fashion show , a $ 835.0 million secured interest-only mortgage note , and the $ 763.5 million secured financings of five consolidated properties ( note 8 ) ; repaid $ 949.6 million of corporate unsecured debt that matured or was scheduled to mature in september 2012 and may 2013. as a result of the early redemption , we were required to pay a prepayment fee of $ 15.0 million ( note 8 ) ; and sold our interests in seven regional malls , 11 strip centers/other retail , an office portfolio , three office properties and one anchor box for an aggregate $ 524.5 million with net proceeds of $ 239.1 million ( note 5 ) . during 2013 , we executed the following refinancing and capital transactions ( at our proportionate share ) : on february 13 , 2013 , we issued , under a public offering , 10,000,000 shares of 6.375 % series a cumulative redeemable perpetual preferred stock at a price of $ 25.00 per share . we have granted the underwriters an option to purchase an additional 1,500,000 shares within 30 days of february 13 , 2013 to cover any potential over-allotments . the proceeds of $ 250 million will be used for general corporate purposes , including repayment of a draw on our revolving credit facility ( discussed below ) ; 40 closed on loans of approximately $ 580 million at our proportionate share with a weighted average interest rate of 3.66 % that mature in 2025 , resulting in proceeds of approximately $ 300 million at our proportionate share . these new loans replace existing loans of approximately $ 280 million at our proportionate share with a weighted average interest rate of 4.65 % that mature in 2013 and 2016. as of december 31 , 2012 , we have $ 5.3 billion of debt pre-payable at par . we may pursue opportunities to refinance this debt at lower interest and longer terms . our long term goal is to improve our overall net debt to earnings before interest , taxes and depreciation and amortization , or ebitda , and leverage ratios by improving operations , amortization of debt and refinancing debt at improved terms . as a result of our financing efforts in 2012 , we have reduced the amount of debt due in the next three years from $ 5.6 billion to $ 3.2 billion , representing 18 % of our total debt . the maximum amount due in any one of the next 10 years is no more than $ 3.0 billion or approximately 17 % of our total debt . as of december 31 , 2012 , our proportionate share of total debt aggregated $ 19.2 billion .
| in addition , there was an increase in capitalized development overhead in 2012 , which was partially offset by increased legal services and national marketing costs . general and administrative costs represent the costs to run the public company and include costs for executives , audit fees , professional fees and administrative fees related to the public company . in 2012 , general and administrative costs includes a net benefit of $ 5.3 million from a one-time litigation settlement and in 2011 , includes the reversal of previously accrued bankruptcy costs and gains on settlements of $ 18.2 million both of which reduced general and administrative costs in 2011. excluding these items , general and administrative costs decreased due to a $ 6.8 million decrease in professional fees . depreciation and amortization decreased $ 80.3 million primarily due to fully depreciated and written off tenant-specific in-place lease intangibles as tenants vacated prior to the end of their lease term in 2012 versus 2011 offset by increased building depreciation of $ 8.2 million as a result of accelerated depreciation associated with the demolition of a building . interest expense decreased $ 68.4 million primarily due to default interest incurred on the homart note and the 2006 credit facility totaling $ 55.9 million during 2011. additionally we incurred less interest expense of $ 37.9 million related to our mortgage and notes payable due to lower average interest rates obtained as a result of our refinancing activity since 2011 , as outlined in the liquidity and capital resources section below . these decreases were partially offset by increases of amortization and write-offs of debt market rate adjustments of $ 22.6 million . the warrant liability adjustment represents the non-cash income or expense recognized as a result of the change in the fair value of the warrant liability ( note 10 ) . we incurred expense of $ 502.2 million for the
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rail north america segment summary at the end of the first quarter of 2014 , we acquired more than 18,500 boxcars from general electric railcar services corporation for approximately $ 340 million ( the `` boxcar fleet '' ) . at december 31 , 2015 , rail north america 's wholly owned fleet , excluding boxcars , consisted of approximately 106,100 cars . fleet utilization , excluding boxcars , was 99.1 % at the end of 2015 , compared to 99.2 % at the end of 2014 , and 98.5 % at the end of 2013 . fleet utilization for approximately 18,400 boxcars was 97.7 % at the end of 2015 compared to 92.7 % at the end of 2014 , and 78.8 % upon acquisition of the boxcar fleet . the rail market weakened as the year progressed , resulting in a more challenging lease rate environment . during the year , the lease price index on renewals ( the `` lpi '' , see definition below ) increased 32.2 % , compared to an increase of 38.8 % in 2014 , and 34.5 % in 2013 . lease terms on renewals for cars in the lpi averaged 54 months in 2015 , compared to 66 months in 2014 , and 62 months in 2013 . during 2015 , an average of approximately 106,000 railcars , excluding boxcars , were on lease , compared to 105,800 in 2014 , and 106,200 in 2013 . the decline in demand , and the resulting decline in lease rates , was broad-based , but was particularly severe among cars serving the coal , frac sand , and flammable liquids markets . in 2011 , we entered into a purchase agreement with trinity rail group , llc ( `` trinity '' ) for 12,500 railcars through mid-2016 , which was the largest such commitment in our history . in 2014 , we entered into a new long-term supply agreement with trinity to take effect upon the scheduled expiration of the current railcar supply agreement in 2016. under the terms of this agreement , we may order up to 8,950 newly built railcars over a four-year period from march , 2016 through march , 2020. as of december 31 , 2015 , we have received customer commitments to lease 12,400 railcars from the 2011 trinity supply agreement and 1,200 railcars from the 2014 trinity supply agreement . of those railcars , 10,100 have been delivered from the 2011 agreement and none have been delivered from the 2014 agreement . in 2016 , we expect a decrease in segment profit due to lower expected railcar remarketing activity . as current market lease rates decline and expiring rates increase ( resulting from the expiration of leases originated in the stronger markets of prior years ) , we expect the lpi to decrease from 2015 's levels . leases for approximately 12,500 railcars in our term lease fleet and approximately 5,500 boxcars are scheduled to expire in 2016. these amounts exclude railcars on leases that are scheduled to expire in 2016 but have already been renewed or assigned to a new lessee . 30 the following table shows rail north america 's segment results for the years ended december 31 ( in millions ) : replace_table_token_9_th the following table shows the components of rail north america 's lease revenue for the years ended december 31 ( in millions ) : replace_table_token_10_th lease price index our lpi is an internally-generated business indicator that measures lease rate pricing on renewals for our north american railcar fleet , excluding boxcars . we calculate the index using the weighted average lease rate for a group of railcar types that we believe best represents our overall north american fleet , excluding boxcars . the average renewal lease rate change is reported as the percentage change between the average renewal lease rate and the average expiring lease rate , weighted by fleet composition . the average renewal lease term is reported in months and reflects the average renewal lease term of railcar types in the lpi , weighted by fleet composition . 31 rail north america fleet data the following table shows fleet activity for rail north america railcars , excluding boxcars , for the years ended december 31 : replace_table_token_11_th 32 the following table shows fleet statistics for rail north america boxcars for the years ended december 31 : replace_table_token_12_th the following table shows fleet activity for rail north america locomotives for the years ended december 31 : replace_table_token_13_th 33 segment profit in 2015 , segment profit was $ 379.5 million , compared to $ 321.0 million in 2014 . the increase was driven by higher lease rates , a positive contribution from the full year impact of the boxcar fleet in 2015 , and lower net maintenance expense , partially offset by higher depreciation expense and lower share of affiliates ' earnings . in 2014 , segment profit was $ 321.0 million , compared to $ 231.6 million in 2013. the increase was primarily driven by higher lease rates and more cars on lease , including the boxcar fleet , partially offset by higher net maintenance expense and depreciation expense . the results in 2014 , compared to 2013 , were also favorably impacted by a change in depreciation implemented during the year . effective january 1 , 2014 , we revised the depreciable lives of our north american railcars based on a review of the current economic lives and usage of various railcar types . in aggregate , the average depreciable life of the fleet increased approximately 2.2 years . this change had a positive $ 21.9 million impact on segment profit for 2014. revenues in 2015 , lease revenue increased $ 66.8 million , primarily due to higher lease rates across the fleet and a full year of revenue in 2015 from the acquired boxcar fleet . other revenue increased $ 12.5 million , primarily due to higher repair revenue , mileage equalization revenue , and lease termination fees . story_separator_special_tag in 2014 , lease revenue increased $ 105.2 million , primarily due to the impact of the boxcar fleet and higher lease rates . other revenue increased $ 5.2 million , primarily due to higher repair revenue in 2014. expenses in 2015 , maintenance expense decreased $ 1.3 million , primarily due to lower tank car compliance maintenance , partially offset by higher costs attributable to the boxcar fleet . depreciation expense increased $ 25.1 million , largely due to depreciation on new investments , including the boxcar fleet . operating lease expense decreased $ 21.5 million , resulting from the purchase of railcars previously on operating leases in each year . other operating expense increased $ 4.3 million , primarily due to higher switching , storage , and freight costs , as well as a higher loss reserve in 2015. in 2014 , maintenance expense increased $ 37.3 million , primarily due to costs associated with the boxcar fleet . excluding boxcars , maintenance expense was still higher in 2014 as a result of the expected increase in compliance costs and repairs . depreciation expense increased $ 13.3 million , primarily due to incremental depreciation from new investments , including the boxcar fleet , partially offset by the impact of the accounting policy change in estimated useful lives of the railcar fleet implemented as of january 1 , 2014. operating lease expense decreased $ 20.7 million due to the purchase of railcars previously on operating leases in each year . other operating expense increased $ 3.5 million , primarily due to higher switching and freight costs . other income ( expense ) in 2015 , net gain on asset dispositions decreased $ 5.1 million , primarily due to lower scrapping proceeds , resulting from lower rates and fewer cars scrapped , as well as lower residual sharing gains , and higher impairments of railcars in 2015. these impacts were partially offset by higher gains on cars sold . net interest expense increased $ 3.7 million , primarily due to higher average debt balances , partially offset by the impact of lower average interest rates . share of affiliates ' earnings decreased $ 7.4 million , primarily due to gains on dispositions of railcars at our southern capital affiliate in the prior year . in 2014 , net gain on asset dispositions increased $ 4.6 million , primarily due to higher gains on cars sold , partially offset by lower scrapping gains . net interest expense decreased $ 7.6 million , driven by lower average rates and the impact of prepayments of higher cost debt more than offsetting a higher average debt balance . other expense decreased $ 2.6 million , primarily due to higher penalties associated with the early repayment of debt and higher termination costs associated with the early buyouts of railcars on operating leases in 2013 compared to 2014. share of affiliates ' earnings decreased $ 2.4 million , primarily due to income at our southern capital affiliate in 2013 . 34 investment volume during 2015 , investment volume was $ 524.5 million compared to $ 810.6 million in 2014 , and $ 502.4 million in 2013 . we acquired approximately 3,790 railcars in 2015 , compared to 3,570 railcars in 2014 , and 4,520 railcars in 2013 . additionally , investments in 2014 included the purchase of the boxcar fleet of approximately 18,500 boxcars for approximately $ 340 million . north american rail regulatory matters on may 1 , 2015 , the pipeline and hazardous materials safety administration of the us department of transportation ( “ phmsa ” ) issued final rules that established new design standards for tank cars in flammable liquids service ( the “ phmsa rules ” ) . the phmsa rules became effective on july 7 , 2015 , and all newly built tank cars for use in certain flammable liquids service were required to comply with the new design standards commencing on october 1 , 2015. the phmsa rules also established standards for modifications to existing tank cars in certain flammable liquids service and deadlines for modifying or removing those cars from service . the us congress subsequently adopted the fixing america 's surface transportation act ( “ fast act ” ) , which changed certain requirements of the phmsa rules . key changes included revisions to the design standards for modified cars , amendments to the modification deadlines , and expansion of the applicability of the new tank car design standards to all cars used in flammable liquids service , not only those cars that operate in trains consisting of large numbers of tank cars carrying flammable liquids . under the fast act , the deadlines for modifying or removing existing tank cars from flammables service range from january 2018 to may 2029 , depending on the type of car and the type of commodity carried . while several legal challenges to the phmsa rules are pending in the us circuit court for the district of columbia , the tank car design standards and the deadlines for modifying or removing cars from service were enacted into law by the fast act , and therefore , are unlikely to be affected by the outcome of these legal challenges . on may 1 , 2015 , transport canada ( “ tc ” ) issued final rules establishing new design standards for tank cars carrying flammable liquids in canada ( the “ canadian rules ” ) . the canadian rules became effective on may 20 , 2015 , and all newly built tank cars for use in flammable liquids service were required to comply with the new standards effective october 1 , 2015. the canadian rules also established standards for modifications to existing tank cars in flammable liquids service and deadlines for modifying or removing cars from service ranging from may 2017 to may 2025 , depending on the type of car and the type of commodity carried .
| in 2014 , segment profit was $ 78.7 million , compared to $ 97.4 million in 2013. the 2013 results included a gain of $ 9.3 million on the sale of our aae investment and gains of $ 7.7 million related to certain interest rate swaps at aae . excluding the effect of the aae items noted , segment profit decreased $ 1.7 million in 2014. this decrease was largely due to lower share of affiliates ' earnings , higher maintenance expense and higher depreciation expense , partially offset by higher lease revenue . aae held interest rate swaps intended to hedge interest rate risk associated with existing and forecasted floating rate debt issuances . some of these swaps did not qualify for hedge accounting , and as a result , changes in their fair values were recognized in affiliates ' earnings . revenues in 2015 , lease revenue decreased $ 15.7 million , due to the effects of a weaker euro , as noted above . the decrease was partially offset by additional cars on lease in the current year . other revenue decreased $ 2.8 million , primarily due to the absence of interest income on the aae note received as part of the sale , which was repaid in the first quarter of 2015 . 37 in 2014 , lease revenue increased $ 8.4 million , primarily due to more cars on lease . other revenue increased $ 1.5 million , primarily due to higher interest income on the aae note . expenses in 2015 , maintenance expense decreased $ 6.3 million , primarily due to the effects of a weaker euro , lower costs at our european maintenance facilities , and lower costs for wheelset replacements , partially offset by the higher cost of railcar revisions . depreciation expense decreased $ 3.4 million , largely due to the effects of a weaker euro , partially offset by the impact of new cars added to the fleet . in 2014 , maintenance expense increased $ 3.0 million , primarily due to higher workshop expenses and costs for wheelset
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in addition , because of the continuing convergence of the markets for computing devices and consumer electronics , we expect greater competition in the future from well-established consumer electronics companies in our new categories as well as future ones we might enter . many of these companies have greater financial , technical , sales , marketing and other resources than we have . our peripherals and video conferencing industries are intensely competitive . the peripherals industry is characterized by platform evolution , short product life cycles , continual performance enhancements , and rapid adoption of technological and product advancements by competitors in our retail markets , and price sensitivity in the oem market . we experience aggressive price competition and other promotional activities from our primary competitors and from less established brands , including brands owned by some retail customers known as house brands , in response to declining consumer demand in both mature retail and oem markets . we may also encounter more competition if any of our competitors in one or more categories decide to enter other categories in which we currently operate . from time-to-time , we may seek to partner with or acquire , when appropriate , companies that have products , personnel , and technologies that complement our strategic direction . we continually review our product offerings and our strategic direction in light of our profitability targets , competitive conditions , changing consumer trends , and the evolving nature of the interface between the consumer and the digital world . story_separator_special_tag keyboards have historically made up the bulk of our oem sales . in recent years , there has been a dramatic shift away from desktop pcs and there continues to be significant weakness in the global market for pcs which has adversely affected our sales of oem mice and keyboards , all of which are sold with name-brand desktop pcs . we expect this trend to continue and for oem sales to comprise a smaller percentage of our total revenues in the future . trends in other peripheral product categories . some of our other peripherals product categories are experiencing significant market challenges . as the quality of pc-embedded webcams improves , we expect future sales of our pc-connected webcams in mature consumer markets to continue declining . during the third quarter of fiscal year 2013 , we identified a number of product categories that no longer fit with our current strategic direction . as a result , we made a strategic decision to divest our entire retail-remotes product category and our digital video security product line included in our retail-video product category , and we plan to discontinue other non-strategic products , such as speaker docks and most console gaming peripherals , by the end of fiscal year 2014 . 47 trends specific to our video conferencing segment the trend among businesses and institutions to use video conferencing offers a long-term growth opportunity for logitech . however , the overall video conferencing industry has experienced a slowdown in recent quarters . in addition , there has been an increase in the competitive environment in fiscal year 2013. this resulted in a $ 214.5 million non-cash goodwill impairment charge in the fiscal year ended march 31 , 2013. we believe the growth in our video conferencing segment depends in part on our ability to increase sales to enterprises with existing installed bases of equipment supplied by our competitors , and to enterprises that may purchase such competitor equipment in the future . we believe the ability of our lifesize products to interoperate with the equipment of other telecommunications , video conferencing or telepresence equipment suppliers to be a key factor in purchasing decisions by current or prospective lifesize customers . in addition , lifesize has broadened its product portfolio to include infrastructure , cloud services and other offerings which require different approaches to developing customer solutions . we also are seeking to offer lifesize products designed to enhance the use of mobile devices in video conferencing applications . emerging market . china also represents a significant targeted emerging market for our video conferencing segment . we have invested significantly in growing the number of our video conferencing sales , marketing and administrative personnel in china . critical accounting estimates the preparation of financial statements and related disclosures in conformity with u.s. gaap ( generally accepted accounting principles in the united states of america ) requires us to make judgments , estimates and assumptions that affect reported amounts of assets , liabilities , net sales and expenses , and the disclosure of contingent assets and liabilities . we consider an accounting estimate critical if it : ( i ) requires management to make judgments and estimates about matters that are inherently uncertain ; and ( ii ) is important to an understanding of our financial condition and operating results . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances . although these estimates are based on management 's best knowledge of current events and actions that may impact us in the future , actual results could differ from those estimates . management has discussed the development , selection and disclosure of these critical accounting estimates with the audit committee of the board of directors . we believe the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations , and reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements . accruals for customer programs we record accruals for product returns , cooperative marketing arrangements , customer incentive programs and pricing programs . an allowance against accounts receivable is recorded for accruals and program activity related to our direct customers and those indirect customers who receive payments for program activity through our direct customers . an accrued liability is recorded for accruals and program activity related to our indirect customers who receive payments directly and do not have a right of offset against a receivable balance . story_separator_special_tag the estimated cost of these programs is recorded as a reduction of revenue or as an operating expense , if we receive a separately identifiable benefit from the customer and can reasonably estimate the fair value of that benefit . significant management judgment and estimates must be used to determine the cost of these programs in any accounting period . returns . we grant limited rights to return products . return rights vary by customer , and range from just the right to return defective product to stock rotation rights limited to a percentage approved by 48 management . estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends by customer and by product , inventories owned by and located at distributors and retailers , current customer demand , current operating conditions , and other relevant customer and product information . return trends are influenced by product life cycle status , new product introductions , market acceptance of products , sales levels , product sell-through , the type of customer , seasonality , product quality issues , competitive pressures , operational policies and procedures and other factors . return rates can fluctuate over time , but are sufficiently predictable to allow us to estimate expected future product returns . cooperative marketing arrangements . we enter into customer marketing programs with many of our distribution and retail customers , and with certain indirect partners , allowing customers to receive a credit equal to a set percentage of their purchases of our products , or a fixed dollar credit for various marketing arrangements . the objective of these arrangements is to encourage advertising and promotional events to increase sales of our products . accruals for these marketing arrangements are recorded at the time of sale , or time of commitment , based on negotiated terms , historical experience and inventory levels in the channel . customer incentive programs . customer incentive programs include performance-based incentives and consumer rebates . we offer performance-based incentives to our distribution customers , retail customers and indirect partners based on pre-determined performance criteria . accruals for performance-based incentives are recognized as a reduction of the sale price at the time of sale . estimates of required accruals are determined based on negotiated terms , consideration of historical experience , anticipated volume of future purchases , and inventory levels in the channel . consumer rebates are offered from time to time at the company 's discretion for the primary benefit of end-users . estimated costs of consumer rebates and similar incentives are recorded at the time the incentive is offered , based on the specific terms and conditions . certain incentive programs , including consumer rebates , require management to estimate the number of customers who will actually redeem the incentive based on historical experience and the specific terms and conditions of particular programs . pricing programs . we have agreements with certain of our customers that contain terms allowing price protection credits to be issued in the event of a subsequent price reduction . at management 's discretion , we also offer special pricing discounts to certain customers . special pricing discounts are usually offered only for limited time periods or for sales of selected products to specific indirect partners . our decision to make price reductions is influenced by product life cycle stage , market acceptance of products , the competitive environment , new product introductions and other factors . estimates of expected future pricing actions are recognized at the time of sale based on analyses of historical pricing actions by customer and by product , inventories owned by and located at distributors and retailers , current customer demand , current operating conditions , and other relevant customer and product information , such as stage of product life-cycle . we regularly evaluate the adequacy of our accruals for product returns , cooperative marketing arrangements , customer incentive programs and pricing programs . future market conditions and product transitions may require us to take action to increase such programs . in addition , when the variables used to estimate these costs change , or if actual costs differ significantly from the estimates , we would be required to record incremental increases or reductions to revenue or increase operating expenses . if , at any future time , we become unable to reasonably estimate these costs , recognition of revenue might be deferred until products are sold to end-users , which would adversely impact revenue in the period of transition . inventory valuation we must order components for our products and build inventory in advance of customer orders . further , our industry is characterized by rapid technological change , short-term customer commitments and rapid changes in demand . 49 we record inventories at the lower of cost or market value and record write-downs of inventories which are obsolete or in excess of anticipated demand or market value . a review of inventory is performed each fiscal quarter that considers factors including the marketability and product life cycle stage , product development plans , component cost trends , demand forecasts and current sales levels . we identify inventory exposures by comparing inventory on hand , in the channel and on order to historical and forecasted sales over forecasted sales periods . inventory on hand which is not expected to be sold or utilized based on review of forecasted sales and utilization is considered excess , and we recognize the write-off in cost of sales at the time of such determination . the write-off is determined by comparison of the current replacement cost with the estimated selling price less any costs of completion and disposal ( net realizable value ) and the net realizable value less an allowance for normal profit . at the time of loss recognition , a new , lower-cost basis for that inventory is established and subsequent changes in facts and circumstances would not result in an increase in the cost basis .
| during fiscal year 2013 , we benefitted from gross margin improvement primarily due to the absence of an inventory valuation adjustment related to logitech revue and related peripherals which occurred during fiscal year 2012 , and from improvements to our channel pricing program and global supply chain process . these improvements were almost entirely offset by an unfavorable change in retail product mix , the negative impact of a weaker euro , a charge to revalue our inventory of several headphones and a large form-factor wireless speaker included in our audiowearables & wireless retail product category , actions related to the simplification of our product portfolio and restructuring-related costs . operating expenses for the fiscal year ended march 31 , 2013 were 46 % of net sales , compared with 30 % in the prior fiscal year . this increase was primarily attributable to a $ 214.5 million goodwill impairment charge related to our video conferencing reporting unit and from $ 43.7 million in costs related to restructuring plans we implemented in fiscal year 2013. net loss for the fiscal year ended march 31 , 2013 was $ 228.1 million , compared with net income of $ 71.5 million in the fiscal year ended march 31 , 2012. this decline primarily resulted from the $ 214.5 million goodwill impairment charge and the $ 43.7 million in restructuring charges , offset in part by a discrete tax benefit of $ 32.1 million from the closure of federal income tax examinations in the united states . trends in our business our sales of pc peripherals for use by consumers in the americas and europe have historically made up the large majority of our revenues . in the last two years , the pc market has changed dramatically and there continues to be significant weakness in the global market for new pcs . this weakness has had a negative impact on our net sales in all of our pc-related categories . we believe that this weakness reflects the growing popularity of tablets
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● additionally , during the year ended december 31 , 2014 , the company acquired $ 53.5 million in land related to three development projects which will be held as long-term investments . the company anticipates completing these projects over the next four years . u.s. disposition activity ( see footnotes 4 , 5 , and 6 of the notes to consolidated financial statements included in this form 10-k ) : ● during 2014 , the company disposed of 63 operating properties , in separate transactions , for an aggregate sales price of $ 535.8 million . these transactions , which are included in discontinued operations , resulted in an aggregate gain of $ 166.6 million , before income taxes of $ 8.7 million , and aggregate impairment charges of $ 60.4 million , before income tax benefits of $ 2.0 million . latin america disposition activity ( see footnotes 4 , 5 , 6 and 7 of notes to the consolidated financial statements included in this form 10-k ) : ● during 2014 , the company sold 27 consolidated properties in its latin american portfolio for an aggregate sales price of $ 297.7 million . these transactions , which are included in discontinued operations , resulted in an aggregate gain of $ 33.4 million , after income taxes of $ 3.3 million and aggregate impairment charges of $ 24.7 million . ● during 2014 , joint ventures in which the company held noncontrolling interests sold 14 operating properties located throughout mexico for $ 324.5 million . these transactions resulted in an aggregate net gain to the company of $ 40.0 million , after income tax , and aggregate impairment charges of $ 0.9 million . ● these transactions contributed to the company 's substantial liquidation of its investment in mexico and peru during the fourth quarter , which resulted in the release of a cumulative foreign currency translation loss of $ 134.4 million , after noncontrolling interests of $ 5.8 million . this loss has been recorded on the company 's consolidated statements of income as follows : ( i ) $ 92.9 million is included in impairment/loss on operating properties , net of tax , within discontinued operations ( ii ) $ 47.3 million is included in equity in income of joint ventures , net and ( iii ) $ 5.8 million is included in net income attributable to noncontrolling interest . capital activity ( for additional details see liquidity and capital resources below ) : ● during march 2014 , the company established a new $ 1.75 billion unsecured revolving credit facility ( the “ credit facility ” ) with a group of banks , which is scheduled to expire in march 2018 , with two additional six-month options to extend the maturity date , at the company 's discretion , to march 2019. the credit facility , which can be increased to $ 2.25 billion through an accordion feature , accrues interest at a rate of libor plus 92.5 basis points on drawn funds . ● during 2014 , the company issued $ 500.0 million of 7-year senior unsecured notes at an interest rate of 3.20 % payable semi-annually in arrears which are scheduled to mature in may 2021. net proceeds were used for general corporate purposes including reducing borrowings under the credit facility and repayment of maturing debt . ● also during 2014 , the company repaid ( i ) its $ 100.0 million 5.95 % senior unsecured notes , which matured in june 2014 and ( ii ) its remaining $ 194.6 million 4.82 % senior unsecured notes , which also matured in june 2014 . ● the company repaid its 1.0 billion mexican peso ( “ mxn ” ) ( usd $ 76.3 million ) term loan which was scheduled to mature in march 2018 , and bore interest at a rate equal to tiie ( equilibrium interbank interest rate ) plus 1.35 % during september 2014. critical accounting policies the consolidated financial statements of the company include the accounts of the company , its wholly-owned subsidiaries and all entities in which the company has a controlling interest , including where the company has been determined to be a primary beneficiary of a variable interest entity in accordance with the consolidation guidance of the fasb accounting standards codification ( “ asc ” ) . the company applies these provisions to each of its joint venture investments to determine whether the cost , equity or consolidation method of accounting is appropriate . the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes . in preparing these financial statements , management has made its best estimates and assumptions that affect the reported amounts of assets and liabilities . these estimates are based on , but not limited to , historical results , industry standards and current economic conditions , giving due consideration to materiality . the most significant assumptions and estimates relate to revenue recognition and the recoverability of trade accounts receivable , depreciable lives , valuation of real estate and intangible assets and liabilities , valuation of joint venture investments and other investments , realizability of deferred tax assets and uncertain tax positions . application of these assumptions requires the exercise of judgment as to future uncertainties , and , as a result , actual results could materially differ from these estimates . 18 the company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties , investments in joint ventures , marketable securities and other investments . the company 's reported net earnings are directly affected by management 's estimate of impairments and or valuation allowances . revenue recognition and accounts receivable base rental revenues from rental property are recognized on a straight-line basis over the terms of the related leases . story_separator_special_tag certain of these leases also provide for percentage rents based upon the level of sales achieved by the lessee . these percentage rents are recorded once the required sales level is achieved . operating expense reimbursements are recognized as earned . rental income may also include payments received in connection with lease termination agreements . in addition , leases typically provide for reimbursement to the company of common area maintenance , real estate taxes and other operating expenses . the company makes estimates of the uncollectability of its accounts receivable related to base rents , straight-line rent , expense reimbursements and other revenues . the company analyzes accounts receivable and historical bad debt levels , customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . in addition , tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims . the company 's reported net earnings are directly affected by management 's estimate of the collectability of accounts receivable . real estate the company 's investments in real estate properties are stated at cost , less accumulated depreciation and amortization . expenditures for maintenance and repairs are charged to operations as incurred . significant renovations and replacements , which improve and extend the life of the asset , are capitalized . upon acquisition of real estate operating properties , the company estimates the fair value of acquired tangible assets ( consisting of land , building , building improvements and tenant improvements ) and identified intangible assets and liabilities ( consisting of above and below-market leases , in-place leases and tenant relationships , where applicable ) , assumed debt and redeemable units issued at the date of acquisition , based on evaluation of information and estimates available at that date . fair value is determined based on an exit price approach , which contemplates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . if , up to one year from the acquisition date , information regarding fair value of the assets acquired and liabilities assumed is received and estimates are refined , appropriate adjustments , if material , are made to the purchase price allocation on a retrospective basis . the company expenses transaction costs associated with business combinations in the period incurred . depreciation and amortization are provided on the straight-line method over the estimated useful lives of the assets , as follows : buildings and building improvements 15 to 50 years fixtures , leasehold and tenant improvements terms of leases or useful ( including certain identified intangible assets ) lives , whichever is shorter the company is required to make subjective assessments as to the useful lives of its properties for purposes of determining the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a direct impact on the company 's net earnings . on a continuous basis , management assesses whether there are any indicators , including property operating performance , changes in anticipated holding period and general market conditions , that the value of the real estate properties ( including any related amortizable intangible assets or liabilities ) may be impaired . a property value is considered impaired only if management 's estimate of current and projected operating cash flows ( undiscounted and unleveraged ) of the property over its anticipated hold period is less than the net carrying value of the property . such cash flow projections consider factors such as expected future operating income , trends and prospects , as well as the effects of demand , competition and other factors . to the extent impairment has occurred , the carrying value of the property would be adjusted to reflect the estimated fair value of the property . when a real estate asset is identified by management as held-for-sale , the company ceases depreciation of the asset and estimates the sales price of such asset net of selling costs . if , in management 's opinion , the net sales price of the asset is less than the net book value of such asset , an adjustment to the carrying value would be recorded to reflect the estimated fair value of the property . investments in unconsolidated joint ventures the company accounts for its investments in unconsolidated joint ventures under the equity method of accounting as the company exercises significant influence , but does not control , these entities . these investments are recorded initially at cost and are subsequently adjusted for cash contributions and distributions . earnings for each investment are recognized in accordance with each respective investment agreement and , where applicable , are based upon an allocation of the investment 's net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period . 19 the company 's joint ventures and other real estate investments primarily consist of co-investments with institutional and other joint venture partners in neighborhood and community shopping center properties , consistent with its core business . these joint ventures typically obtain non-recourse third-party financing on their property investments , thus contractually limiting the company 's exposure to losses to the amount of its equity investment , and , due to the lender 's exposure to losses , a lender typically will require a minimum level of equity in order to mitigate its risk . the company 's exposure to losses associated with its unconsolidated joint ventures is primarily limited to its carrying value in these investments . the company , on a limited selective basis , obtained unsecured financing for certain joint ventures . these unsecured financings are guaranteed by the company with guarantees from the joint venture partners for their proportionate amounts of any guaranty payment the company is obligated to make .
| rental property expenses increased for the year ended december 31 , 2014 , as compared to the corresponding period in 2013 , primarily due to acquisitions of properties during 2014 and 2013 , resulting in ( i ) an increase in real estate taxes of $ 16.0 million , ( ii ) an increase in repairs and maintenance costs of $ 6.8 million , ( iii ) an increase in snow removal costs of $ 3.4 million , ( iv ) an increase in property services of $ 3.7 million , ( v ) an increase in utilities expense of $ 1.8 million and ( vi ) an increase in insurance expense of $ 3.9 million , due to an increase in insurance claims . ( 3 ) depreciation and amortization increased for the year ended december 31 , 2014 , as compared to the corresponding period in 2013 , primarily due to operating property acquisitions during 2014 and 2013. general and administrative costs include employee-related expenses ( salaries , bonuses , equity awards , benefits , severance costs and payroll taxes ) , professional fees , office rent , travel expense , and other company-specific expenses . general and administrative expenses decreased $ 5.3 million to $ 122.2 million for the year ended december 31 , 2014 , as compared to $ 127.5 million for the corresponding period in 2013. this decrease is primarily due to a decrease in professional fees of $ 3.4 million in connection with the company 's response to a subpoena from the enforcement division of the sec and a parallel investigation by the doj , in connection with the investigation of wal-mart stores , inc. with respect to the foreign corrupt practices act ( see item 3 ) and a decrease in personnel related costs of $ 1.8 million for the year ended december 31 , 2014 , as compared to the corresponding period in 2013. during the year ended december 31 , 2014 , the company recognized impairment charges of $ 217.8 million , of which $ 178.0 million , before income tax benefits of $ 1.7 million , is included in discontinued operations . these impairment charges consist of ( i ) $ 118.4 million related to adjustments to property carrying values , ( ii ) the release of a cumulative foreign currency translation loss of $ 92.9 million relating to the substantial liquidation of the company 's investment in mexico , ( iii ) $ 4.8 million related to a cost method investment and ( iv ) $ 1.6 million related to a preferred equity investment . the adjustments to property carrying values were recognized in connection with the company 's efforts to market certain properties and management 's assessment as to the likelihood and timing of such potential transactions and the anticipated hold period for such properties .
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the net proceeds of the offering , including the full exercise of the option , were approximately $ 12.6 million , after deducting the underwriting discounts and commissions and the other offering expenses payable by us . in february 2017 , we closed an underwritten public offering in which we sold , 2,555,555 shares of its common stock , including 333,333 shares sold in connection with the exercise in full by the underwriters of their option to purchase additional shares . the net proceeds of the offering , including the full exercise of the option , were approximately $ 10.5 million , after deducting the underwriting discounts and commissions and the other estimated offering expenses payable by aldeyra . we will need to raise additional capital in the form of debt or equity or through partnerships to fund additional development of adx-102 and other aldehyde traps , and we may in-license , acquire or invest in complementary businesses or products . in addition , as capital resources permit , we may augment or otherwise modify the clinical development plan described herein . research and development expenses we expense all of our research and development expenses as they are incurred . research and development costs that are paid in advance of performance are capitalized as a prepaid expense until incurred . research and development expenses primarily include : non-clinical development , preclinical research , and clinical trial and regulatory-related costs ; expenses incurred under agreements with sites and consultants that conduct our clinical trials ; expenses related to generating , filing , and maintaining intellectual property ; and employee-related expenses , including salaries , benefits , travel and stock-based compensation expense . 63 substantially all of our research and development expenses to date have been incurred in connection with adx-102 . we expect our research and development expenses to increase for the foreseeable future as we advance adx-102 and other compounds through preclinical and clinical development . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we are unable to estimate with any certainty the costs we will incur in the continued development of adx-102 and our future product candidates . clinical development timelines , the probability of success and development costs can differ materially from expectations . we may never succeed in achieving marketing approval for our product candidates . the costs of clinical trials may vary significantly over the life of a project owing to , but not limited to , the following : per patient trial costs ; the number of sites included in the trials ; the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the number of patients that participate in the trials ; the number of doses that patients receive ; the cost of comparative agents used in trials ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; and the efficacy and safety profile of the product candidate . we do not expect adx-102 and our other product candidates to be commercially available , if at all , for the next several years . general and administrative expenses general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation . our general and administrative expenses consisted primarily of payroll expenses for our full-time employees during the years ended december 31 , 2016 and 2015. other general and administrative expenses include professional fees for auditing , tax , and legal services . we expect that general and administrative expenses will increase in the future as we expand our operating activities and continue to incur additional costs associated with being a publicly-traded company and maintaining compliance with exchange listing and sec requirements . these increases will likely include higher consulting costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and fees associated with investor relations . total other income ( expense ) total other income ( expense ) consists primarily of interest income we earn on interest-bearing accounts and interest expense incurred on our outstanding debt . comprehensive loss comprehensive loss is defined as the change in equity during a period from transactions and other events and or circumstances from non-owner sources . for december 31 , 2016 , comprehensive loss is equal to our net loss of $ 18.7 million and an unrealized gain on marketable securities of $ 8,000. for december 31 , 2015 , comprehensive loss is equal to net loss of $ 12.1 million and an unrealized loss on marketable securities of $ 8,000 . 64 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states ( us gaap ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the expenses during the reported periods . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our financial statements appearing elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations . story_separator_special_tag accrued research and development expenses as part of the process of preparing financial statements , we are required to estimate and accrue research and development expenses . this process involves the following : communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost ; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . examples of estimated research and development expenses that we accrue include : fees paid to investigative sites in connection with clinical studies ; fees paid to contract manufacturing organizations in connection with non-clinical development , preclinical research , and the production of clinical study materials ; and professional service fees for consulting and related services . we base our expense accruals related to non-clinical development , preclinical studies , and clinical trials on our estimates of the services received and efforts expended pursuant to contracts with organizations/consultants that conduct and manage clinical studies on our behalf . the financial terms of these agreements vary from contract to contract and may result in uneven payment flows . payments under some of these contracts may depend on many factors , such as the successful enrollment of patients , site initiation and the completion of clinical study milestones . our service providers invoice us monthly in arrears for services performed . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . to date , we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities . 65 stock-based compensation stock-based compensation expense represents the grant date fair value of restricted stock awards and stock option grants , which are being recognized over the requisite service period of the awards ( usually the vesting period ) on a straight-line basis , net of estimated forfeitures . for stock option grants with performance-based milestones , the expense is recorded over the remaining service period after the point when the achievement of the milestone is probable or the performance condition has been achieved . we generally estimate the fair value of stock option grants using the black-scholes option pricing model . if vesting is based on market-based milestones , we perform monte carlo simulations to estimate the timing and number of shares that are most likely to vest and record the expense on a straight-line basis over the estimated period the milestone will be achieved . we account for stock options to non-employees using the fair value approach . stock options to non-employees are subject to periodic revaluation over their vesting terms . we generally estimate the fair value of our stock-based awards to employees and non-employees using the black-scholes option pricing model , which requires the input of highly subjective assumptions , including ( a ) the risk-free interest rate , ( b ) the expected volatility of our stock , ( c ) the expected term of the award and ( d ) the expected dividend yield . due to the lack of sufficient historical public market trading activity , we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded . for these analyses , we have selected companies with comparable characteristics to ours including enterprise value , risk profiles , position within the industry , and with historical share price information sufficient to meet the expected life of the stock-based awards . we compute the historical volatility data using the daily closing prices for the selected companies ' shares over approximately the expected life of the options . the resulting volatility estimate was approximately 89 % , and we have employed this value throughout our calculations . we have also computed the historical volatility of aldx historical information regarding the volatility of our own stock price and have determined that a volatility estimate of 89 % is reasonable . we have estimated the expected life of our employee stock options using the simplified method , whereby , the expected life equals the average of the vesting term and the original contractual term of the option for service-based awards . the risk-free interest rates for periods within the expected life of the option are based on the yields of zero-coupon united states treasury securities . the assumptions used in the black-scholes option pricing model to determine the fair value of employee stock option grants in 2016 and 2015 were as follows : replace_table_token_2_th other information net operating loss carryforwards as of december 31 , 2016 , we have federal and state income tax net operating loss ( nol ) carryovers of approximately $ 42.8 million and $ 39.9 million , respectively , which will expire at various dates through 2036. as of december 31 , 2016 , we have federal and state tax carryovers of credits for increasing research activities ( r & d tax credits ) of approximately $ 1.2 million and $ 178,000 , respectively , which will expire at various dates through 2036. in general , under section 382 of the internal revenue code of 1986 , as amended ( code ) , a corporation that
| total other income ( expense ) was $ ( 101,180 ) for the same period in 2015 and primarily consisted of interest expense related to our credit facility partially offset by interest income . in 2016 , there was twelve months of investment income as opposed to only one month in 2015. liquidity and capital resources we have funded our operations primarily from the sale of equity securities and convertible equity securities and borrowings under our credit facility discussed below . we have incurred operating losses since inception and negative cash flows from operating activities in devoting substantially all of our efforts towards research and development . at december 31 , 2016 , we had total stockholders ' equity of approximately $ 21.6 million and cash , cash equivalents and marketable securities of $ 24.9 million . during the year ended december 31 , 2016 , we had net loss of approximately $ 18.7 million . we expect to generate operating losses for the foreseeable future . we are a party to a loan and security agreement ( the credit facility ) with pacific western bank ( pacific western , formerly square 1 bank ) which was originally entered into in april 2012 and has been subsequently amended . pursuant to the credit facility , pacific western agreed to make term loans in a principal amount of up to $ 5.0 million available to us to fund expenses related to our clinical trials and general working capital purposes . the term loans are to be made available to us upon the following terms : ( i ) $ 2.0 million was made available in november 2014 ( which was used in part to refinance then outstanding loans from pacific western ) ; and ( ii ) $ 3.0 million ( the tranche b loan ) became available to the company in 2016 following the satisfaction of certain conditions , including receipt of positive phase 2 data in noninfectious anterior uveitis . any term loan made is payable as interest-only prior to november 2017 and thereafter is scheduled to be payable in monthly installments of principal plus accrued interest through the maturity date in october
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the increase reflects a strong performance throughout 2014 , with positive domestic system-wide restaurant sales in each quarter . customer traffic was positive in the third and fourth quarters of 2014. based on data from black box intelligence , a restaurant sales reporting firm ( “ black box ” ) , ihop outperformed the family dining segment as well as the overall restaurant industry in both domestic system-wide same-restaurant sales and traffic during 2014. applebee 's increase of 1.1 % in domestic system-wide restaurant sales for the year ended december 31 , 2014 resulted from an increase in average customer check partially offset by a decrease in customer traffic . the increase reflects sequential quarterly improvement throughout 2014. based on data from black box , applebee 's increase in domestic system-wide restaurant sales exceeded that of the casual dining segment as well as the overall restaurant industry in 2014 , and applebee 's decrease in customer traffic was smaller than that of the casual dining segment as well as the overall restaurant industry . ihop franchisees and area licensees opened 56 new restaurants in 2014 , with net franchise and area license restaurant development of 32 restaurants . included in 2014 openings were 18 international restaurants , the most international openings we have ever had in a single year . over the past five years , the total number of ihop restaurants has grown from 1,456 to 1,650 restaurants , an average annual growth of nearly 39 restaurants per year . applebee 's franchisees opened 36 new franchise restaurants in 2014 , with net franchise restaurant development of six restaurants . the total number of applebee 's restaurants has increased from 1,965 to 2,017 restaurants since our november , 2007 acquisition of the brand . more significantly , during that time frame we transitioned applebee 's from a 72 % franchised system to a 99 % franchised system . additional information on each of these metrics is presented under the caption “ restaurant data ” that follows . in evaluating the performance of the consolidated enterprise , we consider a key performance indicator to be consolidated free cash flow ( cash provided by operating activities , plus receipts from notes , equipment contracts and other long-term receivables ( collectively , “ long-term receivables ” ) , less additions to property and equipment , principal payments on capital lease and financing obligations and mandatory debt service payments ) . consolidated free cash flows for the years ended december 31 , 2014 and 2013 were $ 112.5 million and $ 120.1 million , respectively . additional information on this metric is presented under the caption “ liquidity and capital resources ” that follows . 29 key overall strategies dineequity 's key strategies we are focused on building our brands to create value for our stockholders and franchisees . to build on our achievements we are focused on the following key strategic priorities : drive higher growth from our existing brands ; enable an increase in franchisee restaurant development ; maintain strong financial discipline ; and drive stockholder value by generating strong free cash flow , the majority of which we intend to return to our stockholders . our fundamental approach to brand building centers on a strategic combination of menu , media , remodel and development initiatives to continually innovate and evolve both brands . our shared services operating platform allows our senior management to focus on key factors that drive both our brands while leveraging the resources and expertise of our scalable , centralized support structure . we believe this closely integrated approach is a competitive point of difference that we expect will strengthen brand performance and generate growth in free cash flow . 30 significant known events , trends or uncertainties impacting or expected to impact comparisons of reported or future results same-restaurant sales trends applebee 's domestic system-wide same-restaurant sales increased 2.8 % for the three months ended december 31 , 2014 from the same period in 2013. the increase for the fourth quarter was due to an increase in average customer check as well as a slight increase in customer traffic . for the full year ended december 31 , 2014 , applebee 's domestic system-wide same-restaurant sales increased 1.1 % . the increase for the full year 2014 was due to an increase in average customer check partially offset by a decrease in customer traffic . ihop 's domestic system-wide same-restaurant sales increased 6.1 % for the three months ended december 31 , 2014 , ihop 's highest quarterly increase since the first quarter of 2004. for the full year ended december 31 , 2014 , ihop 's domestic system-wide same-restaurant sales increased 3.9 % , the highest annual increase since 2004. the increase for both the fourth quarter and full year 2014 was due to an increase in average customer check as well as an increase in customer traffic . we believe the increases in our brands ' domestic system-wide same-restaurant sales during 2014 resulted from a number of different factors . these factors include , but are not limited to , an increase in advertising effectiveness , a continuing positive impact on ihop domestic system-wide same-restaurant sales from the 2013 redesign of ihop 's menu , and other macroeconomic factors . there can be no assurance as to how long the positive impact of any of these factors will continue , if at all . 31 advertising contributions to ihop national advertising fund during 2014 , the company and franchisees whose restaurants contribute a large majority of total annual contributions to the ihop national advertising fund ( the “ ihop naf ” ) entered into an amendment to their franchise agreements that increased the advertising contribution percentage of those restaurants ' gross sales . pursuant to the amendment , for the period from june 30 , 2014 to december 31 , 2014 , 2.74 % of each participating restaurant 's gross sales was contributed to the ihop naf and 0.76 % was contributed to local advertising cooperatives . story_separator_special_tag for the period from january 1 , 2015 to december 31 , 2017 , 3.50 % of each participating restaurant 's gross sales will be contributed to the ihop naf with no significant contribution to local advertising cooperatives . the amended advertising contribution percentage is also applicable to ihop company-operated restaurants . same-restaurant traffic the ihop increase in customer traffic for the year ended december 31 , 2014 was the first such increase in eight years . prior to that , both of our brands have generally experienced a decline in customer traffic in recent years , including a decrease in applebee 's customer traffic for the year ended december 31 , 2014. based on data from black box , customer traffic declined in 2014 for the restaurant industry overall and the casual dining segment of the restaurant industry , while customer traffic increased slightly for the family dining segment . in the short term , a decline in customer traffic may be offset by an increase in average customer check resulting from an increase in menu prices , a favorable change in product sales mix , or a combination thereof . a sustained decline in same-restaurant customer traffic that can not be offset by an increase in average customer check could have an adverse effect on our business , results of operations and financial condition . we continue to evaluate and assess opportunities to drive same-restaurant sales and traffic at both our brands . however , in the highly competitive restaurant industry , there can be no assurance that our efforts will achieve the intended results within the time frame anticipated . interest expense as discussed under “ liquidity and capital resources - refinancing of long-term debt , ” during 2014 we refinanced $ 1.225 billion principal amount of existing long-term debt that bore interest at a weighted average interest rate of approximately 7.3 % with $ 1.3 billion principal amount of new long-term debt bearing interest at a fixed rate of 4.277 % . as a result , we expect our annual cash interest expense on long-term debt will be approximately $ 34 million lower than it had been prior to the refinancing . 2015 fiscal year our fiscal year ends on the sunday nearest to december 31 of each year . as a result , every five or six years , a fiscal year will contain 53 weeks . our 2015 fiscal year will contain 53 weeks . in a 52-week fiscal year , each fiscal quarter contains 13 weeks , comprised of two , four-week fiscal months followed by a five-week fiscal month . in a 53-week fiscal year , the last month of the fourth fiscal quarter contains six weeks . 32 restaurant data the following table sets forth , for each of the past three years , the number of “ effective restaurants ” in the applebee 's and ihop systems and information regarding the percentage change in sales at those restaurants compared to the same periods in the prior two years . sales at restaurants that are owned by franchisees and area licensees are not attributable to the company . however , we believe that presentation of this information is useful in analyzing our revenues because franchisees and area licensees pay us royalties and advertising fees that are generally based on a percentage of their sales , and , where applicable , rental payments under leases that partially may be based on a percentage of their sales . management also uses this information to make decisions about future plans for the development of additional restaurants as well as evaluation of current operations . replace_table_token_8_th replace_table_token_9_th 33 _ ( a ) “ effective restaurants ” are the weighted average number of restaurants open in a given fiscal period , adjusted to account for restaurants open for only a portion of the period . information is presented for all effective restaurants in the applebee 's and ihop systems , which includes restaurants owned by franchisees and area licensees as well as those owned by the company . ( b ) “ system-wide sales ” are retail sales at applebee 's restaurants operated by franchisees and ihop restaurants operated by franchisees and area licensees , as reported to the company , in addition to retail sales at company-operated restaurants . sales at restaurants that are owned by franchisees and area licensees are not attributable to the company . unaudited reported sales for applebee 's domestic franchise restaurants , ihop franchise restaurants and ihop area license restaurants for the years ended december 31 , 2014 , 2013 and 2012 were as follows : replace_table_token_10_th ( c ) “ sales percentage change ” reflects , for each category of restaurants , the percentage change in sales in any given fiscal year compared to the prior fiscal year for all restaurants in that category . ( d ) “ domestic same-restaurant sales percentage change ” reflects the percentage change in sales in any given fiscal year , compared to the same weeks in the prior year , for domestic restaurants that have been operated throughout both fiscal years that are being compared and have been open for at least 18 months . because of new unit openings and restaurant closures , the domestic restaurants open throughout the fiscal years being compared may be different from year to year . domestic same-restaurant sales percentage change does not include data on ihop area license restaurants . ( e ) the sales percentage change for applebee 's franchise restaurants was impacted by the refranchising of 154 company-operated restaurants during 2012 . 34 the following tables summarize applebee 's and ihop restaurant development and franchising activity . replace_table_token_11_th replace_table_token_12_th 35 comparison of the fiscal years ended december 31 , 2014 and 2013 summary replace_table_token_13_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above n.m. - not meaningful the refinancing of our long-term debt had a significant impact on the comparison of our results of operations for the year ended december 31 , 2014 with the same period of the prior year .
| additionally , in 2013 we received a total of $ 7.8 million in termination , transfer and extension fees related to applebee 's restaurants compared to a total of $ 4.4 million in such fees in 2012. segment profit ( loss ) replace_table_token_24_th _ ( 1 ) percentages calculated on actual amounts , not rounded amounts presented above the decline in segment profit for the year ended december 31 , 2013 compared to the prior year was primarily due to the impact of the refranchising of applebee 's company-operated restaurants , completed in 2012 , on the company restaurant segment . this was partially offset by an increase in the number of applebee 's and ihop franchise restaurants , a $ 3.4 million increase in termination , transfer and extension fees related to applebee 's restaurants and a 2.4 % increase in ihop domestic same-restaurant sales . nearly 90 % of our segment profit now comes from our franchise operations . 43 franchise operations replace_table_token_25_th ( 1 ) effective franchise restaurants are the weighted average number of franchise restaurants open in a given fiscal period , adjusted to account for franchise restaurants open for only a portion of the period . ( 2 ) percentages calculated on actual amounts , not rounded amounts presented above . the increase in applebee 's franchise revenue was attributable to higher royalty revenue resulting from a 5.4 % increase in the number of effective franchise restaurants and to termination fees associated with the closure of certain applebee 's franchise restaurants . these favorable changes were partially offset by a decrease in fees associated with franchisee-to-franchisee sales of applebee 's franchise restaurants and a 0.3 % decrease in applebee 's domestic same-restaurant sales . applebee 's effective franchise restaurants increased by 102 due to the full-year effect in 2013 of refranchising 154 applebee 's company-operated restaurants during 2012 ( 17 in the first quarter , 98 in the third quarter and 39 in the fourth quarter ) , partially offset by a net decrease of 23 restaurants during 2013. approximately $ 9.2 million of the revenue increase was attributable to the refranchised restaurants . termination fees increased $ 5.4 million in
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we continue to focus our efforts on increasing value for our customers to support higher rates . although e-commerce continues to expand as retailers and branded manufacturers continue to increase their online sales , it is also becoming more complex and fragmented due to the hundreds of channels available to retailers and branded manufacturers and the rapid pace of change and innovation across those channels . in order to gain consumers ' attention in a more crowded and competitive online marketplace , many retailers and an increasing number of branded manufacturers sell their merchandise through multiple online channels , each with its own rules , requirements and specifications . in particular , third-party marketplaces are an increasingly important driver of growth for a number of large online retailers , and as a result we need to continue to support multiple channels in a variety of geographies in order to support our targeted revenue growth . as of december 31 , 2015 , we supported over 50 marketplaces , up from over 40 at december 31 , 2014 . we believe the growth in e-commerce globally presents an opportunity for retailers and branded manufacturers to engage in international sales . however , country-specific marketplaces are often the market share leaders in their regions , as is the case for alibaba in asia and mercadolibre in much of latin america . in order to help our customers capitalize on this potential market opportunity , and to address our customers ' needs with respect to cross-border trade , over the past few years , we have expanded our presence in the asia-pacific and latin america regions through the opening of two offices in china and an office in brazil . doing business overseas involves substantial challenges , including management attention and resources needed to adapt to multiple languages , cultures , laws and commercial infrastructure , as further described in this report under the caption “ risks related to our international operations. ” our senior management continuously focuses on these and other trends and challenges , and we believe that our culture of innovation and our history of growth and expansion will contribute to the success of our business . we can not , however , assure you that we will be successful in addressing and managing the many challenges and risks that we face . key financial and operating performance metrics we regularly monitor a number of financial and operating metrics in order to measure our performance and project our future performance . these metrics aid us in developing and refining our growth strategies and making strategic decisions . we discuss revenue , gross margin and the components of net loss in the section below entitled “ — components of operating results. ” in addition , we utilize other key metrics as described below . number of customers the number of customers subscribing to our solutions is a primary determinant of our revenue . the number of customers was 2,898 , 2,841 and 2,429 as of december 31 , 2015 , 2014 and 2013 , respectively . for purposes of this metric and the average revenue per customer metric described below , we include all customers who subscribe to at least one of our solutions , excluding customers subscribing only to certain legacy product offerings that are no longer part of our strategic focus . average revenue per customer the average revenue generated by our customers is the other primary determinant of our revenue . we calculate this metric by dividing our revenue for a particular period by the average monthly number of customers during the period , which is calculated by taking the sum of the number of customers at the end of each month in the period and dividing by the number of months in the period . we typically calculate average revenue per customer in absolute dollars on a rolling twelve-month basis , but we may also calculate percentage changes in average revenue per customer on a quarterly basis in order to help us evaluate our period-over-period performance . our average revenue per customer was $ 34,513 , $ 31,400 and $ 30,670 for the years ended december 31 , 2015 , 2014 and 2013 , respectively . subscription dollar retention rate we believe that our ability to retain our customers and expand the revenue they generate for us over time is an important component of our growth strategy and reflects the long-term value of our customer relationships . we measure our performance on this basis using a metric we refer to as our subscription dollar retention rate . we calculate this metric for a particular period by establishing the cohort of customers that had active contracts as of the end of the prior period . we then calculate our subscription dollar retention rate by taking the amount of fixed subscription revenue we recognized for the cohort in the period 31 for which we are reporting the rate and dividing it by the fixed subscription revenue we recognized for the same cohort in the prior period . for this purpose , we do not include any variable subscription fees paid by our customers or any implementation fees . although some customers in any given period elect not to renew their contracts with us , our customers that do renew their subscriptions often increase their fixed subscription pricing levels to align with their increasing gmv volumes processed through our platform and may subscribe to additional modules as well . if our subscription dollar retention rate for a period is over 100 % , this means that the increased subscription revenue we recognized from customers that renewed their contracts during the period , or whose contracts did not come up for renewal during the period , more than offset the subscription revenue we lost from customers that did not renew their contracts . for each of the twelve months ended december 31 , 2015 , 2014 and 2013 , our subscription dollar retention rate exceeded 100 % . story_separator_special_tag adjusted ebitda adjusted ebitda represents our earnings before interest expense , income tax expense ( benefit ) and depreciation and amortization , adjusted to eliminate stock-based compensation expense , which is a non-cash item , headquarters relocation and related costs in 2015 , one-time severance and related costs in 2015 , acquisition-related costs in 2014 and loss on extinguishment of debt in 2013. accordingly , we believe that adjusted ebitda provides useful information to management and others in understanding and evaluating our operating results . however , adjusted ebitda is not a measure calculated in accordance with gaap . please refer to item 6 . `` selected financial data—adjusted ebitda ” in this annual report for a discussion of the limitations of adjusted ebitda and a reconciliation of adjusted ebitda to net loss , the most comparable gaap measurement , for the years ended december 31 , 2015 , 2014 , 2013 , 2012 and 2011. adjusted ebitda should not be considered as an alternative to any measure of financial performance calculated and presented in accordance with gaap . in addition , adjusted ebitda may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted ebitda in the same manner that we do . we prepare adjusted ebitda to eliminate the impact of stock-based compensation expense , headquarters relocation and related costs in 2015 , one-time severance and related costs in 2015 , acquisition-related costs in 2014 and loss on extinguishment of debt in 2013 , which we do not consider indicative of our operating performance . we encourage you to evaluate these adjustments , the reasons we consider them appropriate and the material limitations of using non-gaap measures as described in item 6 . `` selected financial data—adjusted ebitda. ” components of operating results revenue we derive the majority of our revenue from subscription fees paid to us by our customers for access to and usage of our saas solutions for a specified contract term , which is usually one year . a portion of the subscription fee is typically fixed and based on a specified minimum amount of gmv that a customer expects to process through our platform . the remaining portion of the subscription fee is variable and is based on a specified percentage of gmv processed through our platform in excess of the customer 's specified minimum gmv . in most cases , the specified percentage of excess gmv on which the variable portion of the subscription is based is fixed and does not vary depending on the amount of the excess . we also receive implementation fees , which may include fees for providing launch assistance and training . because our customer contracts generally contain both fixed and variable pricing components , changes in gmv between periods do not translate directly or linearly into changes in our revenue . we use customized pricing structures for each of our customers depending upon the individual situation of the customer . for example , some customers may commit to a higher specified minimum gmv amount per month in exchange for a lower fixed percentage fee on that committed gmv . in addition , the percentage fee assessed on the variable gmv in excess of the committed minimum for each customer is typically higher than the fee on the fixed , committed portion . as a result , our overall revenue could increase or decrease even without any change in overall gmv between periods , depending on which customers generated the gmv . in addition , changes in gmv from month to month for any individual customer that are below the specified minimum amount would have no effect on our revenue from that customer , and each customer may alternate between being over the committed amount or under it from month to month . for these reasons , while gmv is an important qualitative and long-term directional indicator , we do not regard it as a useful quantitative measurement of our historic revenues or as a predictor of future revenues . 32 the following table shows the percentage of our total revenue attributable to fixed subscription fees plus implementation fees , as compared to the percentage attributable to variable subscription fees , for each of the periods indicated . replace_table_token_5_th we recognize fixed subscription fees and implementation fees ratably over the contract period once four conditions have been satisfied : the contract has been signed by both parties ; the customer has access to our platform and transactions can be processed ; the fees are fixed or determinable ; and collection is reasonably assured . we generally invoice our customers for the fixed portion of the subscription fee in advance , in monthly , quarterly , semi-annual or annual installments . we invoice our customers for the implementation fee at the inception of the arrangement . fixed subscription and implementation fees that have been invoiced are initially recorded as deferred revenue and are generally recognized ratably over the contract term . we invoice and recognize revenue from the variable portion of subscription fees in the period in which the related gmv is processed , assuming that the four conditions specified above have been met . cost of revenue cost of revenue primarily consists of salaries and personnel-related costs for employees providing services to our customers and supporting our platform infrastructure , including benefits , bonuses and stock-based compensation . additional expenses include co-location facility costs for our data centers , infrastructure maintenance costs , fees we pay to credit card vendors in connection with our customers ' payments to us and other direct costs . depreciation expense related to cost of revenue consists primarily of depreciation for computer equipment directly associated with generating revenue . we intend to invest in our capacity to support our growth , which may result in higher cost of revenue in absolute dollar terms . operating expenses sales and marketing expense .
| our revenue from international operations of $ 22.8 million , or 22.7 % of total revenue , for the year ended december 31 , 2015 increased from $ 19.1 million , or 22.5 % of total revenue , for the year ended december 31 , 2014 . the increase in revenue from our international operations was primarily attributable to an increase in average revenue per customer stimulated by the growth of our solutions for branded manufacturers . 35 cost of revenue ( excluding depreciation ) cost of revenue ( excluding depreciation ) increased by 0.7 % , or $ 0.1 million , to $ 20.8 million for the year ended december 31 , 2015 . the increase in cost of revenue ( excluding depreciation ) was attributable to a $ 0.4 million increase in expenses related to rent and facilities costs due to the relocation of our company headquarters and a $ 0.4 million increase in salaries and personnel-related costs , mainly due to stock-based compensation . these increased costs were partially offset by a $ 0.6 million charge incurred during the year ended december 31 , 2014 for translation costs associated with a short-term initiative designed to expand our customers ' presence in certain european countries . as this was a 2014 initiative , we did not incur any comparable translation costs during the year ended december 31 , 2015 . depreciation - cost of revenue depreciation - cost of revenue increased 42.2 % , or $ 1.5 million , to $ 5.0 million for the year ended december 31 , 2015 due to an increase in capital expenditures associated with equipment for our data centers . operating expenses sales and marketing sales and marketing expense decreased by 5.4 % , or $ 3.0 million , to $ 51.9 million for the year ended december 31 , 2015 . the decrease in sales and marketing expense was primarily attributable to a $ 2.5 million decrease in our marketing
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