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there were no material discrete tax items impacting the effective tax rate for full-year 2014. the tax rate for 2013 included a $ 4 million discrete tax benefit for the 2012 u.s. federal research and development tax credit ( the “ r & d tax credit ” ) , that was recognized in january of 2013 when the tax credit was retroactively reinstated . due to a change in tax law enacted in the state of california in the fourth quarter of 2012 , the company established a valuation allowance to partially offset its california research & development tax credit carryforward deferred tax asset , as the company expects to continue to generate excess california research & development tax credits into the foreseeable future . however , the discrete tax impact of establishing the valuation allowance was fully offset with a favorable discrete tax impact resulting from a decrease in the company 's effective state tax rate resulting from the california change in tax law , resulting in no material net impact to the company 's overall effective tax rate for the fourth quarter and full year ended december 31 , 2012. we currently estimate our full-year effective tax rate for 2015 to be approximately 26 % . this estimate takes into consideration , among other things , the forecasted earnings mix by jurisdiction for 2015 , and assumes that the r & d tax credit , which expired as of december 31 , 2014 , will be reinstated sometime during 2015. if the credit is not reinstated during 2015 , we estimate our effective tax rate will be negatively impacted by approximately 80 basis points . for additional information , see “ note 4—income taxes ” in the notes to consolidated financial statements elsewhere in this annual report . revenue and gross margin by operating segment teradata has historically managed its business in two geographic regions , which are also the company 's operating segments : the americas and international regions . teradata believes this format is useful to investors because it allows analysis and comparability of operating trends by operating segment . it also includes the same information that is used by teradata management to make decisions regarding the segments and to assess our financial performance . the discussion of our segment results describes the changes in results as compared to the prior-year period . the following table presents revenue and operating performance by segment for the years ended december 31 : replace_table_token_6_th americas : revenue decreased $ 14 million or 1 % , in 2014 from 2013 , with an underlying 3 % increase in services revenue offset by a 4 % decrease in product revenue . the revenue decrease included a 1 % adverse impact from foreign currency fluctuations . gross margins were 58.2 % for 2014 , up from 58.0 % in 2013. in 2013 , revenue increased $ 14 million or 1 % from 2012 , with an underlying 7 % increase in services revenue offset in part by a 4 % decrease in product revenue . the revenue increase was not materially impacted by foreign currency fluctuations . gross margins were 58.0 % for 2013 , down from 59.7 % in 2012 , as higher maintenance services margins and improved consulting services margins were more than offset by unfavorable revenue mix ( a greater proportion of services revenue in relation to product revenue ) , compared to the prior-year period . international : revenue increased $ 54 million or 5 % , in 2014 from 2013. product revenue increased by 8 % and services revenue increased by 3 % . the revenue increase included a 3 % adverse impact from foreign currency 33 fluctuations . gross margins decreased to 48.2 % in 2014 , down from 49.7 % in 2013 , as improved consulting services and maintenance services margins were more than offset by lower product margin rates due to increased amortization of previously capitalized software and deal mix . in 2013 , revenue increased $ 13 million or 1 % from 2012 , as a 7 % increase in services revenue was largely offset by a 7 % reduction in product revenue . the increase in services revenue was largely driven by revenue from the acquisition of ecircle . the revenue increase included a 3 % adverse impact from foreign currency fluctuations . gross margins decreased slightly to 49.7 % in 2013 , down from 50.1 % in 2012 , as improved consulting services and maintenance services margins were more than offset by a greater proportion of services ( in relation to product revenue ) , compared to the prior-year period . changes in segment reporting . beginning january 2015 , the company will change its operating segments and report future results as two new separate segments : ( a ) data and analytics and ( b ) marketing applications . financial condition , liquidity and capital resources teradata ended 2014 with $ 834 million in cash and cash equivalents , a $ 139 million increase from the december 31 , 2013 balance , after using approximately $ 551 million for repurchases of company common stock , and approximately $ 69 million for acquisitions and investment activities which were completed during the year . cash provided by operating activities increased by $ 170 million to $ 680 million in 2014. the increase in cash provided by operating activities was primarily due to a positive change in working capital , largely driven by decreased receivables , along with a smaller decrease in current payables and accrued expenses as compared to the prior year . teradata 's management uses a non-gaap measure called “ free cash flow , ” which is not a measure defined under accounting principles generally accepted in the united states of america ( “ gaap ” ) . story_separator_special_tag we define free cash flow as net cash provided by operating activities less capital expenditures for property and equipment , and additions to capitalized software , as one measure of assessing the financial performance of the company , and this may differ from the definition used by other companies . the components that are used to calculate free cash flow are gaap measures taken directly from the consolidated statements of cash flows . we believe that free cash flow information is useful for investors because it relates the operating cash flow of the company to the capital that is spent to continue and improve business operations . in particular , free cash flow indicates the amount of cash available after capital expenditures for , among other things , investments in the company 's existing businesses , strategic acquisitions and repurchase of teradata common stock . free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other non-discretionary expenditures that are not deducted from the measure . this non-gaap measure should not be considered a substitute for , or superior to , cash flows from operating activities under gaap . the table below shows net cash provided by operating activities and capital expenditures for the following periods : replace_table_token_7_th financing activities and certain other investing activities are not included in our calculation of free cash flow . in 2014 and 2013 , these other investing activities primarily consisted of immaterial complementary business acquisitions and equity investment activities that were closed during these years . other investing activities in 2012 primarily consisted of teradata 's acquisition of ecircle , as well as other smaller equity investment activities . teradata 's financing activities for the years ended december 31 , 2014 primarily consisted of cash outflows for share repurchases and $ 220 million in proceeds from the company 's credit facility , as discussed below . teradata 's financing activities for the years ended december 31 , 2013 and 2012 primarily consisted of cash outflows for share 34 repurchases . the company purchased 13 million shares of its common stock at an average price per share of $ 43.09 in 2014 , 7.8 million shares at an average price per share of $ 48.53 in 2013 and 4.5 million shares at an average price per share of $ 62.53 in 2012. share repurchases were made under two share repurchase programs initially authorized by our board of directors in 2008. the first program ( the “ dilution offset program ” ) authorizes the company to repurchase teradata common stock to the extent of cash received from the exercise of stock options and the teradata employee stock purchase plan ( “ espp ” ) to offset dilution from shares issued pursuant to these plans . on february 6 , 2012 , the board approved a new $ 300 million share repurchase authorization to replace a prior $ 300 million authorization under the company 's second share repurchase program ( the “ general share repurchase program ” ) , that was to expire on february 10 , 2012. since february 2012 teradata 's board of directors has approved , in $ 300 million increments , additional share repurchase authorizations for a total of $ 1.2 billion under the company 's general share repurchase program on december 10 , 2012 , october 14 , 2013 , may 5 , 2014 and december 18 , 2014. as of december 31 , 2014 , the company had $ 394 million of authorization remaining under the general share repurchase program to repurchase outstanding shares of teradata common stock . share repurchases made by the company are reported on a trade date basis . our share repurchase activity depends on factors such as our working capital needs , our cash requirements for capital investments , our stock price , and economic and market conditions , as well as merger and acquisition opportunities . proceeds from the espp and the exercise of stock options were $ 29 million in 2014 , $ 28 million in 2013 and $ 55 million in 2012. these proceeds are included in other financing activities , net in the consolidated statements of cash flows . our total cash and cash equivalents held outside the united states in various foreign subsidiaries was $ 785 million as of december 31 , 2014 and $ 615 million as of december 31 , 2013. the remaining balance held in the united states was $ 49 million as of december 31 , 2014 and $ 80 million as of december 31 , 2013. under current tax laws and regulations , if cash and cash equivalents held outside the united states are distributed to the united states in the form of dividends or otherwise , we would be subject to additional u.s. income taxes ( subject to an adjustment for foreign tax credits ) and potential foreign withholding taxes . as of december 31 , 2014 , we have not provided for the u.s. federal tax liability on approximately $ 1 billion of foreign earnings that are considered permanently reinvested outside of the united states . in june 2012 , teradata entered into a five-year revolving credit agreement ( the “ credit facility ” ) , under which the company may borrow up to $ 300 million . the credit facility expires on june 15 , 2017 , at which point any remaining outstanding borrowings would be due for repayment unless extended by agreement of the parties for up to two additional one-year periods . the interest rate charged on borrowings pursuant to the credit facility can vary depending on the interest rate option the company chooses to utilize and the company 's leverage ratio at the time of the borrowing . the revolving credit facility carries a floating interest rate based on the london interbank offered rate ( “ libor ” ) . the blended rate at december 31 , 2014 was 1.14 % .
| be the trusted advisor for enabling data-driven business and continue investing in business and technical consulting via organic growth and targeted strategic acquisitions ; invest to expand our leading unified data architecture , data warehouse software and platform family , big data discovery platforms , hadoop-based data management platforms , and marketing applications to address multiple market segments through internal development and targeted strategic acquisitions ; deliver our solutions via the cloud ( as a service ) or on-premises with offerings that support applications as a service , data warehousing as a service , discovery analytics as a service and data management as a service ; continue investing in partnerships to increase the number of solutions available on teradata platforms , maximize customer value , and increase our market coverage ; and continue to seek opportunities to expand our sales resources and reach , both in our data analytics and marketing applications businesses . future trends we believe that demand for our analytic data platforms will continue to increase due to the continued growth of data volumes and types of data , the scale and complexity of business requirements , and the growing use of new data elements and more analytics over time . the adoption by customers of a broader set of analytics including predictive analytics , path analysis , network analysis/graph , and many others is driving more applications , usage and capacity . this increased breadth of analytics also drives the need for an overall architecture to manage an increasingly complex analytics environment . as a result , we expect that teradata 's leadership in analytic data platforms and unified data architecture positions us for future growth . in addition , we believe that our competitive position in integrated marketing cloud applications , including our marketing operations , campaign management and digital messaging offerings , will contribute to our growth and are synergistic with the company 's big data analytics business as companies gain competitive advantage through data-driven marketing with their
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in order to increase our aum and expand our business , we must develop and market investment strategies that suit the investment needs of our target clients , and provide attractive returns over the long-term . the value and composition of our aum , and our ability to continue to attract clients will depend on a variety of factors as described in “ item 1 — risk factors — risks related to our business — our primary source of revenue is derived from management 29 fees , which are directly ti ed to our assets under management . fluctuations in aum therefore will directly impact our revenue . '' for our separately managed accounts , we are paid management fees according to a schedule , which varies by investment strategy . the substantial majority of these accounts pay us management fees pursuant to a schedule in which the rate we earn on the aum declines as the amount of aum increases . pursuant to our sub-investment advisory agreements , we are generally paid a management fee according to a schedule in which the rate we earn on the aum declines as the amount of aum increases . certain of these funds pay us fixed-rate management fees . due to the substantially larger account size of certain of these sub-advised accounts , the average advisory fees we earn on them , as a percentage of aum , are lower than the advisory fees we earn on our separately managed accounts . advisory fees we earn on separately managed accounts and pzena funds are generally based on the value of aum at a specific date on a quarterly basis . certain of our separately managed accounts , sub-advised accounts , and pzena funds are calculated based on the average of the monthly or daily market value . advisory fees are also generally adjusted for any cash flows into or out of a portfolio , where the cash flow represents greater than 10 % of the value of the portfolio . while a specific group of accounts may use the same fee rate , the calculation methodology may differ as described above . certain of our clients pay us performance fees according to the performance of their accounts relative to certain agreed-upon benchmarks , which results in a lower base fee , but allows for us to earn higher fees if the relevant investment strategy outperforms the agreed-upon benchmark . some performance-based fee arrangements include high-water mark provisions , which generally provide that if a client account underperforms relative to its performance target , it must gain back such underperformance before we can collect future performance-based fees . fulcrum fee arrangements related to one client relationship require a reduction in the base fee , or allow for a performance fee if the relevant investment strategy underperforms or outperforms , respectively , the agreed-upon benchmark . our advisory fees may fluctuate based on a number of factors , including the following : changes in aum due to appreciation or depreciation of our investment portfolios , and the levels of the contribution and withdrawal of assets by new and existing clients ; distribution of aum among our investment strategies , which have differing fee schedules ; distribution of aum between separately managed accounts and sub-advised accounts , for which we generally earn lower overall advisory fees ; and the level of our performance with respect to accounts on which we are paid performance fees or have fulcrum fee arrangements . expenses our expenses consist primarily of compensation and benefits expense , as well as general and administrative expense . our largest expense is compensation and benefits , which includes the salaries , bonuses , equity-based compensation , and related benefits and payroll costs attributable to our employee members and employees . compensation and benefits packages are benchmarked against relevant industry and geographic peer groups in order to attract and retain qualified personnel . general and administrative expense includes lease expenses , professional and outside services fees , depreciation , costs associated with operating and maintaining our research , trading and portfolio accounting systems , and other expenses . our occupancy-related costs and professional services expenses , in particular , generally increase or decrease in relative proportion to the overall size and scale of our business operations . we incur additional expenses associated with being a public company for , among other things , director and officer insurance , director fees , sec reporting and compliance ( including sarbanes-oxley compliance ) , professional fees , transfer agent fees , and other similar expenses . 30 our expenses may fluc tuate due to a number of factors , including the following : variations in the level of total compensation expense due to , among other things , bonuses , awards of equity to our employees and employee members of our operating company , changes in our employee count and mix , and competitive factors ; and general and administrative expenses , such as professional service fees , rent , and data-related costs , incurred , as necessary , to run our business . other ( expense ) / income other ( expense ) / income is derived primarily from investment income or loss arising from our consolidated subsidiaries and interest income generated on our cash balances . other ( expense ) / income is also affected by changes in our estimates of the liability due to our selling and converting shareholders associated with payments owed to them under the tax receivable agreement which was executed in connection with our reorganization and initial public offering on october 30 , 2007. as discussed further below under “ tax receivable agreement , ” this liability represents 85 % of the amount of cash savings , if any , in u.s. federal , state , and local income tax that we realize as a result of the amortization of the increases in tax basis generated from our acquisitions of our operating company 's units from our selling and converting shareholders . story_separator_special_tag we expect the interest and investment components of other ( expense ) / income , in the aggregate , to fluctuate based on market conditions and the performance of our consolidated subsidiaries and other investments . non-controlling interests we are the sole managing member of our operating company and control its business and affairs and , therefore , consolidate its financial results with ours . in light of our employees ' and outside investors ' direct and indirect interests in our operating company ( as noted in `` item 1 — business — overview '' ) , we have reflected their membership interests as a non-controlling interest in our consolidated financial statements . as of december 31 , 2018 , the holders of our class a common stock and the holders of class b units of our operating company held approximately 26.4 % and 73.6 % , respectively , of the economic interests in the operations of our business . in addition , our operating company consolidates the results of operations of the private investment partnerships and pzena-branded mutual funds over which we exercise a controlling influence . non-controlling interests recorded in our consolidated financial statements include the non-controlling interests of the outside investors in these consolidated subsidiaries . 31 story_separator_special_tag style= '' text-align : center ; margin-bottom:0pt ; margin-top:0pt ; text-indent:0 % ; font-family : times new roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 35 the change in aum in our separately managed accounts , sub-advised accounts and pzena funds for the years ended december 31 , 2018 and 2017 is described b elow . inflows are composed of the investment of new or additional assets by new or existing clients . outflows consist of redemptions of assets by existing clients . replace_table_token_8_th during the year ended december 31 , 2018 , our aum decreased $ 5.1 billion , or 13.2 % , from $ 38.5 billion at december 31 , 2017. this decrease is primarily due to market depreciation , partially offset by net inflows during the year ended december 31 , 2018. at december 31 , 2018 , we managed $ 12.6 billion in separately managed accounts , $ 18.8 billion in sub-advised accounts , and $ 2.0 billion in pzena funds , for a total of $ 33.4 billion in assets . for the year ended december 31 , 2018 , we experienced $ 6.1 billion in market depreciation and total gross outflows of $ 4.5 billion , which were partially offset by total gross inflows of $ 5.5 billion . assets in separately managed accounts decreased by $ 2.4 billion , or 16.0 % , from $ 15.0 billion at december 31 , 2017 , due to $ 2.2 billion in market depreciation and $ 1.8 billion in gross outflows , partially offset by $ 1.6 billion in gross inflows . assets in sub-advised accounts decreased by $ 3.0 billion , or 13.8 % , from $ 21.8 billion at december 31 , 2017 , due to $ 3.6 billion in market depreciation and $ 2.4 billion in gross outflows , partially offset by $ 3.0 billion in gross inflows . assets in pzena funds increased by 36 $ 0.3 billion , or 17.6 % , from $ 1.7 billion at december 31 , 2017 as a result of $ 0.9 billion in gross inflows , partially offset by $ 0.3 billion in market depre ciation and $ 0.3 billion in gross outflows . at december 31 , 2017 , we managed $ 15.0 billion in separately managed accounts , $ 21.8 billion in sub-advised accounts , and $ 1.7 billion in pzena funds , for a total of $ 38.5 billion in assets . for the year ended december 31 , 2017 , we experienced $ 6.8 billion in market appreciation and total gross inflows of $ 5.4 billion , which were partially offset by total gross outflows of $ 3.7 billion . assets in separately managed accounts increased by $ 2.5 billion , or 20.0 % , from $ 12.5 billion at december 31 , 2016 , due to $ 2.7 billion in market appreciation and $ 1.4 billion in gross inflows , partially offset by $ 1.6 billion in gross outflows . assets in sub-advised accounts increased by $ 5.5 billion , or 33.7 % , from $ 16.3 billion at december 31 , 2016 , due to $ 3.8 billion in market appreciation and $ 3.5 billion in gross inflows , partially offset by $ 1.8 billion in gross outflows . assets in pzena funds increased by $ 0.5 billion , or 41.7 % , from $ 1.2 billion at december 31 , 2016 as a result of $ 0.5 billion in gross inflows and $ 0.3 billion in market appreciation , partially offset by $ 0.3 billion in gross outflows . revenue our revenue from advisory fees earned on our separately managed accounts , sub-advised accounts and pzena funds for the two years ended december 31 , 2018 is described below : replace_table_token_9_th year ended december 31 , 2018 versus december 31 , 2017 our total revenue increased $ 12.3 million , or 8.7 % , to $ 153.6 million for the year ended december 31 , 2018 from $ 141.3 million for the year ended december 31 , 2017. this change was driven by an increase in average assets during 2018 , partially offset by a decrease in performance fees recognized during 2018. we recognized $ 2.9 million in performance fees during 2018 , compared to $ 3.2 million in performance fees recognized in 2017. in addition , for the year ended december 31 , 2018 , we recognized a reduction of base fees in the amount of $ 0.2 million related to fulcrum fee arrangements .
| replace_table_token_7_th 33 1 the historical returns of these investment strategies are not necessarily indicative of their future performance , or the future performance of any of our other current or future investment strategies . 2 net of applicable withholding taxes and presented in u.s. $ . large cap value . this strategy reflects a portfolio composed of approximately 50 to 80 stocks drawn generally from a universe of 500 of the largest u.s. listed companies , based on market capitalization . this strategy was launched in july 2012. at december 31 , 2018 , the large cap value strategy generated a one-year annualized gross return of ( 13.4 ) % , underperforming its benchmark . the top detracting sector was the financial services sector . international value . this strategy reflects a portfolio composed of approximately 60 to 80 stocks drawn generally from a universe of 1,500 of the largest companies across the world excluding the united states , based on market capitalization . this strategy was launched in november 2008. at december 31 , 2018 , the international value strategy generated a one-year annualized gross return of ( 15.4 ) % , underperforming its benchmark . the top detracting sectors included the financial services and industrials sectors , partially offset by the performance of the information technology sector . emerging markets focused value . this strategy reflects a portfolio composed of approximately 40 to 80 stocks drawn generally from a universe of 1,500 of the largest emerging market companies , based on market capitalization . this strategy was launched in january 2008. at december 31 , 2018 , the emerging markets focused value strategy generated a one-year annualized gross return of ( 9.2 ) % , underperforming its benchmark . the top detracting sector was the financial services sector , partially offset by the performance of the consumer staples and communications sectors . large cap focused value . this strategy reflects a portfolio composed of approximately 30 to 40 stocks drawn generally from a universe of 500 of the largest u.s. listed companies , based on market capitalization . this strategy was launched in october 2000. at december 31 , 2018 , the large cap focused
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loans receivable . net loans receivable increased $ 27.2 million , or 7.7 % , to $ 379.6 million at december 31 , 2014 from $ 352.4 million at december 31 , 2013. the increase was driven by growth in the corporation 's commercial business , commercial real estate , residential mortgage and home equity loan portfolios of $ 17.0 million , $ 9.3 million , $ 1.6 million and $ 1.2 million , respectively , partially offset by a $ 1.5 million decrease in the consumer loan portfolio . the growth of the corporation 's commercial business portfolio included four $ 1.0 million syndicated national credits purchased during the third quarter of 2014. k- 23 nonperforming assets . nonperforming assets include nonaccrual loans , loans 90 days past due and still accruing , repossessions and real estate owned . nonperforming assets were $ 7.1 million , or 1.21 % of total assets , at december 31 , 2014 compared to $ 5.3 million , or 1.01 % of total assets , at december 31 , 2013. nonperforming assets consisted of nonperforming loans and real estate owned of $ 6.9 million and $ 124,000 , respectively , at december 31 , 2014 and $ 5.2 million and $ 107,000 , respectively , at december 31 , 2013. this increase in nonperforming loans was primarily due to a $ 2.4 million loan relationship being placed on nonaccrual status during the second quarter of 2014. in addition , a $ 637,000 loan relationship was placed on nonaccrual status during the first quarter of 2014. partially offsetting these increases was the full payoff of a $ 1.3 million nonperforming loan during the fourth quarter of 2014 through which all principal , interest , fees and costs were recovered . at december 31 , 2014 , nonperforming loans consisted primarily of commercial mortgage , commercial business and residential mortgage loans . federal bank stocks . federal bank stocks were comprised of fhlb stock and frb stock of $ 1.4 million and $ 1.0 million , respectively , at december 31 , 2014. these stocks are purchased and redeemed at par as directed by the federal banks and levels maintained are based primarily on borrowing and other correspondent relationships between the corporation and the banks . the corporation purchased $ 784,000 of fhlb capital stock and the fhlb repurchased $ 2.4 million of the corporation 's excess fhlb capital stock during 2014. bank-owned life insurance ( boli ) . the corporation maintains single premium life insurance policies on certain current and former officers and employees of the bank . in addition to providing life insurance coverage , whereby the bank as well as the officers and employees receive life insurance benefits , the appreciation of the cash surrender value of the boli will serve to offset and finance existing and future employee benefit costs . increases in this account are typically associated with an increase in the cash surrender value of the policies , partially offset by certain administrative expenses . boli increased $ 327,000 , or 3.1 % , to $ 10.7 million at december 31 , 2014 from $ 10.4 million at december 31 , 2013. premises and equipment . premises and equipment increased $ 2.8 million , or 23.0 % , to $ 15.1 million at december 31 , 2014 from $ 12.3 million at december 31 , 2013. the overall increase in premises and equipment during the year was due to capital expenditures of $ 3.7 million , partially offset by normal depreciation and amortization of $ 871,000. capital expenditures during the year primarily consisted of costs related to the construction of a new branch banking office in cranberry township , pennsylvania which opened in may 2014. goodwill . goodwill was $ 3.7 million at december 31 , 2014 and 2013. goodwill is evaluated for impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired . management evaluated goodwill and concluded that no impairment existed at december 31 , 2014. core deposit intangible . the core deposit intangible was $ 749,000 at december 31 , 2014. in connection with the assumption of deposits in the 2009 titusville branch acquisition , the corporation recorded a core deposit intangible of $ 2.8 million . this asset represents the long-term value of the core deposits acquired . fair value was determined using a third-party valuation expert specializing in estimating fair values of core deposit intangibles . the fair value was derived using an industry standard financial instrument present value methodology . all-in costs and runoff balances by year were discounted by comparable term fhlb advance rates , used as an alternative cost of funds measure . this intangible asset amortizes utilizing the double declining balance method of amortization over a weighted average estimated life of nine years . the core deposit intangible asset is not estimated to have a significant residual value . the corporation recorded $ 216,000 and $ 270,000 of intangible amortization in 2014 and 2013 , respectively . deposits . total deposits increased $ 69.8 million to $ 501.8 million at december 31 , 2014 from $ 432.0 million at december 31 , 2013. noninterest bearing deposits increased $ 7.0 million , or 6.7 % , during the year while interest bearing deposits decreased $ 62.8 million , or 19.2 % . deposit growth was attributable to the corporation 's ability to attract and retain municipal deposits , general increases across the branch banking network and the opening of the saint marys office in october 2013 and the cranberry township office in may 2014. k- 24 borrowed funds . borrowed funds decreased $ 22.7 million to $ 21.5 million at december 31 , 2014 from $ 44.2 at december 31 , 2013. borrowed funds at december 31 , 2014 consisted of short-term borrowings of $ 6.5 million and long-term borrowings of $ 15.0 million . story_separator_special_tag short-term borrowed funds at december 31 , 2014 consisted of $ 3.5 million in fhlb overnight advances with a rate of 0.27 % and $ 3.0 million outstanding on a line of credit with a correspondent bank at 4.25 % . during 2014 , short-term borrowings were utilized primarily to fund loan growth and compensate for normal deposit fluctuations . accrued expenses and other liabilities . accrued expenses and other liabilities increased $ 6.1 million to $ 10.4 million at december 31 , 2014 from $ 4.3 million at december 31 , 2013. the corporation 's unfunded pension obligation increased $ 2.1 million to $ 3.4 million at december 31 , 2014 from $ 1.3 million at december 31 , 2013. this was the result of a decline in discount rates and the utilization of updated mortality tables published by the society of actuaries ' retirement plans experience committee during 2014. stockholders ' equity . stockholders ' equity increased $ 2.9 million , or 6.5 % , to $ 48.0 million at december 31 , 2014 from $ 45.1 million at december 31 , 2013. the increase primarily related to an increase in retained earnings of $ 2.4 million as a result of net income of $ 4.0 million in 2014 less dividends paid of $ 1.7 million and a $ 282,000 million increase in accumulated other comprehensive income . the increase in accumulated other comprehensive income resulted from an increase in the net unrealized gains on securities available for sale following a decline in long term market interest rates and was partially offset by the change in the funded status of the corporation 's defined benefit plan . k- 25 story_separator_special_tag interest income . offsetting this favorable yield variance , average federal bank stocks decreased $ 434,000 , or 13.3 % , causing a $ 11,000 decrease in interest income . interest expense . interest expense decreased $ 650,000 , or 17.7 % , to $ 3.0 million for 2014 compared to $ 3.7 million for 2013. this decrease can be attributed to decreases in interest expense on interest-bearing deposits and borrowed funds of $ 525,000 and $ 125,000 , respectively . interest expense on deposits decreased $ 525,000 , or 18.3 % , to $ 2.3 million for 2014 compared to $ 2.9 million for 2013. the average rate on interest-bearing deposits decreased by 25 basis points to 0.61 % for 2014 versus 0.86 % for 2013 causing a $ 936,000 decrease in interest expense . offsetting this favorable variance , the average balance of interest-bearing deposits increased $ 53.0 million , or 15.9 % , causing a $ 411,000 increase in interest expense . interest expense on borrowed funds decreased $ 125,000 , or 15.5 % , to $ 679,000 for 2014 compared to $ 804,000 for 2013. the average balance of borrowed funds decreased $ 10.0 million , or 33.9 % , to $ 19.4 million for 2014 compared to $ 29.4 million for 2013 due in part to the aforementioned $ 5.0 million prepayment of a long-term fhlb advance and the utilization of fewer short-term borrowings , which caused a $ 201,000 decrease in interest expense . partially offsetting this favorable variance , the average cost of borrowed funds increased 75 basis points to 3.49 % for 2014 versus 2.74 % for 2013 causing a $ 76,000 increase in interest expense . this was the result of the corporation utilizing less overnight borrowed funds at lower rates and a higher amount of short-term advances with a correspondent bank with a higher rate . short-term borrowings at december 31 , 2014 included $ 3.5 million of fhlb overnight advances with a rate of 0.27 % and a $ 3.0 million advance on a line of credit with a correspondent bank with a rate of 4.25 % . provision for loan losses . the corporation records provisions for loan losses to maintain a level of total allowance for loan losses that management believes , to the best of its knowledge , covers all probable incurred losses estimable at each reporting date . management considers historical loss experience , the present and prospective financial condition of borrowers , current conditions ( particularly as they relate to markets where the corporation originates loans ) , the status of nonperforming assets , the estimated underlying value of the collateral and other factors related to the collectability of the loan portfolio . k- 28 nonperforming loans increased $ 1.7 million , or 33.3 % , to $ 6.9 million at december 31 , 2014 from $ 5.2 million at december 31 , 2013. the increase in nonperforming loans was primarily due to a $ 2.4 million loan relationship being placed on nonaccrual status during the second quarter of 2014 due to the borrower 's inadequate cash flow , working capital and liquidity sources . this relationship , which is considered impaired , consists of six commercial business loans , one commercial real estate loan and one residential mortgage . the loans are secured by commercial real estate , residential real estate , equipment , accounts receivable and inventory . this relationship had specific reserves of $ 285,000 at december 31 , 2014. in addition , a $ 637,000 commercial relationship was placed on nonaccrual status during the first quarter of 2014 after the corporation received information from the borrower which reflected a weakened financial condition . this relationship consists of a commercial real estate loan secured by a commercial property and a commercial line of credit secured by accounts receivable , inventory and other business assets , both of which were considered impaired at december 31 , 2014. the commercial real estate loan and commercial line of credit had specific reserves of $ 89,000 and $ 100,000 , respectively , at december 31 , 2014. partially offsetting these increases was the full payoff of a $ 1.3 million nonperforming loan during the fourth quarter of 2014 and other principal reductions resulting from credit workouts and repayments .
| the table reflects the extent to which changes in the corporation 's interest income and interest expense are attributable to changes in rate ( change in rate multiplied by prior year volume ) , changes in volume ( changes in volume multiplied by prior year rate ) and changes attributable to the combined impact of volume/rate ( change in rate multiplied by change in volume ) . the changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances . changes in interest income on loans and securities reflect the changes in interest income on a fully tax equivalent basis . replace_table_token_13_th 2014 results compared to 2013 results the corporation reported net income before preferred stock dividends of $ 4.0 million and $ 3.8 million for 2014 and 2013 , respectively . the $ 209,000 , or 5.5 % , increase in net income was attributed to increases in net interest income and noninterest income of $ 1.3 million and $ 227,000 , respectively , partially offset by increases in the provision for loan losses , noninterest expense and the provision for income taxes of $ 90,000 , $ 1.1 million and $ 135,000 , respectively . net interest income . the primary source of the corporation 's revenue is net interest income . net interest income is the difference between interest income on earning assets such as loans and securities , and interest expense on liabilities , such as deposits and borrowed funds , used to fund the earning assets . net interest income is impacted by the volume and composition of interest-earning assets and interest-bearing liabilities , and changes in the level of interest rates . tax equivalent net interest income increased $ 1.3 million to $ 18.0 million for 2014 , compared to $ 16.6 million for 2013. this increase in net interest income can be attributed to an increase in tax equivalent interest income of $ 690,000 and a decrease in interest expense of $ 650,000. interest income . tax equivalent interest income increased $ 690,000 , or 3.4 % , to $ 21.0 million for 2014 , compared to $ 20.3 million for 2013. this increase can be attributed
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it is uncertain whether this trend will continue or if we will again experience a decrease in the number of elective procedures performed as the covid-19 pandemic evolves , particularly if the virus becomes more prevalent as we progress through the winter season in the northern hemisphere or if new strains of the virus continue to emerge . overall , we believe that the covid-19 pandemic will continue to negatively affect our revenues and operations , at least over the near-term . because of the dynamic nature of the crisis , such as recent regional covid-19 outbreaks that are impacting the recovery , we can not accurately predict the extent or duration of the impacts of the pandemic . the covid-19 pandemic has also had an adverse impact on macroeconomic conditions across the countries and regions in which we operate . as a result , various forms of policy interventions from local governments have been enacted to attempt to initiate an economic recovery . while there generally has been some improvement in economic conditions in the later part of 2020 , the degree of improvement has been uneven among our regional markets , and the uncertain economic trends after the covid-19 pandemic , constricted credit , public sector austerity measures in response to public budget deficits could have a material adverse effect on our results of operations and our liquidity . 32 in addition to the impacts of the covid-19 pandemic , we continue to monitor trade and tariff activity , inflation , and exchange rate volatility that could impact our financial position , results of operations or liquidity . in regards to tariff activity , we have been subject to an ongoing investigation by the chinese authorities related to a technical error regarding our country of origin designation for certain products we imported into china . the error would have resulted in increased tariff payments in late 2018 through 2020. we have accrued the estimated increase in tariffs as well as related interest expense for the periods in question . in addition to the tariffs and related interest , the chinese authorities may impose a penalty for the unpaid tariffs . we believe the range of penalties is between 30 % and 200 % of the related unpaid tariff or between $ 3.0 million and $ 20.3 million . we do not have a best estimate of the penalties that may be assessed at this time . accordingly , as prescribed by gaap , we have recorded $ 3.0 million as low end of the range described above . government investigation in june 2020 , we began producing documents and information in response to a civil investigative demand ( a “ cid ” ) received in march 2020 by one of our subsidiaries , neotract , from the u.s. department of justice through the united states attorney 's office for the northern district of georgia ( collectively , the “ doj ” ) . the cid relates to the doj 's investigation of a single neotract customer , requires the production of documents and information pertaining to communications with , and certain rebate programs offered to , that customer and pertains to communications and activities occurring both prior to our acquisition of neotract in october 2017 and thereafter . in july 2020 , the doj advised us that it had opened an investigation under the civil false claims act , 31 u.s.c . §3729 , with respect to neotract 's operations broadly in addition to the customer investigation . we maintain policies and procedures to promote compliance with the anti-kickback statute , false claims acts and other applicable laws and regulations and intend to provide information sought by the government . we can not at this time reasonably predict , however , the ultimate scope or outcome of this matter , including whether an investigation may raise other compliance issues of interest , including those beyond the scope described above or how any such issues might be resolved . we also can not at this time reasonably estimate any potential liabilities or penalty , if any , that may arise from this matter , which could have a material adverse effect on our results of operations and financial condition . results of operations as used in this discussion , `` new products '' are products for which commercial sales have commenced within the past 36 months , and “ existing products ” are products for which commercial sales commenced more than 36 months ago . discussion of results of operations items that reference the effect of one or more acquired businesses ( except as noted below with respect to acquired distributors ) generally reflects the impact of the acquisitions within the first 12 months following the date of the acquisition . in addition to increases and decreases in the per unit selling prices of our products to our customers , our discussion of the impact of product price increases and decreases also reflects the impact on the pricing of our products resulting from any elimination of distributors , either through acquisition or termination of the distributor , from the sales channel . all dollar amounts in tables are presented in millions unless otherwise noted . for the year ended december 31 , 2020 , intangible asset amortization expense of $ 84.4 million is included within costs of good sold . for the year ended december 31 , 2019 and december 31 , 2018 , we reclassified intangible asset amortization expense of $ 82.6 million and $ 81.6 million , respectively , from selling , general and administrative expenses to cost of goods sold for comparability . certain financial information is presented on a rounded basis , which may cause minor differences . for a discussion of our results of operations comparison for 2019 and 2018 , refer to our annual report on form 10-k for the fiscal year ended december 31 , 2019 filed on february 21 , 2020. comparison of 2020 and 2019 revenues replace_table_token_4_th net revenues for the year ended december 31 , 2020 decreased by $ 58.2 story_separator_special_tag million , or 2.2 % , compared to the prior year , which was primarily attributable to a $ 108.2 million net decrease in sales volumes of existing products , largely caused by the covid-19 pandemic , partially offset by net revenues of $ 27.1 million generated by the hpc acquisition and to a lesser extent an increase in sales of new products . 33 gross profit replace_table_token_5_th for the year ended december 31 , 2020 , gross margin decreased 210 basis points , or 3.9 % , compared to the prior year period primarily due to lower sales volumes and higher manufacturing costs , both caused largely by the covid-19 pandemic , and unfavorable fluctuations in foreign currency exchange rates . selling , general and administrative replace_table_token_6_th selling , general and administrative expenses decreased $ 108.2 million for the year ended december 31 , 2020 , compared to the prior year . the decrease was primarily attributable to a $ 92.1 million benefit from reductions in the estimated fair value of our contingent consideration liabilities , which largely related to revenue-based milestone payments , due to adverse financial projections resulting from the covid-19 pandemic . the decrease was also attributable to lower selling and marketing expenses and performance related employee-benefit costs resulting from the impacts of the covid-19 pandemic . research and development replace_table_token_7_th research and development expenses increased $ 5.8 million for the year ended december 31 , 2020 , compared to the prior year , which was primarily attributable to european union medical device regulation ( `` eu mdr '' ) related costs , partially offset by lower project spend within certain of our product portfolios . restructuring and impairment charges 2020 workforce reduction plan during the second quarter of 2020 , we committed to a workforce reduction ( the `` 2020 workforce reduction plan '' ) designed to improve profitability and reduce cost primarily by streamlining certain sales and marketing functions in our emea segment and certain manufacturing operations in our oem segment . the workforce reduction was initiated to further align the business with our high growth strategic objectives . the plan was substantially completed by the end of 2020 and we expect future restructuring charges associated with the program , if any , to be nominal . we will achieve annual pre-tax savings of $ 12 million as a result of this program . anticipated charges and pre-tax savings related to restructuring programs and other similar cost savings initiatives we have ongoing restructuring programs primarily related to the consolidation of our manufacturing operations ( referred to as our 2019 , 2018 and 2014 footprint realignment plans ) . we also have similar ongoing activities to relocate certain manufacturing operations within our oem segment ( the `` oem initiative '' ) that do not meet the criteria for a restructuring program under applicable accounting guidance ; nevertheless , the activities should result in cost savings ( we expect only minimal costs to be incurred in connection with the oem initiative ) . with respect to our currently ongoing restructuring programs and the oem initiative , the table below summarizes charges incurred or estimated to be incurred and estimated annual pre-tax savings to be realized as follows : ( 1 ) with respect to charges ( a ) the estimated total charges that will have been incurred once the restructuring programs and oem initiative are completed ; ( b ) the charges incurred through december 31 , 2020 ; and ( c ) the estimated charges to be incurred from january 1 , 2021 through the last anticipated completion date of the restructuring programs and oem initiative , and ( 2 ) with respect to estimated annual pre-tax savings ( a ) the estimated total annual pre-tax savings to be realized once the restructuring programs and oem initiative are completed ; ( b ) the estimated annual pre-tax savings realized based on the progress of the restructuring programs and oem initiative through december 31 , 2020 ; and ( c ) the estimated additional annual pre-tax savings to be realized from january 1 , 2021 through the last anticipated completion date of the restructuring programs and the oem initiative . 34 estimated charges and pre-tax savings are subject to change based on , among other things , the nature and timing of restructuring activities and similar activities , changes in the scope of restructuring programs and the oem initiative , unanticipated expenditures and other developments , the effect of additional acquisitions or dispositions and other factors that were not reflected in the assumptions made by management in previously estimating restructuring and restructuring related charges and estimated pre-tax savings . moreover , estimated pre-tax savings constituting efficiencies with respect to increased costs that otherwise would have resulted from business acquisitions involve , among other things , assumptions regarding the cost structure and integration of businesses that previously were not administered by our management , which are subject to a particularly high degree of risk and uncertainty . it is likely that estimates of charges and pre-tax savings will change from time to time , and the table below may reflect changes from amounts previously estimated . in addition , the table below reflects the estimated charges and pre-tax savings related to our ongoing programs in addition to our 2020 workforce reduction plan . additional details , including estimated charges expected to be incurred in connection with our restructuring programs and the anticipated completion dates , are described in note 5 to the consolidated financial statements included in this annual report on form 10-k. pre-tax savings may be realized during , and subsequent to , the completion of the restructuring programs . pre-tax savings can also be affected by increases or decreases in sales volumes generated by the businesses impacted by the consolidation of manufacturing operations ; such variations in revenues can increase or decrease pre-tax savings generated by the consolidation of manufacturing operations .
| emea operating profit for the year ended december 31 , 2020 decreased $ 13.1 million , or 13.8 % , compared to the prior year , which was primarily attributable to a decrease in gross profit resulting from lower sales and higher manufacturing costs , both caused by the covid-19 pandemic , and an increase in research and development expenses . the decreases in operating profit were partially offset by lower selling , general and administrative expenses . asia asia net revenues for the year ended december 31 , 2020 decreased $ 27.3 million , or 9.3 % , compared to the prior year . the decrease was primarily attributable to a $ 36.3 million net decrease in sales volumes of existing products , caused by the covid-19 pandemic , partially offset by an increase in sales of new products . asia operating profit for the year ended december 31 , 2020 decreased $ 21.9 million , or 29.9 % , compared to the prior year , which was primarily attributable to a decrease in gross profit resulting from lower sales caused by the covid-19 pandemic and unfavorable fluctuations in foreign currency exchange rates , partially offset by lower selling , general and administrative expenses . oem oem net revenues for the year ended december 31 , 2020 decreased $ 0.4 million , or 0.2 % compared to the prior year which was primarily attributable to a $ 27.8 million net decrease in sales volumes of existing products caused by the covid-19 pandemic largely offset by net revenues of $ 27.1 million generated by the hpc acquisition . oem operating profit for the year ended december 31 , 2020 decreased $ 13.1 million , or 22.7 % , compared to the prior year , which was primarily attributable to a decrease in gross profit resulting from lower sales caused by the covid-19 pandemic and higher manufacturing costs , partially offset by gross profit generated by the hpc acquisition . 38 liquidity and capital resources we assess our liquidity in terms of our ability to generate cash to fund our operating , investing and financing activities . our principal source of liquidity is our cash flows provided by operating activities . our cash flows provided by operating activities are reduced by cash used to , among other things , fulfill contractual obligations for minimum lease payments
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we periodically revise key assumptions used in the calculation of the amortization of deferred acquisition costs , value of insurance in force acquired and unearned revenue reserve for participating life insurance , variable and interest sensitive products , as applicable , through an “ unlocking ” process . these assumptions typically consist of withdrawal and lapse rates , earned spreads and mortality with revisions based on historical results and our best estimate of future experience . the impact of unlocking is recorded in the current period as an increase or decrease to amortization of the respective balances . while the unlocking process can take place at any time , as needs dictate , the process typically takes place annually . see the discussion that follows for further details of the unlocking impact to our operating segments . replace_table_token_12_th 27 replace_table_token_13_th ( 1 ) includes prepayment fee income and net discount of accretion on mortgage and asset-backed securities resulting from changing payment speed assumptions at the end of the period . pre-tax operating income for the annuity segment decreased in 2012 and increased in 2011 compared to prior periods . the decrease in 2012 was primarily due an increase in expense allocations as discussed in the corporate and other segment and an increase in the amortization of the value of insurance in force , partially offset by an increase in spread income earned from a larger volume of business in force and a slight increase in spreads earned . the increase in 2011 was primarily due to increases in spread income earned from an increase in the volume of business in force and investment fee income , partially offset by increases in the amortization of deferred acquisition costs and the value of insurance in force . amortization of deferred acquisition costs and the value of insurance in force changed over the three year period primarily due to changes in actual profits on the underlying business and the impact of unlocking . during 2012 , 2011 and 2010 , amortization was impacted by unlocking deferred acquisition costs and the value of insurance in force acquired due to updating our amortization models for assumptions relating to withdrawal rates and earned spreads . during 2012 , we incurred additional amortization through unlocking as a result of our analysis of the impact of a continued low interest rate environment on projected investment and spread income , as well as withdrawal rates . amortization of deferred acquisition costs also increased $ 1.4 million in 2012 due to refining the projected credited rate assumption in the amortization model . the average aggregate account value for individual annuity contracts in force increased in 2012 and 2011 due to continued sales . premiums collected were lower in 2012 as sales of certain new money products were suspended in the third quarter of 2011 due to the extremely low interest rate environment . the amount of traditional annuity premiums collected is highly dependent upon the relationship between the current crediting rate and perceived security of our products compared to those of competing products . also included within our policy liabilities are advances on our funding agreements with the federal home loan bank ( fhlb ) . outstanding funding agreements totaled $ 328.5 million at december 31 , 2012 , $ 268.0 million at december 31 , 2011 and $ 268.5 million at december 30 , 2010. the weighted average yield on cash and invested assets for individual annuities decreased in 2012 primarily due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments , compared with the average existing portfolio yield . the 2012 decrease was partially offset by continued higher investment fee income . the 2011 weighted average yield was slightly higher than 2010 average yields due to higher investment fee income and a lower cost of an interest rate swap we held during a portion of 2011 , offsetting the impact of relative lower yields on new investment acquisitions . see the `` financial condition '' section which follows for additional information regarding the yields obtained on 28 investment acquisitions . decreases in the weighted average interest crediting rates are due to crediting rate actions taken on a significant portion of our annuity portfolio during 2012 , 2011 and 2010 in response to the declining portfolio yield . replace_table_token_14_th 29 replace_table_token_15_th ( 1 ) includes prepayment fee income and net discount of accretion on mortgage and asset-backed securities resulting from changing payment speed assumptions at the end of the period . pre-tax operating income for the life insurance segment decreased in 2012 , compared to the prior period , primarily due to the impact of refining valuation estimates during 2011 and an increase in expense allocations as discussed in the corporate and other segment , partially offset by an increase in investment fee income and business in force . the decrease in 2011 was primarily due to increased mortality experience and an increase in expenses allocated to the segment , partially offset by an increase in our business in force and refinements to valuation estimates . certain reserve refinements made in 2012 , including the impact of updates to mortality tables and lapse assumptions , increased life insurance reserves $ 1.8 million . the impact of refining methods and assumptions relating to the value of insurance in force , deferred acquisition costs and certain traditional life insurance reserves decreased benefits and expenses $ 7.4 million in 2011 and $ 4.9 million in 2010. unlocking of deferred acquisition costs , value of insurance in force and unearned revenue reserve resulted in a decrease in operating income in 2012 and 2011 compared to prior periods . each year , unlocking reflected changes in projected policy lapses and mortality assumptions used in the estimate of future expected gross profits . during 2012 , we incurred additional amortization through unlocking as a result of our analysis of the impact of a continued low interest rate environment on projected investment and spread income , as well as withdrawal rates . story_separator_special_tag the weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in 2012 and 2011 due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments , compared with the average existing portfolio yield , partially offset by an increase in investment fee income in 2012. see the `` financial condition '' section which follows for additional information regarding the yields obtained on investment acquisitions . the changes in the weighted average interest crediting rates on our interest sensitive life insurance products are due to crediting rate actions taken on various products in 2012 , 2011 and 2010 in response to the declining portfolio yield . 30 replace_table_token_16_th ( 1 ) includes prepayment fee income and net discount of accretion on mortgage and asset-backed securities resulting from changing payment speed assumptions at the end of the period . pre-tax operating income increased in 2012 , compared to the prior period , primarily due to a reduction in underwriting expenses allocated to the segment , the impact of market performance and profits on amortization of deferred acquisition costs on our variable business and an increase in net investment income , partially offset by a decrease in pre-tax equity income . the decrease in 2011 was primarily due to an increase in mortality experience and a decrease in pre-tax equity income , partially offset by a decrease in other underwriting expenses allocated to the segment and increases in net investment income and other income . other underwriting expenses decreased in 2012 and 2011 due to a reallocation of certain expenses from the corporate and other segment to the annuity and life insurance segments due to our decision to discontinue sales of variable products , 31 resulting in a shift of corporate overhead to the product segments . in total , other underwriting expenses increased 1.2 % in 2012 and 2.3 % in 2011. other income in 2012 includes administrative income of $ 3.5 million received from equitrust life for accounting and other services rendered to support the transition of that company subsequent to its sale in december 2011. other income in 2011 included $ 1.5 million in other income associated with the equitrust mutual funds merger and a $ 1.0 million cash settlement received from a litigation case . other income and other expenses also relate to fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries , which include management , advisory , marketing and distribution services and leasing activities . amortization of deferred acquisition costs and unearned revenue reserves changed over the three year period primarily due to the impact of market performance in the separate accounts . during 2012 , 2011 and 2010 , amortization was impacted by unlocking deferred acquisition costs and unearned revenue reserves to reflect changes in our projected withdrawal rates , policy lapses and mortality assumptions as well as projected spreads and fee revenues on our variable business . during 2012 , we incurred additional amortization through unlocking as a result of our analysis of the impact of a continued low interest rate environment . net investment income increased during 2012 and 2011 due to an increase in investments held in this segment , including funds received from the sale of equitrust life . equity income ( loss ) includes our proportionate share of gains and losses attributable to our ownership interest in partnerships , joint ventures and certain companies where we exhibit some control but have a minority ownership interest . given the timing of availability of financial information from our equity investees , we will consistently use information that is as much as three months in arrears for certain of these entities . several of these entities are investment companies whose operating results are derived primarily from unrealized and realized gains and losses generated by their investment portfolios . we also began investing in low income housing tax credit partnerships in 2010 which generate pre-tax losses but after tax gains as the related tax credits are realized . as is normal with these types of entities , the level of these gains and losses is subject to fluctuation from period to period depending on the prevailing economic environment , changes in prices of bond and equity securities held by the investment partnerships , timing and success of initial public offerings or exit strategies , and the timing of the sale of investments held by the partnerships and joint ventures . income taxes the effective tax rate on operating income was 29.0 % for 2012 , 29.0 % for 2011 and 33.7 % for 2010 . the effective tax rates differ from the federal statutory rate of 35 % primarily due to the impact of low-income housing credits on equity investees , tax-exempt dividend income , tax-exempt interest and incentive stock options . see note 7 to our consolidated financial statements for additional information on income taxes . replace_table_token_17_th 32 replace_table_token_18_th income taxes on operating income adjustments on continuing operations are recorded at 35 % as there are no permanent differences between book and taxable income relating to these adjustments . replace_table_token_19_th the level of realized gains ( losses ) is subject to fluctuation from period to period depending on the prevailing interest rate and economic environment and the timing of the sale of investments . see `` financial condition - investments '' and note 3 to our consolidated financial statements for details regarding our unrealized gains and losses on available-for-sale securities at december 31 , 2012 and 2011. we monitor the financial condition and operations of the issuers of securities rated below investment grade and of the issuers of certain investment grade securities on which we have concerns regarding credit quality . if we determine that an unrealized loss is other-than-temporary , the security is written down to its fair value . a portion of the write down attributable to non-credit factors is recognized in accumulated other comprehensive income .
| 24 our profitability is primarily a factor of : the volume of our life insurance and annuity business in force , which is driven by the level of our sales and the persistency of the business written . the amount of spread ( excess of net investment income earned over interest credited ) we earn on contract holders ' general account balances . our ability to price our life insurance products to earn acceptable margins over the cost of providing benefits and the expenses of acquiring and administering the products . competitive conditions , mortality experience , persistency , investment results and our ability to maintain expenses in accordance with pricing assumptions drive our margins on the life products . on many products , we have the ability to mitigate adverse experience through adjustments to credited interest rates , policyholder dividends or cost of insurance charges . our ability to manage our investment portfolio to maximize investment returns while providing adequate liquidity for obligations to policyholders and minimizing the risk of defaults or impairments of invested assets . our ability to manage the level of our operating expenses . actual experience and changes in assumptions for expected surrender and withdrawal rates , mortality and spreads used in the amortization of deferred acquisition costs . our profitability is also impacted by changes in accounting guidance that impact the timing of profit recognition . during the first quarter of 2012 , we adopted new guidance that reduced the deferral of costs associated with the issuance of life insurance and annuity products which increased the amount of such expenses recognized in the current year and reduced the amount of amortization in future years . see note 1 to our consolidated financial statements for more information on this change . in addition to the impact from the adoption of the guidance above , the accounting standards setting bodies are currently working on a project evaluating the accounting for insurance contracts , which may significantly impact the timing of profit emergence for those products . it
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ribbon believes the eci acquisition positions the company for growth and enhances its competitive strengths by expanding its product portfolio beyond solutions primarily supporting voice applications to include data applications and optical networking . as consideration for the eci acquisition , we issued the eci shareholders and certain others 32.5 million shares of ribbon common stock with a fair value of $ 108.6 million ( the `` stock consideration '' ) and paid $ 322.5 million of cash , comprised of $ 183.3 million to repay eci 's outstanding debt , including both principal and interest , and $ 139.2 million paid to eci 's selling shareholders ( the `` cash consideration '' ) . in addition , eci shareholders received $ 33.4 million from the sale of certain of eci 's real estate assets . cash consideration was financed through cash on hand and committed debt financing consisting of a new $ 400 million term loan facility and new $ 100 million revolving credit facility , which was undrawn at the eci acquisition date . the eci acquisition has been accounted for as a business combination and the financial results of eci have been included in our consolidated financial statements for the periods subsequent to the eci acquisition date . anova data , inc. on february 28 , 2019 ( the `` anova acquisition date '' ) , we acquired the business and technology assets of anova data , inc. ( `` anova '' ) , a private company headquartered in westford , massachusetts ( the `` anova acquisition '' ) . anova is a provider of advanced analytics solutions and its next generation products provide a cloud-native , streaming analytics platform for network and subscriber optimization and monetization . the company believes that the anova acquisition will reinforce and extend ribbon 's strategy to expand into network optimization , security and data monetization via big data analytics and machine learning . as consideration for the anova acquisition , we issued 2.9 million shares of our common stock with a fair value of $ 15.2 million to anova 's sellers and equity holders on the anova acquisition date and held back an additional 330,000 shares of our common stock with a fair value of $ 1.7 million ( the `` deferred purchase consideration '' ) , of which 316,551 shares were issued after post-closing adjustments on march 4 , 2020. the deferred purchase consideration was included as a component of accrued expenses and other in our consolidated balance sheet at december 31 , 2019. the anova acquisition has been accounted for as a business combination and the financial results of anova have been included in our consolidated financial statements for the periods subsequent to the anova acquisition date . edgewater networks , inc. on august 3 , 2018 ( the `` edgewater acquisition date '' ) we completed our acquisition of edgewater networks , inc. ( `` edgewater '' ) , a private company headquartered in san jose , california ( the `` edgewater acquisition '' ) . edgewater is a market leader in network edge orchestration for the small and medium enterprise and uc market . we believe that the acquisition of edgewater allows us to offer our global customer base a complete core-to-edge product portfolio , end-to-end service assurance and analytics solutions , and a fully integrated sd-wan service . as consideration for the edgewater acquisition , we paid , in the aggregate , $ 46.4 million of cash , net of cash acquired , and 36 issued 4.2 million shares of ribbon common stock to edgewater 's selling shareholders and holders of vested in-the-money options and warrants to acquire common stock of edgewater ( the `` edgewater selling stakeholders '' ) on the edgewater acquisition date . the cash payment was funded through our then-current credit facility . we had previously agreed to pay the edgewater selling stakeholders an additional $ 30.0 million of cash , $ 15.0 million of which was to be paid six months from the edgewater acquisition date and the other $ 15.0 million of which was to be paid as early as nine months from the edgewater acquisition date ( the exact timing of which would depend on the amount of revenue generated from the sales of edgewater products in 2018 ) ( the `` edgewater deferred consideration '' ) . on february 15 , 2019 , we and the edgewater selling stakeholders agreed to reduce the amount of edgewater deferred consideration from $ 30 million to $ 21.9 million and agreed that all such deferred consideration would be payable on march 8 , 2019. we paid the edgewater selling stakeholders $ 21.9 million on march 8 , 2019 and recorded the $ 8.1 million reduction to the edgewater deferred consideration in other income ( expense ) , net , in our consolidated statement of operations for the year ended december 31 , 2019. the edgewater acquisition has been accounted for as a business combination and the financial results of edgewater have been included in our consolidated financial statements for the period subsequent to the edgewater acquisition date . sale of kandy communications business on august 5 , 2020 , we announced that we had entered into a definitive agreement ( the `` kandy purchase agreement '' ) with american virtual cloud technologies , inc. ( `` avct '' ) to sell our cloud-based enterprise services business ( the `` kandy communications business '' ) . under the kandy purchase agreement , avct would purchase the assets and assume certain liabilities associated with the kandy communications business , as well as all of the outstanding interests in our kandy communications llc subsidiary ( the `` kandy sale '' ) . on december 1 , 2020 , we and avct entered into an amended and restated purchase agreement ( the “ amended kandy agreement ” ) . story_separator_special_tag under the terms of the amended kandy agreement , avct agreed to pay us $ 45.0 million , subject to certain adjustments , in the form of units of avct 's securities ( the “ avct units ” ) , with each avct unit consisting of : ( i ) $ 1,000 in principal amount of avct 's series a-1 convertible debentures ( the “ debentures ” ) ; and ( ii ) one warrant to purchase 100 shares of avct common stock , $ 0.0001 par value ( the “ warrants ” ) , as consideration for the kandy sale ( the `` kandy consideration '' ) . the kandy sale was completed on december 1 , 2020 ( the `` kandy sale date '' ) , and we received 43,778 avct units as sale consideration on that date . the debentures bear interest at a rate of 10 % per annum , which will be added to the principal amount of the debentures , except upon maturity , in which case accrued and unpaid interest is payable in cash . the entire principal of each debenture , together with accrued and unpaid interest thereon , is due and payable on the earlier of the may 1 , 2023 maturity date or the occurrence of a change in control as defined in the amended kandy agreement . each debenture is convertible , in whole or in part , at any time at our option into that number of shares of avct common stock , calculated by dividing the principal amount being converted , together with all accrued and unpaid interest thereon , by the applicable conversion price , initially $ 3.45. the debentures are subject to mandatory redemption if the avct stock price is at or above $ 6.00 per share for 40 trading days in any 60 consecutive trading day period , subject to the satisfaction of certain other conditions . the conversion price is subject to customary adjustments including , but not limited to , stock dividends , stock splits and reclassifications . at our option , up to $ 5.0 million of the debentures may be redeemed by avct at par in the event avct raises at least $ 50.0 million in its offering of avct units . as of february 19 , 2021 , the stock had traded above $ 6.00 for 40 days within a 60 consecutive day trading period and accordingly , the debentures will be converted to shares of avct common stock upon the completion of customary and regulatory filings by avct . the warrants are independent of the debentures and entitle us to purchase 4,377,800 shares of avct common stock at an exercise price of $ 0.01 per share . the warrants expire on december 1 , 2025 , and were immediately exercisable on the kandy sale date . we had not redeemed any of the debentures or exercised any of the warrants as of december 31 , 2020. we are also subject to a lock-up provision which limits our ability to sell any shares of avct common stock underlying the debentures and the warrants prior to june 1 , 2021 , except in certain transactions . we determined that the avct units had a fair value of $ 84.9 million at the kandy sale date , comprised of the debentures with a fair value of $ 66.3 million and the warrants with a fair value of $ 18.6 million . the value of the net assets sold to avct totaled $ 1.3 million , resulting in a gain on the sale of $ 83.6 million . this amount is included as a component of other income ( expense ) , net , in our consolidated statement of operations for the year ended december 31 , 2020 . 37 the fair value of the debentures was calculated using a lattice-based valuation approach , which utilizes a binomial tree to model the different paths the price of avct 's common stock might take over the debentures ' life by using assumptions regarding the stock price volatility and risk-free interest rate . these results are then used to calculate the fair value of the debentures at each measurement date . the company uses the black-scholes valuation model for estimating the fair value of the warrants at each measurement date . the fair value of the warrants is affected by avct 's stock price as well as valuation assumptions , including the volatility of avct 's stock price , expected term of the option , risk-free interest rate and expected dividends . both the lattice and black-scholes valuation models are based on available market data , giving consideration to all of the rights and obligations of each instrument and precluding the use of `` blockage '' discounts or premiums in determining the fair value of a large block of financial instruments . we will calculate the fair value of the debentures and warrants at each quarter-end and record any adjustments to the fair values in other income ( expense ) , net . at december 31 , 2020 , the aggregate fair value of the debentures and warrants was calculated as $ 115.2 million , resulting in a gain of $ 30.3 million in the increase in fair values of the debentures and warrants . this gain is included as a component of other income ( expense ) , net , in our consolidated statement of operations . the fair values of the debentures and warrants are reported as investments in our consolidated balance sheet at december 31 , 2020. the results of the kandy communications business are excluded from our consolidated results for the period subsequent to the kandy sale date . litigation settlement on april 22 , 2019 , we and metaswitch networks ltd. , metaswitch networks corp and metaswitch inc. ( collectively , `` metaswitch '' ) agreed to a binding mediator 's proposal that resolves the six previously disclosed lawsuits between the company and metaswitch ( the `` lawsuits '' ) .
| we recorded stock-based compensation expense of $ 14 million in 2020 and $ 13 million in 2019. the expense recorded in 2019 includes $ 2 million of incremental expense related to the accelerated vesting of rsus and psus held by our former president and chief executive officer in connection with his separation from the company effective december 31 , 2019. see `` results of operations '' in this md & a for additional discussion of our results of operations for the years ended december 31 , 2020 and 2019. restructuring and cost reduction initiatives in 2020 , we implemented a restructuring plan to eliminate certain positions and redundant facilities , primarily in connection with the eci acquisition , to further streamline our global footprint and improve our operations ( the `` 2020 restructuring initiative '' ) . the 2020 restructuring initiative includes facility consolidations and a reduction in workforce , including severance aggregating $ 1.1 million for three former executives of eci . in connection with this initiative , we expect to eliminate duplicate functions arising from the eci acquisition and support our efforts to integrate the two companies . in connection with the 2020 restructuring initiative , we recorded restructuring and related expense of $ 14.0 million in 2020 , comprised of $ 11.5 million for severance and related costs for approximately 190 employees , including the former executives of eci , $ 2.0 million for variable and other facilities-related costs , and $ 0.5 million for accelerated amortization of lease assets . we expect these amounts will be fully paid in 2021. we expect to record additional restructuring and related expense approximating $ 8 million under the 2020 restructuring initiative in the aggregate for severance and planned facility consolidations . in june 2019 , we implemented a restructuring plan to further streamline our global footprint , improve our operations and enhance our customer delivery ( the `` 2019 restructuring initiative '' ) . the 2019 restructuring initiative includes facility consolidations , refinement of our research and development activities , and a reduction in workforce . the facility consolidations under the 2019 restructuring initiative ( the `` facilities initiative '' ) include a consolidation of our north texas sites into a single campus , housing engineering , customer training and support , and administrative functions , as well as a reduction or elimination of certain excess and duplicative facilities worldwide . in
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for fiscal 2012 our egg product sales were $ 32.9 million , an increase of $ 6.0 million , or 22.3 % , as compared to $ 26.9 million for fiscal 2011. our volume of egg products sold for fiscal 2012 was 55.2 million pounds , an increase of 1.4 million pounds , or 2.6 % , as compared to 53.8 million pounds for fiscal 2011. this increase is due to a more available supply of eggs for breaking . in fiscal 2012 , the price per pound of egg products sold was $ 0.596 as compared to $ 0.500 for fiscal 2011 , which is an increase of 19.1 % . prices received for our egg products increased in the most recent fiscal year due to a favorable change in the mix of products sold . for the 53 week period ending june 2 , 2012 the market prices for unpasteurized liquid whole egg , unpasteurized liquid egg whites and unpasteurized liquid egg yolk were up 21.2 % , 16.0 % and 4.3 % , respectively , compared to the same period last year . our egg products are sold through american egg products , llc ( “ aep ” ) and texas egg products , llc ( “ tep ” ) . for fiscal 2012 , egg product sales for aep were $ 15.9 million , as compared to $ 13.6 million for fiscal 2011 , an increase of $ 2.3 million , or 16.9 % . for aep the volume of egg products sold for fiscal 2012 was 28.0 million pounds , a decrease of 200,000 pounds , or 0.7 % , as compared to 28.2 million pounds for fiscal 2011. the egg product sales for tep in fiscal 2012 were $ 17.0 million , as compared to $ 13.4 million for fiscal 2011 , an increase of $ 3.6 million , or 26.9 % . for tep the volume of egg products sold for fiscal 2012 was 27.2 million pounds , an increase of 1.6 million pounds , or 6.3 % , as compared to 25.6 million pounds for fiscal 2011. as described in note 1 in the notes to the consolidated financial statements , tep is a variable interest entity of which the company is the primary beneficiary . 22 cost of sales . cost of sales consists of costs directly related to production , processing and packing shell eggs , purchases of shell eggs from outside producers , processing and packing of liquid and frozen egg products and other non-egg costs . farm production costs are those costs incurred at the egg production facility , including feed , facility , hen amortization , and other related farm production costs . the following table presents the key variables affecting our cost of sales . replace_table_token_6_th * cost of sales for fiscal 2011 was reduced by $ 6.1 million for proceeds received under our business interruption coverage related to the farwell , texas fire ( see note 6 in the notes to consolidated financial statements ) . * * cost of sales for the thirteen-week period ended may 28 , 2011 was reduced by $ 2.1 million for proceeds received under our business interruption coverage related to the finalization of the farwell , texas fire insurance claim in the fourth quarter of fiscal 2011 . + cost of sales for the fourteen and fifty three-week periods ended june 2 , 2012 was reduced by $ 1.6 million for proceeds received under our business interruption coverage related to the finalization of the shady dale , georgia fire insurance claim in the fourth quarter of fiscal 2012. cost of sales for the fiscal year ended june 2 , 2012 was $ 911.3 million , an increase of $ 154.2 million , or 20.4 % , as compared to cost of sales of $ 757.1 million for fiscal 2011. on a comparable basis , dozens produced increased , dozens purchased from outside shell egg producers increased and cost of feed ingredients increased in fiscal 2012. this fiscal year we produced 75 % of the eggs sold by us , as compared to 77 % for the previous year . feed cost for fiscal 2012 was $ 0.469 per dozen , compared to $ 0.394 per dozen for the prior fiscal year , an increase of 19.0 % . gross profit decreased from 19.6 % of net sales for fiscal 2011 to 18.1 % of net sales for fiscal 2012. cost of sales for the fourteen-week period ended june 2 , 2012 was $ 233.9 million , an increase of $ 32.9 million , or 16.4 % , as compared to cost of sales of $ 201.0 million for the thirteen-week period ended may 28 , 2011 . 23 selling , general and administrative expenses . replace_table_token_7_th selling , general and administrative expenses include costs of marketing , distribution , accounting and corporate overhead . selling , general and administrative expense was $ 113.1 million in fiscal 2012 , an increase of $ 11.7 million , or 11.5 % , as compared to $ 101.4 million for fiscal 2011. stock compensation expense increased $ 653,000 for the current fiscal year . stock compensation expense is dependent on the closing price of the company 's common stock . our stock compensation arrangements classified as equity awards have been fully amortized . for our stock compensation arrangements classified as liability awards , we recognize increases or decreases in the value of such awards as increases or decreases , respectively , to stock compensation expense . we also classify exercises under liability awards as stock compensation expense . the increase in specialty egg expense is attributable to the increase in the dozens of specialty eggs sold this year as compared to last fiscal year . payroll and overhead increased as compared to the same period the prior year due to the hiring of additional administrative personnel and general salary increases . other expenses increased primarily due to an increase in insurance , temporary labor , consultant , and bad debt expense . story_separator_special_tag delivery expense increased due to increased fuel costs and the increased costs paid for the use of outside trucking companies . as a percent of net sales , selling , general and administrative expense decreased from 10.8 % for fiscal 2011 to 10.1 % for fiscal 2012. replace_table_token_8_th selling , general and administrative expense was $ 29.3 million for the fourteen-week period ended june 2 , 2012 , an increase of $ 1.6 million , or 5.7 % , as compared to $ 27.7 million for the thirteen-week period ended may 28 , 2011. operating income . as a result of the above , our operating income was $ 88.7 million for fiscal 2012 , as compared to operating income of $ 83.5 million for fiscal 2011. operating income as a percent of net sales for fiscal 2012 was 8.0 % , as compared to operating income as a percent of net sales of 8.8 % for fiscal 2011. other income ( expense ) . other income or expense consists of income or costs not directly charged or related to operations such as equity in income of affiliates , patronage dividends , and interest expense . other income for fiscal 2012 was $ 50.4 million as compared to other income of $ 8.2 million for fiscal 2011. net interest expense decreased by $ 2.3 million as compared to fiscal 2011. in fiscal 2011 , we recorded a loss of $ 2.6 million on the early extinguishment of debt with john hancock life insurance company . rates earned on invested cash balances were lower in the current year . in fiscal 2012 , we recorded patronage refunds and dividends from eb in the amount of $ 44.9 million , as compared to $ 5.3 million in fiscal 2011. in fiscal 2012 we received a special patronage dividend in connection with the formation of a joint venture between eb and land o ' lakes , inc. in fiscal 2011 , we recorded a gain of $ 4.8 million from the sale of non-voting stock in eb . we account for our investment in eb under the cost method . our equity in income of affiliates increased due to similar amounts being paid by eb to specialty eggs , llc , an affiliated entity which is also a franchisee and cooperative owner of eb . our ownership interest in specialty eggs , llc is 50 % . we account for our investment in specialty eggs , llc using the equity method . specialty eggs , llc received dividends and patronage refunds of $ 10.3 million during fiscal 2012 , as compared to $ 1.2 million in the prior year , and in fiscal 2011 , it also recognized a gain of $ 1.6 million from the sale of non-voting stock in eb . in fiscal 2012 , we finalized our insurance claim on the shady dale , georgia fire and recorded a gain of $ 1.1 million on the fixed assets that were destroyed in this fire . in fiscal 2011 , we finalized our insurance claim on the farwell , texas fire and recorded a gain of $ 1.8 million on the fixed assets that were destroyed in this fire . we recorded royalty income of $ 580,000 related to oil and gas wells located on property we own in texas . as a percent of net sales , other income was 4.5 % for fiscal 2012 , as compared to 0.9 % for fiscal 2011 . 24 income taxes . for the fiscal year ended june 2 , 2012 , our pre-tax income was $ 139.1 million , as compared to $ 91.7 million for fiscal 2011. income tax expense of $ 49.1 million was recorded for fiscal 2012 with an effective income tax rate of 35.3 % , as compared to $ 33.4 million for fiscal 2011 with an effective income tax rate of 36.4 % . our effective rate differs from the federal statutory income tax rate of 35 % due to state income taxes and certain items included in income or loss for financial reporting purposes that are not included in taxable income or loss for income tax purposes , including tax exempt interest income , the domestic manufacturers deduction , and net income or loss attributable to noncontrolling interest . net income ( loss ) attributable to noncontrolling interest . net income attributable to noncontrolling interest for fiscal 2012 was $ 232,000 as compared to net loss attributable to noncontrolling interest of $ 2.6 million for fiscal 2011. net income . as a result of the above , net income for fiscal 2012 was $ 89.7 million , or $ 3.76 per basic share and $ 3.75 per diluted share , as compared to $ 60.8 million , or $ 2.55 per basic share and $ 2.54 per diluted share , for fiscal 2011. fiscal year ended may 28 , 2011 compared to fiscal year ended may 29 , 2010 net sales . in fiscal 2011 , approximately 96 % of our net sales consisted of shell egg sales and approximately 3 % was for sales of egg products , with the 1 % balance consisting of sales of incidental feed and feed ingredients . net sales for the fiscal year ended may 28 , 2011 were $ 942.0 million , an increase of $ 31.8 million , or 3.5 % , from net sales of $ 910.1 million for fiscal 2010. in fiscal 2011 total dozens of eggs sold increased and egg selling prices increased as compared to fiscal 2010. in fiscal 2011 total dozens of shell eggs sold were 821.4 million , an increase of 16.0 million dozen , or 2.0 % , compared to 805.4 million sold in fiscal 2010. our average selling price of shell eggs increased from $ 1.079 per dozen for fiscal 2010 to $ 1.098 per dozen for fiscal 2011 , an increase of $ 0.019 per dozen , or 1.8 % .
| this demand imbalance caused shell egg prices to increase . in late fiscal 2004 , the popularity of these high protein diets began to diminish , but our egg production had been increased to meet the earlier higher demand levels . lower egg prices followed , and we experienced net losses in fiscal 2005 and 2006. beginning in the latter part of fiscal 2006 , egg supplies became more aligned with demand . since that time , the supply-demand balance has generally tightened . in fiscal 2010 , egg prices declined as compared to the previous fiscal year , due to an increase in industry supply . egg sales at the retail level were good , and while there was modest improvement in food service and restaurant sales , overall there was continued weakness in food service and restaurant sales . for fiscal 2010 , our feed costs decreased , as compared to feed costs in the previous fiscal year . for fiscal 2011 , our net average selling price increased slightly , but due to higher feed costs our net income decreased . in fiscal 2012 , our net average selling price increased and feed costs increased significantly from the prior year . our net income increased from the previous year , primarily due to a special patronage dividend received in connection with the formation of a joint venture between eb and land o ' lakes , inc. 20 fiscal year ended june 2 , 2012 compared to fiscal year ended may 28 , 2011 net sales . in fiscal 2012 , approximately 96 % of our net sales consisted of shell egg sales and approximately 3 % was for sales of egg products , with the 1 % balance consisting of sales of incidental feed and feed ingredients . net sales for the fiscal year ended june 2 , 2012 were $ 1,113.1 million , an increase of $ 171.1 million , or 18.2 % , from net sales of $ 942.0 million for fiscal 2011. in fiscal 2012 total dozens of eggs
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the company had net cash used in investing activities of $ 67.9 million during 2011 , principally for the purchase of revenue equipment , and $ 3.3 million during 2010. the company amended its revolving credit agreement and its long-term note agreement in june and december 2009 to obtain financial covenant relief to address continuing challenges associated with the macro-economic conditions . as part of the amendments , the company agreed to reduce the revolving credit facility from $ 160 million to $ 120 million and pledged certain assets as security for the indebtedness under both facilities . the amendments also included increases in interest rates , letter of credit fees and certain other fees . simultaneously with the december 2009 amendments , the company issued shares of common stock in a private placement that generated $ 24.9 million in net proceeds . at that time , the company also prepaid $ 24.5 million in principal and interest otherwise payable during 2010 under the long-term note agreement and prepaid $ 2.0 million in letter of credit fees otherwise payable in 2010 under the revolving credit agreement . on november 30 , 2011 , the company entered into a fourth amended and restated credit agreement with its banking group . the november 2011 amendment ( effective as of november 30 , 2011 ) provides for a libor rate margin from 200 basis points to 300 basis points , base rate margin from zero to 75 basis points , letter of credit fees from 212.5 basis points to 312.5 basis points and unused portion fees from 25 basis points to 35 basis points . the facility increases the revolving credit facility to $ 150 million in availability , subject to a borrowing base and extends the term to november 2016. as of december 31 , 2011 , the company had no borrowings under its revolving credit agreement , outstanding letters of credit of $ 49.7 million and cash and cash equivalents balance of $ 1.3 million . the company was in compliance with the debt covenants under its debt agreements at december 31 , 2011. see financial condition for a more complete discussion of these agreements . general the following management 's discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of operations , liquidity and capital resources , as well as the critical accounting policies of saia , inc. and saia motor freight line , llc ( also referred to as saia or the company ) . this discussion should be read in conjunction with the accompanying audited consolidated financial statements which include additional information about our significant accounting policies , practices and the transactions that underlie our financial results . the company is an asset-based transportation company headquartered in johns creek , georgia providing regional , interregional and longerhaul ltl services , along with guaranteed , expedited and limited tl service solutions to a broad base of customers across the united states through its wholly-owned subsidiary , saia motor freight line , llc ( saia motor freight ) . our business is highly correlated to non-service sectors of the general economy . it also is impacted by a number of other factors as discussed under forward looking statements and part ii , item 1a . risk factors section of this form 10-k. the key factors that affect our operating results are the volumes of shipments transported through our network , as measured by our average daily shipments and tonnage ; the prices we obtain for our services , as measured by revenue per hundredweight ( a measure of yield ) and revenue per shipment ; our ability to manage our cost structure for capital expenditures and operating expenses such as salaries , wages and benefits ; purchased transportation ; claims and insurance expense ; fuel and maintenance ; and our ability to match operating costs to shifting volume levels . fuel surcharges have remained in effect for several years and are a significant component of revenue and pricing . fuel surcharges are an integral part of annual customer contract renewals , which blur the distinction between base price increases and recoveries under the fuel surcharge program . 21 story_separator_special_tag with volume changes due to increased tonnage , caused $ 26.6 million of the increase in fuel , operating expenses and supplies . this is reflective of the diesel fuel price trends throughout the year . the company implemented reductions-in-force during the first and fourth quarters of 2009 to bring the company 's workforce in line with business levels and a reduced outlook . the company suspended its 401 ( k ) match effective february 1 , 2009. on april 1 , 2009 , the company implemented a compensation reduction equal to ten percent of salary for the company 's leadership team , five percent for hourly , linehaul and salaried employees in operations , maintenance and administration and ten percent in the annual retainer and meeting fees paid to the non-employee members of the company 's board of directors . estimated annualized savings from the suspension of the 401 ( k ) match is $ 6 million and from the compensation and wage reductions is $ 18 million . these reductions in compensation remained in effect for all of 2010. during 2010 , accident expense was $ 4.7 million lower than the prior year due to decreased severity . the company can experience volatility in accident expense as a result of its self-insurance structure and $ 2.0 million retention limits per occurrence . purchased transportation expenses increased 24.9 percent in 2010 compared to the prior year reflecting higher fuel prices , increased utilization due to higher volumes and a reduction in the available company drivers . other substantially all non-operating expenses represent interest expense . the interest expense in 2010 includes the impacts of letter of credit fees and amortization of fees for the debt agreement amendments that were made in 2009 partially offset by reduced amounts of long-term debt . interest costs were $ 10.6 million in 2010 versus $ 12.2 story_separator_special_tag million in 2009. the company 's debt structure consists predominantly of longer-term , fixed rate instruments . the effective tax rate was a net benefit of 1.2 percent in 2010 compared to 42.2 percent in 2009. the 2010 effective tax rate included approximately $ 1.0 million in alternative fuel tax credits resulting in the low effective tax rate due to the low level of pretax income . the 2009 effective tax rate included approximately $ 1.0 million of tax credits . the notes to the consolidated financial statements provide an analysis of the income tax provision and the effective tax rate . working capital/capital expenditures working capital at december 31 , 2010 was $ 47.7 million which increased from working capital at december 31 , 2009 of $ 31.8 million primarily due to an increase in cash on-hand and net accounts receivable , partially offset by the reduction in prepaid expenses which was the prepaid interest and fees at december 31 , 2009 , an increase in the current portion of long-term debt was offset by the decreases in accounts payable and other current liabilities . cash flows from operating activities were $ 23.4 million for 2010 versus $ 14.1 million for 2009. cash flows from operating activities in 2010 and 2009 included $ 1.6 million and $ 5.3 million of cash used in discontinued operations for 2010 and 2009 , respectively . for 2010 , cash used in investing activities was $ 3.3 million versus $ 7.6 million in the prior year primarily due to a lower property and equipment purchases . the company has reduced capital expenditures in recent years in response to the challenging economic environment . cash used in financing activities was $ 0.2 million in 2010 versus $ 24.8 million for the prior year . financing activities in 2009 included $ 24.9 million in net proceeds from the sale of common stock more than offset by $ 46.5 million for payments on outstanding debt . outlook our business remains highly correlated to the general economy and competitive pricing pressures , as well as the success of company-specific improvement initiatives . while improved in 2011 , there remains uncertainty as to the timing and strength of the economic recovery into 2012. we are continuing initiatives to increase yield , to 24 reduce costs and improve productivity . we focus on providing top quality service and improving safety performance . if significant competitors were to cease operations and their capacity leave the market , current industry excess capacity conditions would likely improve . however , there can be no assurance that any industry consolidation will indeed happen or if such consolidation occurs that it will materially improve the excess industry capacity . the company continues to pursue revenue and cost initiatives to improve profitability . planned revenue initiatives include , but are not limited to , building density in our current geography , targeted marketing initiatives to grow revenue in more profitable segments , as well as pricing and yield management . on august 22 , 2011 , saia implemented a 6.9 percent general rate increase for customers comprising approximately 30 percent of saia 's operating revenue . the extent of success of these revenue initiatives is impacted by what proves to be the underlying economic trends , competitor initiatives and other factors discussed under forward-looking statements and part ii , item 1a . risk factors. planned cost management initiatives include , but are not limited to , seeking gains in productivity and asset utilization that collectively are designed to offset anticipated inflationary unit cost increases in healthcare , workers ' compensation and other expense categories . specific cost initiatives include linehaul routing optimization , reduction of utilization of purchased transportation and utilization of in-cab technology to improve miles per gallon . the following cost reductions taken in 2009 are subject to reinstatement in the future : the suspension of the company 's 401 ( k ) match , one-half of which was reinstated effective april 1 , 2011 ; effective reduction in compensation equal to ten percent of salary for the company 's leadership team and a five percent wage and salary reduction for hourly , linehaul and salaried employees in operations , maintenance and administration ; and the ten percent reduction in the annual retainer and meeting fees paid to the non-employee members of the company 's board of directors . the company implemented a two and one-half percent wage and salary increase for hourly , linehaul and salaried employees in operations , maintenance , administration and management which was effective december 1 , 2011. while the company 's operating results have not improved to a targeted operating ratio , management took this step to attract and retain employees needed for the company to continue to deliver best-in-class service to customers . management is committed to a market-based wage program . these actions reward the employees who have worked hard and sacrificed since the company 's wage reduction in april 2009. the impact of this wage increase is expected to be approximately $ 10 million annually . if the company builds market share , there are numerous operating leverage cost benefits . conversely , should the economy soften from present levels , the company plans to attempt to match resources and capacity to shifting volume levels to lessen unfavorable operating leverage . the success of cost improvement initiatives is also impacted by the cost and availability of drivers and purchased transportation , fuel , insurance claims , regulatory changes , successful implementation of profit improvement initiatives and other factors discussed under forward-looking statements and part ii , item 1a . risk factors . see forward-looking statements and part ii , item 1a . risk factors for a more complete discussion of potential risks and uncertainties that could materially affect our future performance . new accounting pronouncements there were no new accounting pronouncements issued or effective during the fiscal year which have had or are expected to have a material impact on the consolidated financial statements .
| million in 2010. overall , operating margins were favorably impacted by higher yield and increased tonnage , partially offset by increases in specific expense items described below . the 2011 operating ratio ( operating expenses divided by operating revenue ) was 97.3 percent as compared to 98.7 for 2010. salaries , wages and benefit expense increased $ 32.8 million due to increased volumes and more internal miles , $ 7.3 million in higher healthcare costs and increased workers ' compensation expense caused by development of existing claims and greater frequency of injuries in 2011. the fuel , operating expenses and supplies line reflected a $ 48.7 million increase in fuel costs due to higher mileage and price per gallon and a $ 7.1 million increase from fleet maintenance costs . claims and insurance in 2011 was $ 10.2 million more than 2010 reflecting unfavorable trends in self-insurance claims , primarily due to increased accident severity in 2011. the company can experience volatility in accident expense as a result of its self-insurance structure and $ 2.0 million retention limits per occurrence . purchased transportation expense increased $ 6.3 million primarily due to higher fuel surcharge . other substantially all non-operating expenses represent interest expense . the interest expense in 2011 was slightly lower due to lower borrowings . the effective tax rate was 35.9 percent for the year ended december 31 , 2011 compared to a net benefit of 1.2 percent in 2010 due to improved earnings in 2011. the significant difference in the effective tax rate from 2010 to 2011 is due to the lower level of pretax income in 2010. the 2011 and 2010 effective tax rate included approximately $ 1.0 million in alternative fuel tax credits . the notes to the consolidated financial statements provide an analysis of the income tax provision and the effective tax rate . working capital/capital expenditures working capital at december 31 , 2011 was $ 18.5 million which
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the most significant portion of these costs are direct labor costs , including salaries and wages , plus associated fringe benefits of our employees directly serving customers , in addition to the related management , facilities and infrastructure costs . cost of services also includes other direct costs , such as the costs of subcontractors and outside consultants and third-party materials , including hardware or software that we purchase and provide to the customer as part of an integrated solution . changes in the mix of services and equipment provided under our contracts can result in variability in our contract margins . since we earn higher profits on our own labor services , we expect the ratio of cost of services as a percent of revenues to decline when our labor services mix increases relative to subcontracted labor or third-party materials . conversely , as subcontracted labor or third-party material purchases for customers increase relative to our own labor services , we expect the ratio of cost of services as a percent of revenues to increase . the proportion that costs of services bears to revenues varies in part based on our mix of revenues by contract type . in general , cost-reimbursable contracts are the least profitable of our government contracts but offer the lowest risk of loss . under time-and-materials contracts , to the extent that our actual labor costs are higher or lower than the billing rates under the contract , our profit under the contract may either be greater or less than we anticipated or we may suffer a loss under the contract . in general , we realize a higher profit margin on work performed under time-and-materials contracts than cost-reimbursable contracts . fixed-price contracts generally offer higher profit margin opportunities but involve great financial risk because we bear the impact of cost overruns in return for the full benefit of any cost savings . general and administrative expenses general and administrative expenses include the salaries and wages , plus associated fringe benefits of our employees not performing work directly for customers , and associated facilities costs . among the functions covered by these costs are corporate business development , bid and proposal , contracts administration , finance and accounting , legal , corporate governance and executive and senior management . in addition , we included stock-based compensation , as well as depreciation and amortization expenses related to the general and administrative function . depreciation and amortization expenses include the depreciation of computers , furniture and other equipment , the amortization of third party software we use internally , leasehold improvements and intangible assets . intangible assets include customer relationships and contract backlogs acquired in business combinations , and are amortized over their estimated useful lives . we classify indirect costs incurred as cost of services and general and administrative expenses in the same manner as such costs are defined in our disclosure statements under u.s. government cost accounting standards . effective january 1 , 2014 , we updated our disclosure statements with the defense contract management agency , resulting in certain costs being classified differently either as cost of services or as general and administrative expenses on a prospective basis . this change has caused a net increase in the reported cost of services and a net decrease in reported general and administrative expenses in 2014 as compared to 2013 and 2012 ; however , total operating costs were not affected by this change . 31 interest expense interest expense is primarily related to interest expense incurred or accrued under our outstanding borrowings on our debt and deferred financing charges . interest income interest income is primarily from cash on hand and late invoice payments by the government . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > to december 31 , 2013 . replace_table_token_6_th revenues the primary driver of our decrease in revenues relates to reduced demand for services supporting overseas contingency operations ( oco ) as a result of the accelerated withdrawal of u.s. forces and reduction in military operations in afghanistan . the reduction in our oco related work in 2013 was primarily due to reduced demand on a sustainment contract for mine-resistant ambush-protected ( mrap ) vehicles and reduced demand for field service support on c4isr systems . these reductions were partially offset by revenue provided from contracts in the intelligence area , including contracts for it infrastructure modernization and from growth and healthcare it programs . cost of services the decrease in cost of services was primarily due to reductions in revenues . as a percentage of revenues , direct labor costs increased to 37.9 % for the year ended december 31 , 2013 , as compared to 36.1 % for the same period in 2012 . as a percentage of revenues , other direct costs , which include subcontractors and third party equipment and materials used in the performance of our contracts , was 48.5 % for the year ended december 31 , 2013 , compared to 49.6 % for the same period in 2012 . 34 general and administrative expenses the decrease in general and administrative expenses was due to cost reduction initiatives , including reductions in indirect support staff and lower stock based compensation expense . as a percentage of revenues , general and administrative expenses were slightly lower for the year ended december 31 , 2013 when compared to the same period in 2012 . goodwill impairment due to a significant reduction in the performance outlook of one of our reporting units during 2013 , we recorded a non-cash goodwill impairment charge of $ 118.4 million during 2013 . for additional information , see note 7 to our consolidated financial statements in item 8. provision for income taxes our effective tax rate is affected by recurring items , such as tax rates and the relative amount of income we earn in various taxing jurisdictions . it is also affected by discrete items that may occur in any given year , but are not consistent from year-to-year . story_separator_special_tag our effective income tax rates were 208.0 % and 38.7 % for the years ended december 31 , 2013 and 2012 , respectively . the increase in the effective tax rate is due to the non-deductible portion of the 2013 non-cash goodwill impairment charge . equity in losses of unconsolidated subsidiaries we account for our investment in the fluor-mantech logistics solutions , llc under the equity method of accounting , which resulted in $ ( 0.9 ) million and $ 0 in equity method losses for the years ended december 31 , 2013 and 2012 , respectively . net income ( loss ) the decrease in net income ( loss ) was due to a non-cash goodwill impairment charge , a reduction in revenues and margin pressure due to a shift to cost-reimbursable contract awards as well as the competitive market place . backlog for the years ended december 31 , 2014 , 2013 and 2012 our backlog was $ 3.3 billion , $ 3.9 billion and $ 6.5 billion , respectively , of which $ 0.8 billion , $ 1.1 billion and $ 1.8 billion , respectively , was funded backlog . the decrease in our backlog is primarily due to reduced demand on oco contracts resulting from the accelerated withdrawal from afghanistan . backlog represents estimates that we calculate on a consistent basis . for additional information on how we compute backlog , see “ backlog ” in item 1 “ business. ” liquidity and capital resources historically , our primary liquidity needs have been the financing of acquisitions , working capital , payment under our cash dividend program and capital expenditures . our primary sources of liquidity are cash provided by operations and our revolving credit facility . on december 31 , 2014 , our cash and cash equivalents balance was $ 23.8 million . there were no outstanding borrowings under our revolving credit facility at december 31 , 2014 . at december 31 , 2014 , we were contingently liable under letters of credit totaling $ 0.8 million , which reduces our ability to borrow under our revolving credit facility by that amount . the maximum available borrowings under our revolving credit facility at december 31 , 2014 were $ 499.2 million . on april 15 , 2014 , we paid the redemption price plus accrued and unpaid interest on our 7.25 % senior unsecured notes . the 7.25 % senior unsecured notes were redeemed at a redemption price of 103.625 % of the principal amount of the outstanding 7.25 % senior unsecured notes , or $ 207.3 million . generally , cash provided by operating activities is adequate to fund our operations , including payments under our regular cash dividend program . due to fluctuations in our cash flows and level of operations , it may become necessary from time-to-time to increase borrowings under our revolving credit facility to meet cash demands . 35 cash flows from operating activities our operating cash flow is primarily affected by our ability to invoice and collect from our clients in a timely manner , our ability to manage our vendor payments and the overall profitability of our contracts . we bill most of our customers monthly after services are rendered . our accounts receivable days sales outstanding ( dso ) were 83 and 84 for the years ended december 31 , 2014 and 2013 , respectively . for the years ended december 31 , 2014 , 2013 and 2012 , our net cash flows from operating activities were $ 126.9 million , $ 188.3 million and $ 126.3 million , respectively . the decrease in net cash flows from operating activities during the year ended december 31 , 2014 when compared to the same period in 2013 was primarily due to lower amounts of income , excluding the effects of the 2013 non-cash goodwill impairment charge , and a lower volume of sales in 2014 . the increase in net cash flows from operating activities during the year ended december 31 , 2013 compared to the same period in 2012 was primarily due to the collection of accounts receivable and the timing of payments to our vendors and employees . cash flows from investing activities our cash flow from investing activities consists primarily of business combinations , purchases of property and equipment and investments in capitalized software for internal use . for the years ended december 31 , 2014 , 2013 and 2012 our net cash outflows from investing activities were $ 135.9 million , $ 24.8 million and $ 76.0 million , respectively . for the year ended december 31 , 2014 , our net cash outflows from investing activities were primarily due to the acquisitions of 7delta inc. and allied technology group , inc. and capital expenditures . for the year ended december 31 , 2013 , our net cash outflows from investing activities were due to the acquisition of alta systems , inc. and capital expenditures . for the year ended december 31 , 2012 , our net cash outflows from investing activities were due to the acquisition of hbgary , inc. and evolvent technologies , inc. and capital expenditures . cash flows from financing activities for the years ended december 31 , 2014 , 2013 and 2012 , our net cash outflows from financing activities were $ 236.3 million , $ 29.4 million and $ 29.8 million , respectively . for the year ended december 31 , 2014 , our net cash outflows from financing activities were due to the repayment of our senior unsecured notes and dividends paid . for the years ended december 31 , 2013 and 2012 , our net cash outflows from financing activities resulted primarily from dividends paid . revolving credit facility we maintain a credit agreement with a syndicate of lenders led by bank of america , n.a. , as sole administrative agent . the credit agreement provides for a $ 500 million revolving credit facility , with a $ 25 million letter of credit sublimit and a $ 30 million swing line loan sublimit .
| as a percentage of revenues , other direct costs , which include subcontractors and third party equipment and materials used in the performance of our contracts , was 42.5 % for the year ended december 31 , 2014 , compared to 48.5 % for the same period in 2013 . we expect cost of services as a percentage of revenues to remain relatively stable in 2015 . general and administrative expenses the decrease in general and administrative expense was due to cost reduction measures as well as certain costs being classified as cost of services instead of general and administrative expenses in 2014. we classify indirect costs in a manner consistent with disclosure statements filed with and approved by the defense contract management agency . effective january 1 , 2014 , updates to our disclosure statements resulted in changes to the presentation of certain costs . changes such as these do not impact the overall expense incurred or operating income and are presented prospectively . the reclassification of expenses and cost reductions were partially offset by increased bid and proposal spending in pursuit of larger contract opportunities and research and development expenditures to enhance technologies around our offerings . as a percentage of revenues , general and administrative expenses increased for the year ended december 31 , 2014 when compared to the same period in 2013 . we expect general and administrative expenses as a percentage of revenues to remain relatively stable or decrease slightly in 2015 . goodwill impairment during the fourth quarter of 2013 , multiple events and circumstances indicated a significant reduction in the operating performance outlook of one of our reporting units . these events included being awarded fewer contracts than anticipated on several competitive opportunities , changing mission priorities of the u.s. government in relation to certain of our c4isr contracts and oco-related work ( primarily on maintenance and sustainment of mrap vehicles ) , continued delays in our customers ' procurement cycle due , in part , to the u.s. government shutdown , and continued margin pressure on some of our contracts . the culmination of these events led us
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non-gaap adjusted ebitda . in addition to the metrics discussed above , we believe that adjusted ebitda is useful for evaluating the operating performance and efficiency of our business . ebitda represents our net income ( loss ) plus the sum of income tax ( benefit ) , depreciation and amortization and interest expense , net of interest income . adjusted ebitda represents ebitda as further adjusted for items such as stock-based compensation expense , ( gain ) loss on sale of assets not in the ordinary course of business , other non-cash items , financing fees , other fees and expenses related to acquisitions and other non-recurring ( income ) loss . see “ results of operations—quarterly results of operations data ” for more information about how we calculate ebitda and adjusted ebitda and the limitations of those metrics . key factors affecting our operating results in addition to the metrics described above , a number of other important factors may affect our results of operations in any given period . weather conditions and seasonality in a typical year , our operating results are impacted by seasonality . historically , our net sales and net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters . our net sales have been significantly lower in the first and fourth quarters due to lower landscaping , irrigation and turf maintenance activities in these quarters , and we have historically incurred net losses in these quarters . seasonal variations in operating results may also be significantly impacted by inclement weather conditions , such as snow storms , wet weather and hurricanes , which not only impact the demand for certain products like fertilizer and ice melt but also may delay construction projects where our products are used . industry and key economic conditions our business depends on demand from customers for landscape products and services . the landscape supply industry includes a significant amount of landscape products , such as irrigation systems , outdoor lighting , lawn care supplies , nursery goods and landscape accessories , for use in the construction of newly built homes , commercial buildings and recreational spaces . the landscape distribution industry has historically grown in line with rates of growth in residential housing and commercial building . the industry is also affected by trends in home prices , home sales and consumer spending . as general economic conditions improve or deteriorate , consumption of these products and services also tends to fluctuate . the landscape distribution industry also includes a significant amount of agronomics products such as fertilizer , herbicides , and ice melt for use in maintaining existing landscapes or facilities . the use of these products is also tied to general economic activity , but levels of sales are not as closely correlated to construction markets . 33 popular consumer trends preferences in housing , lifestyle and environmental awareness can also impact the overall level of demand and mix for the products we offer . examples of current trends we believe are important to our business include a heightened interest in professional landscape services inspired by the popularity of home and garden television shows and magazines ; the increasingly popular concept of “ outdoor living , ” which has been a key driver of sales growth for our hardscapes and outdoor lighting products ; and the social focus on eco-friendly products that promote water conservation , energy efficiency , and the adoption of “ green ” standards . acquisitions in addition to our organic growth we continue to grow our business through acquisitions in an effort to better service our existing customers and to attract new customers . these acquisitions have allowed us to further broaden our product lines and extend our geographic reach and leadership positions in local markets . in accordance with gaap , the results of the acquisitions are reflected in our financial statements from the date of acquisition forward . we incur transaction costs in connection with identifying and completing acquisitions and ongoing integration costs as we integrate acquired companies and seek to achieve synergies . as of december 30 , 2018 , we have invested approximately $ 300 million in 27 acquisitions since the start of the 2016 fiscal year . the following is a summary of the acquisitions completed during the 2018 , 2017 , and 2016 fiscal years : in december 2018 , we acquired the assets and assumed the liabilities of all around landscape supply and santa ynez stone & topsoil ( “ all around ” ) . with four locations in santa barbara county , california , all around is a market leader in the distribution of irrigation , hardscapes , and landscape supplies to landscape professionals . in october 2018 , we acquired the assets and assumed the liabilities of c & c sand and stone ( “ c & c ” ) . with four locations in colorado , c & c is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in july 2018 , we acquired the assets and assumed the liabilities of central pump & supply , inc. d/b/a centralpro ( “ centralpro ” ) . with 11 locations throughout central florida , centralpro is a market leader in the distribution of irrigation , lighting , and drainage products to landscape professionals . in july 2018 , we acquired the assets and assumed the liabilities of stone center lc ( “ stone center ” ) . with one location in manassas , virginia , stone center is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in july 2018 , we acquired the outstanding stock of koppco , inc. and kirkwood material supply , inc. ( collectively “ kirkwood ” ) . with eight locations in the st. louis , missouri metropolitan area , kirkwood is a market leader in the distribution of hardscapes and nursery supplies to landscape professionals . story_separator_special_tag in july 2018 , we acquired the outstanding stock of landscapexpress , inc. ( “ landscape express ” ) . with four locations in the boston , massachusetts metropolitan area , landscape express is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals . in june 2018 , we acquired the assets and assumed the liabilities of southwood valley turf ii , ltd , d/b/a all american stone and turf ( “ all american ” ) . with one location in college station , texas , all american is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals in east texas . in june 2018 , we acquired the outstanding stock of auto-rain supply inc. ( “ auto-rain ” ) . with five locations in washington and idaho , auto-rain is a market leader in the distribution of irrigation and related products to landscape professionals . in may 2018 , we acquired the assets and assumed the liabilities of landscaper 's choice wholesale nursery and supply ( “ landscaper 's choice ” ) . with two locations in naples and bonita springs , florida , landscaper 's choice is a market leader in wholesale nursery distribution . in april 2018 , we acquired the assets and assumed the liabilities of northwest marble & terrazzo co. ( “ terrazzo ” ) . with two locations in bellevue and marysville , washington , terrazzo is a market leader in the distribution of natural stone and hardscapes material to landscape professionals . 34 in march 2018 , we acquired the assets and assumed the liabilities of the distribution locations of village nurseries landscape centers ( “ village ” ) . with three locations in orange , huntington beach , and sacramento , california , village is a market leader in wholesale nursery distribution . in february 2018 , we acquired the outstanding stock of atlantic irrigation specialties , inc. and the limited liability company interests of atlantic irrigation south , llc ( collectively , “ atlantic ” ) . with 33 locations in 12 states within the eastern u.s. and two provinces in eastern canada , atlantic is a market leader in the distribution of irrigation , lighting , drainage , and landscaping equipment to green industry professionals . in january 2018 , we acquired the assets and assumed the liabilities of pete rose , inc. ( “ pete rose ” ) . with one location in richmond , virginia , pete rose is a market leader in the distribution of natural stone and hardscapes material to landscape professionals . in october 2017 , we acquired the assets and assumed the liabilities of harmony gardens , inc. ( “ harmony gardens ” ) . with two locations in the metro denver and fort collins , colorado areas , harmony gardens is a leading wholesale nursery distributor in the state . in september 2017 , we acquired the assets and assumed the liabilities of marshall stone , inc. and davis supply , llc ( collectively , “ marshall stone ” ) . with two locations in greensboro , north carolina and roanoke , virginia , marshall stone is a market leader in the distribution of natural stone and hardscape materials to landscape professionals . in august 2017 , we acquired the assets and assumed the liabilities of bondaze enterprises , inc. , a california corporation doing business as south coast supply ( “ south coast supply ” ) . with two locations in orange county , california , south coast supply is a market leader in the distribution of hardscape , natural stone and related products to landscape professionals . in may 2017 , we acquired the assets and assumed the liabilities of evergreen partners of raleigh , llc , evergreen partners of myrtle beach , llc , and evergreen logistics , llc ( collectively , “ evergreen ” ) . with two locations in raleigh , north carolina and myrtle beach , south carolina , evergreen is a market leader in the distribution of nursery supplies to landscape professionals . in march 2017 , we acquired all of the outstanding stock of american builders supply , inc. and masonryclub , inc. and subsidiary ( collectively , “ ab supply ” ) with 10 locations in the greater los angeles , california area and two locations in las vegas , nevada . ab supply is a market leader in the distribution of hardscape , natural stone and related products to landscape professionals . in march 2017 , we acquired the assets and assumed the liabilities of angelo 's supplies , inc. and angelo 's wholesale supplies , inc. ( collectively , “ angelo 's ” ) with two locations in wixom and farmington hills , michigan , both suburbs of detroit . angelo 's is a hardscape and landscape supply distributor , and has been a market leader since 1984. in february 2017 , we acquired the assets and assumed the liabilities of stone forest materials , llc ( “ stone forest ” ) with one location in kennesaw , georgia . stone forest is a market leader in the distribution of hardscape products to landscape professionals . in january 2017 , we acquired the assets and assumed the liabilities of aspen valley landscape supply , inc. ( “ aspen valley ” ) with three locations . headquartered in homer glen , illinois , aspen valley is a market leader in the distribution of hardscapes and landscape supplies in the chicago metropolitan area . in december 2016 , we acquired the assets and assumed the liabilities of east haven landscape products , headquartered in east haven , connecticut , adding a full-service landscape supply location along the southeastern connecticut coast and extending our network of existing full-service locations in greenwich , connecticut , bedford hills , new york and windsor , connecticut . the acquisition gives siteone a leading position for nursery , hardscapes , and landscape supplies in the east haven area .
| acquisitions were the primary driver of gross margin increase as operational improvement in pricing and category management were largely offset by higher costs including freight . 37 selling , general and administrative expenses ( operating expenses ) operating expenses for the 2018 fiscal year increased 15 % to $ 578.8 million from $ 502.2 million for the 2017 fiscal year . the increase in operating expenses was primarily driven by investments in strategic initiatives and our growth from acquisitions . operating expenses as a percentage of net sales increased to 27.4 % for the 2018 fiscal year compared to 27.0 % for the 2017 fiscal year . the increase in operating expenses as a percentage of net sales primarily reflected expenses associated with investments and acquisitions . depreciation and amortization increased $ 9.2 million to $ 52.3 million primarily as result of our acquisitions . interest expense and other non-operating expense interest expense and other non-operating expense increased 27 % to $ 32.1 million in the 2018 fiscal year from $ 25.2 million in the 2017 fiscal year . the increase was primarily the result of higher average debt levels and rising interest rates in the 2018 fiscal year as compared to the 2017 fiscal year . income tax ( benefit ) expense income tax expense was $ 1.3 million during the 2018 fiscal year as compared to income tax expense of $ 18.0 million during the 2017 fiscal year . the effective tax rate was 1.7 % during the 2018 fiscal year as compared to 24.8 % for the 2017 fiscal year . the decrease in the effective rate was due primarily to the reduction of the u.s. corporate income tax rate from 35 % to 21 % as a result of the 2017 tax act , a decrease in the company 's finalized one-time transition tax liability compared to its 2017 enactment-date provisional amount , and an increase in the amount of excess tax benefits recognized as a component of income tax expense in the company 's consolidated statements of operations . excess tax benefits of $ 16.3
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on june 4 , 2015 , we filed a shelf registration statement , effective june 10 , 2015 , relating to common stock , warrants and units that we may sell from time to time in one or more offerings , up to a total dollar amount of $ 100,000,000. we have not filed any supplemental prospectus defining particular terms of securities to be offered under the shelf registration statement . 34 our material cash needs for the next 12 months will include ( i ) costs of the phase 3 clinical trial in the u.s. ( ii ) employee salaries , , ( iii ) payments to hadassah for rent and operation of the gmp facilities , and ( iv ) fees to our consultants and legal advisors , patents , and fees for facilities to be used in our research and development . future operations are expected to be highly capital intensive and will require substantial capital raisings . we expect our current cash position will allow us to meet our obligations in the upcoming 12 months . over the longer term if we are not able to raise substantial additional capital , we may not be able to continue to function as a going concern and may have to cease operations or the company will reduce its costs , including curtailing its current plan to pursue larger clinical trials in als and move new indications into clinical testing . we will be required to raise a substantial amount of capital in the future in order to reach profitability and to complete the commercialization of our products . our ability to fund these future capital requirements will depend on many factors , including the following : our ability to obtain funding from third parties , including any future collaborative partners ; the scope , rate of progress and cost of our clinical trials and other research and development programs ; the time and costs required to gain regulatory approvals ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the costs of filing , prosecuting , defending and enforcing patents , patent applications , patent claims , trademarks and other intellectual property rights ; the effect of competition and market developments ; and future pre-clinical and clinical trial results . critical accounting policies our significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing in this annual report . 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 . financial statements in u.s. dollars : the functional currency of the company is the u.s dollar ( `` dollar '' ) since the dollar is the currency of the primary economic environment in which the company has operated and expects to continue to operate in the foreseeable future . part of the transactions of the company are recorded in new israeli shekels ( `` nis '' ) ; however , a substantial portion of the company 's costs are incurred in dollars or linked to the dollar . accordingly , management has designated the dollar as the currency of the company 's primary economic environment and thus it is their functional and reporting currency . transactions and balances denominated in dollars are presented at their original amounts . non-dollar transactions and balances have been re-measured to dollars in accordance with the provisions of asc 830-10 ( formerly statement of financial accounting standard 52 ) , `` foreign currency translation '' . all transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses , as appropriate . fair value of financial instruments : the carrying values of cash and cash equivalents , accounts receivable and prepaid expenses , trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments . 35 the company utilizes the black scholes merton formula to measure the fair value of the warrants issued . the assumptions included in the black-scholes model were : ( i ) the market price of the company 's shares ; ( ii ) the exercise price of the warrant ; ( iii ) risk-free interest ; ( iv ) term available to exercise or redeem the security and ( v ) the volatility of the shares during the relevant term . the company determines the volatility of its shares using daily historical quotes of the shares . the risk free interest rate is determined as the interest rate on governmental bonds with maturity commensurate with the term of the warrant . accounting for stock-based compensation : in accordance with asc 718-10 the company estimates the fair value of equity-based payment . the company recognizes compensation expense for the value of non-employee awards , which have graded vesting , based on the straight-line method over the requisite service period of each award . the company recognizes compensation expense for the value of employee awards that have graded vesting , based on the straight-line method over the requisite service period of each of the awards . the company estimates story_separator_special_tag on june 4 , 2015 , we filed a shelf registration statement , effective june 10 , 2015 , relating to common stock , warrants and units that we may sell from time to time in one or more offerings , up to a total dollar amount of $ 100,000,000. we have not filed any supplemental prospectus defining particular terms of securities to be offered under the shelf registration statement . 34 our material cash needs for the next 12 months will include ( i ) costs of the phase 3 clinical trial in the u.s. ( ii ) employee salaries , , ( iii ) payments to hadassah for rent and operation of the gmp facilities , and ( iv ) fees to our consultants and legal advisors , patents , and fees for facilities to be used in our research and development . future operations are expected to be highly capital intensive and will require substantial capital raisings . we expect our current cash position will allow us to meet our obligations in the upcoming 12 months . over the longer term if we are not able to raise substantial additional capital , we may not be able to continue to function as a going concern and may have to cease operations or the company will reduce its costs , including curtailing its current plan to pursue larger clinical trials in als and move new indications into clinical testing . we will be required to raise a substantial amount of capital in the future in order to reach profitability and to complete the commercialization of our products . our ability to fund these future capital requirements will depend on many factors , including the following : our ability to obtain funding from third parties , including any future collaborative partners ; the scope , rate of progress and cost of our clinical trials and other research and development programs ; the time and costs required to gain regulatory approvals ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the costs of filing , prosecuting , defending and enforcing patents , patent applications , patent claims , trademarks and other intellectual property rights ; the effect of competition and market developments ; and future pre-clinical and clinical trial results . critical accounting policies our significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing in this annual report . 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 . financial statements in u.s. dollars : the functional currency of the company is the u.s dollar ( `` dollar '' ) since the dollar is the currency of the primary economic environment in which the company has operated and expects to continue to operate in the foreseeable future . part of the transactions of the company are recorded in new israeli shekels ( `` nis '' ) ; however , a substantial portion of the company 's costs are incurred in dollars or linked to the dollar . accordingly , management has designated the dollar as the currency of the company 's primary economic environment and thus it is their functional and reporting currency . transactions and balances denominated in dollars are presented at their original amounts . non-dollar transactions and balances have been re-measured to dollars in accordance with the provisions of asc 830-10 ( formerly statement of financial accounting standard 52 ) , `` foreign currency translation '' . all transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses , as appropriate . fair value of financial instruments : the carrying values of cash and cash equivalents , accounts receivable and prepaid expenses , trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments . 35 the company utilizes the black scholes merton formula to measure the fair value of the warrants issued . the assumptions included in the black-scholes model were : ( i ) the market price of the company 's shares ; ( ii ) the exercise price of the warrant ; ( iii ) risk-free interest ; ( iv ) term available to exercise or redeem the security and ( v ) the volatility of the shares during the relevant term . the company determines the volatility of its shares using daily historical quotes of the shares . the risk free interest rate is determined as the interest rate on governmental bonds with maturity commensurate with the term of the warrant . accounting for stock-based compensation : in accordance with asc 718-10 the company estimates the fair value of equity-based payment . the company recognizes compensation expense for the value of non-employee awards , which have graded vesting , based on the straight-line method over the requisite service period of each award . the company recognizes compensation expense for the value of employee awards that have graded vesting , based on the straight-line method over the requisite service period of each of the awards . the company estimates
| general and administrative general and administrative expenses for the years ended december 31 , 2017 and 2016 were $ 4,022,000 and $ 2,833,000 , respectively . the increase of $ 1,189,000 in general and administrative expenses is mainly due to : ( i ) an increase of $ 235,000 in payroll and stock-based compensation expenses ; ( ii ) an increase of $ 309,000 in the cost of our investor relations and public relations activities and consultants , and ( iii ) an increase of $ 645,000 in travel , rent and various other expenses . financial expenses the financial income of $ 47,000 for the year ended december 31 , 2017 is mainly due to interest earned on our cash , cash equivalents and short-term deposits . financial income for the year ended december 31 , 2016 was $ 101,000. net loss net loss for the year ended december 31 , 2017 was $ 4,952,000 , as compared to a net loss of $ 4,982,000 for the year ended december 31 , 2016. net loss per share for the year ended december 31 , 2017 and december 31 , 2016 was $ 0.26 and $ 0.27 , respectively . 33 the weighted average number of shares of common stock used in computing basic and diluted net loss per share for the year ended december 31 , 2017 was 18,777,348 compared to 18,663,162 for the year ended december 31 , 2016. the increase in the weighted average number of shares of common stock used in computing basic loss per share for the year ended december 31 , 2017 was due to : ( i ) the issuance of shares to service providers and directors and ( ii ) the exercise of options and warrants . going concern to date the company has not generated any revenues from its activities and has incurred substantial operating losses . management expects the company to continue to generate substantial operating losses and to continue to fund its operations primarily through utilization of its current financial resources and through additional
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this agreement is further described under the headings `` businessour leases with hpt '' above in item 1 of this annual report , and `` results of operationsyear ended december 31 , 2011 to december 31 , 2010real estate rent expense '' and `` related party transactions '' below . this amendment agreement resulted in a significant reduction in our real estate rent expense and interest expense in 2012 and 2011 as compared with 2010. on january 2 , 2013 , the american taxpayer relief act of 2012 became law . the law included the reinstatement , retroactive to january 1 , 2012 , of the `` blender 's credit for biodiesel and renewable diesel '' . this credit had previously expired on december 31 , 2011 , and , accordingly , we did not recognize any benefit related to it in our 2012 operating results . we estimate that the reinstatement of this credit has entitled us to receive approximately $ 3,000 of refunds related to certain fuel purchases made during 2012. we expect to recognize this amount , net of our estimate of uncollectible amounts , if any , in our operating results for the first quarter of 2013. under the new law , the credit expires on december 31 , 2013 , and we expect to reflect any benefit from it in our operating results as qualifying fuel is purchased during 2013. summary of travel center site counts the changes in the number of our sites and in their method of operation ( company operated , franchisee leased and operated or franchisee owned and operated ) can be significant factors influencing 44 the changes in our results of operations . the following table summarizes the changes in the composition of our business during the past three years : replace_table_token_6_th ( 1 ) includes at each period presented two travel centers we operate that are owned by a joint venture in which we own a minority interest . as of december 31 , 2012 , we had entered into agreements to purchase four additional travel centers , one of which had been owned and operated by a franchisee under the ta brand . during january and february of 2013 , we completed two of these acquisitions and two acquisitions are expected to close in the first half of 2013. the pending transactions are subject to conditions and , accordingly , may be delayed , their terms may be changed or they may not be completed . relevance of fuel revenues and fuel volumes due to the price volatility of fuel products and our pricing to fuel customers , we believe that fuel revenue is not a reliable metric for analyzing our results of operations from period to period . as a result solely of changes in fuel prices , our fuel revenue may materially increase or decrease , in both absolute amounts and on a percentage basis , without a comparable change in fuel sales volumes or in fuel gross margin per gallon . we consider fuel volumes and fuel gross margin to be better measures of comparative performance than fuel revenues . however , fuel pricing and revenues can impact our working capital requirements ; see `` liquidity and capital resources '' below . 45 story_separator_special_tag command=add_scrtablerules , '' border-bottom : solid # 000000 1.0pt ; margin-bottom:0pt ; '' -- > site level operating expenses . site level operating expenses for 2012 , were $ 698,522 , an increase of $ 20,564 , or 3.0 % , compared to 2011. the increase in site level operating expenses primarily was due to the travel centers and businesses we acquired or opened during 2011 and 2012 , including site conversion or startup costs of $ 1,655 in 2012 and $ 411 in 2011 , and also resulted from adjustments to reserves for certain environmental and litigation matters of $ 2,525 in 2012 compared to $ 1,622 in 2011. on a same site basis for our company operated sites , site level operating expenses increased by $ 2,104 , or 0.3 % , for 2012 , compared to 2011 , primarily due to increased labor costs resulting from the increased level of nonfuel sales . site level operating expenses as a percentage of nonfuel revenues for 2012 , were 51.3 % , compared to 52.7 % for 2011 on a same site basis . the decrease in operating expenses as a percentage of nonfuel revenues primarily was because certain of our expenses are fixed , or otherwise do not vary directly with sales so that increases in our revenues did not result in corresponding increases in those site level operating expenses . selling , general and administrative expenses . selling , general and administrative expenses for 2012 , were $ 95,547 , an increase of $ 6,351 , or 7.1 % , compared to 2011. this increase primarily resulted from increases in legal expenses and personnel costs . the increased personnel costs resulted in part from increased headcount in regional operations management due to the increased number of company operated travel centers during 2012. real estate rent expense . rent expense for 2012 was $ 198,927 , an increase of $ 7,129 , or 3.7 % , compared to 2011 that primarily resulted from the increases in rent as a result of improvements sold to hpt during 2011 and 2012 and estimated percentage rent recognized under the ta lease based on increases in 2012 fuel and nonfuel revenues over the 2011 amounts at the sites leased under the ta lease . depreciation and amortization expense . depreciation and amortization expense for 2012 , was $ 51,534 , an increase of $ 4,068 , or 8.6 % , compared to 2011 , that primarily resulted from an increase in depreciable assets due in large part to the acquisitions we completed during 2011 and 2012. interest expense . interest expense consisted of the following : replace_table_token_10_th income tax provision . our provision for income taxes was $ 1,491 and $ 1,379 for 2012 and 2011 , respectively . story_separator_special_tag we do not currently recognize the benefit of all of our deferred tax assets , including the tax benefit associated with our tax loss carry forwards from prior years , but our tax loss carry forwards do offset any federal and certain state income tax associated with our current taxable income . our income tax provision represents certain minimum income based state taxes payable without regard to our tax loss carry forwards as well as the recognition of deferred tax liabilities that can not be used to reduce existing deferred tax assets related to the tax amortization of indefinite lived intangible assets and to foreign currency translation adjustments . 49 year ended december 31 , 2011 compared to december 31 , 2010 the following table presents changes in our operating results for the year ended december 31 , 2011 , as compared with the year ended december 31 , 2010. replace_table_token_11_th same site results comparisons as part of the discussion and analysis of our operating results we sometimes refer to increases and decreases in results on a same site basis . for purposes of these comparisons , we include a travel center in the following same site comparisons only if we ( or a franchisee of ours for purposes only of the rent and royalty revenues results ) continuously operated it from january 1 , 2010 , through december 31 , 2011. we do not exclude travel centers from the same site comparisons as a result of expansions in their size or changes in the services offered . we excluded from the same site comparisons the two travel centers we operate for a joint venture in which we own a 40 % interest because we account for this investment using the equity method of accounting and , therefore , the related revenues and expenses are not included in the respective line items in our consolidated results of operations . two 50 company operated travel centers were excluded from this same site comparison because they were temporarily closed during significant portions of the 2010 or 2011 periods as a result of flooding . replace_table_token_12_th ( 1 ) includes fuel sales volume , revenues and expenses of company operated travel centers only . revenues . revenues for 2011 , were $ 7,888,857 , which represented an increase from 2010 , of $ 1,926,376 , or 32.3 % , primarily related to an increase in fuel revenue . fuel revenues for 2011 were $ 6,603,329 , an increase of $ 1,812,670 , or 37.8 % , compared to 2010. this increase was principally the result of increases in fuel prices and also resulted from increased fuel sales volume . the table below shows the changes in fuel revenues between periods that resulted from price and volume changes : replace_table_token_13_th the increase in our fuel sales volume was largely a result of the travel centers we acquired in 2011. on a same site basis for our company operated sites , fuel sales volume for the year ended december 31 , 2011 , was largely unchanged as compared to the prior year . we believe that our same site fuel sales volume was negatively affected by the capital projects begun in 2011 to replace fuel dispensers and install diesel exhaust fluid dispensers , which required us to take certain diesel dispensers out of service during the year . 51 nonfuel revenues for 2011 were $ 1,271,085 , an increase of $ 112,742 , or 9.7 % , compared to the same period in 2010. the change between years primarily resulted from sales at our travel centers opened during the second quarter of 2011 , an increase in unit sales on a same site basis and sales price increases . on a same site basis for our company operated travel centers , nonfuel revenues increased by $ 96,310 , or 8.4 % during 2011 compared to 2010. we believe the same site nonfuel revenue increase reflects increased customer spending due to increased customer traffic , certain price increases we instituted as a result of increased prices we paid for nonfuel purchases and the effects of certain of our marketing efforts . rent and royalty revenues for 2011 were $ 14,443 , an increase of $ 964 , or 7.2 % , compared to 2010. rent and royalties increased as a result of increased nonfuel revenues at our franchisee locations , increases in rents at the ten franchisee operated locations we sublease to franchisees and the addition of four franchisee locations during 2011. these increases were partially offset by the effects of the termination of one franchisee travel center in december 2010 ( which travel center we subsequently acquired in june 2011 and we now operate ) and our acquisition in may 2011 of one franchise travel center that we now operate . cost of goods sold ( excluding depreciation ) . cost of goods sold for 2011 was $ 6,850,039 , an increase of $ 1,830,409 , or 36.5 % , compared to 2010. fuel cost of goods sold for 2011 of $ 6,301,947 increased by $ 1,771,004 , or 39.1 % , compared to 2010. this increase in fuel cost of goods sold primarily resulted from the increases in fuel prices and fuel sales volumes . the fuel gross margin per gallon of $ 0.150 per gallon on a same site basis for 2011 was $ 0.018 per gallon higher than for 2010 primarily as a result of variations in market prices for fuel , consolidation within our industry and our decisions to forgo certain low margin sales . nonfuel cost of goods sold for 2011 , was $ 548,092 , an increase of $ 59,405 , or 12.2 % , compared to the same period in 2010. nonfuel cost of goods sold increased due to the nonfuel sales increases discussed above , combined with increases in product unit costs we incurred .
| fuel revenues for 2012 , were $ 6,636,297 , an increase of $ 32,968 , or 0.5 % , compared to 2011. this increase was principally the result of increases in fuel prices and fuel sales at travel centers we acquired during 2011 and 2012. these increases were partially offset by decreases in same site fuel sales volume and also offset by decreases in gallons sold to franchisees . the decreased level of sales volume to franchisees resulted from the sublease renewals entered in the second half of 2012 , which increased our rent revenue but eliminated the requirement that these subtenants purchase diesel fuel from us . the 47 table below shows the changes in fuel revenues between periods that resulted from price and volume changes : replace_table_token_9_th on a same site basis , fuel sales volume for our company operated travel centers decreased by 82,492 gallons , or 4.2 % , during 2012 , compared to 2011. we believe that improved fuel efficiency of heavy truck engines and other fuel conservation efforts by trucking customers , capital projects that required us to take certain diesel dispensers temporarily out of service during the year , and our decision to avoid certain lower margin fuel sales contributed to decreased same site fuel sales volume despite the slight and slow improvement in the u.s. economy generally and the trucking industry specifically . nonfuel revenues for 2012 , were $ 1,344,755 , an increase of $ 73,670 , or 5.8 % , compared to 2011. the majority of the change between years related to those sites we operated continuously since january 1 , 2011. on a same site basis for our company operated sites , nonfuel revenues increased by $ 39,469 , or 3.2 % , during 2012 , compared to 2011. we believe the same site nonfuel revenue increase reflects increased customer spending due to increased customer traffic , certain price increases we have instituted as a result of increased prices we paid for nonfuel inventory purchases and the effects of
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in north american retail , we plan to increase retail sales and profitability over the long-term by improving the productivity and performance of our existing stores and by leaving a larger portion of our buys open prior to each season to improve the efficiency of our speed to market by allowing us to design and produce closer to market delivery . we will also continue to emphasize our e-commerce channel as we execute our omni-channel strategy . in fiscal 2014 , we reduced our store openings in the u.s. and canada as compared to fiscal 2013 as we focused on improving the performance of existing stores . during fiscal 2015 , we currently expect to continue with reduced store openings as well as the closure of certain under-performing stores as lease terms expire or through kick-out clauses . in addition , we plan to remodel key existing locations as part of the roll-out of our new store designs . europe . in europe , over the long-term , we will continue to focus on developing new markets in northern and eastern europe where our brand is well known but still under-penetrated . we have flagship stores in key cities such as barcelona , dusseldorf , london , milan , munich and paris . during fiscal 2014 , we strategically reduced our store openings in southern europe as compared to fiscal 2013 so we can focus on improving the performance of existing stores . during fiscal 2015 , we plan to continue our retail store expansion primarily in northern and eastern europe as well as the middle east , but we expect this to be mostly offset by the closure of certain under-performing stores mainly in southern europe as lease terms expire or through kick-out clauses . asia . we see significant long-term market opportunities in asia and we have dedicated capital and human resources to support the region 's growth and development . we and our partners have flagship stores in key cities such as beijing , hong kong , seoul and shanghai , and we have partnered with licensees to develop our business in the second-tier and third-tier cities in this region . in china , where the economy has shown some signs of slowing , we have begun to see evidence of a more cautious consumer . our strategy in south korea , with a combined 419 stores and concessions at february 1 , 2014 , is to improve productivity and expand distribution for both our guess ? and g by guess branded locations . we are also in the process of establishing our direct 31 operations in japan where we opened our first store in the first quarter of fiscal 2015. for the year ended february 1 , 2014 , we and our partners opened 67 new stores and closed 38 stores in asia , ending the year with 499 stores and 492 concessions.we and our partners plan to open between 90 and 95 retail stores and concessions in total across all concepts in asia during fiscal 2015 . capital allocation the company 's investments in capital for the full fiscal year 2015 are planned between $ 75 million and $ 85 million ( after deducting estimated lease incentives of approximately $ 5 million ) . the planned investments in capital are primarily for store remodeling programs in north american retail , new store openings in north america and expansion of our retail business in europe . comparable store sales the company has reported national retail federation ( “ nrf ” ) calendar comparable store sales on a quarterly basis for our physical stores in the u.s. and canada excluding the results of our e-commerce sites . a store is considered comparable after it has been open for 13 full months . if a store remodel results in a square footage change of more than 15 % , or involves a relocation or a change in store concept , the store is removed from the comparable store base until it has been opened at its new size , in its new location or under its new concept for 13 full months . as a result of our omni-channel strategy , there is less distinction between our brick-and-mortar retail stores and our e-commerce sites and we believe the inclusion of e-commerce sales in our comparable store sales metric is becoming a more meaningful representation of these results . therefore , beginning in the first quarter of fiscal 2015 , the company will report nrf calendar comparable store sales for our stores in the u.s. and canada including our e-commerce sites as well as separately disclose the impact of e-commerce sales on our comparable store sales metric . an e-commerce site is considered comparable after it has been operational in a country for 13 full months and would exclude any related revenue from shipping fees . the comparable store sales for each of the fiscal years presented have been adjusted to compare to the appropriate week in the comparable prior-year period as a result of the additional week included in fiscal 2013. definitions and calculations of comparable store sales differ among companies in the apparel retail industry , and therefore comparable store sales disclosed by us may not be comparable to the comparable same store sales metric disclosed by other companies . story_separator_special_tag style= '' page-break-after : always '' / > global store count in fiscal 2014 , together with our partners , we opened 177 new stores worldwide , consisting of 89 stores in europe and the middle east , 67 stores in asia , 13 stores in the u.s. and canada and eight stores in central and south america . together with our partners , we closed 159 stores worldwide , consisting of 84 stores in europe and the middle east , 38 stores in asia , 31 stores in the u.s. and canada and six stores in central and south america . story_separator_special_tag we ended fiscal 2014 with 1,708 stores worldwide , comprised as follows : replace_table_token_8_th this store count does not include 496 concessions located primarily in south korea and greater china , which have been excluded because of their smaller store size in relation to our standard international store size . of the total 1,708 stores , 1,218 were guess ? stores , 284 were guess ? accessories stores , 112 were g by guess stores and 94 were marciano stores . results of operations the following table sets forth actual operating results for the fiscal years 2014 , 2013 , and 2012 as a percentage of net revenue : replace_table_token_9_th fiscal 2014 compared to fiscal 2013 consolidated results net revenue . net revenue for fiscal 2014 de creased by $ 88.8 million , or 3.3 % , to $ 2.57 billion from $ 2.66 billion in fiscal 2013 . in constant currency , net revenue decrease d by 4.4 % as currency translation fluctuations relating to our foreign operations favorably impacted net revenue by $ 28.6 million compared to the prior year . the de crease in revenue was driven primarily by lower european wholesale shipments , negative comparable store 34 sales in north american retail and europe and the impact on revenue from the additional week in the prior year , partially offset by the favorable impact on revenue from expansion of our retail business in europe . gross profit . gross profit de creased by $ 91.0 million , or 8.5 % , to $ 976.1 million for fiscal 2014 , from $ 1.07 billion in fiscal 2013 , due primarily to the unfavorable impact from lower wholesale sales in europe , negative comparable store sales in north american retail and europe and lower overall product margins , partially offset by the favorable impact from retail expansion in europe , net of higher occupancy costs , and currency translation . gross margin de creased 210 basis points to 38.0 % for fiscal 2014 , from 40.1 % in fiscal 2013 , due to a higher occupancy rate and lower overall product margins . the higher occupancy rate was driven by negative comparable store sales in north american retail and lower wholesale shipments in europe . product margins declined due primarily to more markdowns in north american retail . the company 's gross margin may not be comparable to other entities since some entities include all of the costs related to their distribution in cost of product sales and others , like the company , generally exclude the wholesale-related distribution costs from gross margin , including them instead in sg & a expenses . additionally , some entities include retail store occupancy costs in sg & a expenses and others , like the company , include retail store occupancy costs , including rent and depreciation , in cost of product sales . selling , general and administrative expenses . sg & a expenses de creased by $ 51.5 million , or 6.5 % , to $ 741.1 million for fiscal 2014 , from $ 792.6 million in fiscal 2013 . the de crease in sg & a expenses , which included the unfavorable impact of currency translation , was due primarily to lower selling and merchandising expenses in europe and lower investments in advertising and marketing . the company 's sg & a rate de creased by 90 basis points to 28.9 % for fiscal 2014 , compared to 29.8 % in fiscal 2013 . the sg & a rate was favorably impacted by lower selling and merchandising expenses in europe resulting from productivity improvements and lower investments in advertising and marketing , partially offset by the negative impact on the company 's fixed cost structure resulting from a decline in european wholesale shipments and negative comparable store sales in north american retail . restructuring charges . during the first quarter of fiscal 2014 , the company implemented plans to streamline its structure and reduce expenses in both europe and north america . during the second quarter of fiscal 2014 , the company expanded these plans to include the consolidation and streamlining of certain operations in europe and asia . these actions resulted in restructuring charges of $ 12.4 million incurred during fiscal 2014 . earnings from operations . earnings from operations de creased by $ 51.9 million , or 18.9 % , to $ 222.6 million for fiscal 2014 , from $ 274.5 million in fiscal 2013 . currency translation fluctuations relating to our foreign operations favorably impacted earnings from operations by $ 4.4 million . operating margin de creased 160 basis points to 8.7 % for fiscal 2014 , compared to 10.3 % in fiscal 2013 . operating margin was negatively impacted by lower overall gross margins and the negative impact of the restructuring charges , partially offset by a lower sg & a rate . the restructuring charges of $ 12.4 million negatively impacted the operating margin for fiscal 2014 by 40 basis points . interest income , net . interest income , net was $ 0.1 million for fiscal 2014 , compared to interest income , net of $ 0.4 million in fiscal 2013 and includes the impact of hedge ineffectiveness of foreign currency forward contracts designated as cash flow hedges . other income , net . other income , net was $ 10.3 million for fiscal 2014 , compared to other income , net of $ 5.7 million in fiscal 2013 . other income , net in fiscal 2014 consisted primarily of net unrealized and realized gains on non-operating assets and net realized and unrealized mark-to-market gains on foreign currency contracts and other foreign currency balances . other income , net in fiscal 2013 consisted primarily of net unrealized gains on non-operating assets and net realized mark-to-market revaluation gains on foreign currency contracts and other foreign currency balances . income tax expense .
| in constant currency , net revenue decrease d by 4.4 % . gross margin ( gross profit as a percentage of total net revenue ) de clined 210 basis points to 38.0 % for fiscal 2014 , compared to 40.1 % in the prior year . selling , general and administrative ( “ sg & a ” ) expenses de creased 6.5 % to $ 741.1 million for fiscal 2014 , compared to $ 792.6 million in the prior year . sg & a expenses as a percentage of revenue ( “ sg & a rate ” ) de creased by 90 basis points to 28.9 % for fiscal 2014 , compared to 29.8 % in the prior year . the company incurred $ 12.4 million in restructuring charges during fiscal 2014 . earnings from operations de creased 18.9 % to $ 222.6 million for fiscal 2014 , compared to $ 274.5 million in the prior year . operating margin de clined 160 basis points to 8.7 % for fiscal 2014 , compared to 10.3 % in the prior year . the restructuring charges of $ 12.4 million negatively impacted the operating margin for fiscal 2014 by 40 basis points . other income , net ( including interest income and expense ) , totaled $ 10.4 million for fiscal 2014 , compared to other income , net , of $ 6.1 million in the prior year . the effective income tax rate de creased 300 basis points to 32.3 % for fiscal 2014 , compared to 35.3 % in the prior year . the effective tax rate for fiscal 2013 included the unfavorable impact of the $ 12.8 million italian tax settlement charge , partially offset by unrelated tax benefits of $ 4.0 million . key balance sheet accounts the company had $ 508.1 million in cash and cash equivalents and short-term investments as of february 1 , 2014 , up $ 172.2 million , compared to $ 335.9 million as of february 2 , 2013 . ◦ the company invested
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in some instances the acceptance criteria in the contract requires acceptance after all services are complete and all other elements have been delivered , in which case revenue recognition is deferred until those requirements are met . we estimate the amount of uncollectible receivables at the end of each reporting period based on the aging of the receivable balance , historical trends , and communications with our customers . if actual bad debts are significantly different from our estimates our operating results will be affected . inventory valuation our inventories primarily consist of component parts used to assemble our products after we receive orders from our customers . we purchase or have manufactured the component parts required by our engineering bill of materials . the timing and quantity of our purchases are based on order forecasts , the lead time requirements of our vendors , and on economic order quantities . at the end of each reporting period , we compare our inventory on hand to our forecasted requirements for the next nine-month period , and write off the cost of any inventory that is surplus , less any amounts that we believe we can recover from disposal of goods that we specifically believe will be saleable past a nine-month horizon . our sales forecasts are based upon historical trends , communications from customers , and marketing data regarding market trends and dynamics , which we discuss in item 1 , business . surplus or obsolete inventory can also be created by changes to our engineering bill of materials . charges for the amounts we record as surplus or obsolete inventory are included in cost of revenue . 30 stock-based compensation we account for share-based awards to employees , including grants of employee stock options , in our financial statements based on the grant date fair values of the share-based awards . we use a binomial lattice valuation model to estimate the fair value of stock option grants made on or after january 1 , 2006. the binomial lattice model incorporates calculations for expected volatility , risk-free interest rates , employee exercise patterns and post-vesting employment termination behavior , and these factors affect the estimate of the fair value of the stock option grants . valuation of goodwill goodwill is tested for impairment at least annually as of september 30th and between annual tests if indicators of potential impairment exist . we test goodwill for impairment at the reporting unit level . prior to performing the goodwill impairment test we determine whether any triggering events are present that could cause impairment of goodwill . we then perform a two-step test to assess goodwill for impairment . the first step of the goodwill impairment test requires a determination of whether the fair value of the reporting unit is less than its carrying value . if the fair value exceeds the carrying value , goodwill is not impaired and no further testing is performed . the second step is performed only if the carrying value exceeds the fair value . the second step involves an analysis reflecting the allocation of fair value determined in the first step ( as if it was the fair value of the consideration transferred in a business combination ) . this process may result in the determination of a new amount of goodwill . if the implied fair value of the goodwill resulting from this hypothetical acquisition accounting is lower than the carrying value of the goodwill in the reporting unit , the difference is reflected as a non-cash impairment loss . the purpose of the second step is only to determine the amount of goodwill that should be recorded on the balance sheet . the recorded amounts of other items on the balance sheet are not adjusted . we have determined that we have one reporting unit for purposes of goodwill testing . if the carrying value of the reporting unit is zero or negative , the second step of the impairment test , as described above , is required to be performed to measure the amount of impairment loss , if any , when it is more likely than not that a goodwill impairment exists . in determining whether it is more likely than not that a goodwill impairment exists , we are required to evaluate whether there are adverse qualitative factors . we believe adverse qualitative factors exist as of december 31 , 2012 , based on the company 's continued reported losses from operations . as of december 31 , 2012 , the carrying value of the company 's reporting unit is $ 469,185. if during a future period the company 's carrying value of its reporting unit is decreased to zero or negative , it is likely that an impairment of goodwill will be recognized upon performing the second step of the goodwill impairment test . we estimate the fair value of our reporting unit utilizing up to three valuation methods : market capitalization , income approach and market approach . revenue and expense forecasts used in the evaluation of goodwill are based on trends of historical performance and our estimate of future performance . we determined that the fair value of the company 's reporting unit at september 30 , 2012 , the date of the company 's annual impairment test , exceeded its carrying value and as a result , goodwill is considered not impaired . furthermore , we determined there were no indicators of impairment in the subsequent fourth quarter 2012 . 31 revenues our revenues have been classified into two primary product families for the years ended december 31 , 2012 , 2011 , and 2010. additionally , we sell oem embedded products to third parties , and we continue to carry legacy plug-in connectivity products . story_separator_special_tag our product revenues are presented in the following table : replace_table_token_2_th our mobile handheld computer and related products and service revenues in 2012 declined $ 4.2 million or 37 % , from mobile handheld computer and related product revenues in 2011. mobile handheld computer revenues ( excluding revenues from the related plug-in products , accessories , and services ) declined by $ 2.0 million compared to the same period one year ago reflecting lower sales volumes and increased price discounts primarily from $ 1.1 million in reduced sales volumes of customized oem versions of our mobile handheld computer , with remaining declines of $ 0.9 million due to lower volume sales of our standard units in combined with price discounts in effect during the second , third , and fourth quarters of 2012 to incentivize sales of our older somo 650 models as we began the transition of the product line to the next generation somo 655 models which we commenced shipping into our distribution channel beginning in june 2012. product transitions such as this tend to slow customer deployments because of the time needed by customers and integrators to evaluate and qualify the new models with their applications . the transition to the new models of our standard mobile handheld computer was substantially completed in the third quarter 2012 with shipments of available units of the older models . additional declines in 2012 of $ 1.7 million were primarily from declines in sales of our companion plug-in data collection products due primarily to lower sales volumes of customized versions of our compactflash plug-in barcode scanners compared to the same period one year ago . remaining declines in 2012 of $ 0.5 million were from reduced sales of the related accessories , socketcare services , and warranty services , reflective of the lower sales volumes of our mobile handheld computers in 2012 compared to 2011 described previously . 32 our mobile handheld computer and related products and service revenues in 2011 increased by $ 1.5 million or 15 % , from mobile handheld computer and related product revenues in 2010. mobile handheld computer revenues ( excluding revenues from the related plug-in products and services ) increased by $ 2.4 million reflecting higher sales volumes due to a growing customer base with larger average unit deployments , and a recovery from shortages in the supply of our mobile handheld computer from our contract manufacturer compared to 2010. beginning in late 2010 , major tablet and smartphone manufacturers secured a majority of the lcd touch screen manufacturing capacity causing short term supply disruptions as lcd touch screen manufacturers reprioritized their capacity commitments . consequently , beginning in the fourth quarter 2010 , sales of our mobile handheld computer products were reduced as a result of the shortages in the availability of lcd touch screens used in the manufacture of our mobile handheld computer . the shortages continued but to progressively lesser extents through the first three quarters of 2011 , resulting in an inability to fully ship our quarterly mobile handheld computer backlog within each quarter until resolution of the supply issue in the fourth quarter 2011. partially offsetting these increases in 2011 were declines of $ 0.9 million primarily from reduced overall sales volumes of the related plug-in data collection products , reflecting a shift in sales to emphasize companion sales to our mobile handheld computer devices and a decline in units sold for use in third party handheld devices . our cordless barcode scanning and related products and service revenues in 2012 increased by $ 0.6 million or 11 % , from cordless barcode scanning and related revenues in 2011. revenue increases of $ 1.3 million in 2012 were from increased sales volumes of our new entry level apple certified cordless handheld barcode scanning product which we began shipping in the fourth quarter of 2011. additional revenue increases in 2012 of $ 0.5 million were from increased sales volumes of our imager based cordless handheld barcode scanners including our apple certified imager based cordless handheld scanners . partially offsetting these revenue increases were declines of $ 0.5 million in sales of our older entry level handheld barcode scanning model which we phased out in 2012 , and declines of $ 0.7 million in sales of our cordless ring scanner due to lower sales volumes in 2012 compared to 2011. our cordless barcode scanning and related products and service revenues in 2011 increased by $ 3.3 million or 164 % , from cordless barcode scanning and related product revenues in 2010. revenue increases of $ 1.6 million were from increased sales volumes of our imager based cordless handheld barcode scanning products including our scanning products targeted at apple 's ios based products . additional revenue increases in 2011 totaling $ 1.0 million were due to increased sales volumes on each of the remaining model lines in our family of cordless handheld barcode scanners , and increases of $ 0.7 million were due to increased sales of our cordless ring scanner due to higher sales volume in 2011 compared to 2010. service revenues were $ 0.8 million or 6 % of our revenues in 2012 , $ 1.0 million or 5 % of our revenues in 2011 , and $ 0.8 million or 6 % of our revenues in 2010. declines in service revenues in 2012 reflect the declines in unit sales of our mobile handheld computers in 2012 compared to 2011. partially offsetting these declines in 2012 were increased service revenues associated with the growth in sales volumes of our cordless handheld barcode scanner products mentioned previously . increases in service revenues in 2011 were due to increases in out-of-warranty related services compared to 2010. service revenues related to our socketcare service program were flat in 2011 compared to 2010. service revenues have been allocated to the respective products serviced in the table above .
| summary quarterly data : revenue $ 4,039 $ 4,353 $ 4,681 $ 4,437 $ 3,954 $ 4,038 $ 2,796 $ 2,777 cost of revenue 2,525 2,526 2,684 2,525 2,431 2,539 1,814 1,734 gross profit 1,514 1,827 1,997 1,912 1,523 1,499 982 1,043 operating expenses : research and development 670 648 702 756 784 740 635 552 sales and marketing 828 858 933 988 960 982 798 632 general and administrative 595 532 504 510 613 497 454 409 total operating expenses 2,093 2,038 2,139 2,254 2,357 2,219 1,887 1,593 interest income ( expense ) , net ( a ) ( 341 ) ( 173 ) ( 577 ) ( 25 ) ( 30 ) ( 27 ) ( 70 ) ( 130 ) deferred tax expense ( benefit ) 8 8 8 8 8 8 8 8 net income ( loss ) $ ( 928 ) $ ( 392 ) < td style= '' border-bottom : black 2.5pt double ; text-align :
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the following discussion and analysis of the liquidity and capital resources and results of operations of the partnership should be read in conjunction with the audited financial statements of the real property account and the audited consolidated financial statements of the partnership and the related notes included in this filing . ( a ) liquidity and capital resources as of december 31 , 2015 , the partnership 's liquid assets , consisting of cash and cash equivalents , were approximately $ 14.4 million , a decrease of approximately $ 17.9 million from $ 32.3 million as of december 31 , 2014. the decrease was primarily due to the following activities : ( a ) $ 10.3 million of equity for an acquisition of an apartment complex located in maplewood , new jersey ; ( b ) $ 6.1 million of equity for an acquisition of an apartment development located in chicago , illinois ; ( c ) $ 5.0 million distribution to the general partners ' controlling interest ; ( d ) $ 1.1 million of principal payments on financed properties ; ( e ) $ 12.6 million for a loan payoff at the retail property in roswell , georgia ; ( f ) $ 0.3 million in distribution to joint venture partners ; and ( g ) $ 2.0 million paid for capital improvements . the $ 2.0 million payment for capital improvements included the following items : ( a ) $ 1.0 million for leasing expenses at the office property in lisle , illinois ; ( b ) $ 0.2 million for unit upgrades at one of the apartment properties in seattle , washington ; ( c ) $ 0.2 million for space renovations at the retail property in hampton , virginia ; ( d ) $ 0.2 million for unit upgrades at the apartment property in charlotte , north carolina ; and ( e ) $ 0.4 million for capital improvements and transaction costs associated with leasing expenses at various properties . primarily offsetting the decreases were increases from the following activities : ( a ) net cash flow generated from property operations of $ 6.3 million ; and ( b ) $ 12.7 million of proceeds from the sale of the office in beaverton , oregon . sources of liquidity included net cash flow from property operations and interest from cash equivalents . the partnership uses cash for its real estate investment activities and for distributions to its general partners . as of december 31 , 2015 , approximately 5.1 % of the partnership 's total assets consisted of cash and cash equivalents . ( b ) results of operations the following is a comparison of the partnership 's results of operations for the years ended december 31 , 2015 and 2014. net investment income/ ( loss ) overview the partnership 's net investment income attributable to the general partners ' controlling interest for the year ended december 31 , 2015 was approximately $ 6.1 million , a decrease of approximately $ 0.8 million from the prior year period . the decrease in net investment income attributable to the general partners ' controlling interest was primarily due to a decrease of $ 1.3 million in the office sector investments ' and a decrease of $ 1.0 million in the hotel property 's net investment income from the prior year period . partially offsetting the decrease was an increase of approximately $ 1.1 million from the prior year period in net investment income attributable to the general partners ' controlling interest from the retail sector and an increase of approximately $ 0.7 million from the prior year period in net investment income attributable to the general partners ' controlling interest from the apartment sector . additionally , there was an increase of approximately $ 0.3 million of other expense as compared to prior period . story_separator_special_tag its consideration of facts and circumstances , that modifications in assumptions and estimates are appropriate , results of operations and financial position as reported in the financial statements of the real property account and the consolidated financial statements of the partnership may change significantly . the following sections discuss those critical accounting policies applied in preparing the financial statements of the real property account and the consolidated financial statements of the partnership that are most dependent on the application of estimates and assumptions . valuation of investments real estate investments are carried at fair value . properties owned are initially recorded at the purchase price plus closing costs . development costs and major renovations are capitalized as a component of cost , and routine maintenance and repairs are charged to expense as incurred . real estate costs include the cost of acquired property , including all the tangible and intangible assets . tangible assets include the value of all land , building and tenant improvements at the time of acquisition . intangible assets include the value of any above and below market leases , in-place leases , and tenant relationships at the time of acquisition . 19 in general , fair value estimates are based upon property appraisal reports prepared by independent real estate appraisers ( members of the appraisal institute or an equivalent organization ) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter . the chief real estate appraiser of prudential investment management , inc. ( “ pim ” , renamed pgim , inc. beginning january 1 , 2016 ) , which is an indirectly owned subsidiary of prudential financial , is responsible for assuring that the valuation process provides independent and reasonable property fair value estimates . an unaffiliated third party has been appointed by pim to assist the chief real estate appraiser in maintaining and monitoring the independence and the accuracy of the appraisal process . the fair value of real estate investments does not reflect the transaction sale costs , which may be incurred upon disposition story_separator_special_tag the following discussion and analysis of the liquidity and capital resources and results of operations of the partnership should be read in conjunction with the audited financial statements of the real property account and the audited consolidated financial statements of the partnership and the related notes included in this filing . ( a ) liquidity and capital resources as of december 31 , 2015 , the partnership 's liquid assets , consisting of cash and cash equivalents , were approximately $ 14.4 million , a decrease of approximately $ 17.9 million from $ 32.3 million as of december 31 , 2014. the decrease was primarily due to the following activities : ( a ) $ 10.3 million of equity for an acquisition of an apartment complex located in maplewood , new jersey ; ( b ) $ 6.1 million of equity for an acquisition of an apartment development located in chicago , illinois ; ( c ) $ 5.0 million distribution to the general partners ' controlling interest ; ( d ) $ 1.1 million of principal payments on financed properties ; ( e ) $ 12.6 million for a loan payoff at the retail property in roswell , georgia ; ( f ) $ 0.3 million in distribution to joint venture partners ; and ( g ) $ 2.0 million paid for capital improvements . the $ 2.0 million payment for capital improvements included the following items : ( a ) $ 1.0 million for leasing expenses at the office property in lisle , illinois ; ( b ) $ 0.2 million for unit upgrades at one of the apartment properties in seattle , washington ; ( c ) $ 0.2 million for space renovations at the retail property in hampton , virginia ; ( d ) $ 0.2 million for unit upgrades at the apartment property in charlotte , north carolina ; and ( e ) $ 0.4 million for capital improvements and transaction costs associated with leasing expenses at various properties . primarily offsetting the decreases were increases from the following activities : ( a ) net cash flow generated from property operations of $ 6.3 million ; and ( b ) $ 12.7 million of proceeds from the sale of the office in beaverton , oregon . sources of liquidity included net cash flow from property operations and interest from cash equivalents . the partnership uses cash for its real estate investment activities and for distributions to its general partners . as of december 31 , 2015 , approximately 5.1 % of the partnership 's total assets consisted of cash and cash equivalents . ( b ) results of operations the following is a comparison of the partnership 's results of operations for the years ended december 31 , 2015 and 2014. net investment income/ ( loss ) overview the partnership 's net investment income attributable to the general partners ' controlling interest for the year ended december 31 , 2015 was approximately $ 6.1 million , a decrease of approximately $ 0.8 million from the prior year period . the decrease in net investment income attributable to the general partners ' controlling interest was primarily due to a decrease of $ 1.3 million in the office sector investments ' and a decrease of $ 1.0 million in the hotel property 's net investment income from the prior year period . partially offsetting the decrease was an increase of approximately $ 1.1 million from the prior year period in net investment income attributable to the general partners ' controlling interest from the retail sector and an increase of approximately $ 0.7 million from the prior year period in net investment income attributable to the general partners ' controlling interest from the apartment sector . additionally , there was an increase of approximately $ 0.3 million of other expense as compared to prior period . story_separator_special_tag its consideration of facts and circumstances , that modifications in assumptions and estimates are appropriate , results of operations and financial position as reported in the financial statements of the real property account and the consolidated financial statements of the partnership may change significantly . the following sections discuss those critical accounting policies applied in preparing the financial statements of the real property account and the consolidated financial statements of the partnership that are most dependent on the application of estimates and assumptions . valuation of investments real estate investments are carried at fair value . properties owned are initially recorded at the purchase price plus closing costs . development costs and major renovations are capitalized as a component of cost , and routine maintenance and repairs are charged to expense as incurred . real estate costs include the cost of acquired property , including all the tangible and intangible assets . tangible assets include the value of all land , building and tenant improvements at the time of acquisition . intangible assets include the value of any above and below market leases , in-place leases , and tenant relationships at the time of acquisition . 19 in general , fair value estimates are based upon property appraisal reports prepared by independent real estate appraisers ( members of the appraisal institute or an equivalent organization ) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter . the chief real estate appraiser of prudential investment management , inc. ( “ pim ” , renamed pgim , inc. beginning january 1 , 2016 ) , which is an indirectly owned subsidiary of prudential financial , is responsible for assuring that the valuation process provides independent and reasonable property fair value estimates . an unaffiliated third party has been appointed by pim to assist the chief real estate appraiser in maintaining and monitoring the independence and the accuracy of the appraisal process . the fair value of real estate investments does not reflect the transaction sale costs , which may be incurred upon disposition
| the decrease in net investment income is primarily due to lease termination fees paid in 2014 at the property in lisle , illinois , and expenses from the sale of the property in beaverton , oregon in 2015. recognized and unrealized gain/ ( loss ) the office properties owned by the partnership recorded a net recognized and unrealized loss attributable to the general partners ' controlling interest of approximately $ 1.1 million for the year ended december 31 , 2015 , compared with a net unrealized gain attributable to the general partners ' controlling interest of approximately $ 1.1 million from the prior year period . the net unrealized loss attributable to the general partners ' controlling interest for the year ended december 31 , 2015 was primarily due to increased investment rates reflecting market activity at the property in lisle , illinois . partially offsetting the loss was a recognized gain on the sale of the property in beaverton , oregon . 16 apartment properties replace_table_token_4_th ( 1 ) the maplewood , new jersey property was acquired on april 2 , 2015 . ( 2 ) the raleigh , north carolina property was sold on february 25 , 2013. the net investment loss in 2014 represents post closing accrual write-offs . net investment income/ ( loss ) net investment income attributable to the general partners ' controlling interest for the partnership 's apartment properties was approximately $ 4.2 million for the year ended december 31 , 2015 , which represents an increase of approximately $ 0.7 million from the prior year period . the increase was primarily due to the acquisition of the apartment complex in maplewood , new jersey , increased rents at property # 2 in seattle , washington , and increased occupancy at property # 1 in seattle , washington . recognized and unrealized gain/ ( loss ) the apartment properties owned by the partnership recorded a net unrealized gain attributable to the general partners ' controlling interest of approximately $ 6.6 million for the year ended december 31 , 2015 , compared with a net unrealized gain attributable to the general partners ' controlling
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7 business strategy our business strategy is to offer for sale to businesses and families a limited number of stock keeping units ( sku 's ) covering a wide range of products at the lowest possible prices . we charge an annual membership fee to our customers . these fees combined with warehouse and distribution operating efficiencies and volume purchasing enable us to operate our business on lower merchandise margins than conventional retail stores . the combination of annual membership fees , operating efficiencies and low margins enable us to offer our members high quality merchandise at very competitive prices which , in turn , enhances the value of the pricesmart membership . current and future management actions generally , our operating efficiencies , earnings and cash flow from operations improve as sales increase . higher sales provide greater purchasing power and often result in lower product prices from our suppliers . further , increased sales permit us to leverage our selling , general and administrative expenses . sales growth in our existing locations ( comparable warehouse club sales ) create the highest degree of expense leverage . therefore , we prioritize initiatives that we expect will have the greatest impact on increasing sales , particularly within our existing locations . looking forward to the next several quarters , the following actions are likely to have an impact on our business and the results of operations . we seek to increase sales by growing sales with existing members in our warehouse clubs , by attracting new members to our clubs and by adding new warehouse clubs . our continued focus on initiatives to increase comparable warehouse club sales within existing warehouse clubs locations resulted in a 4.8 % increase in comparable warehouse club sales for the 52-week period ended august 31 , 2014 compared to the same 52-week period the prior year . during the first quarter of fiscal 2014 , we opened our sixth membership warehouse club in costa rica in la union , cartago , and in the third quarter opened our third warehouse club in honduras . in both cases , these new clubs negatively impacted reported comparable warehouse club sales during the year as warehouse sales transferred to these new clubs from existing clubs . with the comparable warehouse club sales growth and the addition of these two new warehouse clubs , the company grew warehouse sales by 9.2 % for the year ended august 31 , 2014 compared to a year ago . in addition , the company increased the number of member accounts 7.9 % over the prior year . we are currently constructing three new warehouse clubs in colombia which are expected to have a positive impact on sales and membership in fiscal year 2015 as they are planned to open by the end of the fiscal first quarter . unlike , the new warehouse clubs which opened in fiscal year 2014 ( costa rica and honduras ) , these new clubs are not expected to negatively impact comparable warehouse club sales . effective june 1 , 2012 , we raised the annual membership fee by approximately $ 5.00 in most markets . the annual fee for a diamond membership in these markets is now approximately $ 35.00 ( entitling members to two cards ) . a membership fee helps us offer high quality merchandise at low prices , providing value to our members . in october 2012 , we launched the platinum membership account in costa rica . platinum members pay an annual membership fee of approximately $ 75.00 for a primary membership card for which they receive an annual 2 % rebate of their purchases on most items , up to a maximum annual rebate of $ 500.00. platinum members can apply this rebate to future purchases at the warehouse club at the end of the annual membership period . we continue to evaluate the platinum membership program to determine if platinum memberships should be offered in any of our other markets . logistics and distribution operations are an important part of what allows us to deliver high quality merchandise at low prices to our members . we continue to explore areas to improve efficiency , lower costs and ensure a good flow of merchandise to our warehouse clubs . we have added local and regional distribution centers in several of our markets to improve merchandise flow and in-stock conditions and reduce operating costs , the benefit of which can be passed on to our members in the form of lower merchandise prices , and we expect to add more in fiscal year 2015 as merchandise volumes increase . we have begun to offer on-line shopping options to our members . members have the ability to purchase merchandise that is not stocked in their local warehouse clubs through our e-commerce website . these purchases are shipped from the u.s. distribution warehouse for pick-up at the member 's local warehouse club location . in colombia , members in certain markets who do not reside in a city where one of our warehouse clubs is located , can purchase in-club merchandise on-line from warehouse clubs located within colombia and have it delivered to their home or office via a third party delivery service . we have been expanding our offerings in these alternative shopping methods , and while the percentage of sales through these channels relative to our overall sales is small , we believe it is an important and growing way to serve our current members and attract new members . purchasing land and constructing warehouse clubs is our single largest capital investment . securing land for warehouse club locations is challenging within our markets , especially in colombia , because suitable sites at economically feasible prices are difficult to find . in january of fiscal year 2014 , we acquired land in the southern area of pereira , colombia and in the city of 8 medellin , colombia and leased land in the city of bogota , colombia . story_separator_special_tag we are building new warehouse clubs at these three sites , and opened the bogota location on october 29 , 2014 and plan to open the other two sites in november 2014. in september 2014 , we acquired land in costa verde , west of panama city , panama . we plan to construct a warehouse club on this site , which we expect to open in the summer of 2015. this will bring the number of our warehouse clubs operating in panama to five . the colombia and panama land acquisitions and the colombia lease are in keeping with our real estate philosophy . we have entered into real estate leases in the past and will likely do so in the future , but our preference is to own rather than lease real estate . real estate ownership provides a number of advantages as compared to leasing , including lower operating expenses , flexibility to expand or otherwise enhance our buildings , long-term control over the use of the property and the residual value that the real estate may have in future years . in order to secure warehouse club locations , we occasionally have purchased more land than is actually needed for the warehouse club facility . to the extent that we acquire property in excess of what is needed for a particular warehouse club , we generally have looked to either sell or develop the excess property . excess land at alajuela and brisas is being developed by joint ventures formed by us and the sellers of the property , which commenced in fiscal year 2011. we are employing a similar development strategy for the excess land at the san fernando , trinidad and arroyo hondo , dominican republic locations where the properties are fully owned by us . the recent land purchases in colombia do not contain excess property beyond that which will be needed for warehouse clubs . the profitable sale or development of real estate is highly dependent on real estate market conditions . financial highlights for the fourth quarter of fiscal year 2014 included : net warehouse club sales increased 5.6 % over the comparable prior year period . we ended the quarter with 33 warehouse clubs compared to 31 warehouse clubs at the end of the fourth quarter of fiscal year 2013. comparable warehouse club sales ( that is , sales in the warehouse clubs that have been open for greater than 13 1/2 calendar months ) for the 13 weeks ended august 31 , 2014 grew 1.8 % . membership income for the fourth quarter of fiscal year 2014 increased 7.9 % to $ 9.8 million . warehouse gross profits ( net warehouse club sales less associated cost of goods sold ) in the quarter increased 6.4 % over the prior year period and warehouse gross profits as a percent of net warehouse club sales were 15.2 % , an increase of 12 basis points from the same period last year . selling , general and administrative expenses ( not including pre-opening expenses and loss on the disposal of assets ) increased 4 basis points as a percentage of sales compared to the fourth quarter of last year . operating income for the fourth quarter of fiscal year 2014 was $ 33.8 million , an increase of $ 1.3 million over the fourth quarter of fiscal year 2013. we had a $ ( 528,000 ) net loss from currency exchange transactions in the current quarter compared to a $ 97,000 net gain from currency exchange transactions in the same period last year . net income for the fourth quarter of fiscal year 2014 was $ 21.9 million or $ 0.73 per diluted share , compared to $ 20.8 million , or $ 0.69 per diluted share , in the comparable prior year period . financial highlights for fiscal year 2014 included : net warehouse club sales increased 9.2 % to $ 2.4 billion for fiscal year 2014 compared to fiscal year 2013. membership income for fiscal year 2014 was $ 38.1 million , an increase of 12.5 % compared to fiscal year 2013. the number of membership accounts at year end was 1,182,355 . gross profits ( net warehouse sales less associated cost of goods sold ) increased 8.7 % . gross profits as a percent of net warehouse sales were 14.7 % for the full year , a decrease of 7 basis points ( 0.07 % ) from fiscal year 2013. selling , general and administrative expenses ( not including pre-opening expenses and loss on the disposal of assets ) as a percentage of net warehouse club sales remained essentially flat with fiscal year 2013 at 10.7 % . operating income for fiscal year 2014 was $ 136.7 million , an increase of 7.6 % from the prior year . foreign exchange transactions resulted in a net gain of $ 984,000 for the fiscal year 2014 compared to a net loss in fiscal year 2013 of $ ( 954,000 ) . net income for fiscal year 2014 was $ 92.9 million , or $ 3.07 per diluted share , compared to $ 84.3 million , or $ 2.78 per diluted share , in the prior year . 9 comparison of fiscal year 2014 to 2013 and fiscal year 2013 to 2012 the following discussion and analysis compares the results of operations for each of the three fiscal years ended august 31 , 2014 , 2013 and 2012 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report . certain percentages presented are calculated using actual results prior to rounding . our fiscal year ends on august 31. unless otherwise noted , all tables present dollar amounts in thousands . net warehouse club sales replace_table_token_11_th ( 1 ) we have made reclassifications to the consolidated statements of income for fiscal years reported prior to 2013 to conform to the presentation in fiscal year 2013 ; see `` selected financial data '' for further detail .
| third parties ; we rely extensively on computer systems to process transactions , summarize results and manage our business . failure to adequately maintain our systems and disruptions in our systems could harm our business and adversely affect our results of operations ; we could be subject to additional tax liabilities ; a few of our stockholders own approximately 28.1 % of our voting stock as of august 31 , 2014 , which may make it difficult to complete some corporate transactions without their support and may impede a change in control ; our inability to develop and retain existing key personnel or to attract highly qualified employees could adversely impact our business , financial condition and results of operations ; we are subject to volatility in foreign currency exchange rates ; we face the risk of exposure to product liability claims , a product recall and adverse publicity ; if we do not maintain the privacy and security of confidential information , we could damage our reputation , incur substantial additional costs and become subject to litigation ; we are subject to payment related risks ; changes in accounting standards and assumptions , estimates and judgments by management related to complex accounting matters could significantly affect our financial condition and results of operations ; we face increased public company compliance risks and compliance risks related to our international operations ; we face increased compliance risks associated with compliance with section 404 of the sarbanes-oxley act of 2002 ; if remediation costs or hazardous substance contamination levels at certain properties for which we maintain financial responsibility exceed management 's current expectations , our financial condition and results of operations could be adversely impacted . the risks described above as well as the other risks detailed in the company 's u.s. securities and exchange commission ( “ sec ” ) reports , including the company 's annual report on form 10-k filed for the fiscal year ended august 31 , 2014 filed on october 30 , 2014 pursuant to the securities exchange act of 1934 , see “ part ii - item
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we sold 3,750,000 shares of common stock at a price of $ 20.00 per share , resulting in net proceeds of $ 70.0 million after deducting underwriting discounts , commissions and offering expenses . in addition , we granted the underwriters an option , exercisable for 30 days , to purchase up to 562,500 additional shares of our common stock at the public offering price , less the underwriting discounts and commissions . in january 2021 , the underwriters exercised their option for 375,654 shares of our common stock , resulting in net proceeds of $ 7.1 million after deducting underwriting discounts . in december 2020 , we entered into a revenue interest purchase agreement ( “ ripa ” ) with mulholland sa llc , an affiliate of oberland capital llc ( “ oberland ” ) , as agent for purchasers party thereto ( the “ purchasers ” ) , and the purchasers named therein , pursuant to which the purchasers paid us $ 50.0 million on closing , less certain issuance costs . we may also be entitled to receive up to an additional $ 100.0 million upon certain regulatory approval of our product candidates and up to an additional $ 50.0 million at the option of the purchasers to finance in-license or other acquisitions ( “ purchaser payments ” ) . as consideration for the purchaser payments , the purchasers have the right to receive certain revenue interests ( the “ revenue interests ” ) from us based on the net sales of maralixibat , if approved , which will be tiered payments ranging from 2.00 % to 9.75 % of our net sales in the covered territory . the initial revenue interest rate of 9.75 % will decrease upon certain revenue achievements . the purchasers ' rights to receive such payments shall terminate on the date on which the purchasers have received payments totaling 195.0 % of the total payments made by the purchasers to the company , exclusive of transaction expenses , unless the ripa is terminated earlier . refer to note 6 to our audited financial statements included elsewhere in this annual report on form 10-k. concurrently with our entry into the ripa , we entered into a common stock purchase agreement ( the “ stock purchase agreement ” ) with tpc investments ii lp , tpc investments solutions lp and tpc investments solutions co-invest lp , each of which is an affiliate of oberland . pursuant to the stock purchase agreement , we issued an aggregate of 509,164 shares of our common stock at a price per share of $ 19.64 , resulting in net proceeds to us of $ 10.0 million . financial overview our net loss was $ 103.3 million and $ 52.6 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 173.2 million and cash , cash equivalents and investments of $ 231.8 million . we expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned clinical trials , continue our research and development activities , continue commercial preparation activities for maralixibat , and seek regulatory approvals for our product candidates , as well as hire additional personnel and protect our intellectual property . in addition , as our product candidates progress through development and toward commercialization , we will need to make milestone payments to the licensors and other third parties from whom we have in-licensed or acquired our product candidates . our net losses may fluctuate significantly from quarter-to-quarter and year-to-year , depending in particular on the timing of our clinical trials and non-clinical studies and our expenditures on other research and development activities . we do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates , which could take a number of years . if we obtain regulatory approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . 113 accordingly , until such time as we can generate substantial product revenues to support our cost structure , if ever , we expect to finance our cash needs through equity offerings , debt financings or other capital sources , including through the ripa , collaborations , licenses and other similar arrangements . 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 when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies . if we are unable to raise additional capital when needed , we could be forced to delay , limit , reduce or terminate the development of one or more of our product candidates or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves . covid-19 the covid-19 pandemic has had a significant economic impact across the global marketplace presenting challenges to maintaining business continuity . we are working diligently to ensure the advancement of all of our clinical development programs in the safest manner possible . while we are unable to reliably estimate the duration or extent of any potential business disruption or financial impact during this time , we remain committed to ( i ) prioritizing the safety , health and well-being of patients , their caregivers , healthcare providers and our employees ; ( ii ) ensuring patients are well supported and have continued uninterrupted access to our product candidates , for which we currently do not expect any supply disruption ; and ( iii ) advancing our clinical trials . story_separator_special_tag examples include a “ work from home policy ” for our employees and access to home health care to assist families with safer participation in our trials . although we did not see a significant financial impact to our business operations as a result of covid-19 for the year ended december 31 , 2020 , there may be potential impacts to our business in the future that are highly uncertain and difficult to predict such as temporary closures of our offices or those of our third-party manufacturers or suppliers , disruptions or restrictions on our employees ' ability to travel , disruptions to or delays in ongoing non-clinical trials , clinical trials , third-party manufacturing supply and other operations , the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns , interruptions or delays in the operations of the fda or other regulatory authorities , and our ability to raise capital and conduct business development activities . we continue to believe that existing cash , cash equivalents and investments and existing sources of and access to financing are adequate to satisfy our needs for working capital , capital expenditures , debt service requirements and other business development initiatives that we plan to strategically pursue . however , should the covid-19 pandemic and any associated recession or depression continue for a prolonged period , our results of operations , financial condition , liquidity and cash flows could be materially impacted as a result of a lower likelihood of effectively and efficiently developing new medicines and successfully commercializing our products . assignment and license agreement with shire ( takeda ) in november 2018 , we entered into an assignment and license agreement ( “ shire license agreement ” ) with shire international gmbh ( “ shire ” ) , which was subsequently acquired by takeda pharmaceutical company limited , in which we were granted an exclusive , royalty bearing worldwide license to develop and commercialize our two product candidates , maralixibat and volixibat . as part of the shire license agreement , we were assigned license agreements held by shire with satiogen pharmaceuticals , inc. ( “ satiogen ” and altogether , the “ satiogen license ” ) , pfizer inc. ( “ pfizer ” ) , and sanofi-aventis deutschland gmbh ( “ sanofi ” ) , collectively the assigned license agreements ( “ assigned license agreements ” ) . in partial consideration for the rights granted to us under the shire license agreement , we made an upfront payment to shire of $ 7.5 million and issued shire 1,859,151 shares of our common stock with an estimated fair value of $ 7.0 million . under the shire license agreement and assigned license agreements , we have paid aggregate development milestones of $ 3.0 million in july 2019 related to initiation of the phase 3 march clinical trial of maralixibat in pfic , $ 10.0 million in december 2020 upon acceptance of an maa filing to the ema for maralixibat for the treatment of pfic2 and $ 2.0 million in january 2021 associated with the initiation of the vistas phase 2b clinical trial of volixibat in psc . development milestones achieved prior to regulatory approval of the product are expensed in the period incurred as research and development . see note 7 to our consolidated financial statements included elsewhere in this annual report . 114 story_separator_special_tag current estimate of global forecasted net sales of maralixibat for our planned commercial launch and impacted by a debt discount comprising the estimated value of a bifurcated derivative liability and issuance costs incurred . as our product candidates are not yet approved for sale , the estimated probability and timing or amounts of repayment is likely to change each reporting period . the fair value of the derivative liability is valued using a “ with-and-without ” method . the “ with-and-without ” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the individual embedded derivative . the difference between the entire instrument with the embedded derivative compared to the instrument without the embedded derivative was the fair value of the derivative liability . the estimated probability and timing of underlying events triggering the exercisability of the derivative liability bifurcated from within the ripa , forecasted cash flows and the discount rate are significant unobservable inputs used to determine the estimated fair value of the entire instrument with the embedded derivative . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses as of each balance sheet date . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . we accrue and expense clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual study and patient enrollment rates in accordance with agreements established with clinical research organizations , clinical trial sites and other vendors associated with the clinical trials . we determine the estimates by reviewing contracts , vendor agreements and purchase orders and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services . 116 we make estimates of accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments , if necessary . if the actual timing of the performance of services or the level of effort varies from the estimate , we will adjust the accrual accordingly .
| general and administrative expense general and administrative expenses consist primarily of salaries and employee-related costs , including stock-based compensation , for personnel in executive , finance and other administrative functions . other significant costs include facility-related costs , legal fees relating to intellectual property and corporate matters , professional fees for accounting and consulting services and insurance costs . we expect that our general and administrative expenses will increase as we expand our operating activities , including commercial preparation activities and increased headcount . interest income interest income consists of interest earned on our cash equivalents and investments . interest expense interest expense for the year ended december 31 , 2020 was related to the ripa . costs during the year consist primarily of costs associated with our credit facility and non-cash interest costs associated with the amortization of the related debt discount and deferred issuance costs . other expense , net other expense , net consists of transactional currency exchange loss . 115 critical accounting policies and estimates our management 's 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 united states of america . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements . we base our estimates on 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 value of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report , we believe the following accounting policies are the most critical for fully understanding
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interest expense , net of interest income decreased $ 51 million in 2015 versus the prior year primarily due to a debt refinancing undertaken in the fourth quarter of 2014. business restructuring in december 2016 , ppg 's board of directors approved a business restructuring program which includes actions necessary to reduce its global cost structure . the program is focused on certain regions and end-use markets where business conditions are the weakest , as well as reductions in production capacity and various global functional and administrative costs . a pre-tax restructuring charge of $ 197 million was recorded in december 2016 , of which about $ 140 million represents employee severance and other cash costs and nearly $ 60 million is related to the write-down of certain assets held for sale and other non-cash costs . in addition to the aforementioned pre-tax charge and cash costs , approximately $ 15 million of incremental restructuring-related cash costs are expected during 2017 for certain items that are required to be expensed on an as-incurred basis . the restructuring actions will result in the net reduction of approximately 1,700 positions , with substantially all actions to be complete by the first quarter 2018. the actions have anticipated annual savings of approximately $ 125 million once fully implemented . refer to note 7 , `` business restructuring '' in item 8 of this form 10-k for additional information . in 2015 , ppg recorded a pre-tax restructuring charge of $ 140 million , of which about 85 % represents employee severance and other cash charges . ppg expects these restructuring actions will result in full year , pre-tax savings of approximately $ 105 million in 2017. as of december 31 , 2016 , substantially all actions have been completed . 20 2016 ppg annual report and form 10-k debt refinancing charge in 2014 , the company recorded a pre-tax charge of $ 317 million representing costs related to a debt refinancing undertaken to lower the company 's future interest costs . refer to note 8 , `` borrowings and lines of credit '' in item 8 of this form 10-k for additional information . pension settlement charges during 2016 , ppg permanently transferred approximately $ 1.8 billion of its u.s. and canadian pension obligations and assets to several highly rated insurance companies . these actions triggered remeasurement and partial settlement of certain of the company 's defined benefit pension plans . ppg recognized a $ 968 million pre-tax settlement charge in connection with these transactions . refer to note 12 , `` employee benefit plans '' in item 8 of this form 10-k for additional information . other charges other charges in 2016 were higher than in 2015 and other charges in 2015 were lower than in 2014 , due to pre-tax environmental charges of $ 82 million in 2016 and $ 138 million in 2014. these charges were principally for environmental remediation at a former chromium manufacturing plant and associated sites in new jersey . other income other income in 2016 was higher than in 2015 due to gains totaling $ 82 million resulting from the sale of ppg 's ownership interests in two asian fiber glass joint ventures , a legacy u.s. automotive glass and services business and a u.s. business affiliate . other income in 2015 was lower than 2014 due to a $ 94 million pre-tax gain representing ppg 's share of the gain recognized from the sale of an equity affiliate 's business in 2014. effective tax rate and earnings per diluted share , continuing operations december 31 , % change ( $ in millions , except percentages ) 2016 2015 2014 2016 vs. 2015 2015 vs. 2014 income tax expense $ 241 $ 424 $ 237 ( 43.2 ) % 78.9 % effective tax rate 29.1 % 23.8 % 17.6 % 5.3 % 6.2 % adjusted effective tax rate * 24.5 % 24.1 % 23.8 % 0.4 % 0.3 % earnings per diluted share $ 2.11 $ 4.89 $ 3.88 ( 56.9 ) % 26.0 % adjusted earnings per diluted share * $ 5.82 $ 5.43 $ 4.75 7.2 % 14.3 % * see the regulation g reconciliations - results of operations the effective tax rate for the year-ended december 31 , 2016 was 29.1 % and increased 5.3 % from the prior year primarily due to the inclusion of the tax effects of significant transactions during the year , including the tax effects of funding the pittsburgh corning asbestos trust . as reported , earnings per diluted share from continuing operations for the year ended december 31 , 2016 declined year-over-year from 2015 , primarily due to significant pension settlement charges and other charges for items that can not reasonably be expected to recur or that are not attributable to our primary operations . refer to the regulation g reconciliations - results of operations for additional information . the company 's earnings per diluted share and adjusted earnings per diluted share both benefited from the 10.7 million , 7.0 million and 7.6 million shares of stock repurchased in 2016 , 2015 and 2014 , respectively . 2016 ppg annual report and form 10-k 21 regulation g reconciliations - results of operations ppg industries believes investors ' understanding of the company 's operating performance is enhanced by the disclosure of net income , earnings per diluted share and the effective tax rate adjusted for certain charges . ppg 's management considers this information useful in providing insight into the company 's ongoing operating performance because it excludes the impact of items that can not reasonably be expected to recur on a quarterly basis or that are not attributable to our primary operations . net income and earnings per diluted share adjusted for these items are not recognized financial measures determined in accordance with u.s. generally accepted accounting principles ( gaap ) and should not be considered a substitute for net income or earnings per diluted share or other financial measures as computed in accordance with u.s. gaap . story_separator_special_tag in addition , adjusted net income , earnings per diluted share and the effective tax rate may not be comparable to similarly titled measures as reported by other companies . income before income taxes is reconciled to adjusted income before income taxes , the effective tax rate from continuing operations is reconciled to the adjusted effective tax rate from continuing operations and net income ( attributable to ppg ) and earnings per share – assuming dilution ( attributable to ppg ) are reconciled to adjusted net income ( attributable to ppg ) and adjusted earnings per share – assuming dilution below : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th ( 1 ) transaction-related costs include advisory , legal , accounting , valuation , and other professional or consulting fees incurred to effect significant acquisitions , as well as similar fees and other costs to effect divestitures not classified as discontinued operations . these costs also include the flow-through cost of sales impact for the step up to fair value of inventory acquired in acquisitions . these costs also include certain nonrecurring severance costs and charges associated with the company 's business portfolio transformation . 22 2016 ppg annual report and form 10-k performance of reportable business segments performance coatings replace_table_token_9_th 2016 vs. 2015 performance coatings net sales decreased ( 2 % ) due to the following : ● unfavorable foreign currency translation of approximately $ 260 million ( 3 % ) partially offset by : ● net sales from acquisitions ( +1 % ) architectural coatings - emea sales volumes were flat year-over-year . growth in western europe was offset by reduced demand levels in central europe and in africa , where economies are closely linked to depressed commodity prices . acquisition-related sales from univer in italy added about $ 10 million in the fourth quarter 2016. protective and marine coatings net sales volumes declined a low-to-mid-single-digit-percentage year-over-year as growth in protective coatings was offset by declines in marine coatings , primarily due to lower shipbuilding activity in asia pacific and the ongoing impact of decreased capital investment and maintenance in the oil and gas sector . protective coatings sales volumes grew versus the prior year , led by the u.s. and canada and latin america regions , including benefits from expanded distribution through the ppg-comex concessionaire network . aerospace coatings sales volumes increased modestly year-over-year , in line with industry growth rates . sales growth occurred in all major regions . automotive refinish coatings organic sales grew at a low-single-digit percentage rate year-over-year , outperforming end-use market demand levels in the u.s. and canada and asia pacific , as customers continue to adopt ppg 's industry leading technologies . architectural coatings - americas and asia pacific organic sales were flat versus the prior year . in the u.s. and canada , sales volumes advanced in the company-owned store channel versus the prior year , mainly due to recent growth-related investments and initiatives . the increase in the company-owned stores channel was more than offset by sales volume declines in national retail ( diy ) accounts and u.s. independent dealer channel year-over-year , despite diy channel strengthening in the second half of 2016. latin america organic sales were up year-over-year , led by mexico which grew at more than double the mexican gdp growth rate . segment income increased $ 12 million ( +1 % ) primarily due to the benefits from prior year business restructuring initiatives , modestly higher selling prices , lower manufacturing costs , acquisition-related income ( cumings microwave , le joint francais , univer ) , partially offset by unfavorable foreign currency translation and higher growth-related spending in the u.s. architectural coatings business . segment income margins expanded , increasing 40 basis points year-over-year . 2015 vs. 2014 performance coatings net sales increased ( 1 % ) due to the following : ● net sales from acquisitions ( +9 % ) , largely comex ● modestly higher selling prices partially offset by : ● unfavorable foreign currency translation of approximately $ 700 million ( 8 % ) ● lower sales volumes ( 1 % ) architectural coatings - emea sales volumes declined 1 % . demand was inconsistent throughout the region with modest growth continuing in certain countries , including the u.k. , while several other countries experienced lower demand , including france . protective and marine coatings net sales volumes were slightly higher year-over-year . sales for the business increased due to acquisition-related sales synergies from the comex acquisition offset by unfavorable foreign currency translation . organic sales growth continued in aerospace coatings , aided by increased end-use market demand , but moderated versus the prior period reflecting the strong growth the business has delivered over the past several years . automotive refinish coatings sales volume growth was higher , with solid growth trends in the u.s. and canada . excluding the impacts of acquisitions and currency , architectural coatings - americas and asia pacific net sales were lower versus 2014. the year-over-year sales comparison was negatively impacted in the u.s. and canada by several new ppg product pipeline fills at major customers in the previous year , as well as customer inventory management by most u.s. and canadian retail customers and independent dealers at the end of a modest paint season . organic sales growth in the acquired comex architectural coatings business was a high-single-digit percentage , but was partially mitigated by unfavorable foreign currency translation caused by the impact of a weaker mexican peso versus the u.s. dollar . segment income increased $ 97 million ( +8 % ) primarily due to acquisition-related income , lower manufacturing costs and modestly higher selling prices , partially offset by unfavorable foreign currency translation and lower sales volumes . 2016 ppg annual report and form 10-k 23 looking ahead in the first quarter of 2017 , we expect year-over-year growth in our automotive refinish business as customers continue to adopt ppg 's industry-leading technologies in most major regions . we expect aerospace coatings sales volume growth to be modest , as overall industry demand remains tepid .
| overall gdp and industrial production improved modestly in the region but at a slower pace versus 2015. regional demand continued to be mixed by country and end-use market . ppg experienced sales volume growth in each 2016 quarter , with the first half of the year growing faster than the second half due , in part , to a comparison to more robust growth in the second half of 2015. demand for ppg 's products in several end-use markets drove the regional growth rate , including above market performance in automotive oem and general industrial coatings . europe , middle east , africa ( emea ) remains a large region for ppg , representing approximately 30 % of ppg 's 2016 sales , similar to prior year levels . regional coatings volumes remain approximately 16 % below their pre-recession levels in 2008. the modest volume recovery reflects the slow pace of economic growth in the region . ppg expects continued volume growth over time at attractive incremental margins due to significant cost structure improvements and available capacity to satisfy additional demand . the euro and other regional currencies were relatively stable throughout the first half of 2016. in the second half of the year , the british pound declined meaningfully versus the u.s. dollar due to the economic uncertainty surrounding the vote to exit the european union . in addition , the euro experienced a moderate decline versus the u.s. dollar after the american presidential election in november . asia pacific and latin america the emerging regional markets of asia pacific and latin america represented 25 % of ppg 's 2016 sales in aggregate , in line with the prior year , which increased from 22 % in 2014 primarily due to the comex acquisition in mexico . asia remained the largest emerging region , with sales of approximately $ 2.4 billion , led by china which continued as ppg 's second largest country by revenue . sales volume growth in asia was led by the industrial coatings segment , in part due to strong automotive industry build
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the company 's investment in such stock increased by $ 7.5 million , or 32 % , to $ 30.9 million at september 30 , 2019 , from $ 23.4 million at september 30 , 2018 . the increase in fhlb stock directly correlates with the higher fhlb borrowings balances at september 30 , 2019 compared to the prior year . total end-of-period deposits decreased by $ 94.0 million , or 2 % , to $ 4.34 billion at september 30 , 2019 , as compared to september 30 , 2018 . the decrease in end-of-period deposits was primarily the result of a decrease in certificate of deposits of $ 166.9 million and a decrease in noninterest bearing checking deposits of $ 47.3 million , partially offset by an increase in wholesale deposits of $ 26.1 million and increases within money market and interest-bearing checking deposits . end of period deposits attributable to the payments division increased $ 21.3 million , or 1 % , at september 30 , 2019 , as compared to september 30 , 2018 . 61 the company 's total borrowings increased $ 347.1 million , or 67 % , from $ 514.7 million at september 30 , 2018 , to $ 861.9 million at september 30 , 2019 , primarily due to an increase in overnight federal funds purchased and long-term advances from the fhlb . during the third quarter of fiscal 2019 , the company replaced a portion of its short-term borrowings with new long-term borrowings from the fhlb of $ 110.0 million . the company 's short-term borrowings fluctuate on a daily basis due to the nature of a portion of its noninterest-bearing deposit base , primarily related to payroll processing timing with a higher volume of short-term borrowings on monday and tuesday , which are typically paid down throughout the week . this predictable fluctuation may be augmented near a month-end by a prefunding of certain programs . the company also has an available no fee line of credit with jp morgan of $ 25.0 million with no funds advanced at september 30 , 2019. see note 10 to the “ notes to consolidated financial statements , ” which are included in part ii , item 8 “ financial statements and supplementary data ” of this annual report on form 10-k. at september 30 , 2019 , the company 's stockholders ' equity totaled $ 844.0 million , an increase of $ 96.2 million from $ 747.7 million at september 30 , 2018 . stockholders ' equity increased primarily as a result of an increase in accumulated other comprehensive income , an increase in retained earnings , and additional paid in capital . at september 30 , 2019 , the bank continued to meet regulatory requirements for classification as a well-capitalized institution . see note 15 to the “ notes to consolidated financial statements , ” which is included in part ii , item 8 “ financial statements and supplementary data ” of this annual report on form 10-k. results of operations the company 's results of operations are dependent on net interest income , provision for loan and lease losses , non-interest income , non-interest expense and income tax expense . net interest income is the difference , or spread , between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities . the interest rate spread is affected by regulatory , economic and competitive factors that influence interest rates , loan and lease demand and deposit flows . notwithstanding that a significant amount of the company 's deposits , primarily those attributable to the payments division , pay relatively low rates of interest or none at all , the company , like other financial institutions , is subject to interest rate risk to the extent that its interest-earning assets mature or reprice at different times , or on a different basis , than its interest-bearing liabilities . the provision for loan and lease losses is the adjustment to the allowance for loan and lease losses balance for the applicable period . the allowance for loan and lease losses is management 's estimate of probable loan and lease losses in the lending portfolio based upon loan and lease losses that have been incurred as of the balance sheet date . the company 's noninterest income is derived primarily from tax product fees , prepaid cards , credit products , deposit and atm fees attributable to the mps division and fees charged on bank loans , leases and transaction accounts . noninterest income is also derived from rental income , net gains on the sale of securities , net gains on the sale of loans and leases , as well as the company 's holdings of bank-owned life insurance . this income is offset by noninterest expenses , such as compensation and occupancy expenses associated with additional personnel and office locations , as well as card processing expenses and tax product expenses attributable to payments . noninterest expense is also impacted by acquisition-related expenses , operating lease equipment depreciation expense , occupancy and equipment expenses , regulatory expenses , and legal and consulting expenses . 62 average balances , interest rates and yields the following table presents , for the periods indicated , the total dollar amount of interest income from average interest-earning assets and the resulting yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates . tax-equivalent adjustments have been made in yields on interest-bearing assets and nim . non-accruing loans and leases have been included in the table as loans or leases carrying a zero yield . replace_table_token_26_th ( 1 ) the tax rates used to arrive at the tey for the fiscal years ended september 30 , 2019 , 2018 , and 2017 were 21 % , 24.53 % , and 35 % , respectively . ( 2 ) net interest margin expressed on a fully taxable equivalent basis ( `` net interest margin , tax equivalent '' ) is a non-gaap financial measure . story_separator_special_tag the tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income . management of the company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis , and accordingly believe the presentation of this non-gaap financial measure may be useful for peer comparison purposes . 63 rate / volume analysis the following table presents , for the periods presented , the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities . the table distinguishes between the change related to higher outstanding balances and the change due to the levels and volatility of interest rates . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( i ) changes in volume ( i.e. , changes in volume multiplied by old rate ) and ( ii ) changes in rate ( i.e. , changes in rate multiplied by old volume ) . for purposes of this table , changes attributable to both rate and volume that can not be segregated have been allocated proportionately to the change due to volume and the change due to rate . replace_table_token_27_th ( 1 ) due to the change in categorization of the average balances , interest rates and yields table , the rate/volume calculation results have been conformed to be consistent with the updated categorization for all periods presented . comparison of operating results for the fiscal years ended september 30 , 2019 and september 30 , 2018 general the company recorded net income of $ 97.0 million , or $ 2.49 per diluted share , for the fiscal year ended september 30 , 2019 , compared to $ 51.6 million , or $ 1.67 per diluted share , for the fiscal year ended september 30 , 2018 , an increase of $ 45.4 million . total revenue for fiscal 2019 was $ 486.8 million , compared to $ 315.1 million for fiscal 2018 , an increase of 54 % . the increase in net income and revenue was primarily due to the improvement in net interest income , attributable to the loans and leases acquired through the crestmark acquisition in the fourth quarter of fiscal 2018 , along with an enhanced interest-earning asset mix . 64 net interest income net interest income for fiscal 2019 increased by $ 133.7 million , or 102 % , to $ 264.2 million from $ 130.5 million for the same period of the prior year . the increase in net interest income was primarily due to an increase in interest income of 105 % to $ 325.7 million for fiscal 2019 , from $ 158.5 million for the same period of the prior year . the increase in interest income was primarily due to growth in loan and lease balances , particularly in the commercial , consumer and warehouse finance portfolios . the average balance of loans and leases as a percentage of interest-earning assets for the fiscal year ended september 30 , 2019 increased to 66 % , from 44 % for the fiscal year ended september 30 , 2018 , while the average balance of total investments as a percentage of interest-earnings assets decreased to 32 % , from 54 % over that same period . nim was 4.91 % for fiscal 2019 , an increase of 177 basis points from 3.14 % in fiscal 2018 . nim , te was 5.02 % in fiscal 2019 , an increase of 161 basis points from 3.41 % in fiscal 2018. the increases in nim and nim , te in fiscal 2019 , compared to the same period of the prior year , were primarily attributable to higher net loan and lease yields attained through the crestmark division . the overall reported tax equivalent yield ( `` tey '' ) on average interest-earning assets increased by 208 basis points to 6.16 % when comparing fiscal 2019 to fiscal 2018. the improvement was driven primarily by the company 's improved earning asset mix , which reflects increased balances in the national lending portfolio . the yield on the national lending portfolio increased by 279 basis points while the yield on the community banking loan portfolio increased by 17 basis points . the fiscal 2019 tey on the securities portfolio increased by three basis points to 3.11 % as compared to the same period of the prior year . the company 's average interest earning assets for fiscal 2019 increased $ 1.22 billion , or 29 % , to $ 5.38 billion , from $ 4.16 billion during 2018 . the increase was primarily attributable to growth in the company 's average loan and lease portfolio of $ 1.71 billion , of which $ 1.54 billion was related to an increase in national lending loans and leases and $ 171.3 million was related to community banking loans . this increase was partially offset by a decrease in total investment securities of $ 532.9 million , which decreased as the company continued to utilize sales of securities and cash flow from its amortizing securities portfolio to fund loan growth . the company 's average balance of total deposits and interest-bearing liabilities increased $ 1.30 billion , or 32 % , to $ 5.32 billion during fiscal 2019 , from $ 4.02 billion during 2018 . this increase was primarily due to increases in average wholesale deposits of $ 1.03 billion and average noninterest-bearing deposits of $ 230.1 million , partially offset by a decrease in the average balance of total borrowings of $ 36.0 million . overall , the company 's cost of funds for all deposits and borrowings averaged 1.16 % during fiscal 2019 , compared to 0.70 % during fiscal 2018 .
| as of september 30 , 2019 , the remaining number of shares available for repurchase under this program was 319,228 shares of common stock , all of which remaining shares were repurchased in october 2019. on november 20 , 2019 , the company also announced the authorization by its board of directors of a new share repurchase program to repurchase up to an additional 7,500,000 shares of the company 's outstanding common stock . the new authorization will be effective november 21 , 2019 through december 31 , 2022. the company recorded net income of $ 97.0 million , or $ 2.49 per diluted share , in fiscal year 2019 , compared to $ 51.6 million , or $ 1.67 per diluted share , in fiscal year 2018 . this increase was primarily driven by the company 's net interest income growing to $ 264.2 million in fiscal year 2019 , compared to $ 130.5 million in the prior fiscal year . the increase was primarily attributable to improvement in the overall interest-earning asset mix due to loan and lease growth , particularly in the commercial finance portfolio . in fiscal year 2019 , noninterest income increased to $ 222.5 million from $ 184.5 million in fiscal 2018 . income tax expense ( benefit ) decreased from $ 5.1 million to $ ( 3.4 ) million year over year . fiscal year 2018 included a $ 4.6 million income tax benefit recognized by the company as a result of amending a historical tax return of crestmark bancorp , inc. also contributing to the change was an increase in net income before tax during the fourth quarter of fiscal 2019 compared to the same period of the prior year . partially offsetting the higher net interest income and noninterest income was noninterest expense , which increased from $ 228.2 million in fiscal year 2018 to $ 333.2 million in fiscal year 2019 . the continued growth in loans and leases during fiscal year 2019 , along with the continued optimization of the earning asset mix of the balance sheet , led to
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in connection with these private placements , the company paid legal fees of $ 21,000 . on january 26 , 2012 , contemporaneously with the share exchange , the company also entered into an option agreement with pershing pursuant to which the company obtained the option ( the story_separator_special_tag overview we were incorporated in the state of nevada on february 23 , 2010 under the name “ verve ventures , inc. ” on december 7 , 2011 , we changed our name to “ american strategic minerals corporation ” and primarily engaged in exploration and potential development of uranium and vanadium minerals business . during june 2012 , we decided to discontinue our uranium and vanadium minerals business and was engaged in the business of acquiring , renovating , and selling real estate properties located within the areas of southern california . on november 14 , 2012 , we completed a share and acquired all the intellectual property rights of sampo . we intend to engage in the acquisition , development and monetization of intellectual property through both the prosecution and licensing of its own patent portfolio , the acquisition of additional intellectual property or partnering with others to defend and enforce their patent rights . consequently , the company decided to discontinue its real estate business . our principal office is located at 2331 mill road , suite 100 , alexandria , va 22314.our telephone number is ( 703 ) 232-1701. recent development on november 14 , 2012 , we entered into a share exchange agreement ( the `` exchange agreement '' ) with sampo ip llc , a virginia limited liability company ( `` sampo '' ) , a company that holds certain intellectual property rights , and the members of sampo ( the `` sampo members '' ) . upon closing of the transaction contemplated under the exchange agreement ( the `` share exchange '' ) , on november 14 , 2012 , the sampo members ( 6 members ) transferred all of the issued and outstanding membership interests of sampo to us in exchange for an aggregate of 9,250,000 shares of our common stock . additionally , we made a cash payment to sampo of $ 500,000 pursuant to the terms of the exchange agreement . the 9,250,000 shares of common stock were valued at par value or $ 925. in accordance with accounting standards codification ( `` asc '' ) 805-50-30 `` business combinations , '' we determined that if the consideration paid is not in the form of cash , the measurement may be based on either ( i ) the cost which is measured based on the fair value of the consideration given or ( ii ) the fair value of the assets ( or net assets ) acquired , whichever is more clearly evident and thus more reliably measurable . we determined that the fair value of the net assets acquired was a better indicator thus more reliably measurable than the fair value of the common stock issued . therefore we have determined , in accordance with asc 805-50-30 , that the value of the net assets acquired is equivalent to $ 500,925 which represents the cash consideration paid of $ 500,000 and the par value of 9,250,000 shares of the company amounting to $ 925. no independent valuation was done on the net assets or patents acquired . we deemed that the fair value of the net asset of sampo ip amounting to $ 500,925 is more clearly evident and more reliable measurement basis . pursuant to the terms and conditions of the share exchange : · at the closing of the share exchange , each membership interest of sampo issued and outstanding immediately prior to the closing of the share exchange was exchanged for the right to receive shares of our common stock . accordingly , an aggregate of 9,250,000 shares of our common stock were issued to the sampo members . 15 · upon the closing of the share exchange , mark groussman resigned as the company 's chief executive officer and john stetson resigned as the company 's president and chief operating officer and simultaneously with the effectiveness of the share exchange , doug croxall was appointed as the company 's chief executive officer and chairman and john stetson was appointed as the company 's chief financial officer and secretary . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements . principles of consolidation the condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states of america and present the financial statements of the company and our wholly-owned subsidiary . in the preparation of our consolidated financial statements , intercompany transactions and balances are eliminated . story_separator_special_tag development stage companies we are a development stage company . activities during the development stage include organizing the business , raising capital and acquiring real estate properties . we are a development stage company with no revenues and no profits . we have not commenced significant operations and , in accordance with asc topic 915 “ development stage entities ” , is considered a development stage company . use of estimates and assumptions the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . significant estimates made by management include , but are not limited to , the assumptions used to calculate fair value of warrants granted , common stock issued for services , common stock issued in connection with an option agreement , common stock issued for acquisition of patents , and the valuation of mineral rights . fair value of financial instruments we adopted financial accounting standards board ( “ fasb ” ) asc 820 , “ fair value measurements and disclosures ” , for assets and liabilities measured at fair value on a recurring basis . asc 820 establishes a common definition for fair value to be applied to existing us gaap that require the use of fair value measurements which establishes a framework for measuring fair value and expands disclosure about such fair value measurements . asc 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . additionally , asc 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs . these inputs are prioritized below : level 1 : observable inputs such as quoted market prices in active markets for identical assets or liabilities level 2 : observable market-based inputs or unobservable inputs that are corroborated by market data level 3 : unobservable inputs for which there is little or no market data , which require the use of the reporting entity 's own assumptions . 16 in addition , fasb asc 825-10-25 “ fair value option ” was effective for january 1 , 2008. asc 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value . stock-based compensation stock-based compensation is accounted for based on the requirements of the share-based payment topic of asc 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award ( presumptively , the vesting period ) . the asc also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award . pursuant to asc topic 505-50 , for share-based payments to consultants and other third-parties , compensation expense is determined at the “ measurement date. ” the expense is recognized over the vesting period of the award . until the measurement date is reached , the total amount of compensation expense remains uncertain . the company initially records compensation expense based on the fair value of the award at the reporting date . long-lived assets we review for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable , pursuant to guidance established in asc 360-10-35-15 , “ impairment or disposal of long-lived assets ” . we recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset . the amount of impairment is measured as the difference between the asset 's estimated fair value and its book value . recent accounting pronouncements other accounting standards that have been issued or proposed by the fasb that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption . story_separator_special_tag add back total changes in assets and liabilities of $ 19,500 due to an increase in prepaid expenses of $ 20,000 , increase in deposits of $ 3,500 and increase in accounts payable and accrued expenses of ( $ 4,000 ) . investing activities net cash flows used in investing activities were $ 1,860,570 in connection with acquisition of mineral rights of $ 325,000 , acquisition of patents of $ 500,000 , investment in note receivable of $ 147,708 and acquisition of real estate property including capitalized improvements of $ 1,612,047 offset by sale of real estate property of $ 576,477 and collection of note receivable of $ 147,708 during the year ended december 31 , 2012. financing activities net cash flows provided by financing activities were $ 5,346,991 for the year ended december 31 , 2012. we received net proceeds from the sale of our securities of $ 6,511,965 and proceeds from disgorgement of former officer short swing profits of $ 50,000 offset by payment on notes payable of $ 1,082,974 and payments of $ 132,000 in connection with the rescission agreement . for the period from inception ( april 30 , 2011 ) to december 31 , 2011 , net cash provided by financing activities was $ 158,500 received from sale of common stock to officers of $ 5,000 , proceeds from issuance of note payable-related party of $ 53,500 and advance payable to an unrelated party of $ 100,000. contractual obligations we have certain fixed contractual obligations and commitments that include future
| 17 · consulting fees : for the year ended december 31 , 2012 and for the period from april 30 , 2011 ( inception ) to december 31 , 2011 , we incurred consulting fees of $ 2,042,144 , and $ 0 , respectively , an increase of $ 2,042,144 or 100 % , which is primarily attributable to stock based consulting expense of approximately $ 1.8 million in connection with warrant grants to consultants for consulting on strategic acquisitions and advice on capital restructuring during the year ended december 31 , 2012 . · professional fees : for the year ended december 31 , 2012 and for the period from april 30 , 2011 ( inception ) to december 31 , 2011 , professional fees were $ 510,112 and $ 4,605 , respectively , an increase of $ 505,507 or 10,977 % , which includes fees incurred for audits and legal fees related to public company filing requirements . · other general and administrative expenses : for the year ended december 31 , 2012 and for the period from april 30 , 2011 ( inception ) to december 31 , 2011 , other general and administrative expenses were $ 199,484 and $ 5,243 , respectively , an increase of $ 194,241 or 3,705 % , which includes postage , general insurance , automobile , office supplies , utilities , rent expense and office expenses . operating loss from continuing operations we reported an operating loss from continuing operations of $ 5,540,962 and $ 9,848 for the year ended december 31 , 2012 and for the period from april 30 , 2011 ( inception ) to december 31 , 2011 , respectively , an increase of $ 5,531,114 or 56,165 % . the increase in operating loss was due to the increase in operating expenses described above . other income total other income was $ 13,325 and $ 0 for the year ended december 31 , 2012 and for the period from april 30 , 2011 ( inception ) to december 31 , 2011 , respectively , an increase of $ 13,325 or 100 % . on march 19 , 2012 , we entered into an agreement with california gold , pursuant to which we agreed to provide california gold with a geological review on or prior to march 30 , 2012 , of our certain uranium properties in consideration for
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cgf is offering additional interests for sale to third party accredited investors , which if fully subscribed would increase the total capital raised by cgf up to $ 20 million . purchasers other than cds who purchase an amount of interests may receive warrants that represent the right to purchase an aggregate amount of between 500,000 to 1,000,000 shares of the company 's class a common stock , depending upon the investment amount . simultaneously , on october 17 , 2014 , the company entered into a unsecured promissory note with cgf whereby cgf made a loan to the company in the initial principal amount of $ 10 million and a maximum amount available for borrowing of up to $ 20 million with a three year term ( the original promissory note ) . the loan bears interest at a floating rate based on the 30 day libor plus 9.75 % per annum with a 10 % floor per annum . interest payments will be made monthly in arrears . there is a principal curtailment requirement of 10 % annually based on the average outstanding balance for the prior year . the loan will be used by the company ( i ) to finance the company 's current and future development pipeline ; ( ii ) to repay all or a portion of the company 's prior private placements ; ( iii ) to repay all or a portion of the company 's project mezzanine loans ; and ( iv ) for general corporate purposes . the company is the administrative manager of cgf but does not own any membership interests . on december 18 , 2014 , cgf entered into amended and restated subscription agreements with cds , management and members of the company 's board of directors who participated in the cgf private placement ( the amended private placement ) . under the amended private placement , in addition to the warrants as described above , purchasers of the interests will receive a certain amount of shares of our class a common stock that cgf acquired , depending upon the investment amount . simultaneously , on december 18 , 2014 , the company entered into an amended and restated original promissory note pursuant to which the maximum amount for borrowing was increased from $ 20 million to $ 25 million . all of the other terms of the original promissory note remained the same . see notes 8 , 9 and 10 in the accompanying consolidated financial statements for further discussions on cgf . comstock two rivers , l.c . on october 14 , 2014 , the company , through comstock two rivers , i , l.c . and comstock two rivers , ii , l.c. , subsidiaries of the company , executed the first four model home lot takedowns , under the respective land purchase option agreements , for a total purchase price of $ 0.6 million . 19 comstock investors vii , l.c . on october 15 , 2014 , the company redeemed the remaining non-controlling interests from the class b members of comstock investors vii , l.c . by paying $ 5.4 million representing final priority returns and capital return . impairment related to the momentum | shady grove we evaluate all of our projects to the extent of the existence of any impairment indicators requiring evaluation to determine if recorded carrying amounts are recoverable by evaluating discount rates , sales prices , absorption and our analysis of the best approach to marketing our projects for sale . during 2014 , we wrote-off $ 2.7 million in land and land development costs related to the momentum | shady grove project based on current economic and financial data . the write-off occurred in december 2014 due to a revision in our previous disposition strategy . impairment charges are recorded as a reduction in our capitalized land and or house costs . the impairment charge was calculated using a discounted cash flow analysis model , which is dependent upon several subjective factors , including the selection of an appropriate discount rate , estimated average sales prices and estimated sales rates . in performing our impairment modeling , we must select what we believe is an appropriate discount rate based on current market cost of capital and returns expectations . liquidity and capital resources we require capital to operate , to post deposits on new deals , to purchase and develop land , to construct homes , to fund related carrying costs and overhead and to fund various advertising and marketing programs to generate sales . these expenditures include payroll , community engineering , entitlement , architecture , advertising , utilities and interest as well as the construction costs of our homes . our sources of capital include , and should continue to include , private equity and debt placements ( which has included significant participation from company insiders ) , funds derived from various secured and unsecured borrowings to finance acquisition , development and construction on acquired land , cash flow from operations , which includes the sale and delivery of constructed homes , finished and raw building lots and the potential sale of public debt and equity securities . the company is involved in ongoing discussions with lenders and equity sources in an effort to provide additional growth capital to fund various new business opportunities . see note 8 for more details on our credit facilities and note 3 for details on private placement offerings in 2014. as of december 31 , 2014 , the company has $ 28.7 million of its credit facilities and project related loans that mature during 2015. we are in active discussions with our lenders with respect to these maturities and are seeking extensions and modifications to the loans as necessary . story_separator_special_tag the current performance of the projects and our early discussions with our lenders indicates that we will likely be successful in extending or modifying these loans , though no assurances can be made that we will be successful in these efforts . we are anticipating that with successful resolution of those discussions with our lenders , the recently completed capital raises from the aforementioned private placements , current available cash on hand and additional cash from settlement proceeds at existing and under development communities , the company should have sufficient financial resources to sustain its operations through the next 12 months , though no assurances can be made that the company will be successful in its efforts . credit facilities we have outstanding borrowings with various financial institutions and other lenders that have been used to finance the acquisition , development and construction of real estate projects . the company has generally financed its development and construction activities on a single or multiple project basis so it is not uncommon for each project or collection of projects the company develops and builds to have a separate credit facility . accordingly , the company typically has had numerous credit facilities and lenders . as of december 31 , 2014 , the company has $ 28.7 million of its credit facilities and project related loans that mature during 2015. we are in active discussions with our lenders with respect to these maturities and are seeking extensions and modifications to the loans as necessary . the current performance of the projects and our early discussions with our lenders indicates that we will likely be successful in extending or modifying these loans , though no assurances can be made that we will be successful in these efforts . see note 8 in the accompanying consolidated financial statements for additional information on our credit facilities . cash flow net cash used in operating activities was $ 5.2 million for the year ended december 31 , 2014. the $ 5.2 million usage in 2014 was primarily due to $ 3.7 million usage of cash for acquisition of inventories , $ 2.1 million in additional deposits made to secure land purchase contracts as the company continues its growth , partially offset by $ 0.6 million higher accrued interest and $ 0.2 million in cash collected from trade receivables . the $ 4.3 million cash used in operating activities in 2013 was primarily due to the $ 12.4 million usage to acquire inventories as the company positions itself for growth , partially offset by $ 2.8 million in lower accounts payable and accrued liabilities , $ 1.3 million in cash collected from trade receivables and $ 2.7 million in net operating income . 20 net cash provided by investing activities was $ 0.3 million for the year ended december 31 , 2014. this was primarily attributable to the release of insurance deposit of $ 1.0 million offset by $ 0.3 million of deposits to escrow accounts held as collateral for certain letters of credit , $ 0.3 million in purchase of capital assets and $ 0.2 million in net note receivable originated to a third party in the third quarter of 2014. net cash provided by investing activities was $ 1.2 million for the year ended december 31 , 2013 , primarily attributable to the release of restricted cash related to an insurance deposit . the year over year decrease in net cash provided by financing activities of $ 10.9 million was as follows : cash payments for distributions to non-controlling interests increased by $ 12.2 million primarily due to the comstock vii class b members priority interest payments and principal pay-off of $ 8.6 million and $ 0.9 million in priority interest payments and partial principal returns to comstock viii class b members . net cash borrowed from notes payable increased by $ 13.3 million primarily due to the $ 11.7 million net proceeds received from comstock growth fund l.c . cash received from non-controlling interests decreased by $ 11.9 million . this decrease was due primarily to contributions received from comstock vii class b members of $ 7.1 million and comstock viii class b members of $ 3.9 million in 2013 compared to none in 2014. stock repurchase program in november 2014 , our board of directors approved a new share repurchase program authorizing the company to repurchase up to three million shares of its class a common stock in one or more open market or privately negotiated transactions . for the year ended december 31 , 2014 , we purchased 95,400 shares of our class a common stock under the repurchase program . at december 31 , 2014 , 2.9 million shares of our class a common stock authorized for repurchase remain available for repurchase . see item 5 for further discussion on our common stock repurchase program . recent accounting pronouncements information regarding recent accounting pronouncements is contained in note 2 in the accompanying consolidated financial statements . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( gaap ) , which require us to make certain estimates and judgments 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 . on an ongoing basis , we evaluate our estimates including those related to the consolidation of variable interest entities , revenue recognition , impairment of real estate inventories , warranty reserve and our environmental liability exposure . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from these estimates . a summary of significant accounting policies is provided in note 2 in the accompanying consolidated financial statements .
| excluding the impact of the release of a portion of the warranty reserve discussed in note 2 in the accompanying consolidated financial statements , gross margin percentage was 19.1 % for the year ended december 31 , 2014. revenue other revenue other decreased approximately $ 0.2 million to $ 0.6 million during the year ended december 31 , 2014 , as compared to $ 0.8 million for the year ended december 31 , 2013. the decrease primarily relates to revenue from real estate services as the number of rental units at penderbrook and eclipse continued to decline until all units were sold in the second quarter of 2013. cost of sales homebuilding cost of sales homebuilding for the year ended december 31 , 2014 decreased by $ 3.5 million to $ 38.1 million as compared to $ 41.6 million for the year ended december 31 , 2013. the number of units settled and mix of homes settled during the year ended december 31 , 2014 accounted for the decrease in cost of sales . cost of sales other cost of sales other decreased approximately $ 0.4 million to $ 0.4 million during the year ended december 31 , 2014 as compared to $ 0.8 million for the year ended december 31 , 2013. this decrease in cost of sales other was primarily due to the absorption and sale of the condominium units at penderbrook and eclipse through the end of the second quarter of 2013 leading to a decline in the number of units used in rental operations . 23 impairment charges and write-offs we evaluate all of our projects to the extent of the existence of any impairment indicators requiring evaluation to determine if recorded carrying amounts were recoverable by evaluating discount rates , sales prices , absorption and our analysis of the best approach to marketing our projects for sale . during 2014 , we wrote-off $ 2.7 million in land and land development costs related to the momentum | shady grove project based on current economic and financial
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eks & h lllp denver , colorado september 11 , 2013 f- 2 report of independent registered public accounting firm to the board of directors and stockholders of antriabio , inc. : we have audited the accompanying balance sheet of antriabio , inc. ( a development stage enterprise ) as of december 31 , 2011 and the related statements of comprehensive loss , changes in stockholders ' equity ( deficit ) , and cash flows for the year ended december 31 , 2011 and for the periods from march 24 , 2010 ( inception ) to december 31 , 2011. these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform an audit of its internal control over financial reporting . our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit also includes examining , on a test story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations of contain forward-looking statements which involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under “ risk factors ” and elsewhere in this report . we assume no obligation to update forward-looking statements or the risk factors . you should read the following discussion in conjunction with antria 's financial statements and related notes . background on january 31 , 2013 , the company completed its acquisition of antria delaware though the purchase of all of the issued and outstanding antria delaware capital stock and the assumption of all of the options , warrants and convertible securities of antria delaware . as a result of the reverse merger , antria delaware become a wholly owned subsidiary of the company and the company assumed the business and operations of antria delaware . following the reverse merger , the business of antria delaware constitutes all of our operations , and excludes the prior operations of the company . with respect to this discussion , the terms “ antria delaware ” , the “ company ” , “ we ” , “ us ” and “ our ” refer to antriabio , inc. overview antria delaware was established in 2010 with the mission to develop and introduce new therapies for the diabetes market . our strategy is to combine proprietary sustained release formulation capabilities with known pharmaceutical agents and fda-approved delivery technologies to produce differentiated , patent-protected products that provide significant benefits to patients and physicians . we believe that this strategy increases the likelihood of clinical and commercial success as well as reduces safety concerns , approval risks and development costs . as the first step in effectuating this approach , we purchased the operating and intellectual property assets of prp out of bankruptcy to develop ab101 , a long acting basal insulin injection for patients with type 1 and type 2 diabetes . as part of the acquisition , we agreed to pay $ 400,000 , as well as an initial deposit of $ 100,000 paid to the chapter 11 trustee of prp , and certain contingent consideration up to a maximum of $ 44,000,000 should any of the following events occur within five years of the asset purchase : ( i ) $ 2,000,000 , if and when we initiate phase 2b clinical studies for ab101 ; ( ii ) $ 2,000,000 , if we license ab101 to a commercial pharmaceutical company ; ( iii ) $ 5,000,000 , if and when we initiate phase 3 clinical studies for ab101 ; ( iv ) $ 10,000,000 , if and when the fda or emea approves the marketing and sale of ab101 ; and ( v ) $ 25,000,000 , if and when the cumulative sales of ab101 in a 12 month period exceeds $ 500,000,000. adopting antribio inc. 's fiscal year end antribio , inc. has a fiscal year end of june 30. we assumed antribio , inc. 's fiscal year end going forward . 28 plan of operation since our inception , we have been focused on raising capital to fund our initial operations and the acquisition of the prp assets . now that the acquisition is complete , we plan on executing on our plans to study ab101 in the clinic and develop our product pipeline . our objective is to demonstrate that ab101 is non-inferior to lantus in terms of safety and efficacy . as a precursor to clinical studies , in 2013 we will study the pharmacokinetics and pharmacodynamics of ab101 in two animal species . we are currently making preparations to fill and finish preclinical ab101 material that was preserved and acquired from prp . story_separator_special_tag while we believe that the material should be sufficient both in terms of quality and quantity , to the extent that we determine that the existing material is lacking , we will have to produce new ab101 supplies which will delay our studies by as much as 12-18 months . further , we believe that we have enough ab101 clinical material to support our phase 1 trial , but we anticipate needing additional material for our phase 2 study . in 2014 we plan on making new supplies of ab101 clinical material to support the phase 2 study and follow-on studies . if our preclinical studies are successful , we will conduct two clinical trials outside the us in approximately 40 patients to determine the safety , dose and indications of efficacy of ab101 . the first study we intend to conduct is a phase 1 single ascending dose safety/pharmacokinetics/pharmacodynamics study in approximately 20 patients with type 1 diabetes . in this trial , individuals will receive a single dose of subcutaneously injected ab101 and the primary outcome is the presence of hyperglycemic episodes , if any . we plan to initiate this study in 2h of calendar year 2014 and have final results by the end of 4q 2014. the second study will be a phase 2 trial in approximately 20 type 1 diabetes patients to compare the glucose-lowering effect of ab101 with that of lantus . we plan on initiating this study in 4q 2014 and have final results by the end of 2q 2015. following these successful initial trials , we will seek approval for ab101 in various jurisdictions including in the us where we would conduct new phase 1 and 2 studies in 2015 and then commence larger phase 3 trials in 2016 to be completed by 2h 2017. we intend to file an nda in 2018. we believe that a critical milestone for the company is demonstrating that ab101 is safe and efficacious in the initial phase 1 and 2 studies . on the basis of these trials , we believe that we will have an opportunity to explore strategic relationships with third parties which , among other things , may provide us with a source of financing and augment our capabilities . while we have preclinical and clinical plans for ab101 as well as plans to develop other product opportunities , we currently do not have sufficient cash to carry out these studies and other company objectives . we believe that we need to raise as much as $ 30 million to fund our development and clinical activities through the completion of the initial phase 1 ab101 study in the us . we anticipate raising approximately $ 15 million this year and potentially another $ 15 million in late 2014 or early 2015 and we are beginning our efforts by targeting a $ 12 million raise as soon as possible . these funds will allow us to commence our preclinical and clinical efforts and to enter into a lease for manufacturing/research and development facility in colorado where we anticipate making certain leasehold improvements including the addition of a cgmp aseptic suite for clinical materials . we currently anticipate spending approximately six million dollars through 2014 for clinical materials and studies through phase 2 in russia . we also anticipate that during this same period , we will hire 40-50 individuals and spend approximately ten million dollars on salaries/benefits , rent and general and administrative matters . significant accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principals generally accepted in the united states of america . the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to recoverability of long-lived assets , fair value of derivative instruments , allowances and contingencies . management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstance , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . 29 patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property . the $ 13,000 value of the patents acquired in connection with the asset acquisition from prp is being amortized over the remaining patent lives of approximately 11 years . research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates , the scientific research necessary to produce commercially viable applications of our proprietary drugs , early stage clinical testing of product candidates , and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for stock-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant date fair value of options using the black-scholes option pricing model and
| even if we obtain this financing , it may be costly and may require us to agree to covenants or other provisions that will favor new investors over our existing stockholders . due to the time required to conduct clinical trials and obtain regulatory approval for any of our product candidates , we anticipate it will be some time before we generate substantial revenues , if ever . we expect to generate operating losses for the foreseeable future , but intend to limit the extent of these losses by entering into collaboration agreements with strategic partners . we expect our general and administrative expenses as well as our research and development expenses to increase substantially in the next fiscal year as a result of becoming a public company , leasing a lab facility and beginning our clinical testing and research activities . among other things , we expect expenses such as legal and accounting fees , directors ' and officers ' liability insurance premiums and directors ; fees to increase significantly . we also expect payroll expenses and research and development expenses to increase as we lease a lab facility and begin to manufacture ab101 and conduct research and development on our pipeline product candidates . net cash used in operating activities during the year ended june 30 , 2013 our operating activities used approximately $ 1.6 million in cash . the use of cash was $ 4.1 million lower than the net loss due to non-cash charges for stock-based compensation , derivative expenses and amortization . net cash used in operating activities also included a $ 206,609 increase in due from related parties and cash provided by a $ 804,861 increase in accounts payable and accrued expenses – related party and a $ 270,451 increase in interest payable . during the six month period ended june 30 , 2012 our operating activities used approximately $ 285,000 in cash . the use of cash was approximately $ 136,000 lower than the net loss due to non-cash charges for amortization . net cash used in operating activities also included a $ 79,742 decrease in accounts payable
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we estimate the quantitative component of the allowance for loan losses for loans collectively evaluated for impairment by applying loss factors based upon the loan type categorization and risk ratings assigned to real estate loans and commercial business loans and by applying qualitative adjustments at the portfolio level . quantitative loss factors give consideration to historical loss experience and migration experience by loan type over a look-back period , adjusted for a loss emergence period . qualitative factor adjustments give consideration to other qualitative or environmental factors such as trends and levels of delinquencies , impaired loans , charge-offs , recoveries and loan volumes , as well as national and local economic trends and conditions . qualitative factor adjustments to such loss factors are made to reflect risks in the loan portfolio not captured by the quantitative loss factors and , as such , are evaluated relative to risk levels present over the look-back period . the reserves resulting from the application of both the quantitative experiences and qualitative factors are combined to arrive at the allowance for loan losses for loans collectability evaluated for impairment , the allowance for loan losses is established through provisions for loan losses charged to expense , which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio , including the evaluation of impaired loans . although we believe that we have established and maintained the allowance for loan losses at appropriate levels , additional reserves may be necessary if future economic or other conditions differ substantially from the current operating environment . in addition , regulatory agencies , as an integral part of their examination process , periodically review our allowance for loan losses . such agencies may require us to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination . 34 our financial results are affected by the changes in and the level of the allowance for loan losses . this process involves our analysis of internal and external variables , and it requires that we exercise judgment to estimate an appropriate allowance for loan losses . as a result of the uncertainty associated with this subjectivity , we can not assure the precision of the amount reserved , should we experience sizable loan losses in any particular period . we believe the primary risks inherent in the portfolio are a general decline in the economy , a decline in real estate market values , rising unemployment , elevated unemployment , increasing vacancy rates , and increases in interest rates in the absence of economic improvement . any one or a combination of these events may adversely affect a borrower 's ability to repay its loan , resulting in increased delinquencies and loan losses . accordingly , we have recorded loan losses at a level which is estimated to represent the current risk in its loan portfolio . most of our non-performing assets are collateral dependent loans which are written down to their current appraised value less estimated costs to sell . we continue to assess the collateral of these loans and update our appraisals on these loans on an annual basis . to the extent the property values decline , there could be additional losses on these non-performing assets , which may be material . since its peak in 2013 , we have experienced a decline in levels of delinquencies , net charge-offs and non-performing assets . management considered these market conditions in deriving the estimated allowance for loan losses . should economic difficulties occur , the ultimate amount of loss could vary from that estimate . for additional discussion related to the determination of the allowance for loan losses , see “ risk management-analysis and determination of the allowance for loan losses ” and the notes to the consolidated financial statements . income taxes . we are subject to the income tax laws of the various jurisdictions where we conduct business and estimate income tax expense based on amounts expected to be owed to these various tax jurisdictions . the estimated income tax expense ( benefit ) is reported in the consolidated statements of income . 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 . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change . accrued or prepaid taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets or other liabilities in our consolidated financial statements . we assess the appropriate tax treatment of transactions and filing positions after considering statutes , regulations , judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation . changes in the estimate of accrued taxes occur periodically due to changes in tax rates , interpretations of tax laws , status of examinations by the tax authorities and newly enacted statutory , judicial and regulatory guidance that could impact the relative merits of tax positions . these changes , when they occur , impact accrued taxes and can materially affect our operating results . the company identified no significant income tax uncertainties through the evaluation of its income tax positions as of december 31 , 2019 and 2018. therefore , the company has no unrecognized income tax benefits as of those dates . as of december 31 , 2019 , we had net deferred tax assets totaling $ 10.3 million . in accordance with accounting standards story_separator_special_tag we estimate the quantitative component of the allowance for loan losses for loans collectively evaluated for impairment by applying loss factors based upon the loan type categorization and risk ratings assigned to real estate loans and commercial business loans and by applying qualitative adjustments at the portfolio level . quantitative loss factors give consideration to historical loss experience and migration experience by loan type over a look-back period , adjusted for a loss emergence period . qualitative factor adjustments give consideration to other qualitative or environmental factors such as trends and levels of delinquencies , impaired loans , charge-offs , recoveries and loan volumes , as well as national and local economic trends and conditions . qualitative factor adjustments to such loss factors are made to reflect risks in the loan portfolio not captured by the quantitative loss factors and , as such , are evaluated relative to risk levels present over the look-back period . the reserves resulting from the application of both the quantitative experiences and qualitative factors are combined to arrive at the allowance for loan losses for loans collectability evaluated for impairment , the allowance for loan losses is established through provisions for loan losses charged to expense , which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio , including the evaluation of impaired loans . although we believe that we have established and maintained the allowance for loan losses at appropriate levels , additional reserves may be necessary if future economic or other conditions differ substantially from the current operating environment . in addition , regulatory agencies , as an integral part of their examination process , periodically review our allowance for loan losses . such agencies may require us to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination . 34 our financial results are affected by the changes in and the level of the allowance for loan losses . this process involves our analysis of internal and external variables , and it requires that we exercise judgment to estimate an appropriate allowance for loan losses . as a result of the uncertainty associated with this subjectivity , we can not assure the precision of the amount reserved , should we experience sizable loan losses in any particular period . we believe the primary risks inherent in the portfolio are a general decline in the economy , a decline in real estate market values , rising unemployment , elevated unemployment , increasing vacancy rates , and increases in interest rates in the absence of economic improvement . any one or a combination of these events may adversely affect a borrower 's ability to repay its loan , resulting in increased delinquencies and loan losses . accordingly , we have recorded loan losses at a level which is estimated to represent the current risk in its loan portfolio . most of our non-performing assets are collateral dependent loans which are written down to their current appraised value less estimated costs to sell . we continue to assess the collateral of these loans and update our appraisals on these loans on an annual basis . to the extent the property values decline , there could be additional losses on these non-performing assets , which may be material . since its peak in 2013 , we have experienced a decline in levels of delinquencies , net charge-offs and non-performing assets . management considered these market conditions in deriving the estimated allowance for loan losses . should economic difficulties occur , the ultimate amount of loss could vary from that estimate . for additional discussion related to the determination of the allowance for loan losses , see “ risk management-analysis and determination of the allowance for loan losses ” and the notes to the consolidated financial statements . income taxes . we are subject to the income tax laws of the various jurisdictions where we conduct business and estimate income tax expense based on amounts expected to be owed to these various tax jurisdictions . the estimated income tax expense ( benefit ) is reported in the consolidated statements of income . 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 . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change . accrued or prepaid taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets or other liabilities in our consolidated financial statements . we assess the appropriate tax treatment of transactions and filing positions after considering statutes , regulations , judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation . changes in the estimate of accrued taxes occur periodically due to changes in tax rates , interpretations of tax laws , status of examinations by the tax authorities and newly enacted statutory , judicial and regulatory guidance that could impact the relative merits of tax positions . these changes , when they occur , impact accrued taxes and can materially affect our operating results . the company identified no significant income tax uncertainties through the evaluation of its income tax positions as of december 31 , 2019 and 2018. therefore , the company has no unrecognized income tax benefits as of those dates . as of december 31 , 2019 , we had net deferred tax assets totaling $ 10.3 million . in accordance with accounting standards
| the cost of interest-bearing deposits increased 47 basis points in 2019 as a result of an increase in overall interest rates , coupled with an increase in the average balance of $ 277.7 million , primarily in higher yielding certificates of deposits . provision for loan losses a provision for loan losses of $ 4.2 million was recorded for the year ended december 31 , 2019 compared to a provision of $ 6.7 million for the year ended december 31 , 2018 . the decrease was primarily driven by a decrease in historical loss factors , partially offset by the growth in the loan portfolio . net charge-offs increased to $ 4.9 million for the year ended december 31 , 2019 , as compared to $ 2.5 million for the year ended december 31 , 2018 . we charge-off any collateral or cash flow deficiency on all classified loans once they are 90 days delinquent or earlier if management believes the collectability of the loan is unlikely . the provision for loan losses was determined by management to be an amount necessary to maintain a balance of allowance for loan losses at a level that considers all known and current losses in the loan portfolio as well as potential losses due to unknown factors such as the economic environment . changes in the provision were based on management 's analysis of various factors such as : estimated fair value of underlying collateral , recent loss experience in particular segments of the portfolio , levels and trends in delinquent loans , and changes in general economic and business conditions . at december 31 , 2019 , the allowance for loan losses totaled $ 61.7 million , or 1.00 % of total loans outstanding , compared to $ 62.3 million , or 1.26 % of total loans outstanding , as of december 31 , 2018 . an analysis of the changes in the allowance for loan losses is presented under “ risk management-analysis and determination of the allowance for loan losses ”
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our medical care ratio , calculated as medical costs as a percentage of premium revenues , reflects the combination of pricing , rebates , benefit designs , consumer health care utilization and comprehensive care facilitation efforts . medical cost trends . in 2012 , we managed our commercial medical cost trend to a level under 5.5 percent . in 2013 , we expect a slight increase in trend from 2012 , albeit with relatively consistent unit cost and utilization trends compared to 2012. we expect our total trend will be driven primarily by continued unit cost pressure from health care providers as they try to compensate for soft utilization trends and cross-subsidization pressure due to their government reimbursement levels . underlying utilization trends declined significantly in 2010 and increased modestly in 2011 and 2012. use of outpatient services has been the primary driver of utilization trend increase , with inpatient utilization declining . we also experienced an increase in prescription drug costs in 2012 and expect that trend to continue due to unit cost pressure and a trend towards expensive new specialty drugs . as we move into 2013 , we believe current utilization trends are slightly below what we believe to be normal utilization levels . the weak economic environment , combined with our medical cost management , has had a favorable impact on utilization trends . we believe our alignment of progressive benefit designs , consumer engagement , clinical management , pay-for-performance reimbursement programs for care providers and network resources is favorably controlling medical and pharmacy costs , enhancing affordability and quality for our customers and members and helping to drive strong market response and growth . operating costs . operating costs are primarily comprised of costs related to employee compensation and benefits , agent and broker commissions , premium taxes and assessments , professional fees , advertising and occupancy costs . we seek to improve our operating cost ratio , calculated as operating costs as a percentage of total revenues , for an equivalent mix of business . however , changes in business mix , such as increases in the size of our health services businesses or an increase in the delivery of medical services on an integrated basis may impact our operating costs and operating cost ratio . other business trends our businesses participate in the u.s. , brazilian and certain other health economies . in the u.s. , health care spending comprises approximately 18 % of gross domestic product and has grown consistently for many years . we expect overall spending on health care to continue to grow in the future , due to inflation , medical technology and pharmaceutical advancement , regulatory requirements , demographic trends in the population and national interest in health and well-being . the rate of market growth may be affected by a variety of factors , including macro-economic conditions and regulatory changes , including in the u.s. enacted health care reforms , which could also impact our results of operations . delivery system and payment modernization . the market is changing based on demographic shifts , new regulations , political forces and both payer and patient expectations . these factors are creating market pressures to change from fee-for-service models to new delivery models focused on the holistic health of the consumer , integrated care across care providers and pay-for-performance payment structures . health plans and care providers are being called upon to work together to close gaps in care and improve the overall care for people , improve the health of a population and reduce the cost of care . the focus on delivery system modernization and payment reform is critical and the alignment of incentives between key constituents remains an important theme . we have seen increased participation in incentive-based payment models such as pay for performance , shared savings , bundled/episode payment and patient-centered medical home models ( pcmhs ) . we also have seen continued development and deployment of risk-based accountable care models designed to modernize local delivery systems by better coordinating care , reducing the fragmentation of treatments between multiple care providers in the current system , limiting unnecessary hospital admissions and readmissions , focusing on preventive care , breaking down reimbursement and treatment “ silos , ” and improving quality and outcomes . 33 this trend is creating the need for health management services that can coordinate care around the primary care physician and for investment in new clinical and administrative information and management systems , providing growth opportunities for our optum business platform . government reliance on private sector . the government , as a benefit sponsor , has been increasingly relying on private sector solutions . we expect this trend to continue as we believe the private sector provides a more flexible , better managed , higher quality health care experience than do traditional passive indemnity programs typically used in governmental benefit programs . states are struggling to balance unprecedented budget pressures with increases in their medicaid expenditures . at the same time , many are expanding their interest in managed care with particular emphasis on consumers who have complex and expensive health care needs . more and more , medicaid managed care is being viewed as an effective method to improve quality and manage costs . additionally , there are more than nine million individuals eligible for both medicare and medicaid . dually eligible beneficiaries typically have complex conditions with costs of care that are far higher than a typical medicare or medicaid beneficiary . while these individuals ' health needs are more complex and more costly , they have historically been in unmanaged environments . this provides unitedhealthcare an opportunity to integrate medicare and medicaid financing to fund efforts to optimize the health status of this frail population through close coordination of care . as of december 31 , 2012 , unitedhealthcare served more than 250,000 members in legacy dually eligible programs through medicare advantage and snps . story_separator_special_tag in 2013 , unitedhealthcare community & state will help implement ohio 's mme program , one of the first in the country under the new cms design . regulatory trends and uncertainties following is a summary of management 's view of the trends and uncertainties related to some of the key provisions of the health reform legislation and other regulatory items ; for additional information regarding the health reform legislation and regulatory trends and uncertainties , see item 1 , “ business - government regulation ” and item 1a , “ risk factors. ” commercial rate increase review . the health reform legislation requires hhs to maintain an annual review of “ unreasonable ” increases in premium rates for commercial health plans . hhs established a review threshold of annual premium rate increases generally at or above 10 % and clarified that hhs review will not supersede existing state review and approval procedures . premium rate review legislation ( ranging from new or enhanced rate filing requirements to prior approval requirements ) has been introduced or passed in more than half of the states as of the date of this report . the competitive forces common in our markets do not support unjustifiable rate increases . we have experienced and expect to continue to experience a tight , competitive commercial pricing environment . further , our rates and rate filings are developed using methods consistent with the standards of actuarial practices . we anticipate requesting rate increases above 10 % in a number of markets due to the combination of medical cost trends and the incremental costs of health care reform . we have begun to experience greater regulatory challenges to appropriate premium rate increases in several states , including california and new york . depending on the level of scrutiny by the states , there is a broad range of potential business impacts . for example , it may become more difficult to price our commercial risk business consistent with expected underlying cost trends , leading to the risk of operating margin compression in the commercial health benefits business . medicare advantage rates and minimum loss ratios . medicare advantage pricing benchmarks have been cut over the last several years and additional cuts were implemented in 2012 , with changes to continue to be phased in over the next one to five years ( benchmarks will ultimately range from 95 % of medicare fee-for-service rates in high cost areas to 115 % in low cost areas ) , depending on the level of benchmark reduction in a county . additionally , congress passed the budget control act of 2011 , which as amended by the american taxpayer relief act of 2012 , would trigger automatic across-the-board budget cuts ( sequestration ) , including a reduction in outlays for medicare starting in march 2013 , absent further congressional action . further , beginning in 2014 , medicare advantage plans will be required to have a minimum medical loss ratio of 85 % . cms has not yet issued guidance as to how this requirement will be calculated for medicare advantage plans . a significant portion of our network contracts are tied to medicare reimbursement levels . however , future medicare advantage rates may be outpaced by underlying medical cost trends , placing continued importance on effective medical management and ongoing improvements in administrative costs . there are a number of annual adjustments we can and are making to our operations , which may partially offset any impact from these rate reductions . for example , we seek to intensify our medical and operating cost management , adjust members ' benefits and decide on a county-by-county basis in which geographies to participate . additionally , achieving high quality scores from cms for improving upon certain clinical and operational performance standards will impact future quality bonuses that may offset these anticipated rate reductions . the expanded stars bonus program is set to expire in 2014. in 2015 , quality bonus payments will only be paid to 4 and 5 star plans per ppaca ( compared to current bonuses that are available to certain qualifying plans rated 3 stars or higher ) . approximately 60 % and 10 % of our current medicare advantage members are enrolled in plans that will be rated 3.5 stars or higher and 4 stars or 34 higher , respectively for the 2014 payment year based on scoring released by cms in october 2012. updated scores , to be released in october 2013 , will determine what portion of our medicare advantage membership will reside in a 4 star or 5 star plan and qualify for quality bonus payments in 2015. although we are dedicating substantial resources to improving our quality scores and star ratings , if we are unable to significantly increase the level of membership in plans with a rating of 4 stars or higher for the 2015 payment year , our 2015 results of operations and cash flows could be adversely impacted . we also may be able to mitigate the effects of reduced funding by increasing enrollment due , in part , to the increasing number of people eligible for medicare in coming years . compared to 2011 , our 2012 medicare advantage membership has increased by 400,000 consumers , or 18 % , including acquisitions . longer term , market wide decreases in the availability or relative quality of medicare advantage products may increase demand for other senior health benefits products such as our medicare supplement and medicare part d insurance offerings . industry fees and taxes .
| 2012 results of operations compared to 2011 results c onsolidated financial results revenues revenue increases in 2012 were driven by growth in the number of individuals served and premium rate increases related to underlying medical cost trends in our unitedhealthcare businesses and growth in our optum health service and technology offerings . medical costs medical costs increased in 2012 due to risk-based membership growth in our public and senior markets businesses , unit cost inflation across all businesses and continued moderate increases in health system use , partially offset by an increase in favorable medical reserve development . unit cost increases represented the primary driver of our medical cost trend , with the largest contributor being price increases to hospitals . operating costs the increases in our operating costs for 2012 were due to business growth , including increases in revenues from unitedhealthcare fee-based benefits and optum services , which carry comparatively higher operating costs , as well as investments in the optumrx pharmacy management services and unitedhealthcare military & veterans businesses . income tax rate the increase in our effective income tax rate for 2012 was due to the favorable resolution of various tax matters in 2011 , which lowered the 2011 effective income tax rate . reportable segments we have four reportable segments across our two business platforms , unitedhealthcare and optum : unitedhealthcare , which includes unitedhealthcare employer & individual , unitedhealthcare medicare & retirement , unitedhealthcare community & state , and unitedhealthcare international ; optumhealth ; optuminsight ; and optumrx . see note 13 of notes to the consolidated financial statements included in item 8 , “ financial statements ” and item 1 , “ business ” for a description of how each of our reportable segments derives its revenues . transactions between reportable segments principally consist of sales of pharmacy benefit products and services to unitedhealthcare customers by optumrx , certain product offerings and care management and integrated care delivery services sold to unitedhealthcare by optumhealth , and health information and technology solutions , consulting and other services sold to unitedhealthcare by optuminsight . these transactions are recorded at
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global oil prices experienced elevated levels of volatility throughout 2016 with first quarter brent crude oil prices reaching a 10-year quarterly average low of $ 33.89 per barrel . prices recovered slightly in the second and third quarters of 2016 as production growth slowed while demand continued to increase . in the fourth quarter , prices continued to trend higher , with brent crude oil averaging $ 49.46 per barrel , as opec members and key non-opec producers agreed to cut production in 2017. the energy industry has periodically experienced this type of extreme volatility due to fluctuating supply-and-demand conditions . commodity prices are the most significant factor impacting our profitability and related reinvestment of operating cash flows into our business . among other dynamics that could influence world energy markets and commodity prices are global economic health , supply disruptions or fears thereof caused by civil unrest or military conflicts , actions taken by opec , environmental laws , tax regulations , governmental policies and weather-related disruptions . north america 's energy landscape has been transformed from resource scarcity to an abundance of supply , primarily due to advances in technology responsible for the rapid growth of tight oil production , successful exploration and rising production from the canadian oil sands . our strategy is to create value through price cycles by delivering on the financial and operational priorities that underpin our value proposition . 35 financial priorities the financial priorities we believe will drive our success through the price cycles include : control costs and expenses . controlling operating and overhead costs , without compromising safety and environmental stewardship , is a high priority . we monitor these costs using various methodologies that are reported to senior management monthly , on both an absolute-dollar basis and a per-unit basis . managing operating and overhead costs is critical to maintaining a competitive position in our industry , particularly in a low commodity price environment . the ability to control our operating and overhead costs impacts our ability to deliver strong cash from operations . maintain a strong balance sheet . we believe financial strength is critical in a cyclical business such as ours . in early 2016 , ongoing uncertainty around the timing of a price recovery , coupled with tightening credit capacity across the industry , caused us to take actions to preserve our balance sheet strength and mitigate the impacts of possible weak prices in 2016 and 2017. during the first quarter of 2016 , we reduced our quarterly dividend and issued additional debt to secure liquidity . realized commodity prices improved subsequent to the first quarter of 2016 , and we paid down approximately $ 2.3 billion of debt during the second half of the year . in november 2016 , we announced our plan to reduce debt to $ 20 billion by year-end 2019. we expect to retire outstanding debt as it matures and exercise flexibility in paying down our term loan , which is due in 2019. return capital to shareholders . in 2016 , we paid dividends on our common stock of $ 1.3 billion . we believe in delivering value to our shareholders through the price cycles . as a result , we have set a priority to increase our dividend rate annually and purchase up to $ 3 billion of our common stock over the next three years . we began repurchasing shares in november 2016 , and in january 2017 , we announced a 6 percent increase to our quarterly dividend , from $ 0.25 per share to $ 0.265 per share . focus on financial returns . this is a core aspect of our value proposition . our goal is to achieve strong financial returns by controlling our costs , high-grading our portfolio , shifting our production mix , and exercising capital discipline . operational priorities the operational priorities we must manage well to be successful include : maintain capital discipline . we participate in a commodity price-driven and capital-intensive industry , with varying lead times from when an investment decision is made to the time an asset is operational and generates cash flow . as a result , we must invest significant capital dollars to explore for new oil and gas fields , develop newly discovered fields , maintain existing fields , and construct pipelines and lng facilities . given our view of greater price volatility , we have shifted our capital allocation to focus on value-preserving , shorter cycle time and low cost-of-supply unconventional programs in our resource base . our cash allocation priorities call for the investment of sufficient capital to maintain production and pay the existing dividend . additional allocations of capital toward absolute growth will be dependent on satisfaction of other financial priorities . we use a disciplined approach , focused on value maximization , to set our capital plans . in november 2016 , we announced a 2017 capital budget of $ 5 billion . optimize our portfolio . we continue to optimize our asset portfolio by focusing on low cost-of-supply assets which strategically fit our development plans . in the third quarter of 2015 , we announced plans to reduce future capital spending in our deepwater exploration program . subsequently , in 2016 , we sold our interests in several exploration areas , including offshore senegal , and terminated our final gulf of mexico deepwater drillship contract . additionally , during the year , we sold our 40 percent working interest in the offshore south natuna sea block b production sharing contract ( psc ) in indonesia and our 30 percent interest in an exploration license offshore newfoundland . we generated approximately $ 1.3 billion in proceeds from non-core asset dispositions in 2016 . 36 in november 2016 , we announced our plan to divest between $ 5 billion and $ 8 billion of assets , primarily associated with north american natural gas , over the next two years . proceeds from the sale of assets will be directed toward the achievement of our financial priorities . story_separator_special_tag we will continue to evaluate our assets to determine whether they fit our strategic direction and will optimize the portfolio as necessary , directing our capital investments to areas that align with our objectives . maintain a relentless focus on safety and environmental stewardship . safety and environmental stewardship , including the operating integrity of our assets , remain our highest priorities , and we are committed to protecting the health and safety of everyone who has a role in our operations and the communities in which we operate . we strive to conduct our business with respect and care for both the local and global environment and systematically manage risk to drive sustainable business growth . our sustainability efforts in 2016 focused on updating action plans for climate change , biodiversity , water and human rights , as well as revamping public reporting to be more informative , searchable and responsive to common questions . we are committed to building a learning organization using human performance principles as we relentlessly pursue improved health , safety and environment ( hse ) and operational performance . add to our proved reserve base . we primarily add to our proved reserve base in two ways : ¡ successful exploration , exploitation and development of new and existing fields . ¡ application of new technologies and processes to improve recovery from existing fields . proved reserve estimates require economic production based on historical 12-month , first-of-month , average prices and current costs . therefore , our proved reserves generally decrease as prices decline and increase as prices rise . additionally , as we continue cash conservation efforts , our reserve replacement efforts could be delayed thus limiting our ability to replace depleted reserves . low commodity prices and reduced capital expenditures in 2016 adversely affected our reported year-end proved reserves . in 2016 , our reserve replacement was negative 194 percent . in the five years ended december 31 , 2016 , our reserve replacement was 35 percent . we expect our proved reserves to increase if prices rise . access to additional resources may become increasingly difficult as commodity prices can make projects uneconomic or unattractive . in addition , prohibition of direct investment in some nations , national fiscal terms , political instability , competition from national oil companies , and lack of access to high-potential areas due to environmental or other regulation may negatively impact our ability to increase our reserve base . as such , the timing and level at which we add to our reserve base may , or may not , allow us to replace our production over subsequent years . apply technical capability . we leverage our knowledge and technology to create value and safely deliver on our plans . technical strength is part of our heritage , and we are evolving our technical approach to optimally apply best practices . companywide , we continue to evaluate potential solutions to leverage knowledge of technological successes across our operations . such innovations enable us to economically convert additional resources to reserves , achieve greater operating efficiencies and reduce our environmental impact . develop and retain a talented work force . we strive to attract , train , develop and retain individuals with the knowledge and skills to implement our business strategy and who support our values and ethics . to this end , we offer university internships across multiple disciplines to attract the best talent and , as needed , recruit experienced hires to maintain a broad range of skills and experience . we promote continued learning , development and technical training through structured development programs designed to enhance the technical and functional skills of our employees . 37 other factors affecting profitability other significant factors that can affect our profitability include : commodity prices . our earnings and operating cash flows generally correlate with industry price levels for crude oil and natural gas , the prices of which are subject to factors external to the company and over which we have no control . the following graph depicts the average benchmark prices for west texas intermediate ( wti ) crude oil , dated brent crude oil and u.s. henry hub natural gas : brent crude oil prices averaged $ 49.46 per barrel in the fourth quarter of 2016 , an increase of 13 percent compared with $ 43.67 per barrel in the fourth quarter of 2015. similarly , wti crude oil prices increased 17 percent from $ 42.10 per barrel in the fourth quarter of 2015 to $ 49.18 per barrel in the same period of 2016. despite the fourth quarter increase , crude oil prices were under pressure throughout 2016 due to a continued global production increase that outpaced demand growth , leading to a large observed rise in global inventory . the average brent crude oil price decreased 17 percent , from $ 52.46 per barrel in 2015 to $ 43.69 per barrel in 2016. henry hub natural gas prices averaged $ 2.98 per million british thermal units ( mmbtu ) in the fourth quarter of 2016 , an increase of 31 percent compared with $ 2.27 per mmbtu in the fourth quarter of 2015. natural gas prices increased in the fourth quarter due to growth in demand , coupled with declining production . on average , henry hub natural gas prices decreased 8 percent from $ 2.67 per mmbtu in 2015 to $ 2.46 per mmbtu in 2016 , mainly due to strong production levels and a warmer-than expected winter reducing demand below expectations . in 2016 , u.s. underground gas storage inventories reached their highest levels in five years . our realized natural gas liquids prices averaged $ 21.82 per barrel in the fourth quarter of 2016 , an increase of 33 percent compared with $ 16.42 per barrel in the same quarter of 2015. similar to natural gas and crude oil , our natural gas liquids prices also declined on average in 2016. our average realized natural gas liquids prices decreased 6 percent , from $ 17.79 per barrel in 2015 to $ 16.68
| the decrease in production was partly offset by additional production from major developments , including tight oil plays in the lower 48 ; aplng in australia ; the western north slope in alaska ; the kebabangan gas field in malaysia ; and the greater ekofisk area in norway . improved drilling and well performance in canada , norway , the lower 48 , and china , as well as lower unplanned downtime in the lower 48 also partly offset the decrease in production . adjusted for downtime and dispositions of 66 mboed , our production , excluding libya , increased by 44 mboed , or 3 percent , compared with 2015. assets sold in 2016 produced 27 mboed and 36 mboed in 2016 and 2015 , respectively . in 2015 , average production from continuing operations , including libya , increased 3 percent compared with 2014 , while average liquids production increased 4 percent . the increase in total average production in 2015 primarily resulted from additional production from major developments , including tight oil plays in the lower 48 ; gumusut in malaysia ; aplng in australia ; greater britannia projects and the j-area in the u.k. ; and the ramp-up of foster creek phase f in canada . improved well performance , mostly in the lower 48 , western canada and norway , and lower turnaround activity also contributed to higher production in 2015. these increases were largely offset by normal field decline . adjusted for downtime and dispositions of 13 mboed , 45 our production from continuing operations , excluding libya , increased by 70 mboed , or 5 percent , compared with 2014. full-year 2015 production from assets sold or under agreement was 64 mboed . alaska 2016 2015 2014 income from continuing operations ( millions of dollars ) $ 319 4 2,041 average net production crude oil ( mbd ) 163 158 162 natural gas liquids ( mbd ) 12 13 13 natural gas ( mmcfd ) 25 42 49 total production ( mboed ) 179 178 183 average sales prices crude oil ( per barrel ) $ 41.93 51.61 97.68 natural gas ( per thousand cubic feet ) 5.22 4.33 5.42 the alaska segment primarily explores for , produces , transports and markets crude oil , natural gas liquids , natural gas and lng . in 2016 , alaska contributed 19 percent of our worldwide
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such advances are classified in the consolidated balance sheets as either a current or long-term liability depending on when we estimate the corresponding amortization to occur . allowance for doubtful accounts . the allowance for doubtful accounts involves estimates based on management 's judgment , review of individual receivables and analysis of historical bad debts . we monitor collections and payments from our customers and we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we also assess current economic trends that might impact the level of credit losses in the future . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances could be required . inventory . inventory is stated at the lower of cost or market . cost is determined on the first-in , first-out method . we write down inventory for slow-moving and obsolete inventory based on assessments of future demands , market conditions and customers who may be experiencing financial difficulties . if these factors were to become less favorable than those projected , additional inventory write-downs could be required . property and equipment . property and equipment are stated at cost less accumulated depreciation and amortization . depreciation and amortization are charged while assets are used in service and are computed using the straight-line method over the estimated useful lives of the assets taking into consideration any estimated salvage value . amortization of leasehold improvements is calculated on the straight-line method over the shorter of the useful life of the asset or the lease term . leased capital assets are included in property and equipment . amortization of property and equipment under capital leases is included with depreciation expense . in the event that property and equipment are idle , as a result of excess capacity or the early termination , non-renewal or reduction in scope of a turnkey screening operation , such assets are assessed for impairment on a periodic basis and when an indication that impairment may exist . income taxes . our annual tax rate is based on our income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities . significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties . we review our tax positions quarterly and adjust the balances as new information becomes available . deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years . such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as from net operating loss and tax credit carryforwards . we evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies . these sources of income inherently rely on estimates . to provide insight , we use our historical experience and our short and long-range business forecasts . we believe it is more likely than not that a portion of the deferred income tax assets may expire unused and therefore have established a valuation allowance against them . although realization is not assured for the remaining deferred income tax assets , we believe it is more likely than not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods . 61 however , deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable . business combinations . we allocate the fair value of purchase consideration to the tangible and intangible assets acquired , and liabilities assumed 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 , acquired technology , and trade names , useful lives and discount rates . our 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 one year from the acquisition date , the company 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 . impairment of long-lived assets . goodwill represents the excess purchase price of net tangible and intangible assets acquired in business combinations over their estimated fair value . goodwill is allocated to our segments based on the nature of the product line of the acquired business . the carrying value of goodwill is not amortized , but is annually tested for impairment during our second quarter and more often if there is an indicator of impairment . intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite . we assess qualitative factors of each of our reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . such assessments indicated that it is not more likely than not that the fair value of each reporting unit is less than its carrying amount , including goodwill . thus , we have determined that it is not necessary to proceed with the two-step goodwill impairment test . story_separator_special_tag there was no goodwill impairment for each of the three fiscal years ended june 30 , 2016. we evaluate long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets . if impairment does exist , we measure the impairment loss and record it based on the discounted estimate of future cash flows . in estimating future cash flows , we group assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows from other asset groups . our estimate of future cash flows is based upon , among other things , certain assumptions about expected future operating performance , growth rates and other factors . although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate , different assumptions and estimates could materially impact our reported financial results . more conservative estimates of the anticipated future benefits from these businesses could result in impairment charges , which would decrease net income and result in lower asset values on our balance sheet . stock-based compensation expense . we account for stock-based compensation using fair value recognition provisions . thus , we record stock-based compensation as a charge to earnings net of the estimated impact of forfeited awards . as such , we recognize stock-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite vesting period , based on the vesting provisions of the individual grants . the process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their requisite vesting period involves significant assumptions and judgments . we estimate the fair value of stock option awards on the date of grant using the black-scholes option-valuation model which requires that we make certain assumptions regarding : ( i ) the expected volatility in the market price of our common stock ; ( ii ) dividend yield ; ( iii ) risk-free interest rates ; and ( iv ) the period of time employees are expected to hold the 62 award prior to exercise . we estimate the fair value of restricted stock and restricted stock unit awards on the date of the grant using the market price of our common stock on that date . in addition , we are required to estimate the expected impact of forfeited awards and recognize stock-based compensation cost only for those awards expected to vest . if actual forfeiture rates differ materially from our estimates , stock-based compensation expense could differ significantly from the amounts we have recorded in the current period . we periodically review actual forfeiture experience and revise our estimates , as necessary . we recognize the cumulative effect of changes in the estimated forfeiture rate as compensation cost in earnings in the period of the revision . as a result , if we revise our assumptions and estimates , our stock-based compensation expense could change materially in the future . certain shares of restricted stock and restricted stock units vest based upon the achievement of pre-established performance criteria . we estimate the fair value of performance-based awards at the date of grant based upon the probability that the specified performance criteria will be met , adjusted for estimated forfeitures . each quarter we update our assessment of the probability that the specified performance criteria will be achieved and adjust our estimate of the fair value of the performance-based awards if necessary . we amortize the fair values of performance-based awards over the requisite service period adjusted for estimated forfeitures for each separately vesting tranche of the award . see note 7 to the consolidated financial statements for a further discussion of stock-based compensation . legal and other contingencies . we are subject to various claims and legal proceedings . we review the status of each significant legal dispute to which we are a party and assess our potential financial exposure , if any . if the potential financial exposure from any claim or legal proceeding is considered probable and the amount can be reasonably estimated , we record a liability and an expense for the estimated loss . significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable . because of uncertainties related to these matters , accruals are based only on the best information available at the time . as additional information becomes available , we reassess the potential liability related to our pending claims and litigation and revise our estimates accordingly . such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position . net revenues the table below and the discussion that follows are based upon the way we analyze our business . see note 13 to the consolidated financial statements for additional information about business segments . replace_table_token_8_th fiscal 2016 compared with fiscal 2015. revenues for the security division decreased 15 % primarily as a result of a $ 66.4 million reduction in revenues associated with a foreign military sale contract with the u.s. department of defense ( `` fms contract '' ) as compared to the prior year . the delivery of equipment under the fms contract was completed in fiscal 2015 , and revenues during the remainder of the contract , which expires in fiscal 2017 , are not expected to be significant . this decrease was partially offset by revenues from the commencement of our turnkey scanning operation in albania during the year . revenues for the healthcare division decreased across the bulk of our product lines and regions . we believe this contraction is due , in part , to a hospital spending environment adversely impacted by challenging economic environments in many of our markets and lapses in operational execution .
| as discussed in more detail under `` item 1. businessrecent developmentspending acquisition of as & e , '' we have entered into a definitive agreement to acquire as & e . we intend to fund the transaction with a combination of cash on hand and money borrowed under our revolving credit facility , and expect the transaction , which is subject to customary closing conditions , to close by december 31 , 2016. trends and uncertainties the following is a discussion of certain trends and uncertainties that we believe have and may continue to influence our results of operations . global economic considerations . the recent slowdown in the china economy , which has created global economic uncertainty , coupled with the strength of the u.s. dollar , which may make our products and services less competitive in countries with currencies that have declined in value against the u.s. dollar , has continued to negatively impact demand for certain of our products and services in our security and healthcare divisions . 59 additionally , weakness in the oil markets has led to delayed purchasing by certain customers generally within the security industry impacting our security division but also in other industries impacting our other two divisions . it is uncertain how long the period of economic uncertainty in china or the impact of lower oil prices will last . therefore , we expect that there may continue to be a period of delayed or deferred purchasing by our customers , but we are unable to quantify the magnitude of the potential impact at this time . purchase delays and deferments could continue to have a material negative effect on demand for our products and services , and accordingly , on our business , results of operations and financial condition . healthcare product introductions . the results of our operations have been adversely impacted by issues associated with significant product launches within our healthcare division . although we are hopeful that the challenges associated
| 13,705 |
incremental net sales from companies acquired since the 2012 fiscal year contributed $ 107.8 million or 4.5 % . currency translation decreased 2013 fiscal year sales by approximately $ 1.6 million or less than 1 % . we experienced overall declines in sales from our businesses not acquired in fiscal year 2013 of approximately 0.8 % . approximately half of this decrease was due to there being 251.5 selling days in year ended june 30 , 2013 versus 252.5 in the year ended june 30 , 2012 which would approximate a 0.4 % decrease in sales . 15 sales of our service center based distribution segment in fiscal 2013 increased $ 98.9 million , or 5.2 % , compared to fiscal year 2012 , primarily attributed to acquisition related sales growth with acquisitions adding $ 102.8 million or 5.4 % . sales of our fluid power businesses segment in fiscal 2013 decreased $ 12.2 million or 2.6 % , compared to fiscal year 2012 , primarily attributed to weakness within a few of our larger fluid power businesses . acquisitions within this segment added $ 5.0 million or 1.1 % . sales in our u.s. operations in fiscal 2013 were up $ 7.9 million or 0.4 % , compared to fiscal 2012 , with acquisitions adding $ 21.7 million or 1.1 % . sales from our canadian operations increased $ 5.4 million or 1.8 % , compared to fiscal 2012. acquisitions added $ 16.8 million or 5.7 % , unfavorable foreign currency translation reduced sales by $ 1.7 million or 0.6 % , compared to fiscal 2012 , with the remaining difference relating to decreases in sales from businesses not acquired in the current year . consolidated sales from our other country operations which include mexico , australia and new zealand were $ 69.3 million or 94.7 % above fiscal year 2012. virtually all of this increase related to our australian and new zealand operations acquired in fiscal 2013. the sales product mix for fiscal 2013 was 72.1 % industrial products and 27.9 % fluid power products compared to 70.8 % industrial and 29.2 % fluid power in fiscal year 2012. our gross profit margin was 27.7 % in fiscal 2013 versus 27.6 % in fiscal 2012. the increased margins were attributable to the impact of relatively higher gross margins from acquired operations . sd & a increased $ 20.5 million or 4.2 % during fiscal 2013 compared to fiscal 2012 , and as a percent of sales increased slightly to 20.6 % from 20.5 % in fiscal 2012. the increase in sd & a , along with the increase in sd & a as a percentage of sales was entirely driven by the increased sd & a and relatively higher sd & a levels from businesses acquired since the prior year period . these acquired businesses added $ 37.8 million of sd & a expenses . operating income increased $ 8.0 million or 4.8 % to $ 176.4 million during fiscal 2013 from $ 168.4 million during fiscal 2012. as a percent of sales , operating income increased to 7.2 % in fiscal 2013 from 7.1 % in fiscal 2012. operating income as a percentage of sales for the service center based distribution segment decreased to 6.9 % in fiscal 2013 from 7.1 % in fiscal 2012. this decrease was attributable to an increase in sd & a in select regions in which we do business ( representing an approximate 0.7 % reduction in operating income as a percentage of sales ) slightly offset by a less than commensurate increase in gross profit mostly due to businesses acquired since fiscal 2012 ( representing an increase of approximately 0.6 % ) . operating income as a percentage of sales for the fluid power businesses segment decreased to 9.0 % in fiscal 2013 from 9.2 % in fiscal 2012. this reduction was attributable to decreases in gross profit across many of our fluid power subsidiaries ( representing a decrease of approximately 0.2 % ) . segment operating income was impacted by changes in the amounts and levels of expenses allocated to the segments . the expense allocations included corporate charges for working capital , logistics support and other items and impact segment gross profit and operating expense . interest expense , net , in fiscal 2013 remained relatively stable as compared to the 2012 fiscal year . other expense ( income ) , net , represented certain non-operating items of income and expense . this was $ 1.4 million of income in fiscal 2013 compared to $ 1.6 million of expense in fiscal 2012. the 2013 fiscal year income primarily consisted of unrealized gains on investments held by non-qualified deferred compensation trusts of $ 1.3 million . fiscal 2012 primarily consisted of $ 1.6 million of foreign currency transaction losses . income tax expense as a percent of income before taxes was 33.5 % for fiscal 2013 and 34.8 % for fiscal 2012. the impact of lower effective tax rates in foreign jurisdictions favorably reduced our rate when compared to the u.s. federal statutory rate by 2.3 % . further reducing our rate compared to the u.s. federal statutory rate was a permanent dividend deduction benefit of 0.5 % along with other items which reduced our rate by 1.0 % . these reductions compared to the u.s. federal rate were offset by the impact of state and local taxes which increased the rate by 2.3 % . story_separator_special_tag as a result of the factors addressed above , net income for fiscal 2013 increased $ 9.4 million or 8.6 % from fiscal year 2012. net income per share increased at a slightly higher rate of 9.4 % due to lower weighted average shares outstanding in fiscal 2013. at june 30 , 2013 , we had a total of 522 operating facilities in the united states , puerto rico , canada , mexico , australia and new zealand , versus 476 in the u.s. , canada , mexico and puerto rico at june 30 , 2012. the number of company employees was 5,109 at june 30 , 2013 and 4,664 at june 30 , 2012 . 16 liquidity and capital resources our primary source of capital is cash flow from operations , supplemented as necessary by bank borrowings or other sources of debt . at june 30 , 2014 we had total debt obligations outstanding of $ 170.7 million . at june 30 , 2013 , we had no outstanding borrowings . management expects that our existing cash , cash equivalents , funds available under the revolving credit and uncommitted shelf facilities , cash provided from operations , and the use of operating leases will be sufficient to finance normal working capital needs in each of the countries we operate in , payment of dividends , acquisitions , investments in properties , facilities and equipment , and the purchase of additional company common stock . management also believes that additional long-term debt and line of credit financing could be obtained based on the company 's credit standing and financial strength . the company holds , from time to time , relatively significant cash and cash equivalent balances outside of the united states of america . the following table shows the company 's total cash as of june 30 , 2014 by geographic location ; all amounts are in thousands . country amount united sates $ 14,472 canada 33,566 other countries 23,151 total $ 71,189 to the extent cash in foreign countries is distributed to the u.s. , it could become subject to u.s. income taxes . foreign tax credits may be available to offset all or a portion of such taxes . at june 30 , 2014 , all foreign earnings are considered permanently reinvested . the company 's working capital at june 30 , 2014 was $ 545.2 million compared to $ 491.4 million at june 30 , 2013 . the current ratio was 2.9 to 1 at june 30 , 2014 and 3.0 to 1 at june 30 , 2013 . net cash flows the following table is included to aid in review of applied 's statements of consolidated cash flows ; all amounts are in thousands . replace_table_token_5_th in the last three fiscal years , and typically , a portion of cash generated from operations was invested in working capital , particularly receivables and inventory . net cash used in investing activities in fiscal 2014 included $ 20.2 million for capital expenditures , $ 10.0 million of which of which was used for the purchase of our headquarters facility , and $ 184.3 million for acquisitions . capital expenditures included an insignificant amount related to the erp project . fiscal 2013 investing cash activities included the use of $ 12.2 million for capital expenditures , and $ 67.6 million for acquisitions . capital expenditures included $ 5.6 million related to the erp project . in fiscal 2012 , net cash used in investing activities included $ 14.7 million for acquisitions and $ 26.0 million for capital expenditures . net cash provided by financing activities in fiscal 2014 included $ 100.0 million from borrowings under long term debt facilities as well as $ 69.0 million in borrowings under our revolving credit facility , both of which were utilized for the financing of acquisitions . these sources of cash were offset by $ 40.4 million for dividend payments and $ 36.7 million used to repurchase 759,900 shares of treasury stock . net cash used in financing activities in fiscal 2013 included $ 37.2 million for dividend payments and $ 3.8 million related to acquisition holdback payments , partially offset by $ 2.6 million of excess tax benefits from share-based compensation . 17 net cash used in financing activities in fiscal 2012 included $ 33.8 million for dividend payments and $ 31.0 million to repurchase 997,200 shares of treasury stock . these uses were partially offset by $ 3.7 million of excess tax benefits from share-based compensation . the increase in dividends over the last three fiscal years is the result of regular increases in our dividend payout rates . we paid dividends of $ 0.96 , $ 0.88 and $ 0.80 per share in fiscal 2014 , 2013 and 2012 , respectively . capital expenditures we expect capital expenditures for fiscal 2015 to be in the $ 14.5 million to $ 15.5 million range , primarily consisting of capital associated with additional information technology equipment and infrastructure investments . depreciation for fiscal 2015 is expected to be in the range of $ 17.0 million to $ 18.0 million . erp project in fiscal 2011 applied commenced its erp ( sap ) project to transform the company 's technology platforms and enhance its business information and technology systems for future growth . we have deployed our solution in a majority of our canadian and all of our u.s. operations . during fiscal 2015 the company will evaluate and determine a deployment schedule for our remaining canadian businesses as well as refine our current business and system processes .
| currency translation decreased fiscal year sales by approximately $ 26.2 million or 1.1 % . incremental sales from companies acquired since the prior year period contributed $ 58.2 million or 2.4 % . gross margin was 27.9 % compared to 27.7 % in the prior year . our operating margin decreased to 6.7 % compared to the prior year 's 7.2 % . our earnings per share was $ 2.67 versus $ 2.78 in fiscal year 2013 , a decrease of 4.0 % . our consolidated balance sheet remains strong . shareholders ' equity was $ 800.3 million , up from $ 759.6 million at june 30 , 2013 . working capital increased $ 53.8 million from june 30 , 2013 to $ 545.2 million at june 30 , 2014 . our current ratio remains strong at 2.9 to 1 , compared to 3.0 to 1 at june 30 , 2013 . applied monitors several economic indices that have been key indicators for industrial economic activity in the united states . these include the industrial production and manufacturing capacity utilization ( mcu ) indices published by the federal reserve board and the purchasing managers index ( pmi ) published by the institute for supply management ( ism ) . historically , our performance correlates well with the mcu , which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output . when manufacturing plants are running at a high rate of capacity , they tend to wear out machinery and require replacement parts . industrial production increased 0.2 % in june and advanced at an annual rate of 5.5 % for the second calendar quarter of 2014. in june , capacity utilization for manufacturing moved down 0.1 % to 77.1 % compared to may . the ism pmi registered 55.3 in june , above 50 ( its expansionary threshold ) . we enter fiscal 2015 optimistic about the u.s. industrial economy . year ended june 30 , 2014 vs. 2013 the following table is included to aid in review of applied 's statements of consolidated income . replace_table_token_3_th 13 sales in fiscal 2014
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the audit reports of pm on the company 's consolidated financial statements as of and for the years ended december 31 , 2012 and 2013 did not contain an adverse opinion or disclaimer of opinion , and were not qualified or modified as to uncertainty , audit scope or accounting principles . the audit report of pm on the effectiveness of internal control over financial reporting as of december 31 , 2013 did contain an adverse opinion but did not contain a disclaimer story_separator_special_tag the following discussion of the financial condition and results of operations for the twelve-months ended december 31 , 2014 , 2013 and 2012 should be read in conjunction with the audited consolidated financial statements and the notes to those statements that are included elsewhere in this report on form 10-k. in addition to historical information , the following discussion contains certain forward-looking statements within the “ safe harbor ” provisions of the private securities litigation reform act of 1995. these statements relate to our future plans , objectives , expectations and intentions . these statements may be identified by the use of words such as “ may ” , “ will ” , “ could ” , “ expect ” , “ anticipate ” , “ intend ” , “ believe ” , “ estimate ” , “ plan ” , “ predict ” , and similar terms or terminology , or the negative of such terms or other comparable terminology . although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bounds of our knowledge of our business , our actual results could differ materially from those discussed in these statements . factors that could contribute to such differences include , but are not limited to , those discussed in the “ risk factors ” section in part i , item 1a . we undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future . story_separator_special_tag font-family : times new roman ; display : inline '' > - 21 - advertising increased $ 1,436,824 ( approximately 59 % ) to $ 3,875,384 during the year ended december 31 , 2014 from $ 2,438,560 during the year ended december 31 , 2013. the increase was a result of a greater volume of advertisements purchased . salaries increased $ 1,303,479 ( approximately 26 % ) to $ 6,253,960 during the year ended december 31 , 2014 from $ 4,950,481 during the year ended december 31 , 2013. the increase was a result of additional employees hired in connection with the purchase of the wisconsin facility in july 2013. the following table summarizes our general and administrative expenses . replace_table_token_8_th general and administrative expenses increased $ 1,795,248 ( approximately 24 % ) to $ 9,377,645 during the year ended december 31 , 2014 from $ 7,582,397 during the year ended december 31 , 2013. the increase is primarily a result of an increases in employee expenses and professional fees . employee expenses increased $ 848,802 ( approximately 35 % ) to $ 3,254,218 during the year ended december 31 , 2014 from $ 2,405,416 during the year ended december 31 , 2013. the increase is primarily a result of additional employees hired to staff the wisconsin facility purchased in july 2013. professional fees increased $ 560,332 ( approximately 22 % ) to $ 3,085,750 during the year ended december 31 , 2014 from $ 2,525,418 during the year ended december 31 , 2013. the company became an accelerated filer as of december 31 , 2013. as a result of becoming an accelerated filer , the company was required to make certain limited additional disclosure on an accelerated timeline for the filing of its form 10-k for the fiscal year ended december 31 , 2013 , filed april 2 , 2014. thereafter all of the company 's filings with the sec were subject to full disclosure required by accelerated filers . the increase in professional fees resulted from the increased disclosure requirements as a result of the company becoming an accelerated filer and from responding to comments from the sec . total operating income decreased by $ 3,795,833 ( approximately 47 % ) to $ 4,235,479 during the year ended december 31 , 2014 , from $ 8,031,312 during the year ended december 31 , 2013. provision for income taxes was $ 2,242,226 or a 53 % effective tax rate , for the year ended december 31 , 2014 compared with $ 2,866,875 or a 36 % effective tax rate , during the year ended december 31 , 2013. income taxes are discussed in note 10 of the notes to consolidated financial statements . total net income was $ 1,956,404 or $ 0.12 per share for the year ended december 31 , 2014 compared to $ 4,990,298 or $ 0.31 per share in the year ended december 31 , 2013 . - 22 - comparison of year ended december 31 , 2013 to year ended december 31 , 2012 total consolidated net sales increased by $ 16,172,877 ( approximately 20 % ) to $ 97,524,142 during the year ended december 31 , 2013 from $ 81,351,265 during the year ended december 31 , 2012 , primarily as a result of a $ 19,212,087 ( approximately 21 % ) increase in total consolidated gross sales to $ 108,966,094 during the year ended december 31 , 2013 from $ 89,754,007 during the year ended december 31 , 2012 , offset by an increase in discounts and allowances in fiscal year 2013 as compared to fiscal year 2012. the increase in total consolidatedgross sales resulted primarily from an increase in volume of products sold . story_separator_special_tag the following table summarizes our cost of goods sold , excluding depreciation expense : replace_table_token_9_th cost of goods sold , excluding depreciation expense , increased by $ 15,176,483 ( approximately 29 % ) to $ 68,274,674 during the year ended december 31 , 2013 from $ 53,098,191 during the year ended december 31 , 2012. this increase is primarily a result of increases in purchases , salaries , freight and labor and overhead partially offset by decreases in delivery expense and outside services . purchases increased by $ 9,286,293 ( approximately 25 % ) to $ 47,144,509 during the year ended december 31 , 2013 from $ 37,858,216 during the year ended december 31 , 2012 primarily as a result of the increase in volume of goods produced . the increase in purchases included approximately $ 7,950,225 from an increase in volume of purchases and $ 1,336,067 from increases in prices of products purchased . salaries increased $ 2,012,546 ( approximately 34 % ) to $ 7,936,107 during year ended december 31 , 2013 from $ 5,923,561 during the year ended december 31 , 2012 primarily as a result of additional salaries of employees hired at the wisconsin facility purchased in july 2013. freight increased $ 3,937,022 ( approximately 74 % ) to $ 9,267,530 during the year ended december 31 , 2013 from $ 5,330,508 during the year ended december 31 , 2012 primarily as a result of an increase in the volume of our products sold and shipped . labor and overhead increased $ 621,804 ( approximately 30 % ) to $ 2,674,028 during the year ended december 31 , 2013 from $ 2,052,224 during the year ended december 31 , 2012 primarily as a result of additional costs incurred in connection with the wisconsin facility purchased july 2013. total operating expenses increased by $ 1,812,812 ( approximately 10 % ) to $ 19,591,581 during the year ended december 31 , 2013 from $ 17,778,769 during the year ended december 31 , 2012. total operating expenses as a percentage of net sales were approximately 20 % during the year ended december 31 , 2013 , compared to approximately 22 % during the year ended december 31 , 2012. the increase in total operating expenses was primarily attributable to an increase in general and administrative expenses and selling expenses . - 23 - the following table summarizes our selling expenses : replace_table_token_10_th selling expenses increased by $ 592,401 ( approximately 5 % ) to $ 11,296,381 during the year ended december 31 , 2013 from $ 10,703,980 during the year ended december 31 , 2012. this increase resulted primarily from increases in salesperson commissions and travel offset by a decrease in salaries . salesperson commissions increased $ 696,142 ( approximately 54 % ) to $ 1,989,409 during the year ended december 31 , 2013 from $ 1,293,267 during the year ended december 31 , 2012 primarily as a result of an increase in volume of products sold , as well as a shift towards outsourcing sales person functions to third party companies . travel increased $ 344,157 ( approximately 27 % ) to $ 1,633,090 during the year ended december 31 , 2013 from $ 1,288,933 during the year ended december 31 , 2012 primarily as a result of the company 's preparation for sales in the uk and canada , as well as travel related to the july 2013 golden guernsey wisconsin acquisition . salaries decreased $ 434,465 ( approximately 8 % ) to $ 4,950,481 during the year ended december 31 , 2013 from $ 5,384,946 during the year ended december 31 , 2012 primarily as a result of a shift towards outsourcing sales person functions to third party companies from internal employment . the following table summarizes our general and administrative expenses . replace_table_token_11_th - 24 - general and administrative expenses increased $ 1,262,425 ( approximately 20 % ) to $ 7,582,397 during the year ended december 31 , 2013 from $ 6,319,972 during the year ended december 31 , 2012. the increase is primarily a result of an increases in professional fees and miscellaneous expenses , partially offset by a decrease in employee expenses . employee expenses decreased $ 584,977 ( approximately 20 % ) to $ 2,405,416 during the year ended december 31 , 2013 from $ 2,990,393 during the year ended december 31 , 2012. the decrease is primarily a result of lower travel costs . professional fees increased $ 738,458 ( approximately 41 % ) to $ 2,525,418 during the year ended december 31 , 2013 from $ 1,786,960 during the year ended december 31 , 2012. the increase is primarily a result of the company 's preparation for becoming an accelerated filer on december 31 , 2013 and complying with the limited additional disclosure requirements and accelerated timeline for its filing of the form 10-k for the fiscal year ended december 31 , 2013. total operating income decreased by $ 813,399 ( approximately 9 % ) to $ 8,031,312 during the year ended december 31 , 2013 , from $ 8,844,711 during the year ended december 31 , 2012. provision for income taxes was $ 2,866,875 or a 36 % effective tax rate , for the year ended december 31 , 2013 compared with $ 3,205,076 or a 36 % effective tax rate , during the year ended december 31 , 2012. income taxes are discussed in note 10 of the notes to consolidated financial statements .
| the increase in purchases included approximately $ 9,196,031 from an increase in volume of purchases and approximately $ 3,065,344 from increases in prices of products purchased . supplies increased $ 633,606 ( approximately 81 % ) to $ 1,413,622 during the year ended december 31 , 2014 from $ 780,016 during the year ended december 31 , 2013. the increase is primarily a result of increased purchases related to the company 's wisconsin facility purchased in july , 2013. salaries increased $ 1,472,753 ( approximately 19 % ) to $ 9,408,860 during the year ended december 31 , 2014 from $ 7,936,107 during the year ended december 31 , 2013. the increase was a result of additional employees hired in connection with the purchase of the wisconsin facility in july 2013. freight increased $ 3,091,888 ( approximately 33 % ) to $ 12,359,418 during the year ended december 31 , 2014 from $ 9,267,530 during the year ended december 31 , 2013. the increase was primarily as a result of an increase in the volume of our products sold and shipped . labor and overhead increased $ 1,586,779 ( approximately 59 % ) to $ 4,260,807 during the year ended december 31 , 2014 from $ 2,674,028 during the year ended december 31 , 2013. the increase was primarily as a result of increased costs related to the company 's wisconsin facility purchased in july 2013. depreciation expense increased by $ 909,362 ( approximately 56 % ) to $ 2,535,937 during the year ended december 31 , 2014 from $ 1,626,575 during the year ended december 31 , 2013. the increase is partially attributable to an increase in depreciation expense of $ 470,000 during 2014 related to an adjustment to the useful lives of the starfruit leasehold improvements and the depreciation expense of $ 320,000 associated with assets placed in service at the lifeway wisconsin location since july 2013. total operating expenses increased by $ 5,035,779 ( approximately 26 % ) to $ 24,627,360 during the year ended
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13 our effective income tax rate was ( 28.9 % ) in 2017 as compared to 40.5 % in 2016. the 2017 rate was impacted by the passage of the tax cuts and jobs act in december which lowered our federal income tax rate to 21 % beginning in 2018. this required us to revalue our net deferred federal tax liabilities at december 31 , 2017. net earnings were $ 8,426,000 in 2017 as compared to $ 3,801,000 in 2016. excluding the impact of the tax cuts and jobs act in 2017 , our adjusted net earnings were $ 3,895,000 in 2017 as compared to $ 3,801,000 in 2016 . 2017 2016 net earnings $ 8,426,000 $ 3,801,000 impact of the tax cuts and jobs act ( 4,531,000 ) adjusted net earnings $ 3,895,000 $ 3,801,000 the above financial information is presented using other than generally accepted accounting principles ( non-gaap ) and is reconciled to comparable information presented using gaap . non-gaap adjusted net earnings is derived by adjusting amounts determined in accordance with gaap for the impact of the tax cuts and jobs act . we believe such non-gaap information is useful and meaningful to investors , and is used by investors and us to assess core operations . this non-gaap financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to net earnings which is determined in accordance with gaap . liquidity and capital resources our operations and cash flows from operating activities are seasonal in nature . net cash provided by operating activities was $ 6,951,000 in 2018 as compared to $ 5,833,000 in 2017. the increase was primarily due to lower income tax payments in 2018 compared to 2017. partially offsetting this was an increase in contributions to our defined benefit pension plan which were $ 1,750,000 and $ 1,216,000 in 2018 and 2017 , respectively . net cash provided by investing activities was $ 3,919,000 in 2018 as compared to net cash used in investing activities of $ 1,908,000 in 2017. capital expenditures of $ 992,000 in 2018 related primarily to improvements at our dover facility and equipment purchases . capital expenditures of $ 1,877,000 in 2017 related primarily to the installation of safer barriers , equipment purchases , and improvements at our dover facility . on march 2 , 2018 , we closed on the sale of approximately 147 acres of land at our nashville superspeedway facility for proceeds of $ 4,945,000 , net of closing costs . net cash used in financing activities was $ 6,920,000 in 2018 as compared to $ 3,925,000 in 2017. we had net repayments on our outstanding line of credit of $ 3,240,000 in 2018 as compared to $ 600,000 in 2017. we paid $ 2,930,000 and $ 2,944,000 in cash dividends during 2018 and 2017 , respectively . during 2018 and 2017 , respectively , we purchased and retired 308,928 and 130,741 shares of our outstanding common stock for $ 656,000 and $ 276,000 from the open market . additionally , we purchased and retired 47,236 and 46,179 shares of our outstanding common stock for $ 94,000 and $ 105,000 during 2018 and 2017 , respectively , from employees in connection with the vesting of restricted stock awards under our stock incentive plan . at december 31 , 2018 , dover motorsports , inc. and its wholly owned subsidiaries dover international speedway , inc. and nashville speedway , usa , inc. , as co-borrowers had a $ 35,000,000 credit agreement with a bank group . the credit facility expires on july 31 , 2020. interest is based upon libor plus a margin that varies between 125 and 175 basis points depending on the leverage ratio . at december 31 , 2018 , there were no borrowings outstanding under the credit facility . the credit facility contains certain covenants including maximum funded debt to earnings before interest , taxes , depreciation and amortization ( leverage ratio ) and a minimum fixed charge coverage ratio . material adverse changes in our results of operations could impact our ability to maintain financial ratios necessary to satisfy these requirements . in addition , the credit agreement includes a material adverse change clause . the credit facility also provides that if we default under any other loan agreement , that would be a default under this facility . at december 31 , 2018 , we were in compliance with the terms of the credit facility . the credit facility provides for seasonal funding needs , capital improvements , letter of credit requirements and other general corporate purposes . after consideration of stand-by letters of credit outstanding , the remaining maximum borrowings available 14 pursuant to the credit facility were $ 20,358,000 at december 31 , 2018. we expect to be in compliance with the financial covenants , and all other covenants , for all measurement periods during the next twelve months . nashville superspeedway no longer promotes motorsports events and has not entered into sanction agreements with nascar since 2011. we lease the facility on a short term basis to third parties from time to time . on august 17 , 2017 , we entered into an agreement with an entity owned by panattoni development company relative to the sale of approximately 147 acres of land at a purchase price of $ 35,000 per acre . on march 2 , 2018 , we closed on the sale of the property with proceeds , less closing costs , of $ 4,945,000. net proceeds after taxes were approximately $ 4,150,000. on september 1 , 2017 , we also awarded to the purchaser a three year option for 88.03 additional acres at a purchase price of $ 55,000 per acre . on february 9 , 2018 , we amended the option agreement to extend its term and to add additional acreage to the option . story_separator_special_tag the option is for three years beginning march 1 , 2018. an additional 86.45 acres were added to the option at a purchase price of $ 66,685 per acre and an additional 50.51 acres were added at a purchase price of $ 35,000 per acre . the option may only be exercised for all of the 224.99 acres at one time for a total purchase price of $ 12,374,000. while management remains committed to selling the remaining nashville superspeedway property which consists of over 1,000 acres , we do not believe it is probable that the remaining property will be sold within the next twelve months . at december 31 , 2018 , $ 23,567,000 was reported as long term assets in our consolidated balance sheets . at december 31 , 2017 , $ 2,455,000 representing 147 acres of the total nashville superspeedway property was reported as assets held for sale and $ 23,545,000 was reported as long term assets in our consolidated balance sheets . in september 2018 , we entered into negotiations to sell a parcel of land we own near st. louis . the sale closed in january 2019 with proceeds , less closing costs , of $ 531,000. as a result , we recorded a loss of $ 99,000 on sale of land in our consolidated statements of earnings for 2018. at december 31 , 2018 , $ 531,000 representing the fair value of the land is reported as assets held for sale in our consolidated balance sheets . we promoted six racing events in 2018 and 2017 ( five national series events and one regional series event ) , all of which were sanctioned by nascar and held at our dover international speedway facility . we have entered into five year sanction agreements with nascar for each of the five national series events for 2016-2020. nascar 's regional series events are sanctioned on an annual basis . broadcasting revenues continue to be a significant long-term revenue source for our business . management believes this long-term contracted revenue helps stabilize our financial strength , earnings and cash flows . also , nascar ratings can impact attendance at our events and sponsorship opportunities . a substantial portion of our profits in recent years has resulted from television revenues received from nascar under its agreements with various television networks , which is expected to continue for the foreseeable future . our share of these television broadcast revenues and purse and sanction fees are fixed under our nascar sanction agreements through the year 2020. we are obligated to conduct events in the manner stipulated under the terms and conditions of these sanctioning agreements . nascar is operating under a ten-year , multi-platform agreement with fox sports media group ( fox ) for the broadcasting and digital rights to 16 monster energy nascar cup series races , 14 xfinity series races and the entire camping world truck series ( along with practice and qualifying ) from 2015 through 2024. the agreement includes tv everywhere rights that allow live-streaming of all fox races , before and after race coverage , in-progress and finished race highlights , and replays of fox-televised races to a fox sports-affiliated website which began in 2013. the agreement also allows re-telecast of races on a fox network and via video-on-demand for 24 hours and other ancillary programming , including a nightly nascar news and information show and weekend at-track shows . nascar and fox deportes , the number one us latino sports network , have teamed up to provide our sport 's most expansive spanish-language broadcast offering ever with coverage of 15 monster energy nascar cup series races which started in 2013. nascar also operates under a ten-year comprehensive agreement with nbc sports group granting nbcuniversal ( nbc ) exclusive rights to 20 monster energy nascar cup series races , 19 nascar xfinity series events , select nascar regional & touring series events and other live content which began in 2015. further , nbc has been granted spanish-language rights , certain video-on-demand rights and exclusive tv everywhere ' rights for its monster energy nascar cup series and nascar xfinity series events . 15 looking forward , our sanction agreements with nascar contain annual increases of between 3 and 4 percent in media rights fees for each sanctioned event conducted , and provide a specific percentage of media rights fees to be paid to competitors . the sanction agreements also provide for annual increases in sanction fees and non-media rights related prize and point fund monies ( to be paid to competitors ) of between 4 and 4.5 percent annually over the term of the agreements . we have hosted the firefly music festival ( firefly ) on our property in dover , delaware for seven consecutive years and it is scheduled to return on june 21-23 , 2019. the inaugural three day festival with 40 musical acts was held in july 2012 and the 2018 event was held on june 14-17 , 2018 with approximately 120 musical acts . in september 2014 , red frog events llc formed rfgv festivals llc - a joint venture with goldenvoice that promotes firefly . goldenvoice is a company of aeg presents , llc , a subsidiary of anschutz entertainment group , inc. aeg presents , one of the world 's largest presenters of live music and entertainment events , announced on july 18 , 2018 that it had acquired the remainder of rfgv festivals llc from red frog . we entered into an amended agreement with rfgv festivals granting them two 5 year options to extend our facility rental agreement through 2032 ( from its original expiration date of 2022 ) in exchange for a rental commitment to secure our property for up to two festivals per year . rent is at differing rates depending on how many events are actually held .
| proceeds from the sale , net of closing costs , were $ 4,945,000. this gain was partially offset by a $ 99,000 loss on the sale of a parcel of land we own near st. louis . net interest expense decreased to $ 62,000 in 2018 from $ 169,000 in 2017 due to lower average outstanding borrowings , partially offset by higher interest rates . provision for contingent obligation increased to $ 424,000 in 2018 from $ 158,000 in 2017 as a result of lower estimated property taxes . other expense of $ 4,000 in 2018 primarily represents losses on equity investments of $ 90,000 partially offset by pension benefits of $ 85,000. other income of $ 85,000 in 2017 represents gains on available-for-sale securities of $ 52,000 and pension benefits of $ 33,000. earnings before income taxes were $ 9,067,000 in 2018 as compared to $ 6,537,000 in 2017. excluding the gain on sale of land in 2018 , our adjusted earnings before income taxes were $ 6,654,000 in 2018 as compared to $ 6,537,000 in 2017 . 2018 2017 earnings before income taxes $ 9,067,000 $ 6,537,000 gain on sale of land ( 2,413,000 ) adjusted earnings before income taxes $ 6,654,000 $ 6,537,000 our effective income tax rates for 2018 and 2017 were 24.0 % and ( 28.9 % ) , respectively . the 2018 rate was impacted by the passage of the tax cuts and jobs act in december of 2017 and deductions for additional contributions made to our pension plan in 2018. the 2017 rate was impacted by the passage of the tax cuts and jobs act in december which required us to revalue our net deferred federal tax liabilities at december 31 , 2017 . 12 net earnings were $ 6,889,000 in 2018 as compared to $ 8,426,000 in 2017. excluding the gain on sale of land in 2018 , and
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new risks and uncertainties arise from time to time and we can not predict these events or how they may affect us and cause actual results to differ materially from those expressed or implied by our forward-looking statements . therefore , you should not rely on our forward-looking statements as predictions of future events . when considering these risks , uncertainties and assumptions , you should keep in mind the cautionary statements contained in this report and any documents incorporated herein by reference . you should read this document and the documents that we reference in this form-10-k completely and with the understanding that our actual future results may be materially different from what we expect . all forward-looking statements attributable to us are expressly qualified by these cautionary statements . current market conditions our global energy and petrochemical markets began to show signs of improvement during the second half of fiscal 2018. the stabilization and subsequent increases in crude oil prices as well as general global economic improvement have led to increased activity by our customers in the downstream energy sector . they have begun to spend on upgrading and turnaround maintenance for existing facilities and are beginning to look at new capacity . while this additional activity is encouraging , it is very recent and we 21 can not predict the pace at which a recovery will occur . capital spending in the nuclear market , for both new capacity and to maintain existing faciliti es , continues to be weak , reportedly down 25 % to 35 % compared with four or five years ago , as reported by the nuclear energy institute . our long-term view for the global energy and petrochemical markets is that general economic fundamentals will drive increasing demand and result in capital investment to satisfy increasing global energy demand . these fundamentals include rising populations , strong emerging market economic growth , and overall global economic expansion . our naval nuclear propulsion market has demand tied to aircraft carrier and submarine vessel construction schedules of the primary shipyards who service the u.s. navy . we expect growth in our naval nuclear propulsion business based on our strategic actions to increase our market share and to satisfy expected demand . for more information , refer to the heading `` strategy and outlook '' within this item 7 of this annual report on form 10-k. we believe the long-term outlook in our key markets supports our strategy . in the near term , new order levels are expected to remain volatile , resulting in both relatively strong and weak periods . the chart below shows the impact of our diversification strategy . over 60 % of our backlog at the end of fiscal year 2018 is from markets not served by us in the fiscal 2007-2009 time frame . story_separator_special_tag style= '' page-break-after : always ; width:100 % ; '' / > our effective tax rate in fiscal 2018 was 23 % . excluding the impact of the impairment losses we incurred from our commercial nucl ear business and the impact of the tax act , our effective tax rate in fiscal 2018 was 31 % . this compares with an effective tax rate of 29 % for fiscal 2017. net ( loss ) and ( loss ) per diluted share for fiscal 2018 , were ( $ 9,844 ) and ( $ 1.01 ) , respectively , compared with net income and income per diluted share of $ 5,023 and $ 0.52 , respectively , for fiscal 2017. excluding the impairment losses we incurred and other charges related to our commercial nuclear power business , the impact of the tax act change , as well as restructuring charges , net income and income per diluted share for fiscal 2018 were $ 1,801 and $ 0.18 , respectively . net income and income per diluted share for fiscal 2017 were $ 5,464 and $ 0.56 , respectively , excluding the impact of the restructuring charge described above . fiscal 2017 compared with fiscal 2016 sales for fiscal 2017 were $ 91,769 , up $ 1,730 or 2 % , as compared with sales of $ 90,039 for fiscal 2016. domestic sales were $ 69,166 or 75 % of total sales , up from $ 57,027 or 63 % of total sales in fiscal 2016. domestic sales increased $ 12,139 , or 21 % , compared with fiscal year 2016. international sales accounted for $ 22,603 , or 25 % of total sales , for fiscal 2017 , down from $ 33,012 , or 37 % of total sales in fiscal 2016. international sales decreased $ 10,409 or 32 % , compared with fiscal 2016 , primarily due to lower sales to the refining , chemical and petrochemical industries . by market , sales for fiscal 2017 were 26 % to the refining industry ( down from 32 % in fiscal 2016 ) , 23 % to the chemical and petrochemical industries ( down from 33 % in fiscal 2016 ) , 22 % to the power markets ( up from 16 % in fiscal 2016 ) , and 29 % to defense and other industrial applications ( up from 19 % in fiscal 2016 ) . our gross margin for fiscal 2017 was 24.1 % compared with 25.8 % for fiscal 2016. the reduction in gross margin was primarily due to a very competitive pricing environment for orders received in fiscal 2017 and business mix partially offset by a large atypical order which converted in the second half of fiscal 2017. gross profit for fiscal 2017 decreased $ 1,094 , or 5 % compared with fiscal 2016 due to the same factors which impacted gross margin . story_separator_special_tag sg & a expense for fiscal 2017 was $ 14,858 , down 10 % or $ 1,707 , compared with $ 16,565 in fiscal 2016. the reduction in sg & a expenses was primarily due to lower sales commissions and cost reduction efforts which occurred in fiscal 2017 as well as the benefit of an insurance settlement of $ 759. sg & a as a percentage of sales in fiscal 2017 improved to 16.2 % of sales compared with 18.4 % of sales in fiscal 2016. in fiscal 2017 we incurred a pre-tax restructuring charge of $ 630 ( $ 441 after tax ) for severance costs related to a reduction in force to align headcount with the business environment . this initiative contributed to cost savings in fiscal 2017. there was no other income in fiscal 2017. other income in fiscal 2016 of $ 1,789 was due to cancellation fees received from customers for two orders which were cancelled in fiscal 2016. interest income for fiscal 2017 was $ 386 , up from $ 261 in fiscal 2016. interest expense for fiscal 2017 was $ 10 , the same as in fiscal 2016. our effective tax rate in fiscal 2017 was 29 % compared with an effective tax rate of 30 % for fiscal 2016. net income and income per diluted share for fiscal 2017 , were $ 5,023 and $ 0.52 , respectively , compared with net income and income per diluted share of $ 6,131 and $ 0.61 , respectively , for fiscal 2016. net income and income per diluted share for fiscal 2017 were $ 5,464 and $ 0.56 , respectively , excluding the impact of a nonrecurring restructuring charge . stockholders ' equity the following discussion should be read in conjunction with our consolidated statements of changes in stockholders ' equity that can be found in item 8 of part ii of this annual report on form 10-k. the following table shows the balance of stockholders ' equity on the dates indicated : march 31 , 2018 march 31 , 2017 march 31 , 2016 $ 103,349 $ 114,110 $ 109,380 fiscal 2018 compared with fiscal 2017 stockholders ' equity decreased $ 10,761 or 9 % , at march 31 , 2018 compared with march 31 , 2017. the decrease was primarily due to the impairment and other charges related to our commercial nuclear power business and the impact of the tax act offset partially by earnings . 24 on march 31 , 2018 , our net book value per share was $ 10.58 , down from $ 11.72 at march 31 , 2017. fiscal 2017 compared with fiscal 2016 stockholders ' equity increased $ 4,730 or 4 % , at march 31 , 2017 compared with march 31 , 2016. the increase was primarily due to earnings . on march 31 , 2017 , our net book value per share was $ 11.72 , up 3 % over march 31 , 2016. liquidity and capital resources the following discussion should be read in conjunction with our consolidated statements of cash flows and consolidated balance sheets appearing in item 8 of part ii of this annual report on form 10-k : replace_table_token_4_th ( 1 ) working capital equals current assets minus current liabilities . ( 2 ) working capital ratio equals current assets divided by current liabilities . we use the above ratios to assess our liquidity and overall financial strength . net cash generated by operating activities for fiscal 2018 was $ 8,511 , compared with $ 12,389 for fiscal 2017. the decrease in cash generated was due to lower earnings ( net of the non-cash items ; impairment losses incurred and tax act impacts ) , cash usage from accounts receivable , inventories , customer deposits and income taxes paid , partially offset by changes in unbilled revenue and accounts payable compared with fiscal 2017. capital spending in fiscal 2018 was $ 2,051 , compared with $ 325 in fiscal 2017. capital expenditures in each of fiscal 2018 and fiscal 2017 were approximately 90 % for facilities along with machinery and equipment and the remaining 10 % for all other items . dividend payments were $ 3,517 in fiscal 2018 co mpared with $ 3,492 in fiscal 2017. cash and investments were $ 76,479 at march 31 , 2018 compared with $ 73,474 at march 31 , 2017 , up $ 3,005 or 4 % . we invest net cash generated from operations in excess of cash held for near-term needs in short-term , less than 365 days , certificates of deposit , money market accounts or u.s. government instruments , generally with maturity periods of up to 180 days . our money market account is used to securitize our outstanding letters of credit , which reduces our cost on those letters of credit . approximately 95 % of our cash and investments are held in the u.s. the remaining 5 % is invested in our china operations . capital expenditures for the fiscal year ending march 31 , 2019 ( which we refer to as “ fiscal 2019 ” ) are expected to be between approximately $ 2,000 and $ 2,500. approximately 75 % -80 % of our fiscal 2019 capital expenditures are expected to be for machinery and equipment , with the remaining amounts expected to be used for other items . our revolving credit facility with jp morgan chase provides us with a line of credit of $ 25,000 , including letters of credit and bank guarantees . in addition , our jp morgan chase agreement allows us to increase the line of credit , at our discretion , up to another $ 25,000 , for total availability of $ 50,000. borrowings under this credit facility are secured by all of our assets . we also have a $ 5,000 unsecured line of credit with hsbc , n.a . letters of credit outstanding on march 31 , 2018 and march 31 , 2017 were $ 8,233 and $ 8,372 , respectively .
| our gross margin for fiscal 2018 was 22.4 % compared with 24.1 % for fiscal 2017. the reduction in gross margin was primarily due to a large non-repeatable atypical order which converted in the second half of the fiscal year 2017. gross profit for fiscal 2018 decreased $ 4,831 , or 22 % compared with fiscal 2017 due to lower volume and the fiscal 2017 atypical order noted above . selling , general and administrative , or sg & a , expense for fiscal 2018 was $ 15,646 , up 5 % or $ 788 , compared with $ 14,858 in fiscal 2017. the increase in sg & a expenses was primarily due to the benefit of an insurance settlement of $ 759 which occurred in fiscal 2017. sg & a as a percentage of sales in fiscal 2018 was 20.2 % of sales compared with 16.2 % of sales in fiscal 2017. during the third quarter of fiscal 2018 , we performed our annual goodwill and intangible asset impairment review . we estimated the fair value of intangible assets and goodwill of our commercial nuclear power business related to the december 2010 acquisition of energy steel & supply co. ( “ energy steel ” ) . the impairment review indicated that the fair value of the permits , tradename and goodwill of the business were substantially lower than the carrying value due to reduced investment from the u.s. nuclear power market , the strength of the energy steel brand relative to larger more vertically integrated suppliers , and the bankruptcy of westinghouse electric company which resulted in the stoppage of work at the summer , south carolina nuclear facility . as a result , we recorded impairment losses of $ 8,600 , $ 500 , and $ 5,716 for permits , tradename , and goodwill , respectively . the total impairment charge was $ 14,816 before taxes and $ 12,014 after taxes . additionally , we incurred a $ 46 revenue reversal , and a $ 234 bad debt charge , related to the bankruptcy of westinghouse electric company and the stoppage of work at the summer , south carolina nuclear facility . the total before and after tax cost of these two charges was $ 280 and $ 193 , respectively . additionally , we recognized a benefit
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under the terms of the merger agreement , at the effective time of the merger , celladon issued shares of common stock to private eiger stockholders , at an exchange ratio of approximately 0.09 shares of common stock , after taking into account the reverse stock split , in exchange for each share of private eiger 's common stock outstanding immediately prior to the merger . the exchange ratio was calculated by a formula that was determined through arms-length negotiations between celladon and private eiger . immediately after the merger , the former private eiger equity holders beneficially owned approximately 78 % of post-merger eiger 's common stock . the merger was accounted for as a reverse asset acquisition . financial operations overview research and development expenses research and development expenses represent costs incurred to conduct research and development , such as the development of our product candidates . we recognize all research and development costs as they are incurred . research and development expenses consist primarily of the following : expenses incurred under agreements with consultants , contract research organizations and clinical trial sites that conduct research and development activities on our behalf ; laboratory and vendor expenses related to the execution of clinical trials ; contract manufacturing expenses , primarily for the production of clinical trial supplies ; license fees associated with our license agreements ; and internal costs that are associated with activities performed by our research and development organization and generally benefit multiple programs . these costs are not separately allocated by product candidate . unallocated internal research and development costs consist primarily of : personnel costs , which include salaries , benefits and stock-based compensation expense ; allocated facilities and other expenses , which include expenses for rent and maintenance of facilities and depreciation expense ; and regulatory expenses and technology license fees related to development activities . 72 the largest component of our operating expenses has historically been the investment in manufacturing capabilities and research and development activities . however , we do not allocate internal research and development costs , such as salaries , benefits , stock-based compensation expense and indirect costs to product candidates on a program-specific basis . the following table shows our research and development expenses for the years ended december 31 , 201 7 , 201 6 and 201 5 ( in tho usands ) : replace_table_token_2_th we expect research and development expenses will increase in the future as we advance our product candidates into and through later stage clinical trials and pursue regulatory approvals , which will require a significant investment in regulatory support and contract manufacturing and clinical trial material related costs . in addition , we continue to evaluate opportunities to acquire or in-license other product candidates and technologies , which may result in higher research and development expenses due to license fee and or milestone payments . the process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming . we may never succeed in timely developing and achieving regulatory approval for our product candidates . the probability of success of our product candidates may be affected by numerous factors , including clinical data , competition , intellectual property rights , manufacturing capability and commercial viability . as a result , we are unable to determine the duration and completion costs of our development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . general and administrative expenses general and administrative expenses consist of personnel costs , allocated expenses and expenses for outside professional services , including legal , audit , accounting services , insurance costs and costs associated with being a public company . personnel costs consist of salaries , benefits and stock-based compensation . allocated expenses consist of facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation expense and other supplies . as a result of becoming a public company following completion of the merger , expenses include costs related to compliance with the rules and regulations of the sec and nasdaq , additional insurance , investor relations , bank fees and other administrative expenses and professional services . interest expense interest expense for the year ended december 31 , 2017 , consists of interest and amortization of the debt discount related to our borrowing under the oxford loan executed in december 2016. interest expense for the year ended december 31 , 2016 , consists of interest and amortization of the debt discount related to the outstanding convertible promissory notes issued in november 2015 , which were converted into common stock in march 2016 , or the notes . 73 interest income interest income consists of interest earned on our investments in marketable securities and cash equivalents . other income ( expense ) , net other income ( expense ) , net in 2017 primarily consists of the $ 0.2 million payment received for mydicar sale . other income ( expense ) , net in 2016 consists of the change in fair value of the obligation to issue common stock to eiccose and the change in fair value of warrant liability . the change in fair value of the obligation to issue common stock to eiccose was related to our obligation to issue shares to eiccose upon the closing of the next round of financing that resulted in at least $ 25.0 million in gross proceeds to us . upon the closing of the private placement on march 22 , 2016 , we issued 96,300 fully vested shares of our common stock to eiccose in settlement of this obligation . story_separator_special_tag in connection with this transaction we remeasured the fair value of the obligation to issue common stock at the settlement date and the change in fair value of $ 0.2 million was recognized within other income ( expense ) , net during the year ended december 31 , 2016. upon the settlement of the obligation with the issuance of shares on march 22 , 2016 , the liability was reclassified to common stock and additional paid-in capital within stockholders ' equity ( deficit ) . in connection with our issuance of the notes , we issued warrants to the noteholders to purchase shares of our common stock at an exercise price of $ 0.11 per share , on a post-merger and post-reverse stock split basis , or the warrants . the number of shares into which the warrants could be exercised was equal to the warrant coverage amount divided by the per share price of the equity securities sold in a qualified financing and thus was accounted for as a liability . upon the closing of the private placement on march 22 , 2016 , the number of shares of common stock issuable upon exercise of the warrants was fixed and the fair value remeasured at that date , and the warrants were automatically exercised . during the year ended december 31 , 2016 , we recognized a loss related to the change in fair value of the warrant liability of $ 0.2 million . the warrant liability was reclassified to common stock and additional paid-in capital within stockholders ' equity ( deficit ) , upon the exercise of the warrants and issuance of shares on march 22 , 2016. critical accounting policies and estimates our management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles 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 and expenses . on an ongoing basis , we evaluate these estimates and judgments . we base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources . actual results may differ materially from these estimates . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . accrued research and development expenses we record accrued expenses for estimated costs of research and development activities conducted by external service providers , which include the conduct of clinical research and contract formulation and manufacturing activities . we record the estimated costs of development activities based upon the estimated amount of services provided but not yet invoiced , and include these costs in accrued liabilities in the consolidated balance sheet and within development expense in the consolidated statement of operations . we record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these external service providers . 74 we estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services . we make judgments and estimates in determining the accrued balance in each reporting period . as actual costs become known , we adjust our accrued estimates . stock-based compensation we recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant . we estimate the grant date fair value , and the resulting stock-based compensation expense , using the black-scholes option-pricing model . the grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period , which is generally the vesting period of the respective awards . the black-scholes option-pricing model requires the use of subjective assumptions , which determine the fair value of stock-based awards . these assumptions include : expected term . our expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method ( based on the mid-point between the vesting date and the end of the contractual term ) . expected volatility . since we have only been publicly traded for a short period and do not have adequate trading history for our common stock , the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants . the comparable companies were chosen based on their similar size , stage in the life cycle , or area of specialty . risk-free interest rate . the risk-free interest rate is based on the u.s. treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option . expected dividend . we have never paid dividends on our common stock and have no plans to pay dividends on our common stock . therefore , we used an expected dividend yield of zero . in addition to the black-scholes assumptions and prior to adoption of asu 2016-09 in the first quarter of 2017 , we estimated our forfeiture rate based on actual forfeiture experience , analysis of employee turnover behavior , and other factors . the impact from any forfeiture rate adjustment was recognized in full in the period of adjustment and if the actual number of future forfeitures differed from our estimates , we were required to record adjustments to stock-based compensation in future periods .
| interest expense interest expense increased by $ 0.8 million to $ 1.5 million for the year ended december 31 , 2017 , from $ 0.7 million for the same period in 2016. interest expense in 2017 consisted of interest and amortization of the debt discount related to the oxford loan borrowings in december 2016. interest expense in 2016 consisted of interest and amortization of the debt discount related to the notes outstanding prior to their conversion into common stock in march 2016. interest income interest income increased by $ 0.3 million to $ 0.4 million for the year ended december 31 , 2017 , from $ 0.1 million for the year ended december 31 , 2016. the increase was primarily due to the interest earned on our investments in marketable securities and cash equivalents being for the entire year of 2017 , compared to 2016 only being for one quarter as the funds were not invested until the fourth quarter of 2016 . 76 other income ( expense ) , net other income ( expense ) , net changed by $ 0.6 million to $ 0.2 million of other income for the year ended december 31 , 2017 , from $ 0.4 million of other expense for same period in 2016. other income in 2017 consisted of the $ 0.2 million payment received from theragene for mydicar sale . other expense in 2016 primarily consisted of the change in fair value of the obligation to issue common stock to eiccose and the change in fair value of warrant liability , that were settled upon the merger . comparison of the years ended december 31 , 2016 and 2015 the following table summarizes results of operations for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_4_th research and development research and development expenses increased by $ 24.9 million to $ 33.0 million for the year ended december 31 , 2016 , from $ 8.1 million for the same period in 2015. the increase was primarily due to a $ 15.0 million increase in clinical expenditures
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the number of consultants , confirmation trends , number of searches or projects completed , productivity levels and the average revenue per search or project will vary from quarter to quarter , affecting net revenue and operating margin . our compensation model at the executive search consultant level there are fixed and variable components of compensation . individuals are rewarded for their performance based on a system that directly ties a portion of their compensation to the amount of net revenue for which they are responsible . a portion of the reward may be based upon individual performance against a series of non-financial measures . credit towards the variable portion of an executive search consultant 's compensation is earned by generating net revenue for winning and executing work . each quarter , we review and update the expected annual performance of all executive search consultants and accrue variable compensation accordingly . the amount of variable compensation that is accrued for each executive search consultant is based on a tiered payout model . overall company performance determines the amount available for total variable compensation . the more net revenue that is generated by the consultant , the higher the percentage credited towards the consultant 's variable compensation and thus accrued by our company as expense . the mix of individual consultants who generate the revenue can significantly affect the total amount of compensation expense recorded , which directly impacts operating margin . as a result , the variable portion of the compensation expense may fluctuate significantly from quarter to quarter . the total variable compensation is discretionary and is based on company-wide financial targets approved by the human resources and compensation committee of the board of directors . a portion of our executive search consultants ' and management cash bonuses is deferred and paid over a three-year vesting period . the compensation expense related to the amounts being deferred is recognized on a graded vesting attribution method over the requisite service period . this service period begins on january 1 of the respective fiscal year and continues through the deferral date , which coincides with our bonus payments in the first quarter of the following year , and for an additional three year vesting period . the deferrals are recorded in accrued salaries and employee benefits in the consolidated balance sheets . 2016 overview consolidated net revenue was $ 582.4 million for the year ended december 31 , 2016 , an increase of $ 51.2 million or 9.6 % compared to december 31 , 2015. consultant productivity measured by net executive search and leadership consulting revenue per consultant was $ 1.6 million and $ 1.5 million for the years ended december 31 , 2016 and 2015. average revenue per executive search was $ 117,700 for the year ended december 31 , 2016 compared to $ 115,300 for the year ended december 31 , 2015. operating income as a percentage of net revenue was 6.0 % in 2016 compared to 6.4 % in 2015. operating income was driven by an increase in net revenue of $ 51.2 million , partially offset by an increase in salaries and employee benefits expense of $ 30.7 million and an increase in general and administrative expense of $ 19.4 million . salaries and employee benefits expense as a percentage of net revenue was 68.7 % in 2016 and 69.5 % in 2015. general and administrative expense as a percentage of net revenue was 25.3 % in 2016 and 24.0 % in 2015 . 20 we ended the year with combined cash and cash equivalents of $ 165.0 million , a decrease of $ 25.4 million compared to $ 190.5 million at december 31 , 2015. the decrease is primarily due to bonus payments , payments for the dsi , philosophy and jca acquisitions , capital expenditures , tax extension payments , cash dividend payments and earnout payments , partially offset by cash collections . we pay the majority of bonuses in the first quarter following the year in which they were earned . employee bonuses are accrued throughout the year and are based on the company 's performance and the performance of the individual employee . we expect to pay approximately $ 128.0 million in bonuses related to 2016 performance in march and april 2017. in february 2017 , we paid approximately $ 12.0 million in cash bonuses deferred in prior years . 2017 outlook we are currently forecasting 2017 first quarter net revenue of between $ 140 million and $ 150 million . our 2017 first quarter guidance is based upon , among other things , management 's assumptions for the anticipated volume of new executive search confirmations and leadership consulting and culture shaping projects , the current backlog , consultant productivity , consultant retention , the seasonality of our business and average currency rates from december 2016. our 2017 first quarter guidance is subject to a number of risks and uncertainties , including those disclosed under risk factors ( see item 1a . risk factors ) and management 's discussion and analysis of financial condition and results of operations included in this form 10-k. as such , actual results could vary from these projections . story_separator_special_tag 2016 , an increase of $ 5.8 million compared to $ 68.0 million in 2015. europe europe reported net revenue of $ 108.7 million in 2016 , an increase of 18.0 % from $ 92.1 million in 2015. the increase in net revenue was driven by a 24.7 % increase in the number of executive search confirmations as compared to the prior year and an increase in consultant headcount . our acquisition of jca group in august 2016 also contributed to the year-over-year 24 growth in net revenue . foreign exchange rate fluctuations decreased revenue by $ 6.7 million or 7.3 % . all industry practice groups contributed to net revenue growth except for the education , nonprofit & social enterprise practice group . story_separator_special_tag the number of consultants was 95 as of december 31 , 2016 as compared to 78 as of december 31 , 2015. salaries and employee benefits expense increased $ 10.7 million from 2015. fixed compensation increased $ 9.2 million due to higher base salaries and payroll taxes of $ 5.3 million primarily from merit increases , additional headcount related to the jca group acquisition and higher minimum guarantees of $ 3.5 million . variable compensation increased $ 1.5 million due to higher bonus accruals for consultant performance . general and administrative expense increased $ 2.7 million from 2015 due to higher internal travel costs , amortization and accretion related to the jca group acquisition and higher professional service fees , partially offset by lower office occupancy costs . the europe segment reported operating income of $ 6.9 million in 2016 , an increase of $ 3.3 million compared to $ 3.6 million in 2015. asia pacific asia pacific reported net revenue of $ 85.3 million in 2016 , a decrease of 4.2 % compared to $ 89.0 million in 2015. the decrease in net revenue was due to lower average revenue per search and lower consultant headcount . the consumer markets and financial services practice groups increased net revenue , which was offset by decreases in the global technology & services , healthcare & life sciences , industrial and education and social enterprise practice groups . the number of consultants was 82 as of december 31 , 2016 , compared to 84 as of december 31 , 2015. salaries and employee benefits expense decreased $ 3.0 million . the decrease in salaries and employee benefits expense is due to lower variable compensation of $ 4.8 million from lower bonus accruals for consultant performance partially offset by an increase in fixed compensation of $ 1.8 million as a result of headcount increases and the timing of merit increases . general and administrative expenses increased $ 0.4 million primarily due to higher office occupancy expenses and internal travel costs . the asia pacific segment reported operating income of $ 4.8 million in 2016 , a decrease of $ 1.1 million compared to 2015. leadership consulting the leadership consulting segment reported net revenue of $ 38.8 million in 2016 , an increase of 103.8 % compared to $ 19.0 million in 2015. the increase in net revenue was primarily driven by our dsi and philosophy ib acquisitions in addition to a full year of results for co company , which was acquired in october 2015. foreign exchange rate fluctuations decreased net revenues by $ 2.7 million or 14.2 % . there were 22 leadership consulting consultants at december 31 , 2016 compared to 26 at december 31 , 2015. salaries and employee benefits expense increased $ 6.0 million compared to the prior year . fixed compensation increased $ 4.9 million due to additional headcount related to the dsi and philosophy ib acquisitions in addition to a full year of expense for co company . variable compensation increased $ 1.1 million as compared to the prior year . general and administrative expenses increased $ 13.4 million primarily as a result of ongoing general and administrative expenses related to our recent acquisitions of dsi , philosophy and co company and their use of third-party consultants to execute work , $ 1.5 million of costs associated with repositioning of our leadership consulting business and higher office occupancy costs . the leadership consulting segment reported an operating loss of $ 1.5 million in 2016 , an improvement of $ 0.3 million compared to an operating loss of $ 1.8 million in 2015. culture shaping the culture shaping segment reported net revenue of $ 36.2 million in 2016 , a decrease of 0.3 % compared to $ 36.3 million in 2015. net revenue decreased due to a decline in the volume of client work . salaries and employee benefits expense increased $ 4.6 million due to $ 6.7 million of investments in new and existing consultants . 25 general and administrative expenses increased $ 1.8 million primarily due to third-party external consultant costs and professional service fees . the culture shaping segment reported an operating loss of $ 1.6 million in 2016 , a decrease of $ 6.5 million compared to $ 4.9 million of operating income in 2015. global operations support global operations support expenses in 2016 increased $ 0.6 million or 1.3 % to $ 47.2 million from $ 46.6 million in 2015. salaries and employee benefits expense increased $ 1.4 million due to additional stock-based compensation expense related to meeting the vesting requirements of the performance share awards for the chief executive officer , higher retirement and benefits expense and higher separation costs . general and administrative expense decreased $ 0.8 million due to decreases in internal travel costs , office occupancy expenses and professional service fees that were partially offset by increased taxes and licenses , hiring fees and temporary labor costs . year ended december 31 , 2015 compared to year ended december 31 , 2014 total revenue . consolidated total revenue increased $ 35.1 million , or 6.8 % , to $ 548.3 million in 2015 from $ 513.2 million in 2014. the increase in total revenue was primarily due to the increase in revenue before reimbursements ( net revenue ) . revenue before reimbursements ( net revenue ) . consolidated net revenue increased $ 36.8 million or 7.5 % , to $ 531.1 million in 2015 from $ 494.3 million in 2014. foreign exchange rate fluctuations decreased revenue by $ 24.2 million , or 4.9 % . executive search net revenue was $ 475.8 million in 2015 , an increase of $ 35.1 million compared to 2014. the increase in executive search net revenue was the result of strong growth in all practice groups .
| culture shaping net revenue was $ 36.2 million in 2016 , a decrease of $ 0.1 million compared to 2015. the number of executive search and leadership consulting consultants was 335 and 22 , respectively , as of december 31 , 2016 compared to 308 and 26 , respectively , as of december 31 , 2015. specific to executive search , our largest business , productivity as measured by annualized net executive search revenue per consultant was $ 1.6 million and $ 1.5 million for the years ended december 31 , 2016 and 2015 , respectively . the number of confirmed searches increased 7.1 % compared to 2015. the average revenue per executive search increased to $ 117,700 for the year ended december 31 , 2016 compared to $ 115,300 for the year ended december 31 , 2015. salaries and employee benefits . consolidated salaries and employee benefits expense increased $ 30.7 million or 8.3 % , to $ 400.1 million in 2016 from $ 369.4 million in 2015. the increase was due to higher fixed compensation of $ 31.7 million partially offset by lower variable compensation of $ 1.0 million . fixed compensation increased due to higher compensation related to our four recent acquisitions , new hires over the last year with incentives and minimum guarantees that are part of the consultant hiring process , $ 6.7 million of investments in new and existing partners in our culture shaping business and severance related to the repositioning of the leadership consulting business . as a result of higher fixed compensation expense 23 and an increase in the use of third-party consultants , whose costs are included in general and administrative expenses , variable compensation decreased $ 1.0 million reflecting the overall profitability of the business . foreign exchange rate fluctuations decreased total salaries and employee benefits by $ 6.2 million or 1.7 % . in 2016 , we had an average of 1,716 employees , compared to an average of 1,563 employees in 2015. as a percentage of net revenue , salaries and
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as a result , we expect 2017 mortgage unit volumes to be approximately 20 % to 25 % lower relative to 2016 levels mostly due to lower expected refinance activity . we generate the majority of our revenues from clients with operations in the u.s. residential real estate , mortgage origination and mortgage servicing markets . approximately 43.0 % , 33.5 % , and 29.8 % of our operating revenues for the year ended december 31 , 2016 , 2015 and 2014 , respectively , were generated from our ten largest clients who consist of the largest u.s. mortgage originators and servicers . two of our clients , wells fargo and bank of america , accounted for 14.0 % and 11.5 % of our operating revenues , respectively , for the year ended december 31 , 2016 . both our pi and rmw segments reported revenue from these two customers . no client accounted for 10.0 % or more of our operating revenues for the years ended december 31 , 2015 and december 31 , 2014 . recent company developments acquisitions in april 2016 , we completed the acquisition of fnc for up to $ 475.0 million , with $ 400.0 million in cash paid at closing , subject to certain closing adjustments , and up to $ 75.0 million to be paid in cash in 2018 , contingent upon the achievement of certain revenue targets in fiscal 2017. fnc is a leading provider of real estate collateral information technology and solutions that automates property appraisal ordering , tracking , documentation and review for lender compliance with government regulations and is included as a component of our pi reporting segment . the acquisition expands our property valuation capabilities . in january 2016 , we acquired the remaining 40 % mandatorily redeemable noncontrolling interest in new zealand-based piq for nzd $ 27.8 million , or $ 19.0 million , and settled the mandatorily redeemable noncontrolling interest . piq is included as a component of our pi reporting segment . financing activities in november 2016 , we paid down $ 45.0 million under the 7.55 % senior debentures due 2028 , which included a premium on debt extinguishment payment of $ 2.0 million . in july 2016 , we amended and restated our credit agreement , and borrowed an additional $ 525.0 million on our term loan facility under the credit agreement . approximately $ 411.0 million of the proceeds were used to finance the redemption of all outstanding balances under the notes , which included a premium on debt extinguishment payment of $ 14.2 million . the notes had an aggregate principal amount of $ 393.0 million and were redeemed at a price equal to 103.63 % of the principal amount of the notes redeemed plus accrued and unpaid interest . we canceled the notes upon their redemption . the remainder of the proceeds of the additional borrowing of approximately $ 110.0 million was used to pay a portion of our outstanding indebtedness under its revolving credit facility and the remaining approximate $ 4.0 million was retained by us as cash on hand . 25 productivity & cost management in line with our on-going commitment to operational excellence and margin expansion , we are targeting cost reduction of approximately $ 30.0 million in 2017. savings are expected to be realized through the reduction of operating costs , selling , general and administrative costs , outsourcing certain business process functions , consolidation of facilities and other operational improvements . unless otherwise indicated , the management 's discussion and analysis of financial condition and results of operations in this annual report on form 10-k relate solely to the discussion of our continuing operations . 26 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > our federal fafc indemnification receivable of $ 23.4 million was recognized as tax indemnification release in our income from continuing operations . the release of the federal fafc indemnification was due to the closure of the irs audit for the exam years ended december 31 , 2005 through 2009. our associated federal tax reserves for uncertain tax benefits of $ 21.8 million and federal tax liability of $ 1.5 million was released and recognized as income tax benefit through provision for income taxes . net income from continuing operations was not impacted due to the offsetting favorable tax benefit recognized from the release of the federal tax reserves for uncertain tax benefits , which resulted in a favorable variance to the effective tax rate . impairment loss on investment in affiliates our consolidated impairment loss on investment in affiliates was $ 23.4 million for the year ended december 31 , 2016 , which was primarily related to impairments recorded on investments in affiliates due to other-than-temporary losses in value from the absence of an ability to recover the carrying amount of the investments . gain on investments and other , net our consolidated gain on investments and other , net was $ 20.6 million for the year ended december 31 , 2016 , a decrease of $ 12.6 million when compared to 2015 . the decrease is primarily due to the prior year acquisition of the remaining 49.9 % interest in rels llc ( `` rels '' ) which resulted in a $ 34.3 million gain due to the step-up in fair value on the previously held interest in 2015 , partially offset by a current year gain of $ 8.0 million on the fair value adjustment of the contingent 28 consideration related to the fnc acquisition , $ 11.4 million gain from the sale of investments , losses in the current year compared to prior year gains on the investments related to supplemental benefit plans of $ 2.0 million and other of $ 0.3 million . provision for income taxes our consolidated provision for income taxes from continuing operations was $ 54.5 million and $ 57.4 million for the years ended december 31 , 2016 and 2015 , respectively . story_separator_special_tag our effective income tax rate was 33.3 % and 33.4 % for the years ended december 31 , 2016 and 2015 , respectively . t he change in the effective income tax rate was primarily due to the closure of the irs audit for the exam years ended december 31 , 2005 through 2009 , which we were indemnified by fafc , and an out-of-period adjustment recorded during the fourth quarter of 2016 ; partially offset by an increase in current year valuation allowance on certain deferred tax assets that may not be recognized in the future . equity in earnings of affiliates , net of tax our consolidated equity in earnings of affiliates , net of tax was $ 0.5 million for the year ended december 31 , 2016 , a decrease of $ 13.2 million , or 96.4 % , when compared to 2015 . we have equity interests in various affiliates which primarily provide settlement services in connection with residential mortgage loans . the decrease was primarily due to the acquisition of the remaining interest in rels in december 2015 , which contributed $ 12.0 million of earnings , net of tax in 2015. as of january 1 , 2016 , rels operated as a consolidated subsidiary and is no longer accounted for under the equity method of accounting . loss from discontinued operations , net of tax our consolidated loss from discontinued operations , net of tax was $ 1.5 million for the year ended december 31 , 2016 , an unfavorable variance of $ 0.9 million , when compared to 2015 , primarily related to higher professional fees . loss from sale of discontinued operations , net of tax our consolidated loss from sale of discontinued operations , net of tax was $ 1.9 million for the year ended december 31 , 2016 , primarily due to transaction payments under an amendment to the sale agreement of collateral solutions and field services businesses . net income attributable to noncontrolling interests in january 2016 , we acquired the remaining 40 % interest in piq . our consolidated net income attributable to noncontrolling interests for the year ended december 31 , 2015 was $ 1.2 million . year ended december 31 , 2015 compared to year ended december 31 , 2014 operating revenues our consolidated operating revenues were $ 1.5 billion for the year ended december 31 , 2015 , an increase of $ 123.1 million when compared to 2014 , and consisted of the following : replace_table_token_5_th 29 our pi segment revenues increased by $ 65.2 million , or 10.9 % , when compared to 2014 . acquisition activity contributed an increase of $ 68.3 million in 2015 . excluding acquisition activity , the decrease of $ 3.1 million was primarily due to lower property information and analytics revenues of $ 2.9 million , which included the impact of unfavorable foreign currency exchange fluctuations of $ 23.4 million , partially offset by higher mortgage origination volumes and improved pricing . our rmw segment revenues decreased by $ 58.3 million , or 7.1 % , when compared to 2014 . acquisition activity contributed an increase of $ 13.5 million in 2015 . excluding acquisition activity , the increase of $ 45.0 million was primarily due to higher mortgage origination volumes and market-share gains , which increased our revenues from property tax processing by $ 26.9 million , credit and screening solutions by $ 13.5 million and flood data services by $ 16.9 million , partially offset by lower technology solutions revenues of $ 12.3 million . our corporate and eliminations revenues were comprised of intercompany revenue eliminations between our operating segments . cost of services ( exclusive of depreciation and amortization ) our consolidated cost of services was $ 776.5 million for the year ended december 31 , 2015 , an increase of $ 36.2 million , or 4.9 % , when compared to 2014 . acquisition activity contributed an increase of $ 36.0 million in 2015 . excluding acquisition activity , the increase of $ 0.2 million was primarily due to higher mortgage origination volumes which impacted cost of services by $ 21.8 million , partially offset by favorable product mix of $ 21.6 million resulting from our ongoing operational efficiency programs including synergies from acquisition integration activities and off-shore efficiencies . selling , general and administrative expense our consolidated selling , general and administrative expenses was $ 398.3 million for the year ended december 31 , 2015 , an increase of $ 46.7 million , or 13.3 % , when compared to 2014 . acquisition activity contributed an increase of $ 32.8 million in 2015 . excluding acquisition activity , the increase of $ 14.0 million was primarily due to a $ 13.9 million gain from disposition of property and equipment in 2014 , which offset selling , general and administrative expenses in the prior year . depreciation and amortization our consolidated depreciation and amortization expense was $ 150.4 million for the year ended december 31 , 2015 , an increase of $ 7.0 million , or 4.9 % , when compared to 2014 . acquisition activity contributed an increase of $ 11.4 million in 2015 . excluding acquisition activity , the decrease of $ 4.4 million was primarily due to assets that were fully depreciated in the prior year primarily in the rmw segment . operating income our consolidated operating income was $ 202.9 million for the year ended december 31 , 2015 , an increase of $ 33.2 million , or 19.5 % , when compared to 2014 , and consisted of the following : replace_table_token_6_th our pi segment operating income increased by $ 2.6 million , or 3.7 % , when compared to 2014 . acquisition-related activity contributed to operating income by $ 3.6 million in 2015 . excluding acquisition activity , operating income decreased $ 1.0 million and operating margins decreased 10 basis points primarily due to lower volume , partially offset by lower costs from the impact of ongoing cost efficiency programs .
| excluding acquisition activity , the decrease of $ 5.1 million was primarily due to lower costs of $ 26.0 million resulting from our on-going operational efficiency programs and favorable product mix , partially offset by higher costs of $ 20.9 million associated with higher mortgage origination volumes . selling , general and administrative expense our consolidated selling , general and administrative expenses were $ 461.5 million for the year ended december 31 , 2016 , an increase of $ 63.2 million , or 15.9 % , when compared to 2015 . acquisition activity contributed an increase of $ 77.6 million in 2016 . excluding acquisition activity , the decrease of $ 14.4 million was primarily due to our on-going operational efficiency programs which resulted in lower compensation-related expenses of $ 20.4 million and lower professional fees of $ 18.4 million , partially offset by higher external services costs of $ 17.1 million ( including cyber-security and compliance costs ) , higher provision for doubtful accounts of $ 5.1 million and other of $ 2.2 million . depreciation and amortization our consolidated depreciation and amortization expense was $ 172.6 million for the year ended december 31 , 2016 , an increase of $ 22.2 million , or 14.8 % , when compared to 2015 . acquisition activity contributed an increase of $ 32.3 million in 2016 . excluding acquisition activity , the decrease of $ 10.1 million was primarily due to assets that were fully depreciated in the prior year primarily in the rmw segment . operating income our consolidated operating income was $ 274.6 million for the year ended december 31 , 2016 , an increase of $ 71.7 million , or 35.3 % , when compared to 2015 , and consisted of the following : 27 replace_table_token_4_th our pi segment operating income increased by $ 28.5 million , or 39.2 % , when compared to 2015 . acquisition-related activity contributed $ 16.9 million to operating income in 2016 . excluding acquisition activity , operating income increased $ 11.6 million and operating margins increased 206 basis points primarily due to
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related to loans secured by real estate , including the risk that the value and marketability of collateral could decline . all written or oral forward-looking statements made by us or attributable to us are expressly qualified by this cautionary notice . we disclaim any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments , unless otherwise required by law . impact of dodd-frank act on july 21 , 2010 , the dodd-frank act was signed into law . the dodd-frank act represents a significant overhaul of many aspects of the regulation of the financial services industry , although some of its provisions apply to companies that are significantly larger than us . the dodd-frank act directs applicable regulatory authorities to promulgate regulations implementing its provisions , and its effect on us and the financial services industry as a whole will be clarified as those regulations are issued . major elements of the dodd-frank act include : a permanent increase in deposit insurance coverage to $ 250,000 per account , unlimited deposit insurance on noninterest bearing transaction accounts beginning december 31 , 2010 through december 31 , 2012 , and an increase in the minimum deposit insurance fund reserve requirement from 1.15 % to 1.35 % , with assessments to be based on assets as opposed to deposits ; new disclosure and other requirements relating to executive compensation and corporate governance ; new prohibitions and restrictions on the ability of a banking entity and nonbank financial company to engage in proprietary trading and have certain interests in , or relationships with , a hedge fund or private equity fund ; amendments to the truth in lending act aimed at improving consumer protections with respect to mortgage originations , including originator compensation , minimum repayment standards , and prepayment considerations ; the establishment of the financial stability oversight council , which will be responsible for identifying and monitoring systemic risks posed by financial firms , activities , and practices ; the development of regulations to limit debit card interchange fees ; the future elimination of newly issued trust preferred securities as a permitted element of tier 1 capital ; the creation of a special regime to allow for the orderly liquidation of systemically important financial companies , including the establishment of an orderly liquidation fund ; the development of regulations to address derivatives markets , including clearing and exchange trading requirements and a framework for regulating derivatives-market participants ; enhanced supervision of credit rating agencies through the office of credit ratings within the sec ; increased regulation of asset-backed securities , including a requirement that issuers of asset-backed securities retain at least 5 % of the risk of the asset-backed securities ; and the establishment of a bureau of consumer financial protection with centralized authority , including examination and enforcement authority , for consumer protection in the banking industry . regulatory agencies are still in the process of issuing regulations , rules and reporting requirements as mandated by the dodd-frank act . as a result , we are continuing to evaluate the potential impact of the dodd-frank act on our business , financial condition and results of operations and expect that some provisions may have adverse effects on us , such as the cost of complying with the numerous new regulations and reporting requirements mandated by the dodd-frank act . 32 critical accounting estimates our accounting and reporting estimates conform with u.s. generally accepted accounting principles ( “ gaap ” ) and general practices within the financial services industry . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . we consider our critical accounting policies to include the following : allowance for losses on loans . the allowance for losses on loans represents our best estimate of probable losses inherent in the existing loan portfolio . the allowance for losses on loans is increased by the provision for losses on loans charged to expense and reduced by loans charged-off , net of recoveries . the provision for losses on loans is determined based on our assessment of several factors : reviews and evaluations of specific loans , changes in the nature and volume of the loan portfolio , current economic conditions and the related impact on specific borrowers and industry groups , historical loan loss experience , the level of classified and nonperforming loans and the results of regulatory examinations . the loan loss allowance is based on the most current review of the loan portfolio and is validated by multiple processes . the servicing officer has the primary responsibility for updating significant changes in a customer 's financial position . each officer prepares status updates on any credit deemed to be experiencing repayment difficulties which , in the officer 's opinion , would place the collection of principal or interest in doubt . our internal loan review department is responsible for an ongoing review of our loan portfolio with specific goals set for the loans to be reviewed on an annual basis . at each review , a subjective analysis methodology is used to grade the respective loan . categories of grading vary in severity from loans that do not appear to have a significant probability of loss at the time of review to loans that indicate a probability that the entire balance of the loan will be uncollectible . if full collection of the loan balance appears unlikely at the time of review , estimates of future expected cash flows or appraisals of the collateral securing the debt are used to allocate the necessary allowances . the internal loan review department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk associated with them . story_separator_special_tag in addition , a list of specifically reserved loans or loan relationships of $ 50,000 or more is updated on a quarterly basis in order to properly allocate the necessary allowance and keep management informed on the status of attempts to correct the deficiencies noted with respect to the loan . loans are considered impaired if , based on current information and events , it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . the measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate stipulated in the loan agreement , except that all collateral-dependent loans are measured for impairment based on fair value of the collateral . in measuring the fair value of the collateral , in addition to relying on third party appraisals , we use assumptions such as discount rates , and methodologies , such as comparison to the recent selling price of similar assets , consistent with those that would be utilized by unrelated third parties performing a valuation . changes in the financial condition of individual borrowers , economic conditions , historical loss experience and the conditions of the various markets in which collateral may be sold all may affect the required level of the allowance for losses on loans and the associated provision for loan losses . as of december 31 , 2014 , our review of the loan portfolio indicated that a loan loss allowance of $ 13.3 million was appropriate to cover probable losses in the portfolio . refer to “ loan loss experience and allowance for loan losses ” and “ note 6 – loans and allowance for probable loan losses ” to our consolidated financial statements included in this report for a detailed description of our estimation process and methodology related to the allowance for loan losses . estimation of fair value . the estimation of fair value is significant to a number of our assets and liabilities . in addition , gaap requires disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements . fair values for securities are volatile and may be influenced by a number of factors , including market interest rates , prepayment speeds , discount rates and the shape of yield curves . fair values for most investment and mbs are based on quoted market prices , where available . if quoted market prices are not available , fair values are based on the quoted prices of similar instruments or estimates from independent pricing services . where there are price variances outside certain ranges from different pricing services for specific securities , those pricing variances are reviewed with other market data to determine which of the price estimates is appropriate for that period . for securities carried at fair value through income , the change in fair value from the prior period is recorded on our income statement as fair value gain ( loss ) – securities . at september 30 , 2008 and continuing until the date of sale , the valuation inputs for our available for sale ( “ afs ” ) trust preferred securities ( “ trups ” ) became unobservable as a result of the significant market dislocation and illiquidity in the 33 marketplace . we continued to rely on nonbinding prices compiled by third party vendors , which we verified to be an appropriate measure of fair value . however , the significant illiquidity in this market results in a fair value not clearly based on observable market data but rather a range of fair value data points from the market place . accordingly , we had determined that the trups security valuation was based on level 3 inputs . defined benefit pension plan . the plan obligations and related assets of our defined benefit pension plan ( the “ plan ” ) are presented in “ note 11 – employee benefits ” to our consolidated financial statements included in this report . entry into the plan by new employees was frozen effective december 31 , 2005. plan assets , which consist primarily of marketable equity and debt instruments , are valued using observable market quotations . plan obligations and the annual pension expense are determined by independent actuaries and through the use of a number of assumptions that are reviewed by management . key assumptions in measuring the plan obligations include the discount rate , the rate of salary increases and the estimated future return on plan assets . in determining the discount rate , we utilized a cash flow matching analysis to determine a range of appropriate discount rates for our defined benefit pension and restoration plans . in developing the cash flow matching analysis , we constructed a portfolio of high quality noncallable bonds ( rated aa or better ) to match as close as possible the timing of future benefit payments of the plans at december 31 , 2014 . based on this cash flow matching analysis , we were able to determine an appropriate discount rate . salary increase assumptions are based upon historical experience and our anticipated future actions . the expected long-term rate of return assumption reflects the average return expected based on the investment strategies and asset allocation on the assets invested to provide for the plan 's liabilities . we considered broad equity and bond indices , long-term return projections , and actual long-term historical plan performance when evaluating the expected long-term rate of return assumption . at december 31 , 2014 , the weighted-average actuarial assumptions of the plan were : a discount rate of 4.14 % ; a long-term rate of return on plan assets of 7.25 % ; and assumed salary increases of 3.50 % .
| earnings per diluted share increase d to $ 2.19 for the year ended december 31 , 2013 , from $ 1.82 for the same period in 2012 . financial condition our total assets increase d $ 1.36 billion , or 39.5 % , to $ 4.81 billion at december 31 , 2014 from $ 3.45 billion at december 31 , 2013 primarily as a result of the acquisition of oabc on december 17 , 2014. see “ note 2 - acquisition. ” this increase was attributable to increase s in our loans and in our investment and mortgage-backed securities ( “ mbs ” ) . loans increased $ 829.9 million , or 61.4 % to $ 2.18 billion compared to $ 1.35 billion at december 31 , 2013. the increase in our loans was comprised of $ 298.8 million of 1-4 family residential , $ 222.7 million of commercial real estate , $ 118.3 million of construction , $ 100.5 million of loans to individuals , $ 77.7 million of commercial and $ 11.9 million of municipal loans . our securities portfolio increase d by $ 246.2 million , or 13.3 % , to $ 2.09 billion compared to $ 1.84 billion at december 31 , 2013 . the increase in our securities was comprised of approximately $ 279.7 million of mbs and a decrease of approximately $ 33.5 million of investment securities , 34 comprised of u.s. treasury , agency and texas municipal securities . the increase in loans was funded by deposits and fhlb advances . our nonperforming assets at december 31 , 2014 decrease d to $ 12.3 million , and represented 0.26 % of total assets , compared to $ 13.6 million , or 0.39 % of total assets at december 31 , 2013 . nonaccruing loans decrease d $ 4.0 million to $ 4.1 million and the ratio of nonaccruing loans to total loans decrease d to 0.19 % at december 31 , 2014 compared to 0.60 % at december 31 , 2013 . other real estate owned ( “ oreo ” ) increase d to $ 1.7 million at
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v. nantucket enterprises , inc. , issued an order compelling the company that issued the supersedeas bond , rli insurance company ( “ rli ” ) , to pay approximately $ 10.0 million . on june 1 , 2017 , rli paid nantucket this amount and sought reimbursement from the company . on june 27 , 2017 , the florida supreme court denied the company 's petition for review . as a result , all of the appeals were exhausted and the judgment was final with the determination and reimbursement of attorney 's fees being the only remaining dispute . on june 29 , 2017 , the balance of the judgment was paid to nantucket by the company . the company estimates its total loss including post judgment interest and reimbursement of the plaintiff 's legal fees to be approximately $ 17.3 million as of december 31 , 2017 , resulting in additional expense of $ 4.1 million for the year ended december 31 , 2017 , respectively . on may 24 , 2017 , we refinanced a $ 15.7 million mortgage loan , secured by the hotel indigo ( “ hotel indigo atlanta ” ) in atlanta , georgia . the new loan totals $ 16.1 million . the mortgage loan is interest only and provides for a floating interest rate of libor + 2.90 % for the first two years with a 30-year amortization schedule based on a 6 % interest rate starting in the third year . the stated maturity is may 2020 , with two one-year extension options . on june 29 , 2017 , rli filed suit in federal district court in dallas seeking to recover the amounts previously paid to nantucket . on july 19 , 2017 , the company paid approximately $ 10.0 million to rli mooting rli 's claim subject only to the alleged claim for attorney fees . the company paid the negotiated settlement of rli 's attorney fees in the amount of $ 100,000 , on november 2 , 2017 , and a stipulation for dismissal was filed concluding the litigation . on june 29 , 2017 , the company sold the crowne plaza ravinia in atlanta , georgia for approximately $ 88.7 million in cash . the sale resulted in a gain of $ 14.1 million for the year ended december 31 , 2017 and is included in “ gain ( loss ) on acquisition of pim highland jv and sale of hotel properties ” in the consolidated statements of operations . the company also repaid approximately $ 78.7 million of debt associated with the hotel property . on august 25 , 2017 , the company issued 3.4 million shares of 7.50 % series h cumulative preferred stock . the series h cumulative preferred stock ranks senior to all classes or series of the company 's common stock and future junior securities , on a parity with each series of the company 's outstanding preferred stock ( the series a cumulative preferred stock ( all shares redeemed on september 18 , 2017 ) , series d cumulative preferred stock ( 7.1 million shares redeemed in 2017 ) , series f cumulative preferred stock , series g cumulative preferred stock and series i cumulative preferred stock ( discussed below ) ) and with any future parity securities and junior to future senior securities and to all of the company 's existing and future indebtedness , with respect to the payment of dividends and the distribution of amounts upon liquidation , dissolution or winding up of the company 's affairs . on september 8 , 2017 , we issued 400,000 additional shares of 7.50 % series h cumulative preferred stock pursuant to the over-allotment option . on august 31 , 2017 , we invested an additional $ 333,000 in openkey , resulting in a 16.2 % total ownership interest . on september 18 , 2017 , the company redeemed its 8.55 % series a cumulative preferred stock at a redemption price of $ 25.00 per share , plus accrued and unpaid dividends through the redemption date , in an amount equal to $ 0.4631 per share , for a total redemption price of $ 25.4631 per share . on september 18 , 2017 , the company redeemed approximately 1.6 million shares of its 8.45 % series d cumulative preferred stock at a redemption price of $ 25.00 per share , plus accrued and unpaid dividends through the redemption date , in an amount equal to $ 0.4577 per share , for a total redemption price of $ 25.4577 per share . on october 4 , 2017 , the company redeemed 379,036 shares of 8.45 % series d cumulative preferred shares at a redemption price of $ 25.00 per share , plus accrued and unpaid dividends through the redemption date , in an amount equal to $ 0.5516 per share , for a total redemption price of $ 25.5516 per share . 45 on october 30 , 2017 , we refinanced our $ 94.7 million mortgage loan , with an outstanding balance of $ 94.5 million , secured by the hilton boston back bay in boston , massachusetts . the new mortgage loan totals $ 97.0 million , provides for a floating interest rate of libor + 2.00 % , a five-year term with no extension options and is secured by the hilton boston back bay . on october 31 , 2017 , we refinanced our $ 412.5 million mortgage loan , secured by seventeen hotels . the new mortgage loan totals $ 427.0 million , is interest only , provides for a floating interest rate of libor + 3.00 % and has a two-year initial term with five one-year extension options . story_separator_special_tag the new mortgage loan is secured by the following seventeen hotels : the courtyard alpharetta , courtyard bloomington , courtyard crystal city , courtyard foothill ranch , embassy suites austin , embassy suites dallas , embassy suites houston , embassy suites las vegas , embassy suites palm beach , hampton inn evansville , hilton garden inn jacksonville , hilton nassau bay , hilton st. petersburg , residence inn evansville , residence inn falls church , residence inn san diego and sheraton indianapolis . on november 17 , 2017 , the company issued 5.4 million shares of 7.50 % series i cumulative preferred stock . the series i cumulative preferred stock ranks senior to all classes or series of the company 's common stock and future junior securities , on a parity with each series of the company 's outstanding preferred stock ( the series d cumulative preferred stock ( 7.1 million shares redeemed in 2017 ) , series f cumulative preferred stock , series g cumulative preferred stock and series h cumulative preferred stock ) and with any future parity securities and junior to future senior securities and to all of the company 's existing and future indebtedness , with respect to the payment of dividends and the distribution of amounts upon liquidation , dissolution or winding up of the company 's affairs . on december 5 , 2017 , the board of directors reapproved a stock repurchase program ( the “ repurchase program ” ) pursuant to which the board granted a repurchase authorization to acquire shares of the company 's common stock , par value $ 0.01 per share ( the “ common stock ” ) having an aggregate value of up to $ 200 million . the board 's authorization replaced any previous repurchase authorizations . on december 11 , 2017 , we entered into equity distribution agreements with ubs securities llc , morgan stanley & co. llc , b. riley fbr , inc. , robert w. baird & co. incorporated , d.a . davidson & co. , deutsche bank securities inc. and janney montgomery scott llc , each acting as a sales agent ( the “ equity distribution agreements ” ) . pursuant to the equity distribution agreements , we may sell from time to time through the sales agents shares of our common stock having an aggregate offering price of up to $ 100.0 million . sales of shares of our common stock , if any , may be made in negotiated transactions or transactions that are deemed to be “ at-the-market ” offerings as defined in rule 415 of the securities act , including sales made directly on the new york stock exchange , the existing trading market for our common stock , or sales made to or through a market maker other than on an exchange or through an electronic communications network . we will pay each of the sales agents a commission , which in each case shall not be more than 2.0 % of the gross sales price of the shares of our common stock sold through such sales agent . as of december 31 , 2017 , no shares of our common stock have been sold under this program . on december 8 , 2017 , the company redeemed approximately 5.1 million shares of its 8.45 % series d cumulative preferred stock at a redemption price of $ 25.00 per share , plus accrued and unpaid dividends through the redemption date , in an amount equal to $ 0.3990 per share , for a total redemption price of $ 25.3990 per share . on january 17 , 2018 , we refinanced our $ 376.8 million mortgage loan . the new mortgage loan totaled $ 395.0 million . the new mortgage loan has a two-year initial term and five one-year extension options , subject to the satisfaction of certain conditions . the mortgage loan is interest only and provides for a floating interest rate of libor + 2.92 % . the mortgage loan is secured by eight hotels : embassy suites portland , embassy suites crystal city , embassy suites orlando , embassy suites santa clara , crowne plaza key west , hilton costa mesa , sheraton minneapolis , and historic inns of annapolis . on february 20 , 2018 , we completed the sale of the springhill suites glen allen for approximately $ 10.9 million . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in crease was primarily due to $ 12.2 million of depreciation and amortization at our comparable hotel properties and worldquest , partially offset by a decrease of $ 9.3 million from our hotel dispositions . impairment charges . we recorded impairment charges of $ 10.2 million and $ 17.8 million in 2017 and 2016 , respectively . we recorded an impairment charge of $ 2.0 million in 2017 for damages to hotel properties from hurricanes harvey and irma and an impairment charge totaling $ 8.2 million at the springhill suites in centreville , virginia and the springhill suites in glen allen , virginia . we recorded an impairment charge of $ 17.8 million in 2016 comprised of impairment charges totaling $ 18.3 million on springhill suites gaithersburg , embassy suites syracuse and renaissance portsmouth , partially offset by an impairment credit of $ 500,000 related to a valuation adjustment on a previously impaired mezzanine loan . transaction costs . transaction costs de creased $ 63,000 or 81.8 % , to $ 14,000 in 2017 compared to 2016 . advisory service fee . the advisory services fee decreased $ 1.2 million or 2.1 % , to $ 53.2 million in 2017 compared to 2016 , which represents a fee paid in connection with our advisory agreement with ashford inc. in 2017 , the advisory services fee was comprised of a base advisory fee of $ 34.7 million , equity-based compensation of $ 11.1 million from equity grants of our common stock and ltip units awarded to the officers and employees of ashford inc. and reimbursable expenses of $ 7.5 million .
| the following acquisitions and dispositions affect reporting comparability related to our consolidated financial statements : replace_table_token_10_th ( 1 ) collectively referred to as “ hotel dispositions ” the following table illustrates the key performance indicators of the hotel properties and worldquest included in our results of operations : replace_table_token_11_th the following table illustrates the key performance indicators of the 120 hotel properties and worldquest that were included for the full years ended december 31 , 2017 and 2016 , respectively : replace_table_token_12_th net income ( loss ) attributable to the company . net loss attributable to the company increased $ 20.7 million , from $ 46.3 million for the year ended december 31 , 2016 ( “ 2016 ” ) to $ 67.0 million for the year ended december 31 , 2017 ( “ 2017 ” ) as a result of the factors discussed below . revenue . rooms revenue from our hotel properties and worldquest de creased $ 37.1 million , or 3.1 % , to $ 1.1 billion during 2017 compared to 2016 . this decrease is primarily attributable to lower rooms revenue of $ 54.3 million related to our hotel dispositions , partially offset by higher rooms revenue of $ 17.3 million from our comparable hotel properties and worldquest , which experienced a 1.4 % increase in room rates and a 32 basis point increase in occupancy . food and beverage revenue de creased $ 18.4 million , or 7.3 % , to $ 234.8 million during 2017 compared to 2016 . this decrease is attributable to lower food and beverage revenue of $ 9.4 million from our hotel dispositions and $ 9.0 million from our comparable hotel properties and worldquest . the decrease in our comparable hotel properties and worldquest is primarily attributable to approximately $ 1.6 million associated with the renovation of the dfw airport marriott in irving , texas and unfavorable year over year changes in the july 4th holiday calendar moving from the weekend to midweek . other hotel revenue , which consists mainly of internet access , parking , and spa , in creased $ 1.3
| 13,714 |
for the years ended december 31 , 2016 and 2015 , our rental revenue included impacts of unbilled rental revenue of $ 10.6 million and $ 14.8 million , respectively , to adjust contractual rent to straight-line rent . we continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant 's payment history , the financial condition of the tenant , business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located . in the event that the collectability of a receivable is in doubt , we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations . 50 cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred , as applicable . investments in real estate investments in real estate are recorded at cost . improvements and replacements are capitalized when they extend the useful life of the asset . costs of repairs and maintenance are expensed as incurred . we evaluate the inputs , processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition . if an acquisition qualifies as a business combination , the related transaction costs are recorded as an expense in the consolidated statements of operations . if an acquisition qualifies as an asset acquisition , the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets . in business combinations , we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities and non-controlling interests based on their respective fair values . tangible assets may include land , land improvements , buildings , fixtures and tenant improvements . intangible assets or liabilities may include the value of in-place leases , above- and below- market leases and other identifiable assets or liabilities based on lease or property specific characteristics . in addition , any assumed mortgages receivable or payable and any assumed or issued non-controlling interests are recorded at their estimated fair values . in allocating the fair value to assumed mortgages , amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows , which is calculated to account for either above or below-market interest rates . disposal of real estate investments that represent a strategic shift in operations that will have a major effect on our operations and financial results are required to be presented as discontinued operations in the consolidated statements of operations . no properties were presented as discontinued operations as of december 31 , 2016 and 2015 . properties that are intended to be sold are designated as “ held for sale ” on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale . properties are no longer depreciated when they are classified as held for sale . as of december 31 , 2016 and 2015 , we did not have any properties designated as held for sale ( see note 4 — real estate investments , net to our audited consolidated financial statements in this annual report on form 10-k for further details ) . we evaluate acquired leases and new leases on acquired properties based on capital lease criteria . a lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant . this situation is generally considered to be met if , among other things , the non-cancelable lease term is more than 75 % of the useful life of the asset or if the present value of the minimum lease payments equals 90 % or more of the leased property 's fair value at lease inception . depreciation and amortization depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings , 15 years for land improvements , five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests . capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases . capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods . capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases . capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods . the value of in-place leases , exclusive of the value of above-market and below-market in-place leases , is amortized to expense over the remaining periods of the respective leases . assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages . impairment of long lived assets when circumstances indicate the carrying value of a property may not be recoverable , we review the asset for impairment . this review is based on an estimate of the future undiscounted cash flows , excluding interest charges , expected to result from the property 's use and eventual disposition . these estimates consider factors such as expected future operating income , market and other applicable trends and residual value , as well as the effects of leasing demand , competition and other factors . if impairment exists due to the inability to recover the carrying value of a property , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used . story_separator_special_tag for properties held for sale , the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset . these assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net earnings . 51 purchase price allocation we allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values . tangible assets include land , land improvements , buildings , fixtures and tenant improvements on an as-if vacant basis . we utilize various estimates , processes and information to determine the as-if vacant property value . estimates of value are made using customary methods , including data from appraisals , comparable sales , discounted cash flow analysis and other methods . amounts allocated to land , land improvements , buildings and fixtures are based on cost segregation studies performed by independent third parties or on our analysis of comparable properties in our portfolio . identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates , the value of in-place leases , and the value of customer relationships , as applicable . factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property , taking into account current market conditions and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period , which typically ranges from 12 to 18 months . we also estimate costs to execute similar leases including leasing commissions , legal and other related expenses . above-market and below-market lease values for acquired properties are initially recorded based on the present value ( using a discount rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to each in-place lease and ( ii ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases . the capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining terms of the respective leases , and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases . if a tenant with a below market rent renewal does not renew , any remaining unamortized amount will be taken into income at that time . the aggregate value of intangible assets related to customer relationship , as applicable , is measured based on our evaluation of the specific characteristics of each tenant 's lease and our overall relationship with the tenant . characteristics considered by us in determining these values include the nature and extent of its existing business relationships with the tenant , growth prospects for developing new business with the tenant , the tenant 's credit quality and expectations of lease renewals , among other factors . the value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases , but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building . if a tenant terminates its lease , the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense . in making estimates of fair values for purposes of allocating purchase price , we utilize a number of sources , including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data . we also consider information obtained about each property as a result of our pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed . as more fully discussed in note 3 — merger transaction to the consolidated financial statements , the merger was accounted for under the acquisition method for business combinations with the company as the accounting acquirer . goodwill we evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event . a triggering event is an event or circumstance that would more likely than not reduce the fair value of a reporting unit below its carrying amount . we performed a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value . based on our assessment we determined that the goodwill is not impaired as of december 31 , 2016 and no further analysis is required . derivative instruments we may use derivative financial instruments , including interest rate swaps , caps , options , floors and other interest rate derivative contracts , to hedge all or a portion of the interest rate risk associated with its borrowings . certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates . these fluctuations may impact the value of our cash receipts and payments in our functional currency , the usd . we enter into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of our functional currency . 52 we record all derivatives on the consolidated balance sheets at fair value . the accounting for changes in the fair value of derivatives depends on the intended use of the derivative , whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting .
| 53 operating expense reimbursements operating expense reimbursements were $ 10.1 million and $ 10.7 million for the years ended december 31 , 2016 and 2015 , respectively . our lease agreements generally require tenants to pay all property operating expenses , in addition to base rent , however some limited property operating expenses may be absorbed by us . operating expense reimbursements primarily reflect insurance costs and real estate taxes incurred by us and subsequently reimbursed by the tenant . the decrease over 2015 is largely driven by our dispositions of 34 properties in the second half of 2016 and currency declines , partially offset by additional operating expense reimbursements related to a full year of operating expense reimbursements for the 22 properties acquired during 2015 and additional property operating expense reimbursements for the last ten days of 2016 related to the 15 properties acquired from the merger . property operating expense property operating expenses were $ 19.0 million and $ 18.2 million for the years ended december 31 , 2016 and 2015 , respectively . these costs primarily relate to insurance costs and real estate taxes on our properties , which are generally reimbursable by the tenants . the main exceptions are gsa properties for which certain expenses are not reimbursable by tenants . the increase is primarily driven by a full year of operating expenses recognized on 22 properties acquired during 2015 and additional property operating expenses incurred for the ten days of 2016 for the 15 properties acquired from the merger , partially offset by the impact of our disposition of 34 properties during the second half of 2016 , and currency declines . operating fees to related parties operating fees to related parties were $ 19.8 million and $ 15.2 million for the years ended december 31 , 2016 and 2015 , respectively . operating fees to related parties represent compensation paid to the advisor for asset management services as well as property management fees paid to the service provider for our european investments . prior
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( the reverse stock split ) , and additional paid-in capital , net of par value , upon conversion to the company 's common stock immediately prior to the closing of the merger ; 57 recorded the cancellation of 122,149 shares of the company 's unvested restricted common stock upon closing of the merger ; recorded the issuance of 3,968,473 shares of the company 's common stock upon the cashless exercise of warrants ( the invesco warrants ) issued to funds affiliated with invesco ltd. , immediately prior to the closing of the merger and recognized the fair value of the invesco warrants upon issuance ; adjusted for the final change in fair value of private evofem 's series d 2x liquidation preference and reclassified the series d 2x liquidation preference to additional paid-in capital upon conversion of 80 shares of private evofem 's series d redeemable convertible preferred stock ( series d ) to 6,878,989 shares of the company 's common stock ; recorded the fair value of the warrants issued to funds affiliated with woodford investment management ltd ( wim ) to purchase up to 2,000,000 shares of the company 's common stock ( the wim warrants ) and related capital contribution upon issuance of the wim warrants ; recorded cash dividends between january 6 , 2018 and the closing date , paid upon closing of the merger to wim ; adjusted common stock and additional paid-in capital associated with shares issued in the merger and private placement ( as defined below ) due to the 6:1 reverse stock split ; assumed options to purchase private evofem common stock that were outstanding and unexercised as of immediately prior to the merger ( the private evofem plan options ) . the private evofem plan options , were converted into options to purchase 159,325 shares of our common stock , as adjusted for the exchange ratio and reverse stock split , at a weighted average price of $ 56.72 ; and recorded $ 20.0 million in proceeds from the sale of 1,614,289 shares of our common stock in a private placement completed immediately after the closing of the merger ( the private placement ) . we historically have funded our operations primarily through sales of our common stock , convertible preferred stock , related-party advances and a note payable from cosmederm biosciences , inc. , a prior related party . public offering on may 24 , 2018 , we completed an underwritten public offering ( the offering ) , whereby we issued 7,436,171 shares of common stock at a public offering price of $ 4.69 per share and pre-funded warrants to purchase 1,063,829 shares of common stock at a public offering price of $ 4.68 per warrant and an exercise price of $ 0.01 per share . each share of common stock and each pre-funded warrant was issued together with a common warrant to purchase one-fifth of a share of the company 's common stock at a public offering price of $ 0.01 per warrant and an exercise price of $ 7.50 per share . an aggregate of 8,500,000 common warrants were issued in connection with the offering and are exercisable to purchase an aggregate of 1,700,000 shares of common stock . we received proceeds of approximately $ 36.0 million , net of underwriting discounts and commissions and estimated offering costs . on june 26 , 2018 , we issued an additional 912 common warrants to purchase approximately 182 shares of common stock upon an underwriter 's exercise of its overallotment option . the offering price and exercise price were the same as the common warrants issued on may 24 , 2018. the net proceeds received from this issuance were immaterial . financial operations overview revenue to date , we have not generated any revenue from our lead product candidate , amphora . we do not expect to generate any revenue from any product candidates we develop unless , and until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties . in the future , if amphora is approved for commercial sale in the united states , we may generate revenue from product sales . if amphora is approved for commercial sale outside of the united states , we expect to out-license commercialization rights to amphora to global pharmaceutical companies or other qualified potential partners or enter into collaborations for the commercialization and distribution of amphora , from which we may generate licensing revenue . however , 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 . we do not expect to commercialize amphora before 2020 , if ever . operating expenses research and development expenses our research and development expenses primarily consist of costs associated with the clinical and preclinical development of our mvp-r product candidates . our research and development expenses include : external development expenses incurred under arrangements with third parties , such as fees paid to clinical research organizations ( cros ) relating to 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 ; 58 costs to acquire , develop and manufacture clinical trial materials , including fees paid to contract manufacturers ; costs related to compliance with drug development regulatory requirements ; employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; 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 research and other supplies . we expense internal and third-party research and development costs as incurred . story_separator_special_tag the following table summarizes research and development expenses by product candidate ( in thousands ) : replace_table_token_5_th completion dates and costs for our clinical development programs can vary significantly for each current and any future product candidate and are difficult to predict . we anticipate we will make determinations as to which programs and product candidates to pursue as well as the most appropriate funding allocations for 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 candidates ' commercial potential . with the completion of the clinical phase of ampower , we expect our research and development expenses to decrease significantly in 2019. we will need to raise substantial additional capital in the future to complete clinical development for our current and future product candidates . 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 length of time required to enroll eligible patients ; the number of patients participating in the trials ; the number of doses patients receive ; potential additional safety monitoring or other trials requested by regulatory agencies ; 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 , business development expense , stock-based compensation expense , and other related costs for our employees and consultants in executive , 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 conducting commercial assessments for our product candidates . we expect our general and administrative expenses to increase , specifically sales and marketing expenses , as we hire additional personnel to support the growth of our business and various pre-commercialization activities in early preparation of the potential launch of amphora in early 2020 , if approved , and as a result of being a publicly-traded company . other income ( expense ) other income ( expense ) consists primarily of loss on issuance of series d redeemable convertible preferred stock , loss on issuance of warrants and the change in fair value of the series d 2x liquidation preference , which for each share of series d is equal to two times the issuance price per share of series d , plus accrued and unpaid dividends , and became payable upon the closing of the merger , and loss on the extinguishment of a related-party note payable . 59 loss on issuance of series d redeemable convertible preferred stock was recognized upon issuance of the related series d as the series d was determined to have been issued at less than fair value . in august and november 2017 , we issued 15 shares and 5 shares , respectively , of series d for which we recognized losses on issuance . loss on issuance of warrants was recognized upon the issuance of the invesco warrants as they were determined as free-standing equity-classified financial instruments and were immediately exercised on january 17 , 2018. the series d 2x liquidation preference expired at the closing date , at which time the final fair value of the series d 2x liquidation preference was estimated . the final change in fair value of the series d 2x liquidation preference of $ 0.1 million was recognized within change in fair value of the series d 2x liquidation preference within the consolidated statements of operations for the year ended december 31 , 2018. the series d 2x liquidation preference liability was reclassified to additional paid-in capital within the consolidated balance sheets . prior to the closing of the merger , the series d 2x liquidation preference was revalued at each reporting date and changes in fair value were recognized as increases in or decreases to other income ( expense ) . critical accounting policies and significant judgments and estimates our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of consolidated financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the applicable periods . management bases its estimates , assumptions and judgments , on historical experience and on various other factors it believes to be reasonable under the circumstances . different estimates , assumptions and judgments may change the estimated used in the preparation of our consolidated financial statements , which , in turn , could materially change our results from those reported . management evaluates its estimates , assumptions and judgments on an ongoing basis . however , if our assumptions change , we may need to revise our estimates , or take other corrective actions , either of which may also have a material adverse effect on our consolidated statements of operations , liquidity and financial condition . we believe the following critical accounting policies involve significant areas where management applies estimates , assumptions and judgments in the preparation of our consolidated financial statements . see note 2- summary of significant accounting policies to this report for our additional accounting policies . clinical trial 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 relating to conducting our clinical trials .
| in addition , there was a $ 3.6 million increase in professional services and personnel costs mainly attributable to the one-time costs associated with the merger , a $ 2.1 million increase in salaries and bonus expense from increased headcount in the current period , a $ 0.7 million increase in business insurance , and a $ 0.7 million increase in costs incurred for various pre-commercialization activities in early preparation of the potential launch of amphora in early 2020 . 61 loss on issuance of series d redeemable convertible preferred stock change in fair value of series d 2x liquidation preference replace_table_token_8_th in august and november 2017 , we issued 15 shares and 5 shares of our series d , respectively , which were determined not to be arms-length transactions . we had an external valuation completed at the closing date that determined the series d was issued below fair value . since no unstated rights and or privileges were identified with the series d , the loss on issuance of series d of $ 8.5 million was recognized in our consolidated statements of operations for the year ended december 31 , 2017. there was no such issuance for the year ended december 31 , 2018. in connection with the merger the company recognized a change in fair value of the series d 2x liquidation preference upon a final valuation before conversion of all 80 shares issued and outstanding series d into the company 's common stock . the valuation model considers the probability of achieving certain exit scenarios , the company 's cost of capital , the estimated period the series d 2x liquidation preference would be outstanding , consideration received for the instrument with the series d 2x liquidation preference and at what price and changes , if any , in the fair value of the underlying instrument to the series d 2x liquidation preference . the variance in change in fair value represents changes in assumptions in the valuation model . loss on issuance of warrants year ended december 31 , 2018 vs. 2017 2018 2017 $ change % change loss on issuance of warrants $ ( 47,920 ) $ — $ ( 47,920 ) 100 % the company issued the invesco warrants immediately prior to the closing date in connection with the merger , with the company recognizing the fair
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parking services revenues related to lease contracts consist of all revenue received at a leased facility , including parking receipts ( net of parking tax ) , consulting and real estate development fees , gains on sales of contracts and payments for exercising termination rights . parking services revenuemanagement contract . management contract revenue consists of management fees , including both fixed and performance-based fees , and amounts attributable to ancillary services such as accounting , equipment leasing , payments received for exercising termination rights , consulting , development fees , gains on sales of contracts , insurance and other 35 value-added services with respect to managed locations . we believe we generally purchase required insurance at lower rates than our clients can obtain on their own because we effectively self-insure for all liability and worker 's compensation claims by maintaining a large per-claim deductible . as a result , we have generated operating income on the insurance provided under our management contracts by focusing on our risk management efforts and controlling losses . management contract revenues do not include gross customer collections at the managed locations as these revenues belong to the property owners rather than to us . management contracts generally provide us with management fees regardless of the operating performance of the underlying facilities . conversions between type of contracts , lease or management , are typically determined by our clients and not us . although the underlying economics to us of management contracts and leases are similar , the manner in which we account for them differs substantially . reimbursed management contract revenue reimbursed management contract revenue consists of the direct reimbursement from the property owner for operating expenses incurred under a management contract , which is reflected in our revenue . cost of parking services our cost of parking services consists of the following : cost of parking serviceslease contract . the cost of parking services under a lease arrangement consists of contractual rental fees paid to the facility owner and all operating expenses incurred in connection with operating the leased facility . contractual fees paid to the facility owner are generally based on either a fixed contractual amount or a percentage of gross revenue or a combination thereof . generally , under a lease arrangement we are not responsible for major capital expenditures or real estate taxes . cost of parking servicesmanagement contract . the cost of parking services under a management contract is generally the responsibility of the facility owner . as a result , these costs are not included in our results of operations . however , our reverse management contracts , which typically provide for larger management fees , do require us to pay for certain costs . reimbursed management contract expense reimbursed management contract expense consists of direct reimbursed costs incurred on behalf of property owners under a management contract , which is reflected in our cost of parking services . gross profit gross profit equals our revenue less the cost of generating such revenue . this is the key metric we use to examine our performance because it captures the underlying economic benefit to us of both lease contracts and management contracts . general and administrative expenses general and administrative expenses include salaries , wages , payroll taxes , insurance , travel and office related expenses for our headquarters , field offices , supervisory employees , and board of directors . 36 depreciation and amortization depreciation is determined using a straight-line method over the estimated useful lives of the various asset classes or in the case of leasehold improvements , over the initial term of the operating lease or its useful life , whichever is shorter . intangible assets determined to have finite lives are amortized over their estimated remaining useful life . results of operations fiscal 2013 compared to fiscal 2012 as noted previously , our consolidated results of operations for the year ended december 31 , 2013 include central 's results of operations for the entire year , and the financial results for the year ended december 31 , 2012 include only approximately three months of operations related to the acquired central operations due to the timing of the closing of the central merger on october 2 , 2012. to help understand the operating results for the periods , the term `` central operations '' refers to the results of central on a stand-alone basis for the period from october 2 , 2012 to december 31 , 2012 and the term `` standard operations '' refers to the results of standard on a stand-alone basis and not inclusive of results from the acquired operations of central for the twelve months ended december 31 , 2012. segments an operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses , and about which separate financial information is regularly evaluated by our chief operating decision maker ( codm ) , in deciding how to allocate resources . our codm is our president and chief executive officer . the chief operating decision maker does not evaluate segments using discrete asset information . the business is managed based on regions administered by executive vice presidents . on november 1 , 2013 , the company changed its internal reporting segment information reported to its codm . the company now reports ontario , manitoba and quebec in region one and missouri , nebraska , north carolina and south carolina in region five . all periods presented have been restated to reflect the new internal reporting to the codm . region one encompasses operations in connecticut , delaware , district of columbia , illinois , indiana , kansas , kentucky , maine , maryland , massachusetts , michigan , minnesota , new jersey , new york , ohio , pennsylvania , rhode island , virginia , west virginia , wisconsin and the three canadian provinces of manitoba , ontario , and quebec . region two encompasses event planning and transportation , and its technology-based parking and traffic management systems . story_separator_special_tag region three encompasses operations in arizona , california , colorado , hawaii , new mexico , oregon , utah , washington and the canadian province of alberta . region four encompasses all major airport and transportation operations nationwide . region five encompasses alabama , florida , georgia , louisiana , mississippi , missouri , nebraska , north carolina , oklahoma , puerto rico , south carolina , tennessee , and texas . other consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to prior years . the following tables present the material factors that impact our financial statements on an operating segment basis . 37 segment revenue information is summarized as follows : replace_table_token_5_th parking services revenuelease contract . lease contract revenue increased $ 239.2 million , or 95.5 % , to $ 489.6 million for the year ended december 31 , 2013 , compared to $ 250.4 million for the year-ago period . the increase in lease contract revenue consisted of an increase from the standard operations of $ 12.9 million , or 7.7 % , and $ 226.3 million from the central operations . the increase resulted primarily from increases in revenue from new and same locations and acquisitions , partially offset by decreases in revenue from contract expirations and fewer locations that converted from management contracts during the current year . same location revenue for those facilities , which as of december 31 , 2013 are the comparative periods for the two years presented , increased 8.3 % . the increase in same location revenue was due to increases in short-term parking revenue of $ 5.8 million and increases in monthly parking revenue of $ 3.6 million . revenue associated with contract expirations relates to contracts that expired during the current period . parking services revenuemanagement contract . management contract revenue increased $ 116.8 million , or 50.7 % , to $ 347.3 million for the year ended december 31 , 2013 , compared to $ 230.5 million for the year-ago period . the increase in management contact revenue consisted of an increase from the central operations of $ 125.4 million , partially offset by a decrease of $ 8.6 million , or 4.6 % from the standard operations . the increase resulted primarily from increases in revenue from new locations and acquisitions , which was partially offset by the decrease in contract expirations . same location revenue for those facilities , which as of december 31 , 2013 are the comparative periods for the two years presented , decreased 1.4 % , primarily due to decreased fees from ancillary services . reimbursed management contract revenue . reimbursed management contract revenue increased $ 156.8million , or 33.1 % , to $ 629.9 million for the year ended december 31 , 2013 , compared to $ 473.1 million in the year-ago period . this increase resulted primarily from the acquisition of central and an increase in reimbursements for costs incurred on behalf of owners . lease contract revenue increased primarily due to new locations and same locations in regions one , three , four and five , combined with acquisitions in regions one , two , three and five . this was partially offset by decreases in contract expirations in regions one , three , four and five . same location revenue increases for the aforementioned regions were primarily due to increases in short-term and monthly parking revenue . 38 management contract revenue increased primarily due to new locations and acquisitions in all five operating regions , combined with same location revenue in regions one and three . this was partially offset by contract expirations in regions one , three , four and five and same locations in regions two , four and five . the decreases in same location revenue were primarily due to decreases in fees from ancillary services . for comparability purposes , revenue associated with contract expirations relate to the contracts that expired during the current period . segment cost of parking services information is summarized as follows : replace_table_token_6_th cost of parking serviceslease contracts . cost of parking services for lease contracts increased $ 224.3 million , or 96.8 % , to $ 456.1 million for the year ended december 31 , 2013 , compared to $ 231.8 million for the year-ago period . the increase in cost of parking services for lease contracts consisted of an increase from the standard operations of $ 13.5 million , or 8.7 % , and $ 210.8 million from the central operations . the increase resulted primarily from increases in costs from new and same locations and acquisitions , which was partially offset by decreases in contract expirations and fewer locations that converted from management contracts during the current year . same location costs for those facilities , which as of december 31 , 2013 are the comparative for the two years presented , increased 9.8 % . same location costs increased $ 12.8 million primarily due to higher rent expense , primarily as a result of contingent rental payments on the increase in revenue for same locations . cost of parking servicesmanagement contracts . cost of parking services for management contracts increased $ 66.8 million , or 47.1 % , to $ 208.7 million for the year ended december 31 , 2013 , compared to $ 141.9 million for the year-ago period . the increase in cost of parking services for management contracts consisted of an increase from the central acquisition of $ 73.1 million , partially offset by a decrease of $ 6.3 , or 5.7 % , million from the standard operations . the decrease resulted from decreases in costs related to same locations and in contract expirations , partially offset by increase in new locations and acquisitions . same location costs for those facilities , which as of december 31 , 2013 are the comparative for the two years presented , decreased 3.1 % .
| same location revenue for those facilities , which as of december 31 , 2012 are the comparative periods for the two years presented , increased 4.0 % , primarily due to increased fees from reverse management locations and ancillary services . 42 reimbursed management contract revenue . reimbursed management contract revenue increased $ 64.7 million , or 15.8 % , to $ 473.1 million for the year ended december 31 , 2012 , compared to $ 408.4 million in the year-ago period . this increase resulted from an increase in reimbursements for costs incurred on behalf of owners . lease contract revenue increased primarily due to new locations and same locations in regions one , three , four and five , combined with acquisitions in regions one , two , three and five . this was partially offset by decreases in contract expirations in regions one , three , four and five . same location revenue increases for the aforementioned regions were primarily due to increases in short-term and monthly parking revenue . management contract revenue increased primarily due to new locations and acquisitions in all five operating regions , combined with same location revenue in regions one , three , four , five and other . this was partially offset by contract expirations in regions one , three , four and five and same locations in region two . the increases in same location revenue were primarily due to an increase in fees from reverse management locations and ancillary services . for comparability purposes , revenue associated with contract expirations relate to the contracts that expired during the current period . segment cost of parking services information is summarized as follows : replace_table_token_9_th cost of parking serviceslease contracts . cost of parking services for lease contracts increased $ 95.3 million , or 69.8 % , to $ 231.8 million for the year ended december 31 , 2012 , compared to $ 136.5 million for the year-ago period . the increase in cost of parking services for lease contracts consisted of an increase from the standard operations of $ 19.6 million , or 14.4 % , and $ 75.7 million from the central operations . the increase resulted primarily from increases in costs from new and same locations
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consequently , the company 's marine transportation business is directly affected by the volumes produced by the company 's petroleum , petrochemical and refining customer base . the company 's marine transportation segment 's revenues for 2018 increased 12 % when compared with 2017. the increase was primarily due to the addition of the higman inland tank barges acquired on february 14 , 2018 and the targa pressure barges acquired on may 10 , 2018 , and improved barge utilization and spot contract pricing in the inland market . partially offsetting the increase were lower term and spot contract pricing in the coastal market , poor seasonal weather conditions in the first four months and fourth quarter of 2018 , lock closures in the 2018 second half and fewer coastal tank barges available with the impairment and retirement of 12 tank barges in the 2017 fourth quarter . the segment 's operating income for 2018 increased 9 % compared with 2017 primarily due to the acquisitions of higman and targa 's pressure barge fleet , improved term and spot contract pricing in the inland market , and improved barge utilization in the inland market . these improvements were partially offset by lower coastal term and spot contract pricing , poor seasonal weather conditions in the first four months and fourth quarter of 2018 and lock closures in the 2018 second half . operating income for 2018 was also impacted by the higman transaction costs , severance and retirement costs , and the amendment to the employee stock award plan ; all of which were incurred in the 2018 first quarter and are discussed above . for 2018 and 2017 , the inland tank barge fleet contributed 76 % and 70 % , respectively , and the coastal fleet contributed 24 % and 30 % , respectively , of marine transportation revenues . inland marine transportation equipment utilization was in the mid-90 % range during the 2018 first quarter , high 80 % to low 90 % during the second quarter , and the low to mid-90 % range during the third and fourth quarters . increased customer demand and poor seasonal operating conditions contributed to a tight market across the entire inland tank barge industry during 2018. operating conditions were adversely impacted by high water conditions on the mississippi river early in the 2018 second quarter , however , weather conditions improved in may and june , enhancing operating efficiency but driving seasonally lower utilization compared to the 2018 first quarter . increasing volumes from petrochemical and black oil customers , lock infrastructure projects in louisiana as well as on the ohio river , and refinery turnarounds contributed to increased utilization during the 2018 second half compared to the 2018 first half . for 2017 , utilization ranged from high 80 % to low 90 % during the 2017 first quarter , mid-80 % to high 80 % during the second quarter , mid-80 % to mid-90 % during the third quarter and low to mid-90 % during the fourth quarter . coastal tank barge utilization levels improved throughout 2018 from the high 70 % range during the 2018 first quarter to the 80 % range by end of 2018. the improvement in utilization primarily reflected the impairment and retirement of 12 out-of-service coastal barges during the 2017 fourth quarter . utilization in the coastal marine fleet continued to be impacted by the oversupply of tank barges in the coastal industry . coastal utilization had declined throughout 2017 as new tank barges were placed in service by the company and competitors , further adding to the overcapacity in the coastal market and further increasing the number of coastal tank barges operating in the spot market , which added increased idle time and voyage costs . in 2017 , equipment utilization was in the mid-70 % to low 80 % range during the first quarter , high 60 % to mid-70 % range during the second quarter , and low 60 % to mid-60 % during the third and fourth quarters . 36 during 2018 , approximately 65 % of the inland marine transportation revenues were under term contracts and 35 % were spot contract revenues . for 2017 , approximately 75 % of inland marine transportation revenues were under term contracts and 25 % were spot contract revenues . these allocations provide the operations with a more predictable revenue stream . inland time charters , which insulate the company from revenue fluctuations caused by weather and navigational delays and temporary market declines , represented 59 % of the inland revenues under term contracts during 2018 compared with 49 % during 2017. rates on inland term contracts renewed in the 2018 first quarter decreased in the 4 % to 6 % average range compared with term contracts renewed in the first quarter of 2017. rates on inland term contracts renewed in the 2018 second quarter increased in the 1 % to 3 % average range compared with term contracts renewed in the second quarter of 2017. in the 2018 third quarter , rates on inland term contracts renewed increased in the 3 % to 5 % average range compared with term contracts renewed in the third quarter of 2017. in the 2018 fourth quarter , rates on inland term contracts were generally higher in the 1 % to 3 % average range , though some multi-year contracts did renew lower , compared with term contracts renewed in the fourth quarter of 2017. spot contract rates , which include the cost of fuel , increased in the 10 % to 15 % range in the 2018 first and second quarters compared with the 2017 first and second quarters . in the 2018 third and fourth quarters , spot contract rates increased in the 20 % to 25 % range compared with the 2017 third and fourth quarters . effective january 1 , 2018 , annual escalators for labor and the producer price index on a number of inland multi-year contracts resulted in rate increases on those contracts of approximately 1.0 % , excluding fuel . story_separator_special_tag during 2018 and 2017 , approximately 80 % of the coastal revenues were under term contracts and 20 % were spot contract revenues . coastal time charters represented approximately 85 % of coastal revenues under term contracts during 2018 and 2017. spot and term contract pricing , which are contingent on various factors including geographic location , vessel capacity , vessel type and product serviced , were stable throughout the 2018 first and second quarters compared with pricing in the 2017 fourth quarter , and moved modestly higher in the 2018 third and fourth quarters . in the 2018 first and second quarters , both term and spot contract pricing declined in the 10 % to 15 % range compared to the 2017 first and second quarters . compared to the 2017 third quarter , spot market pricing in the 2018 third quarter was similar but term contract pricing increased modestly . compared to the 2017 fourth quarter , spot market pricing in the 2018 fourth quarter was approximately 10 % higher and term contract pricing increased modestly . the 2018 marine transportation operating margin was 9.9 % compared with 10.2 % for 2017. distribution and services during 2018 , the distribution and services segment generated 50 % of the company 's revenues , of which 71 % was generated from service and parts and 29 % from manufacturing . the results of the distribution and services segment are largely influenced by the economic cycles of the oilfield service and oil and gas operator and producer markets , marine , mining , power generation , on-highway and other industrial markets . distribution and services revenues for 2018 increased 67 % when compared with 2017. operating income for 2018 increased 50 % when compared with 2017. the higher revenues and operating income were primarily attributable to the acquisition of s & s , completed on september 13 , 2017 , as well as increased demand in the oil and gas market for the manufacturing of oilfield service equipment , including new pressure pumping units , the sale and distribution of engines and related parts , and improving market conditions in the commercial marine diesel engine repair business , partially offset by lower demand in the 2018 second half for new and overhauled transmissions and related parts and remanufactured pressure pumping units from some key oilfield customers . for 2018 , the oil and gas market contributed approximately 68 % of the distribution and services revenues . the increased demand challenged the company 's vendor supply chain in 2018 and created delays for the delivery of new engines , transmissions and parts required for the completion of both new and remanufactured oilfield service equipment , including pressure pumping units , and impacted the recognition of revenue . however , the supply chain issues were largely resolved during the 2018 fourth quarter resulting in a sequential increase in the number of new and remanufactured pressure pumping units delivered in the fourth quarter . in the commercial and industrial market , approximately 32 % of the distribution and services revenues for 2018 , the marine sector experienced higher service levels for diesel engine service and related parts sales throughout 2018. the power generation sector saw increased demand from commercial customers for specialty rental units and back-up power systems in the 2018 second and third quarters in anticipation of and as a result of summer storms . demand for standby-by power generation equipment declined in the 2018 fourth quarter compared to the 2017 fourth quarter which had experienced higher levels of activity during the 2017 hurricane season . demand in the nuclear power generation market was stable compared to 2017 . 37 the distribution and services operating margin for 2018 was 8.7 % compared with 9.7 % for 2017. cash flow and capital expenditures the company continued to generate favorable operating cash flow during 2018 with net cash provided by operating activities of $ 346,999,000 compared with $ 353,378,000 of net cash provided by operating activities for 2017 , a 2 % decrease . the largest component contributing to the $ 6,379,000 decrease was the net decrease in cash flows from the change in operating assets and liabilities of $ 65,436,000. excluding the net decrease in cash flows from the change in operating assets and liabilities , the net cash provided by operating activities improvement was driven by an increase in revenues and operating income in both the marine transportation and distribution and services segments driven by the acquisitions of higman in february 2018 and s & s in september 2017 as well as improved inland barge pricing and utilization in 2018 in the marine transportation segment and increased demand for the manufacturing of oilfield service equipment , including new pressure pumping units , in the distribution and services segment . the decrease in cash flows from the change in operating assets and liabilities of $ 65,436,000 in 2018 as compared to 2017 was primarily due to higher inventories , including work in process , in the distribution and services oil and gas market during 2018 , primarily to support the increased business activity levels , partially offset by a decrease in trade receivables due to a decrease in revenues recognized in the distribution and services oil and gas market in the 2018 fourth quarter driven by lower demand for new and overhauled transmissions and related parts and remanufacturing pressure pumping units from some key oilfield customers . in addition , during 2018 and 2017 , the company generated cash of $ 53,392,000 and $ 54,229,000 , respectively , from proceeds from the disposition of assets , and $ 13,264,000 and $ 3,039,000 , respectively , from proceeds from the exercise of stock options .
| the 2018 second quarter included a one-time non-deductible expense of $ 18,057,000 , or $ 0.30 per share , related to the retirement of joseph h. pyne as executive chairman of the board of directors , effective april 30 , 2018. the 2018 first quarter included $ 3,261,000 before taxes , or $ 0.04 per share , of one-time transaction costs associated with the higman acquisition , as well as $ 2,912,000 before taxes , or $ 0.04 per share , of severance and retirement expenses , primarily related to cost reduction initiatives in the coastal marine transportation market and the integration of higman . in addition , the 2018 first quarter included $ 3,938,000 before taxes , or $ 0.05 per share , of non-cash expenses related to an amendment to the employee stock award plan . the result of the amendment is shorter expense accrual periods on stock options and rsus granted after february 19 , 2018 to employees who are nearing retirement and meet certain years of service and age requirements . the 2017 year included $ 269,472,000 after taxes , or $ 4.83 per share , of deferred tax benefit , the result of recent federal tax reform legislation that resulted in the remeasurement of the company 's united states deferred tax assets and liabilities . this was partially offset by $ 105,712,000 before taxes , $ 66,975,000 after taxes , or $ 1.20 per share , non-cash impairment of long-lived assets and $ 5,449,000 before taxes , $ 3,389,000 after taxes , or $ 0.06 per share , charge for severance and early workforce retirements . the 2017 results reflect the acquisition of s & s on september 13 , 2017. the 2017 results were negatively impacted by s & s acquisition related costs of $ 2,119,000 , or $ 0.02 per share . the 2017 third quarter also included an estimated net $ 0.03 per share negative impact of hurricane harvey , which made landfall along the texas gulf coast in late august 2017 , impacting the marine transportation and distribution and services operations , and hurricane irma , which disrupted the coastal marine transportation and distribution and services operations along the east coast . the 2016 first quarter results included $ 5,605,000 before taxes , or $ 0.06 per share , of severance charges which were reflected in the marine transportation and distribution and services businesses and corporate staff in order to reduce costs . marine transportation the company , through its marine transportation segment , is a provider of marine transportation services , operating tank barges and towing vessels transporting bulk liquid
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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 21 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 adequacy 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 on 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 . 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 . 22 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 , 2017 and 2016 , $ 2.3 billion or 13 % and $ 2.3 billion or 14 % , 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 . these investments in debt securities and mortgage-backed securities were all classified in either levels 1 or 2 of the fair value hierarchy . story_separator_special_tag financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments . as of december 31 , 2017 and 2016 , $ 9.7 million and $ 12.6 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 , 2017 and 2016 , level 3 financial assets recorded at fair value on a recurring basis were $ 11.8 million and $ 14.5 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 , 2017 and 2016 , level 3 financial liabilities recorded at fair value on a recurring basis were $ 9.5 million and $ 11.8 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 reviews the pricing information received from our third-party pricing service . this review process includes a comparison to non-binding third-party broker quotes , as well as a review of market-related conditions impacting the information provided by our third-party pricing service . we also identify investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades relative to historic levels , as well as instances of a significant widening of the bid-ask spread in the brokered markets . as of december 31 , 2017 and 2016 , management did not make adjustments to prices provided by our third-party pricing service as a result of illiquid or inactive markets . 3 ) 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 . based on this review , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 4 ) on an annual basis , to the extent available , we obtain and review independent auditor 's reports from our third-party pricing service related to controls placed in operation and tests of operating effectiveness . we did not note any significant control deficiencies in our review of the independent auditor 's reports related to services rendered by our third-party pricing service . 5 ) 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 . 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 in seven federal , 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 . 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 , 2017 and 2016 , we carried a valuation 23 allowance of $ 1.0 million and $ 3.7 million , respectively , related to our deferred tax assets established in connection with our low-income housing investments .
| the decrease was due in part to a $ 0.9 million decrease in delivery and postage service and a $ 0.8 million decrease in solar energy tax credit partnership amortization expense . these items were partially offset by the following : we recorded a $ 16.9 million provision for credit losses in 2017 compared to a $ 4.8 million provision recorded in 2016 . the provision recorded was based on our determination that the allowance for loan and lease losses should be $ 107.3 million as of december 31 , 2017. mortgage banking income was $ 12.9 million in 2017 , a decrease of $ 6.9 million or 35 % compared to 2016 . this decrease was primarily due to reduced sales and margins on sales of conforming saleable loans from current production and from our mortgage loan portfolio . provision for income taxes was $ 83.4 million in 2017 , an increase of $ 5.3 million or 7 % compared to 2016 primarily due to higher effective tax rate and pretax income . the effective tax rate was 31.11 % in 2017 compared to 30.10 % in 2016. the higher effective tax rate in 2017 compared to 2016 was primarily due to a $ 3.6 million charge for the write down of net 25 deferred tax assets as a result of the tax cuts and jobs act , partially offset by a $ 3.4 million release of a valuation allowance for the sale of low income housing investments . salaries and benefits expense was $ 205.5 million in 2017 , an increase of $ 4.4 million or 2 % compared to 2016 primarily due to a $ 6.0 million increase in salaries expense mainly due to merit increases and a $ 2.2 million bonus , inclusive of payroll taxes , paid in the fourth quarter of 2017 , due in part to anticipated future tax expense reductions resulting from the tax cuts and jobs act . separation expense increased by $ 1.2 million . these increases were partially offset by a $
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the provision for loan losses declined by $ 950 thousand from $ 2.35 million during 2012 to $ 1.40 million during 2013 resulting in an increase in net interest income after provision for loan losses of $ 1.7 million . during the year ended december 31 , 2013 non-interest income totaled $ 6.6 million an increase of $ 46 thousand from the year ended december 31 , 2012. a decrease of $ 403 thousand in gain on sale of securities was offset by increases in core non-interest income including $ 295 thousand in service charges on deposit accounts , $ 75 thousand in gain on sale of loans and $ 108 thousand in loan servicing income . we continue to achieve savings in non-interest expense resulting in a reduction in non-interest expense of $ 807 thousand from $ 18.4 million during the twelve months ended december 31 , 2012 to $ 17.6 million during 2013. reductions of $ 239 thousand in salary and benefits expense , $ 149 thousand in occupancy and equipment , $ 44 thousand in professional fees , $ 421 thousand in the provision for changes in oreo , $ 178 thousand in fdic insurance , $ 187 thousand in loss on sale of oreo and $ 53 thousand in postage were partially offset by increases in other expenses the largest of which were outside service fees of $ 352 thousand and costs associated with oreo properties of $ 123 thousand . oreo represents real property acquired by the bank either through foreclosure or through a deed in lieu thereof from the borrower . the provision for income taxes increased from $ 1.1 million in 2012 to $ 2.2 million during the year ended december 31 , 2013. net income allocable to common shareholders increased by $ 2.38 million from $ 1.27 million during the year ended december 31 , 2012 to $ 3.65 million during 2013. income allocable to common shareholders is calculated by adding discount on redemption of preferred stock and subtracting dividends and discount amortized on preferred stock from net income . during 2013 the company redeemed all of its outstanding preferred stock , recording a $ 565 discount on redemption . related to this redemption , dividends and discount amortized on the preferred stock declined by $ 337 thousand from $ 684 thousand during 2012 to $ 347 thousand during the year ended december 31 , 2013. total assets at december 31 , 2013 were $ 516 million , an increase of $ 37.9 million from $ 478 million at december 31 , 2012. increases included $ 5.2 million in cash , $ 9.4 million in investments , $ 24.1 million in net loans and $ 1.1 million in oreo . total deposits increased by $ 37.9 million from $ 411 million at december 31 , 2012 to $ 449 million at december 31 , 2013. core deposit growth remained strong in 2013 as evidenced by increases of $ 19.2 million in demand deposits and $ 27.3 million in savings and money market accounts . time deposits declined by $ 7.9 million , much of which we attribute to migration into other types of deposits given the low rates and lack of liquidity associated with time deposits . interest-bearing transaction accounts ( now ) declined by $ 0.7 million . 24 shareholders ' equity decreased by $ 11.2 million from $ 41.8 million at december 31 , 2012 to $ 30.6 million at december 31 , 2013. this decrease resulted from the redemption of the preferred stock , payment of preferred stock dividends and an increase in other comprehensive loss . these items were partially offset by earnings during the year , a $ 565 discount on redemption of the preferred stock and an increase in common stock totaling $ 156 thousand . the return on average assets was 0.69 % for 2013 , up from 0.42 % for 2012. the return on average common equity was 12.0 % for 2013 , up from 4.3 % for 2012 . 25 story_separator_special_tag 2013. interest expense on savings accounts increased by $ 15 thousand as we have experienced strong growth in this category of deposits . average savings deposits increased by $ 15.7 million from $ 68.8 million during 2012 to $ 84.5 million during 2013. the average rate paid on savings accounts during this same period declined from 19 basis points during 2012 to 17 basis points during 2013. the decline in rates paid on deposits is consistent with a decline in competitive market rates in our service area . interest expense on other interest-bearing liabilities increased by $ 507 thousand from $ 427 thousand during the twelve months ending december 31 , 2012 to $ 934 thousand during 2013. this increase was related to $ 541 thousand in interest expense on a $ 7.5 million subordinated debenture which was issued to help fund the repurchase of preferred stock . the subordinated debt bears an interest rate of 7.5 % per annum , has a term of 8 years with no prepayment allowed during the first two years and was made in conjunction with an eight-year warrant ( the lender warrant ) to purchase up to 300,000 shares of the bancorp 's common stock , no par value at an exercise price , subject to anti-dilution adjustments , of $ 5.25 per share . the effective yield on the debenture was 10.4 % which was in excess of the 7.5 % rate due to amortization of a $ 75 thousand commitment fee and a discount recorded on issuance of $ 318 thousand . on october 24 , 2013 the bancorp issued a $ 3 million promissory note dated october 24 , 2013 payable to an unrelated commercial bank . the note bears interest at the u.s. prime rate plus three-quarters percent per annum ( currently 4 % ) , has a term of 18 months and is secured by 100 shares of plumas bank stock representing the company 's 100 % ownership interest in plumas bank . story_separator_special_tag proceeds from this note were used to help fund the redemption of the remaining preferred shares . interest expense on this note for 2013 totaled $ 23 thousand . interest expense on junior subordinated debentures , which decreased by $ 31 thousand from 2012 , fluctuates with changes in the 3-month london interbank offered rate ( libor ) rate . in addition , as a result of deferring our interest payments under the debentures during the 2012 period we were required to pay interest on the deferred interest payments . this had the effect of increasing interest expense and effective yield on the debentures . the deferred interest on the debentures was repaid in march of 2013. interest on other borrowings , which totaled $ 57 thousand in 2013 and $ 83 thousand in 2012 , primarily relates to interest paid on repurchase agreements . 28 net interest margin is net interest income expressed as a percentage of average interest-earning assets . as a result of the changes noted above , the net interest margin for 2013 decreased 15 basis points to 4.03 % , from 4.18 % for 2012 . 2012 compared to 2011. net interest income , on a nontax-equivalent basis , was $ 17.2 million for the year ended december 31 , 2012 , up $ 331 thousand , or 2 % , from $ 16.8 million for 2011. a decrease of $ 243 thousand , or 1.3 % in interest income , from $ 18.7 million during 2011 to $ 18.4 million during the current year , was offset by a decline in interest expense of $ 574 thousand . interest and fees on loans increased by $ 27 thousand ; however , this was offset by a $ 252 thousand decline in interest on investment securities and an $ 18 thousand decline in interest on deposits . the increase in interest and fees on loans was related to an increase in yield partially offset by a decrease in average loan balances . interest on investments securities declined related to a decrease in yield partially offset by an increase in average balance . interest and fees on loans was $ 17.4 million for the years ended december 31 , 2012 and 2011. the average loan balances were $ 301.8 million for 2012 , down $ 1.0 million from the $ 302.8 million for 2011. this decline in loans was mostly related to normal pay downs and prepayments , loan charge-offs and real estate acquired through foreclosure mostly offset by growth in our auto loan and commercial real estate loan portfolios . the average yields on loans were 5.77 % for 2012 up from 5.75 % for 2011. as a result of a decrease in yield of 64 basis points from 1.92 % during 2011 to 1.28 % during 2012 , interest on investment securities decreased by $ 252 thousand . the effect of the decrease in yield on interest income was partially offset by an increase in average investment securities of $ 10.2 million from $ 59.4 million during 2011 to $ 69.6 million during 2012. the decline in yield is primarily related to the replacement of matured and sold investment securities with new investments with market yields below those which they replaced . interest income on interest-bearing deposits , which totaled $ 106 thousand in 2012 and $ 124 thousand in 2011 , mostly relates to interest on cash balances held at the federal reserve . interest expense on deposits decreased by $ 622 thousand , or 42 % , to $ 847 thousand for the twelve months ended december 31 , 2012 , down from $ 1.5 million in 2011. this decrease primarily relates to decreases in the average balance and rate paid on time and interest bearing demand deposits and a decline in the rate paid on money market accounts . interest on time deposits declined by $ 548 thousand . average time deposits declined by $ 20.9 million from $ 97.0 million during 2011 to $ 76.1 million for the year ended december 31 , 2012. the decrease in average time deposits is mostly related to a promotional time deposit product we began offering in june , 2009 and continued to offer until april 30 , 2010. during 2011 the average balance of promotional deposits was $ 21.8 million ; these promotional time deposits had all matured by december 31 , 2011. the average rate paid on promotional deposits during 2011 was 2 % . in addition , the bank has held down the rate paid on time deposits in 2012 as it has excess liquidity and does not need to pay for deposits at above market rates . the average rate paid on time deposits decreased from 1.09 % during 2011 to 0.67 % during the current twelve month period . this decrease primarily relates to a decline in market rates paid in the company 's service area and the maturity of the higher rate promotional deposits . interest expense on now accounts declined by $ 76 thousand . rates paid on now accounts declined by 7 basis points from 0.20 % during 2011 to 0.13 % during 2012 , mostly related to a decline in market rates in the company 's service area . average balances declined by $ 11.3 million from 2011. during 2011 we significantly lowered the rate paid on local public agencies now accounts as we determined that the previous rate did not meet our profitability targets , as a result some of these deposits moved out of the bank . during 2012 average public now accounts declined by $ 7.4 million from $ 24.3 million during 2011 to $ 16.9 million during the year ended december 21 , 2012. at december 31 , 2012 balances in this account type were $ 11.8 million .
| 26 the following table sets forth changes in interest income and interest expense , for the years indicated and the amount of change attributable to variances in volume , rates and the combination of volume and rates based on the relative changes of volume and rates : replace_table_token_8_th ( 1 ) the volume change in net interest income represents the change in average balance multiplied by the previous year 's rate . ( 2 ) the rate change in net interest income represents the change in rate multiplied by the previous year 's average balance . ( 3 ) the mix change in net interest income represents the change in average balance multiplied by the change in rate . 2013 compared to 2012. net interest income is the difference between interest income and interest expense . net interest income , on a nontax-equivalent basis , was $ 17.9 million for the year ended december 31 , 2013 , up $ 775 thousand , or 4.5 % , from $ 17.2 million for 2012. an increase of $ 1.0 million , or 5.6 % in interest income , from $ 18.4 million during 2012 to $ 19.4 million during the current year , was partially offset by an increase in interest expense of $ 260 thousand . interest and fees on loans increased by $ 747 thousand , interest on investment securities increased by $ 270 thousand and interest on deposits increased by $ 18 thousand . the increase in interest and fees on loans was related to an increase in average loan balances partially offset by a decline in yield . interest on investments securities benefited from both an increase in yield and an increase in average balance . interest and fees on loans was $ 18.2 million during 2013 and $ 17.4 million for the year ended december 31 , 2012. the average loan balances were $ 321.2 million for 2013 , up $ 19.4 million from the $ 301.8 million for 2012. the largest areas of loan growth were in our commercial real estate and auto portfolios . we have dedicated significant resources to our loan production activities and have emphasized the need for quality and diversified growth in the portfolio . the following table compares loan balances by type at december 31 , 2013 and 2012. replace_table_token_9_th 27 the average yields on loans were 5.66 % for 2013 down from 5.77 % for
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inventories at our international subsidiaries are measured on the first-in , first-out ( fifo ) method . pension benefits we sponsor pension plans covering all employees who met eligibility requirements as of april 30 , 2005. in february 2005 , our pension plans were amended as of april 30 , 2005. no further benefits have been , or will be , earned under the plans subsequent to the amendment date , and no additional participants have been , or will be , added to the plans . several statistical and other factors , which attempt to anticipate future events , are used in calculating the expense and liability related to the pension plans . 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 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 company 's financing activities used cash during fiscal year 2012 of $ 1,086,000 primarily for the payment of cash dividends . the majority of the april 30 , 2014 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2015 , 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 anticipate that no contributions will be made to the plans in fiscal year 2015. we made contributions of $ 300,000 and $ 1,000,000 to the plans in fiscal years 2014 and 2013 , respectively . capital expenditures were $ 2.0 million , $ 2.4 million and $ 1.4 million in fiscal years 2014 , 2013 and 2012 , respectively . capital expenditures in fiscal year 2014 were funded primarily from operations . fiscal year 2015 capital expenditures are anticipated to be approximately $ 2.3 million , with the majority of these expenditures for manufacturing equipment . the fiscal year 2015 expenditures are expected to be funded primarily by operating activities , supplemented as needed by borrowings under our revolving credit facility . working capital was $ 27.2 million at april 30 , 2014 , up from $ 25.1 million at april 30 , 2013 , and the ratio of current assets to current liabilities was 2.7-to-1.0 at april 30 , 2014 and 2.1-to-1.0 at april 30 , 2013. the increase in working capital for fiscal year 2014 was primarily due to cash provided by operating activities . we paid cash dividends of $ 0.44 per share in fiscal year 2014. we paid cash dividends of $ 0.40 per share in fiscal years 2013 and 2012. 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 will adopt this standard in fiscal year 2015. the company does not expect the adoption of this standard to 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 . this standard is effective for annual reporting periods beginning on or after december 15 , 2013 and interim periods within those annual periods . the company will adopt this standard in fiscal year 2015. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations . in may story_separator_special_tag inventories at our international subsidiaries are measured on the first-in , first-out ( fifo ) method . pension benefits we sponsor pension plans covering all employees who met eligibility requirements as of april 30 , 2005. in february 2005 , our pension plans were amended as of april 30 , 2005. no further benefits have been , or will be , earned under the plans subsequent to the amendment date , and no additional participants have been , or will be , added to the plans . several statistical and other factors , which attempt to anticipate future events , are used in calculating the expense and liability related to the pension plans . 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 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 company 's financing activities used cash during fiscal year 2012 of $ 1,086,000 primarily for the payment of cash dividends . the majority of the april 30 , 2014 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2015 , 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 anticipate that no contributions will be made to the plans in fiscal year 2015. we made contributions of $ 300,000 and $ 1,000,000 to the plans in fiscal years 2014 and 2013 , respectively . capital expenditures were $ 2.0 million , $ 2.4 million and $ 1.4 million in fiscal years 2014 , 2013 and 2012 , respectively . capital expenditures in fiscal year 2014 were funded primarily from operations . fiscal year 2015 capital expenditures are anticipated to be approximately $ 2.3 million , with the majority of these expenditures for manufacturing equipment . the fiscal year 2015 expenditures are expected to be funded primarily by operating activities , supplemented as needed by borrowings under our revolving credit facility . working capital was $ 27.2 million at april 30 , 2014 , up from $ 25.1 million at april 30 , 2013 , and the ratio of current assets to current liabilities was 2.7-to-1.0 at april 30 , 2014 and 2.1-to-1.0 at april 30 , 2013. the increase in working capital for fiscal year 2014 was primarily due to cash provided by operating activities . we paid cash dividends of $ 0.44 per share in fiscal year 2014. we paid cash dividends of $ 0.40 per share in fiscal years 2013 and 2012. 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 will adopt this standard in fiscal year 2015. the company does not expect the adoption of this standard to 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 . this standard is effective for annual reporting periods beginning on or after december 15 , 2013 and interim periods within those annual periods . the company will adopt this standard in fiscal year 2015. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations . in may
| the increase in gross profit margin for fiscal year 2014 was primarily due to a more favorable product sales mix . the increase in gross profit margin for fiscal year 2013 was primarily due to cost savings initiatives and a more favorable product mix . operating expenses were $ 16.1 million , $ 17.0 million and $ 16.4 million in fiscal years 2014 , 2013 and 2012 , respectively , and 14.5 % , 14.5 % and 16.0 % of sales , respectively . the decrease in operating expenses in fiscal year 2014 as compared to fiscal year 2013 includes a decline of $ 425,000 in corporate salary and benefit costs . the increase in fiscal year 2013 as compared to fiscal year 2012 resulted primarily from higher pension expense of $ 442,000 and $ 519,000 in expense related to compensation earned under performance incentive plans . these increases were partially offset by decreases in bad debt expenses of $ 180,000 and sales and marketing expenses of $ 317,000. other income was $ 395,000 , $ 306,000 and $ 271,000 in fiscal years 2014 , 2013 and 2012 , respectively . the increase in other income in fiscal years 2014 and 2013 was primarily due to increases in interest income earned from cash on hand at the international subsidiaries . interest expense was $ 373,000 , $ 362,000 and $ 445,000 in fiscal years 2014 , 2013 and 2012 , respectively . interest expense in fiscal year 2014 was flat as compared to fiscal year 2013. the decrease in interest expense for fiscal year 2013 was primarily due to lower levels of bank borrowings and the increase in fiscal year 2012 was due to higher levels of borrowings . income tax expense was $ 1,983,000 , $ 1,540,000 , and $ 739,000 in fiscal years 2014 , 2013 and 2012 , respectively , or 33.1 % , 29.5 % and 29.1 % of pretax earnings , respectively . the effective tax rate for each of these years is lower
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we record reserves for estimated losses under insurance policies that we write and for loss adjustment expenses related to the investigation and settlement of claims . our reserves for loss and loss adjustment expenses represent the estimated cost of all reported and unreported loss and loss adjustment expenses incurred and unpaid at any given point in time based on known facts and circumstances . reserves are based on estimates of the most likely ultimate cost of individual claims . these estimates are inherently uncertain . in addition , there are no policy limits on the liability for workers ' compensation claims as there are for other forms of insurance . therefore , estimating reserves for workers ' compensation claims may be more uncertain than estimating reserves for other types of insurance claims with shorter or more definite periods between occurrence of the claim and final determination of the loss and with policy limits on liability for claim amounts . our focus on providing workers ' compensation insurance to employers engaged in hazardous industries results in our receiving relatively fewer but more severe claims than many other workers ' compensation insurance companies . severe claims , which we define as claims having an estimated ultimate cost of more than $ 0.5 million , usually have a material effect on each accident year 's loss reserves ( and our reported results of operations ) as a result of both the number of severe claims reported in any year and the timing of claims in the year . as a result of our focus on higher severity , lower frequency business , our reserve for loss and loss adjustment expenses may have greater volatility than other workers ' compensation insurance companies . for example , for the five-year period ended december 31 , 2012 we had recorded 194 severe claims , or an average of 39 severe claims per year for accident years 2008 through 2012. the number of severe claims reported in any one accident year as of december 31 , 2012 ranged from a low of 35 in 2012 to a high of 43 in 2009. the average reported severity for these claims ranged from $ 0.8 million for the 2008 accident year to $ 1.0 million for the 2010 accident year . for the five accident years , these severe claims accounted for an average of 13.3 percentage points of our overall loss and loss adjustment expense , or lae , ratio , measured at december 31 , 2012. further , the ultimate cost of severe claims is more difficult to estimate , principally due to uncertainties as to medical treatment and outcome and the length and degree of disability . because of these uncertainties , the estimate of the ultimate cost of severe claims can vary significantly as more information becomes available . as a result , at year end , the case reserve for a severe claim reported early in the year may be more accurate than the case reserve established for a severe claim reported late in the year . a key assumption used by management in establishing loss reserves is that average per claim case incurred loss and loss adjustment expenses will increase year over year . we believe this increase primarily reflects medical and wage inflation and utilization . however , changes in per average claim case incurred loss and loss adjustment expenses can also be affected by frequency of severe claims in the applicable accident years . as more fully described in businessloss reserves in item 1 of this report , the estimate for loss and loss adjustment expenses is established based upon management 's analysis of historical data , and factors and trends derived from that data , including claims reported , average claim amount incurred , case development , duration , severity and payment patterns , as well as subjective assumptions . this analysis includes reviews of case reserves for individual open severe claims in the current and prior years . management reviews the outcomes from actuarial analyses to confirm the reasonableness of its reserve estimate . 43 substantial judgment is required to determine the relevance of our historical experience and industry information under current facts and circumstances . the interpretation of this historical and industry data can be impacted by external forces , principally frequency and severity of unreported claims , length of time to achieve ultimate settlement of claims , utilization , inflation in medical costs and wages , insurance policy coverage interpretations , jury determinations and legislative changes . accordingly , our reserves may prove to be inadequate to cover our actual losses . if we change our estimates , these changes would be reflected in our results of operations during the period in which they are made , with increases in our reserves resulting in decreases in our earnings . our gross reserves for loss and loss adjustment expenses at december 31 , 2012 , 2011 and 2010 were $ 570.5 million , $ 538.2 million and $ 532.2 million , respectively . as a percentage of gross reserves at year end , ibnr represented 21.6 % in 2012 , 22.3 % in 2011 and 19.6 % in 2010. in 2012 , we decreased our estimates for prior year loss reserves by $ 2.5 million . in 2011 , we decreased our estimates for prior year loss reserves by $ 6.6 million . in 2010 , we decreased our estimates for prior year loss reserves by $ 21.6 million . the workers ' compensation insurance industry is cyclical in nature and influenced by many factors , including price competition , medical cost increases , natural and man-made disasters , changes in interest rates , changes in state laws and regulations , and general economic conditions . a hard market in our industry is characterized by decreased competition that results in higher premium rates , more restrictive policy coverage terms , and lower commissions paid to agencies . story_separator_special_tag in contrast , a soft market is characterized by increased competition that results in lower premium rates , expanded policy coverage terms , and higher commissions paid to agencies . we believe that the workers ' compensation insurance industry is transitioning to a hard market cycle . our strategy is to focus on maintaining underwriting profitability . for additional information regarding our loss reserves and the analyses and methodologies used by management to establish these reserves , see the information under the caption businessloss reserves in item 1 of this report . principal revenue and expense items our revenues consist primarily of the following : net premiums earned . net premiums earned is the earned portion of our net premiums written . net premiums written is equal to gross premiums written less premiums ceded to reinsurers . gross premiums written includes the estimated annual premiums from each insurance policy we write in our voluntary and assigned risk businesses during a reporting period based on the policy effective date or the date the policy is bound , whichever is later . premiums are earned on a daily pro rata basis over the term of the policy . at the end of each reporting period , premiums written that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy . our insurance policies typically have a term of one year . thus , for a one-year policy written on july 1 , 2012 for an employer with constant payroll during the term of the policy , we would earn half of the premiums in 2012 and the other half in 2013. on a monthly basis , we also recognize net premiums earned from mandatory pooling arrangements . we estimate the annual premiums to be paid by our policyholders when we issue the policies and record those amounts on our balance sheet as premiums receivable . we conduct premium audits on all of our voluntary business policyholders annually , upon the expiration of each policy , including when the policy is renewed . the purpose of these audits is to verify that policyholders have accurately reported their payroll expenses and employee job classifications , and therefore have paid us the premium required under the terms of the policies . 44 the difference between the estimated premium and the ultimate premium is referred to as earned but unbilled premium , or ebub premium . ebub premium can be higher or lower than the estimated premium . ebub premium is subject to significant variability and can either increase or decrease earned premium based upon several factors , including changes in premium growth , industry mix and economic conditions . due to the timing of audits and other adjustments , the ultimate premium earned is generally not determined for several months after the expiration of the policy . we review the estimate of ebub premiums on a quarterly basis using historical data and applying various assumptions based on the current market , and we record an adjustment to premium , related losses , and expenses as warranted . net investment income and net realized gains and losses on investments . we invest our statutory surplus funds and the funds supporting our insurance liabilities in fixed maturity and equity securities . in addition , a portion of these funds are held in cash and cash equivalents to pay current claims . our net investment income includes interest and dividends earned on our invested assets , and amortization of premiums and discounts on our fixed-maturity securities . we assess the performance of our investment portfolio using a standard tax equivalent yield metric . investment income that is tax-exempt is increased by our marginal federal tax rate of 35 % to express yield on tax-exempt securities on the same basis as taxable securities . net realized gains and losses on our investments are reported separately from our net investment income . net realized gains occur when our investment securities are sold for more than their costs or amortized costs , as applicable . net realized losses occur when our investment securities are sold for less than their costs or amortized costs , as applicable , or are written down as a result of other-than-temporary impairment . we classify the majority of our fixed maturity securities as held-to-maturity . we also have some fixed-maturity securities classified as available-for-sale , as are our equity securities . net unrealized gains or losses on our securities classified as available-for-sale are reported separately within accumulated other comprehensive income on our balance sheet . fee and other income . we recognize commission income earned on policies issued by other carriers that are sold by our wholly owned insurance agency subsidiary as the related services are performed . we also recognize a small portion of interest income from mandatory pooling arrangements in which we participate . our expenses consist primarily of the following : loss and loss adjustment expenses incurred . loss and loss adjustment expenses incurred represents our largest expense item and , for any given reporting period , includes estimates of future claim payments , changes in those estimates from prior reporting periods and costs associated with investigating , defending , and administering claims . these expenses fluctuate based on the amount and types of risks we insure . we record loss and loss adjustment expenses related to estimates of future claim payments based on case-by-case valuations and statistical analyses . we seek to establish all reserves at the most likely ultimate exposure based on our historical claims experience . it is typical for our more serious claims to take several years to settle and we revise our estimates as we receive additional information about the condition of the injured employees . our ability to estimate loss and loss adjustment expenses accurately at the time of pricing our insurance policies is a critical factor in our profitability . underwriting and certain other operating costs .
| the pre-tax investment yield on our investment portfolio was 3.1 % per annum for 2012 and 2011. the tax-equivalent yield on our investment portfolio was 4.3 % per annum for 2012 , compared to 4.6 % per annum for 2011. the tax-equivalent yield is calculated using the effective interest rate and a 35 % marginal tax rate . average invested assets , including cash and cash equivalents , increased 5.3 % , from an average of $ 833.4 million for 2011 to an average of $ 877.6 million for 2012. net realized gains ( losses ) on investments . net realized gains on investments in 2012 totaled $ 3.0 million , compared to $ 2.2 million in 2011. net realized gains in 2012 resulted from gains from called fixed maturity securities , the sale of equity securities and the sale of fixed maturity securities from the available-for-sale portfolio . net realized gains in 2011 primarily resulted from $ 2.4 million in gains from called fixed-maturity securities and the sale of certain equity and fixed-maturity securities from the available-for-sale portfolio . these gains in 2011 were offset by an other-than-temporary impairment of $ 0.2 million on one asset-backed security from our held-to-maturity portfolio . loss and loss adjustment expenses incurred . loss and lae incurred totaled $ 219.9 million for 2012 , compared to $ 189.7 million for 2011 , an increase of $ 30.2 million , or 15.9 % . the current accident year losses and lae incurred were $ 222.4 million , or 76.5 % of net premiums earned , compared to $ 196.3 million , or 78.2 % of net premiums earned for 2011. we recorded favorable prior accident year development of $ 2.5 million in 2012 , compared to $ 6.6 million in 2011. this is further discussed below in prior year development. our net loss ratio was 75.6 % for 2012 and 2011 . 50 underwriting and certain other operating costs , commissions and salaries and benefits . underwriting and certain other operating costs , commissions and salaries and benefits for 2012 were $ 61.4 million , compared to $ 60.9 million for 2011 , an increase of 1.0 % . this increase was primarily due to a $ 3.6 million increase in commission expense , a $ 0.8 million increase in insurance related
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the following table sets forth revenue from continuing operations for the company 's three geographic regions during the years ending december 31 , 2012 and 2011 ( again , for discussion around revenue from discontinued operations , see the discontinued operations section below as well as note 3 to our consolidated financial statements within the form 10k accompanying this report ) : replace_table_token_6_th notes to tables : ( 1 ) water hauling/disposal and frac tank rental . ( 2 ) services such as frac heating , acidizing , hot oil services , and pressure testing . ( 3 ) consists of operations and services performed in the southern region of the marcellus shale formation ( southwestern pennsylvania and northern west virginia ) and the utica shale formation ( eastern ohio ) . heat waves is the only company subsidiary operating in this region . ( 4 ) consists of western colorado , southeastern wyoming , western north dakota , and eastern montana . heat waves is the only company subsidiary operating in this region . ( 5 ) consists of southwestern kansas , northwestern oklahoma , texas panhandle , and northern new mexico . both dillco and heat waves engage in business operations in this region . ( 6 ) amounts herein represent our dillco construction and roustabout services . during 2012 , the heat waves ' construction and roustabout service line was discontinued . see note 3 to our consolidated financial statements accompanying the form 10k within this report for more details . 39 revenues : the approximately $ 7.6 million or 32 % increase in our revenues from continuing operations in fiscal year 2012 as compared to fiscal year 2011 is primarily due to ( i ) a normal winter season during the 2012-2013 heating season ( as compared to the higher-than-average temperatures and moderate weather during the prior year 's winter ) , and ( ii ) due to increased heating capacity through the purchase and fabrication of additional trucks and equipment to service our well enhancement services . these factors are discussed in detail throughout this section ; this section focuses on key increases in our revenues from continuing operations from our service line offerings and geographical regions , with additional discussions for any offsetting decreases . ( see the discontinued operations section below for details of the revenues from discontinued operations . ) in general , on a service offering basis , the increase in revenues during 2012 included significant increases within our well enhancement services , and a slight reduction in revenues during the same period in our well site construction services . revenues from fluid management services remained approximately the same during the twelve month period ( though the revenues within this service line changed significantly on a regional level , as discussed further below ) . in general , on a geographical basis , revenues from the eastern usa region decreased significantly during 2012 , while revenues from operations in the rocky mountain region increased significantly during the same period . revenues from operations in the central usa region showed a slight increase during the twelve month period . specific factors that increased revenues during 2012 , as compared to 2011 : ( 1 ) during september 2011 the company opened two new operation centers in a ) cheyenne , wyoming ( to expand service coverage within the d-j basin and niobrara formation ) , and b ) killdeer , north dakota ( to provide new service coverage within the bakken formation of western north dakota and eastern montana ) ; ( 2 ) during 2012 the company expanded its heating capacity by investing in additional trucks and equipment to meet the growing demand for our frac heating and hot oiling services . as part of this expansion of trucks and equipment , the company purchased and fabricated two new hot oil units and five double-burner frac heating units which were deployed into our rocky mountain region ; 40 ( 3 ) though the company 's well enhancement services of frac heating and hot oiling were affected by higher-than-average temperatures and moderate weather during the first quarter of 2011 , weather patterns returned to normal during the end of the 2011-2012 heating season and again during the third and fourth quarters of 2012 which are the start of the 2012-2013 heating season . also , due to our expansion and organic growth within our rocky mountain region where the winter season has a tendency to begin sooner in the fall and extend longer through the spring and summer , we were able to realize a longer heating season lasting into the summer of 2012 and we were also able to start the 2012 through 2013 heating season approximately two months sooner ( beginning in mid-september 2012 ) , as compared to prior years ; and ( 4 ) due to our expansion and organic growth within our rocky mountain and central usa regions we were also able to execute additional fluid management agreements with key customers during 2012. these new agreements resulted in the company investing in additional water transports . in total , the company purchased and fabricated two new water transports , and also leased an additional seven water transports , which were deployed into our rocky mountain and central usa regions during 2012. this factor , standing on its own and not taking into account any other changes in revenues period-over-period , accounted for an increase of approximately $ 1.7 million of revenues generated from our fluid management services within these regions during 2012 , as compared to 2011. see below for a discussion around the decreases in fluid management services within our dillco fluid service , inc operations which offset the increase in revenues from our rocky mountain and other central usa operations . specific factors that decreased revenues during 2012 , as compared to 2011 : ( 1 ) revenues in the eastern usa region ( the southern marcellus shale formation covering southwestern pennsylvania and northern west virginia ) decreased by approximately $ 3.1 million during 2012 , as compared to 2011. story_separator_special_tag of the decrease in 2012 , approximately $ 2.3 million relates to well enhancement services and $ 840,000 relates to fluid management services . these decreases are due to ; a. higher-than-average temperatures and moderate weather during the 2011-2012 winter season ( what has been called one of the warmest winters on record ) ; and b. a decrease in activity and demand due to low natural gas prices in the region . therefore , starting late in the fourth quarter of 2011 and continuing through the first quarter of 2012 , we redeployed a majority of our equipment from our operation center in the eastern usa region to operation centers within other regions . ( 2 ) in spite of the expansion and organic growth within our rocky mountain and central usa regions during 2012 as explained above , fluid management services within our dillco fluid service , inc. operations ( part of our central usa region ) decreased by approximately $ 1.0 million during 2012 , as compared to 2011 , due to losing a member of our dillco fluid service , inc. operations management team who took his small number of fluid service trucks and equipment and certain small , independent-customers to explore his own business opportunities . historical seasonality of revenues . because of the seasonality of our frac heating and hot oiling business , the second and third quarters are historically our lowest revenue generating periods of our fiscal year . in addition , the revenue mix of our service offerings also changes as our well enhancement services ( which includes frac heating and hot oiling ) decrease as a percentage of total revenues and fluid management services and other services increase . the first and fourth quarters of our fiscal year , covering the months during what is known as our “ heating season ” , have historically made up approximately 60 % or more of our total fiscal year revenues , with the remaining 40 % historically split evenly between the second and third quarters . thus , the revenues recognized in our quarterly financials in any given period are not indicative of the annual or quarterly revenues through the remainder of that fiscal year . 41 as an indication of this quarter-to-quarter seasonality , the company earned approximately $ 5.5 million and $ 5.2 million of its 2012 revenues during the second and third quarters of 2012 , respectively , while earning approximately $ 9.5 million and $ 11.3 million during the first and fourth quarters of 2012 , respectively . the 2011 comparison was similar ; $ 4.2 million and $ 4.3 million in revenues during the second and third quarters of 2011 , respectively , as compared to approximately $ 9.1 million and $ 6.3 million during the first and fourth quarters of 2011 , respectively . while the company is pursuing various strategies to lessen these quarterly fluctuations by increasing non-seasonal business opportunities , there can be no assurance that we will be successful in doing so . costs of revenues and gross profit : although revenues from continuing operations increased during fiscal year 2012 , cost of revenues from continuing operations as a percentage of revenues remained relatively consistent when compared to the same period in 2011 , resulting in consistent gross profit margins for both periods . ( see the discontinued operations section below for details of the costs of revenues and gross profit from discontinued operations . ) this relatively consistent cost of revenues and consistent profitability rate for the two periods is primarily due to the following factors : ( 1 ) although historically we experience higher gross profit margins for well enhancement services and have historically derived approximately 55 % of our consolidated revenues from this line of service , in 2012 , due to new frac heating and hot oiling customers in our rocky mountain and central usa regions , our well enhancement services consisted of approximately 65 % of our 2012 consolidated revenues . the change in revenue mix increased our profitability in this service line during 2012 ; and ( 2 ) though new frac heating and hot oiling customers in our rocky mountain and central usa regions provided for an increase to our revenue mix from well enhancement services during 2012 , resulting in a positive swing in our profitability , this increased profitability was primarily realized only during the fourth quarter of 2012. as discussed throughout this report , the company relies heavily on the ability to generate the majority of its revenues and gross profit during the heating season during the first and fourth quarters of our fiscal year ( when temperatures are colder ) through its frac heating and hot oiling services . as such , during the third and fourth quarters of 2011 , in order to provide sufficient drivers and operators for the 2011-2012 heating season , the company began fully staffing its operational centers with drivers and operators in order to meet the expected demand during the heating season . however , due to higher-than-expected temperatures during the 2011-2012 heating season , the expected demand for our heating services ( frac heating and hot oiling ) was delayed for several months . as such , during the first and second quarters of 2012 , the lower-than expected revenues generated in those periods were not able to produce the same historical profit margins for those periods due to the increased direct costs incurred . 42 general and administrative expenses : for the twelve months ended december 31 , 2012 , general and administrative expenses as a percentage of revenues decreased by 4 % , as compared to the same period 2011. however , the dollar amount spent on our general and administrative expenses remained relatively consistent during the period .
| this high effective tax rate , as compared to a generally expected corporate tax rate of 34 % , is primarily due to permanent book income vs. taxable income differences and state and local income tax . see note 13 taxes on income from continuing operations in the notes to the consolidated financials statements within the form 10k accompanying this report for further details . 44 discontinued operations : during the year ended december 31 , 2012 , the company made the decision to discontinue its heat waves ' well-site construction and roustabout line of service . the company , in accordance with us gaap , has delineated all results of operations as continuing operations or discontinued operations , from the well-site construction and roustabout line of service , for the years ending december 31 , 2012 and 2011. as such , the operating results of this line of service are reported as loss on discontinued operations , net of tax in our consolidated statements of income for all periods presented . as permitted under us gaap , the company has elected to not separately disclose cash flows pertaining to discontinued operations within the accompanying statements of cash flows for the years ending december 31 , 2012 and 2011. the following table provides the components , as presented in our consolidated statements of income , of discontinued operations , net of tax : replace_table_token_7_th overall discussion of the declining revenues , profitability , and results of operations , and the increasing cost of revenue from discontinued operations : during 2011 , heat waves ' construction division , which operates heat waves ' well-site construction and roustabout line of service , was dispatched out of our garden city , kansas location . due to the declining revenues and profitability at this location , due to a significant decrease in the number of new wells being drilled in the garden city area ( revenues were primarily generated from construction and maintenance of new well pads , well lease roads , etc . ) , the construction assets were redeployed to our north dakota location ; located in the killdeer , nd area to service the bakken shale formation . 45 throughout the spring
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the project activities being conducted by apc under the time and materials arrangement have been and continue to be profitable . the total amounts of accounts receivable and contract assets related to the teesrep project and included in the consolidated balance sheets were $ 4.8 million as of january 31 , 2021 and $ 19.2 million as of january 31 , 2020. research and development tax credits during fiscal 2019 and based on the results of a study of the activities of the engineering staff of gps on major epc services projects during the three-year period ended january 31 , 2018 , management identified and estimated significant amounts of income tax benefits that were not previously recognized in our operating results for any prior year reporting period . the net amount of the research and development tax credit benefits recognized during the fourth quarter of fiscal 2019 was $ 16.6 million , which was subsequently reduced by $ 0.4 million . the amount of identified but unrecognized income tax benefits related to research and development tax credits as of january 31 , 2021 was $ 5.0 million , for which we have established a liability for uncertain income tax return positions , most of which is included in accrued expenses . the research and development tax credits were included in amendments to our consolidated federal income tax returns for fiscal 2016 and fiscal 2017 , that were filed in january 2019 , and our consolidated federal income tax return for fiscal 2018 , that was filed in november 2018. separate income tax return examinations by the irs evolved into a simultaneously conducted examination of the research and development tax credits claimed by us for fiscal 2016 and fiscal 2017. in january 2021 , we received the final revenue agents report from the irs that documents its understanding of the facts , attempts to summarize our arguments in support of the claims and states its position which disagrees with our treatment of a substantial amount of the costs that support our claims . after a careful review of the report , we concluded that our arguments are sound and that the report does not present any new facts relating to the issues or make any arguments that would cause us to make any adjustments to our accounting for the research and development tax credit claims as of january 31 , 2021. we have formally protested the findings of the irs examiner and intend to pursue our income tax position with the irs through the established appeals process . we believe that the ultimate settlement of the income tax dispute will be resolved on a basis favorable to us . in november 2020 , we were notified by the irs that it intends to examine the consolidated income tax return for fiscal 2018 , with a most likely focus on the research and development tax credit claimed therein . we believe that any resulting disagreement regarding our income taxes for fiscal 2018 will be resolved on a basis favorable to us . - 35 - engineering , procurement and construction service contracts at january 31 , 2021 , the project backlog for the power industry services reporting segment was approximately $ 0.8 billion . the comparable backlog amount as of january 31 , 2020 was approximately $ 1.3 billion . our reported amount of project backlog at a point in time represents the total value of projects awarded to us that we consider to be firm as of that date less the amounts of revenues recognized to date on the corresponding projects ( project backlog is larger than the value of remaining unsatisfied performance obligations , or rupo , on active contracts ; see note 4 to the accompanying consolidated financial statements ) . cancellations or reductions may occur that would reduce project backlog and our expected future revenues . typically , we include the total value of epc services and other major construction contracts in project backlog when we receive a corresponding notice to proceed from the project owner . however , we may include the value of an epc services contract prior to the receipt of a notice to proceed if we believe that it is probable that the project will commence within a reasonable timeframe , among other factors . projects that are awarded to us may remain included in our backlog for extended periods of time as customers experience project delays . for example , in march 2018 , gps entered into an epc services contract to build a 500 mw natural gas-fired power plant that was added to project backlog at that time . however , due to customer delays including a grid connection dispute , contract activities have not yet started and we removed this project , the nte reidsville energy center , from backlog during fiscal 2021. a substantial amount of the project backlog amount at january 31 , 2021 was represented by the guernsey power station . the ramp-up of activity on this project since august 2019 has favorably impacted our consolidated operating results since then with its increasing revenues . substantial completion of this project is currently scheduled to occur during the second half of fiscal 2023. in january 2020 , gps entered into an epc services contract with harrison power , llc ( “ harrison power ” ) to construct a 1,085 mw natural gas-fired power plant in the village of cadiz , harrison county , ohio . the project is being developed by emberclear , the parent company of harrison power . on march 12 , 2020 , we announced that gps had entered into an epc services contract with nte connecticut , llc to construct the killingly energy center , a 650 mw natural gas-fired power plant , in killingly , connecticut . the facility is being developed by nte energy , llc . we anticipate adding the value of each of these new contracts to project backlog at times closer to their financial close and expected start dates . story_separator_special_tag we are cautiously optimistic that the start of construction activities for these projects will occur over the next twelve months . however , we can not predict with certainty when the projects will commence . the start dates for construction are generally controlled by the project owners . in may 2019 , gps entered into an epc services contract to construct a 625 mw power plant in harrison county , west virginia . caithness is partnered with esc harrison county power , llc to develop this project . as a limited notice to proceed with certain preliminary activities was received from the owner of this project at the time , the value of the contract was added to our project backlog . however , meaningful construction activities for the facility are not likely to begin until financial close is achieved which may not occur before january 31 , 2022. as announced in fiscal 2019 , gps entered into an epc services contract to construct the chickahominy power station , a 1,740 mw natural gas-fired power plant , in charles city county , virginia . even though we have been providing financial and technical support to the project development effort through a consolidated vie and significant project development milestones have been achieved , we have not included the value of this contract in our project backlog . due to several factors that have interrupted the pace of the development of this project , including additional costs and time being required to secure the natural gas supply for the plant and to obtain the necessary equity financing , we currently can not predict when construction will commence , if at all . in march 2020 , we announced that gps had entered into an epc services contract to construct the brooke county power plant , a 920 mw natural gas-fired power generation facility planned for brooke county , west virginia . the project owner announced cancellation of the project in october 2020 , citing changing conditions in the energy and financial markets . the value of this project had not been added to our project backlog . the aggregate rated electrical output amount for the natural gas-fired power plants for which we have signed epc services contracts , including the guernsey power station , is approximately 6.4 gigawatts with an aggregate initial contract value of approximately $ 3.0 billion and an aggregate unrealized contract value of approximately $ 2.7 billion as of january 31 , 2021 . - 36 - we have maintained that the delays in new business awards to gps and the project construction starts of certain previously awarded projects relate to a variety of factors , especially in the northeast and mid-atlantic regions of the us . currently , we believe that the ability of the owners of fully developed gas-fired power plant projects to close on equity and permanent debt financing was challenged by uncertainty in the capital markets caused by multiple factors including delayed capacity auctions and mounting public and political opposition to fossil-fuel energy projects . the recent announcement by the pjm of a new capacity auction schedule may remove a certain amount of uncertainty for project developers in forecasting future streams of revenues . the commencement of new epc power plant projects may continue to be delayed until the visibility regarding future capacity revenue streams is restored by the future announcements of capacity prices in the pjm region . however , other headwinds for future gas-fired power plant developments remain . besides the downturn in the demand for electric power during the covid-19 outbreak in the us that is referenced in the discussion below , factors to consider include an increase in the amount of power generating capacity provided by renewable energy assets , improvements and decreasing prices in renewable energy storage solutions , increased environmental activism and the results of the recent presidential election in the us . protests against fossil-fuel related energy projects continue to garner media attention and stir public skepticism about new projects resulting in delays due to onsite protest demonstrations , indecision by local officials and lawsuits . during fiscal 2021 , a natural gas-fired power plant that we had been awarded the epc services contract to build , the brooke county power project , was canceled by its developer . although changing market conditions were cited as important factors in the cancellation decision and despite strong local support for the project , the opposition by the governor of west virginia was likely a factor in the declining enthusiasm for the project . further , during fiscal 2021 , dominion energy and duke energy announced the abandonment of plans to complete the major atlantic coast pipeline , ending a seven-year effort to build a 600-mile natural gas pipeline between west virginia and eastern north carolina , citing that the economic viability of the project was threatened by continuing delays and increasing cost uncertainty after a federal judge issued a ruling preventing the use of an accelerated construction permitting process . although this recent pipeline cancellation decision is not expected to have any direct unfavorable effect on any of the pending projects awarded to gps , other pipeline approval delays may jeopardize projects that are needed to bring supplies of natural gas to planned gas-fired power plant sites , thereby increasing the risk of future power plant project delays or cancellations . currently , we have a pending project for the construction of a gas-fired power plant project in killingly , connecticut . although substantially all of the permits , approvals and other items necessary for the commencement of the project have been obtained by the project owner , including the securing of capacity auction payments , a financial close on project financing has not yet occurred . during this delay , opposition to the project has been voiced by various government officials and clean air advocates .
| in addition , primarily due to reductions in the amounts of forecasted future revenues , we determined a goodwill impairment loss related to trc in the amount of $ 2.8 million , which was recorded in fiscal 2020. selling , general and administrative expenses for fiscal 2021 and fiscal 2020 were $ 39.0 million , or 10.0 % of corresponding consolidated revenues , and $ 44.1 million , or 18.5 % of corresponding consolidated revenues , respectively . last year , this amount included the cost of maintaining core gps staff during a period of low project activity whose time - 33 - is typically charged to projects . due significantly to the extremely low rates of return on amounts invested in cash equivalents and short-term investments during the current year , other income declined to $ 1.9 million for fiscal 2021 from $ 8.1 million for fiscal 2020 despite the increase in the amount of invested funds between years . due primarily to the consolidated pre-tax book income reported for fiscal 2021 in the amount of $ 24.9 million , we reported income tax expense in the amount of $ 1.1 million for the year , which amount is net of the $ 4.4 million of net operating loss carryback benefit , substantially all of which was recorded in the first quarter of fiscal 2021. the consolidated income tax benefit of $ 7.1 million for fiscal 2020 related substantially to the loss before income taxes incurred last year . for fiscal 2021 , our improved overall operating performance resulted in net income attributable to our stockholders in the amount of $ 23.9 million , or $ 1.51 per diluted share . last year , due substantially to the subcontract loss recorded for the teesrep project that is discussed below , we reported a net loss attributable to our stockholders in the amount of $ 42.7 million , or $ 2.73 per dilutive share . the guernsey power station the primary drivers of our improved financial performance for fiscal 2021 were the increasing revenues and steady gross margin contributions associated with the construction of the guernsey power station . this project , which did not commence until the third quarter of fiscal 2020 , represented the major portion of our
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in addition , the income tax benefit for 2001 has been reduced by a valuation allowance due to the uncertainty as to the realization of the future tax benefits related to the company 's deferred tax assets as of december 31 , 2001. results of operations for the years ended december 31 , 2000 and 1999 for the 2000 period , results of operations of each of the 2000 acquisitions are included from their respective acquisition dates . results of operations of the 1999 acquisition are included from the corresponding acquisition date in 1999 . 11 revenues increased $ 39,921,600 , or 103 % , to $ 78,540,300 for 2000 from $ 38,618,700 for 1999. the corporate client group increased its revenues $ 21,075,800 , or 62 % , from 1999 to 2000. the increase is attributable to an increase in the average revenue per event , offset by a decrease in the actual number of events produced . this division produced 433 corporate meeting production and entertainment events in 2000 , compared to 583 events in 1999. however , the average revenue per event increased dramatically to $ 127,600 per event for 2000 , compared to $ 58,600 per event for 1999. the company continued to expand its sales force and aggressively pursue larger corporate entertainment and meeting events with fortune 1000 companies . in addition , the company has been successful in expanding its relationships with its existing client base . in 2000 , the company produced 48 events with revenues in excess of $ 250,000 , versus 28 such events in 1999. the entertainment marketing client group increased its revenues $ 9,824,500 , from 1999 to 2000. in 2000 , the company recognized $ 8,864,800 of revenues from programs previously produced by the warner/tba joint venture . prior to 2000 , the company accounted for the warner/tba joint venture on the equity method of accounting . the remaining increase is attributable to commissions generated on sponsorship sales , primarily from the earth escapes , llc , which was formed in 2000. fairs and festivals client group reflected revenues of $ 8,384,300 in 2000 , as a result of the 2000 acquisitions . the artist client group increased its revenues $ 636,900 , or 22 % , from 1999 to 2000. the increase is primarily attributable to revenues associated with the 1999 acquisition , which occurred in december 1999. cost of revenues increased $ 29,968,300 , or 120 % , to $ 54,971,900 for 2000 from $ 25,003,600 for 1999. the increase is attributable to the overall increase in revenues across all four business segments from 1999 to 2000. cost of revenues , as a percentage of revenues , increased , resulting in a decrease in gross profit margin to 30 % for 2000 from 35 % in 1999. the decrease is primarily attributable to lower gross profit margins generated by programs developed by the warner/tba joint venture . as part of the termination of the warner/tba joint venture in december 1999 , tba agreed to complete production of a number of large-scale entertainment marketing programs in 2000. while the company was able to control expenses , these programs resulted in low gross profit margins due to lower than expected revenues generated by the events . selling , general and administrative expenses increased $ 8,893,900 , or 84 % , to $ 19,471,900 for 2000 from $ 10,578,000 for 1999. the overall increase in selling , general and administrative expenses is attributable to increased personnel and operating expenses associated with the overall increase in revenues across all four business segments from 1999 to 2000 , including the 1999 acquisition and the 2000 acquisitions . in addition , the company continued to add personnel to its sales force and artist manager ranks in 2000 , with the intention that these additions would generate revenues beginning in 2001. the increase in 2000 is further explained by a full year of personnel and related expenses incurred to develop an administrative and accounting infrastructure to manage the company 's growth . however , selling , general and administrative expenses , as a percentage of revenues , decreased to 25 % in 2000 from 27 % in 1999 , as the company began to leverage fixed office and administrative costs over increased revenues . depreciation and amortization expense increased $ 944,600 , or 62 % , to $ 2,479,800 for 2000 from $ 1,535,200 for 1999. the increase results primarily from the amortization of goodwill associated with the 2000 acquisitions and the 1999 acquisition . amortization of goodwill totaled $ 1,743,600 in 2000 , as compared to $ 1,077,400 for 1999. the remainder of the increase is attributable to increased depreciation on incremental property and equipment additions . in 2000 , other income of $ 272,700 is comprised of income from an agreement with earth escapes llc , which provided for the company to receive a percentage of gross revenues , as defined , of earth escapes llc . in 1999 , equity income from aeg 's 50 % joint venture interest in warner/tba was $ 173,000. effective december 31 , 1999 , the formal joint venture agreement with warner reached the end of its term . in 1999 , the company recognized a gain of $ 250,000 related to the distribution of the net assets of warner/tba , which amount is included in equity in income of joint venture in the accompanying 1999 consolidated statements of operations . for 2000 , net interest expense was $ 164,000 versus net interest income of $ 262,100 for 1999. the change is attributable primarily to increased outstanding debt associated with the 1999 acquisition and 2000 acquisitions and lower interest income from decreasing cash balances resulting from the use of cash for investing and financing activities . story_separator_special_tag the provision for income taxes , as a percentage of income from continuing operations before income taxes , was 89 % for 2000 compared to 40 % for 1999 and reflects statutory tax rates adjusted for estimated permanent book/tax differences . the primary reason contributing to the increase in the provision for taxes over statutory tax rates is the non-deductibility for tax purposes of a portion of the company 's goodwill amortization expense . nondeductible amortization of goodwill totaled $ 1,024,700 and $ 636,100 for 2000 and 1999 , respectively . 12 liquidity and capital resources the september 11 , 2001 terrorist attacks and the global economic slowdown of 2001 had a significant impact on the company 's revenues in 2001 , with particular impact on the third and fourth quarters of 2001. as a result of these events , the company experienced program cancellations and postponements impacting greater than $ 15 million of revenue , which otherwise would have expected to have been realized in 2001. accordingly , whereas the company generated $ 2,577,100 of positive cash flows from operating activities in the first half of 2001 , the company had net cash flows used in operating activities of $ 930,400 in the second half of 2001. through september 2001 , the company utilized its working capital to fund operations , acquisitions and to repay indebtedness . during the fourth quarter of 2001 , the company utilized cash reserves and borrowed $ 1,728,600 under a new bank credit facility ( see below ) to fund working capital needs . primarily as a result of the operating losses incurred in 2001 , cash and cash equivalents at december 31 , 2001 were $ 2,151,200 , compared to $ 3,751,100 at december 31 , 2000. in addition , the company had a working capital deficit of $ 2,636,000 at december 31 , 2001 compared to positive working capital of $ 189,700 at december 31 , 2000. both years exclude discontinued operations . in order to provide additional working capital and to repay certain maturing bank indebtedness , the company entered into a new bank credit facility in october 2001. the new credit facility provides for maximum borrowings of up to $ 4,050,000. the credit facility is comprised of : ( a ) a $ 1,050,000 term loan , which is repayable in monthly principal installments of $ 43,750 commencing november 1 , 2001 , and maturing on september 30 , 2003 ; and ( b ) a revolving credit line of up to $ 3,000,000 , which matures on june 30 , 2003. the credit facility is secured by all accounts receivable and bears interest , payable monthly , at the company 's choice of an interest rate based upon libor or the bank 's prime rate , plus an incremental percentage margin , as defined in the agreement ( initial margins are 2.75 % for libor loans and .25 % for prime rate loans ) . upon the october 2001 closing of the facility , the company borrowed $ 2,778,600 ( $ 1,050,000 under the term loan and $ 1,728,600 under the revolving credit line ) , which was set at an initial 90 day libor-based interest rate of 5.18 % . the term loan proceeds were used to refinance the remaining principal obligations on the company 's note payable to a bank and mortgage payable to a bank . of the revolving credit line proceeds , $ 963,000 was used to repay all principal and interest due under the company 's three revolving lines of credit , with the remaining $ 765,600 retained as working capital . in january 2002 , the company borrowed the remaining $ 1,271,400 balance of the revolving credit line . the new bank credit facility requires , among other things , compliance with certain financial ratios on a quarterly basis , specifically a debt/ebitda ratio , a fixed charge ratio and a minimum net worth ratio . as a result of the operating losses incurred in the fourth quarter of 2001 , the company was not in compliance with the debt/ebitda and fixed charge ratios as of december 31 , 2001. in addition , due to operating losses incurred in the first quarter of 2002 , the company was not in compliance with the minimum net worth ratio as of march 31 , 2002. in april 2002 , the company and the bank agreed to restructure the terms of the bank credit facility . pursuant to the restructuring agreement , the company was granted a temporary waiver of the financial covenant events of default provisions under the original loan agreement and the bank 's forebearance from exercising its available remedies , which extends through january 2 , 2003. new financial covenants were established that require the company to operate in compliance with revised operating projections provided to the bank as well as provide the bank with monthly financial reports and a monthly compliance certificate that the company remains in compliance with the terms of the restructuring agreement . the bank also agreed to provide the company $ 500,000 of additional financing ( new bank loan ) under certain conditions ( see below ) . the company agreed to pay the bank a fee of $ 100,000 to enter into the restructuring agreement plus out-of-pocket costs incurred by the bank , such fees and expenses to be paid by june 30 , 2002. the company also granted the bank additional security for the entire restructured bank credit facility in the form of a pledge of the shares of certain of the company 's subsidiaries and a first lien deed of trust on the company 's land and building located in dallas , texas .
| there are generally only minimal direct costs associated with generating revenue from artist clients . entertainment marketing revenues and cost of revenues are recognized when the services are completed for each program or , for those programs with multiple events , apportioned to each event and recognized as each event occurs . fairs and festivals also recognize revenue and cost of revenues when the services are completed for each program . financial impact of september 11 terrorist attacks and global economic slowdown the september 11 , 2001 terrorist attacks and the global economic slowdown of 2001 had a significant negative impact on the nation 's economy and the company 's corporate clients ' businesses in particular . as a result , the company experienced significantly reduced revenues in 2001 , with particular impact on the third and fourth quarters of 2001. the september 11 terrorist attacks and the global economic slowdown resulted in program cancellations and postponements impacting greater than $ 15 million of revenue , which otherwise would have expected to have been realized during 2001. in response to this reduction in revenues , the company has and will continue to take aggressive action to implement cost reductions necessary to ensure that its infrastructure is appropriate for expected business volumes . such reductions initiated during the third quarter of 2001 and continuing into 2002 include reductions in headcount ( 14 % since august 31 , 2001 ) and related compensation costs , elimination of certain incentive compensation costs , and a reduction in travel-related and other general and administrative expenses . the company has also experienced some cancellations of programs scheduled to take place in early 2002 , and management believes that the economic slowdown will continue to impact the company 's business activity through the first half of 2002. although it is difficult to provide estimates of tba 's future operating results in the current economic , political and military environment , management believes , based on its current view of sales activity , expense reductions already implemented and absent major additional
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eton 's pipeline is focused on innovative 505 ( b ) ( 2 ) products and obtaining fda marketing approval for currently marketed but unapproved drugs . in may 2017 , we entered into two asset purchase and license agreements ( the “ eton license agreements ” ) with our then wholly owned subsidiary , eton . pursuant to the eton license agreements , we assigned and licensed to eton certain intellectual property and related rights to develop , formulate , make , sell , and sub-license our proprietary formulations including synthetic corticotropin ( eton drug candidate ct-100 ) ( collectively , the “ harrow products ” ) . eton , by itself or through a development partner , intends to seek fda approval for the commercialization of ct-100 through the section 505 ( b ) ( 2 ) regulatory pathway . if approved by the fda , eton is required to make royalty payments to us on ct-100 . in addition to ct-100 , eton has acquired several additional drug candidates and ones that qualify under the drug efficacy study implementation ( desi ) program which it plans to develop and commercialize . harrow is only eligible to receive royalties on ct-100 ( corticotropin ) and will not receive royalties on any other drug candidates currently being developed by eton . in june 2017 , eton closed an offering of its series a preferred stock . at the time of closing we lost our controlling interest , and deconsolidated eton from our consolidated financial statements . as of the date of this annual report , we own approximately 19.98 % of the equity and voting interests issued and outstanding of eton . surface pharmaceuticals , inc. surface is a development-stage pharmaceutical company focused on development and commercialization of innovative therapeutics for ocular surface diseases and is seeking fda approval for the commercialization of its drug candidates through the section 505 ( b ) ( 2 ) regulatory pathway under the fdca . in 2017 and amended in april 2018 , harrow entered into asset purchase and license agreements ( the “ surface license agreements ” ) and transferred to surface its current drug pipeline , which consists of three proprietary drug candidates . surface 's patent-pending topical eye drop drug candidates , surf-100 and surf-200 , utilize a patented delivery vehicle known as klarity drops ( “ klarity ” ) , that was invented by harrow board member and surface 's chairman of the board and renowned ophthalmologist dr. richard lindstrom . klarity is designed to protect and rehabilitate the ocular surface pathology for patients with ded . surface 's drug candidate surf-300 is a patent-pending oral capsule that will target patients also suffering from ded signs and symptoms . in may and july 2018 , surface closed on an offering of its series a preferred stock . at that time , we lost our controlling interest and deconsolidated surface from our consolidated financial statements . melt pharmaceuticals , inc. melt is a development-stage pharmaceutical company focused on the development and commercialization of proprietary non-intravenous , or non-intravenous ( or iv ) , sedation and anesthesia therapeutics for human medical procedures in hospital , outpatient , and in-office settings . melt intends to seek regulatory approval through the fda 's 505 ( b ) ( 2 ) regulatory pathway for its proprietary technologies , where possible . in december 2018 , we entered into an asset purchase agreement with melt ( the “ melt asset purchase agreement ” ) , and harrow assigned to melt the underlying intellectual property for melt 's current pipeline , including its lead drug candidate melt-100 . the core intellectual property melt owns is a patented series of combination non-opioid sedation drug formulations that we estimate to have multitudinous applications . pursuant to the terms of the melt asset purchase agreement , melt is required to make royalty payments to the company up to eight percent ( 8 % ) of net sales of products described in the melt asset purchase agreement , while any patent rights remain outstanding , as well as other conditions . during january 2019 , melt closed on the sale of its series a preferred stock . at the time of the closing of the melt series a round , we lost our controlling interest , and deconsolidated melt from our consolidated financial statements . we own approximately 44 % of the equity and voting interests issued and outstanding of melt . in addition to our melt equity position and pursuant to the melt asset purchase agreement , harrow is eligible to receive mid-single digit percent royalties on sales of contributed drug candidates . 36 mayfield pharmaceuticals , inc. mayfield , a consolidated subsidiary of harrow , is a development-stage women 's and men 's health focused pharmaceutical company . mayfield intends to seek regulatory approval through the fda 's 505 ( b ) ( 2 ) regulatory pathway for its proprietary drug candidates and technologies , including its lead drug candidates may-44 and may-66 . may-44 is non-estrogen topical analgesic gel containing a patented ph-balanced formulation of 3.75 % lidocaine and other essential excipients designed for use on mucosal surfaces . if fda-approved , may-44 could become the first topical product indicated for dyspareunia . other more recent estimates suggest dyspareunia affects greater than one in ten women ( bjog an international journal of obstetrics and gynecology 2017 ) . mayfield 's may-66 drug candidate a patented , injectable form of pentoxifylline designed for use in the treatment of symptoms associated with peyronie 's disease . mayfield and harrow acquired the intellectual property associated with may-44 in january 2019 from elle pharmaceutical llc ( the “ mayfield asset purchase agreement ” ) in exchange for $ 25,000 , with an additional $ 175,000 due upon third party financing of mayfield , 1 million shares of mayfield common stock and a 7.5 % royalty rate on sales of the product . once we have finalized the drug candidate assets mayfield will seek to build out the mayfield management , board and clinical advisory team . story_separator_special_tag radley pharmaceuticals , inc. radley , a consolidated subsidiary of harrow , is a development-stage pharmaceutical company focused on the development of proprietary 505 ( b ) ( 2 ) drug candidates focused on rare diseases . radley currently has three proprietary drug candidates in its pipeline . during 2019 , and prior to initiating significant development activities and costs related to these drug candidates , we intend to meet with fda to establish and understand the expected clinical and regulatory path to approval for these drug candidates . we are also pursuing investigator-initiated studies for some of radley 's drug candidates with well-known healthcare institutions . we believe this approach will allow us to better understand and weigh the economic costs , clinical feasibility and potential benefits associated with pursuing development activities associated with these drug candidates . factors affecting our performance we believe the primary factors affecting our performance are our ability to increase revenues of our proprietary compounded formulations and certain non-proprietary products , grow and gain operating efficiencies in our pharmacy operations , optimize pricing and obtain reimbursement options for our proprietary compounded formulations , and continue to pursue development and commercialization opportunities for certain of our ophthalmology and other assets that we have not yet made commercially available as compounded formulations . we believe we have built a tangible and intangible infrastructure that will allow us to scale revenues efficiently in the long-term . all of these activities will require significant costs and other resources , which we may not have or be able to obtain from operations or other sources . see “ —liquidity and capital resources ” below . reimbursement options and pricing optimization our proprietary ophthalmic compounded formulations are currently primarily available on a cash-pay basis . however , we work with third-party insurers , pharmacy benefit managers and buying groups to offer patient-specific customizable compounded formulations at accessible prices . we may devote time and other resources to seek reimbursement and patient pay opportunities for these and other compounded formulations and we have hired pharmacy billers to process certain existing reimbursement opportunities for certain formulations . however , we may be unsuccessful in achieving these goals , as many third-party payors have imposed significant restrictions on reimbursement for compounded formulations in recent years . moreover , third-party payors , including medicare , are increasingly attempting to contain health care costs by limiting coverage and the level of reimbursement for new drugs and by refusing , in some cases , to provide coverage for uses of approved products for disease indications for which the fda has not granted labeling approval . further , the health reform law may have a considerable impact on the existing u.s. system for the delivery and financing of health care and could conceivable have a material effect on our business . as a result , reimbursement from medicare , medicaid and other third-party payors may never be available for any of our products or , if available , may not be sufficient to allow us to sell the products on a competitive basis and at desirable price points . if government and other third-party payors do not provide adequate coverage and reimbursement levels for our formulations , the market acceptance for our formulations may be limited . additionally , we are making efforts to normalize the pricing for our currently available proprietary compounded ophthalmic formulations . an economic study conducted in 2015 by researchers at andrew chang & co , llc and co-sponsored by us demonstrated that , assuming the cost of dropless therapy is $ 100 per dose , our dropless therapy formulations may provide collective savings to medicare , medicaid and patients of up to $ 13 billion , with a most likely savings estimate of $ 8.7 billion , over a 10-year period . based on this research , we believe optimized pricing for our dropless therapy formulations could be nearly $ 100 per dose . any efforts to attain optimized pricing for our dropless therapy or any of our other proprietary formulations could fail , which could make our products less attractive or unavailable to some patients or could reduce our margins . recent developments the following describes certain developments in 2018 to date that are important to understand our financial condition and results of operations . see the notes to our consolidated financial statements included in this report for additional information about each of these developments . story_separator_special_tag ont > income tax benefit was $ 935,000 for the year ended december 31 , 2017 , which was related to the net change in our deferred tax liabilities and assets , specifically those related to the park acquisition and its identifiable intangible assets . 39 net income ( loss ) the following table presents our net income ( loss ) for the years ended december 31 , 2018 and 2017 : replace_table_token_4_th liquidity and capital resources liquidity our cash on hand ( including restricted cash ) at december 31 , 2018 was $ 6,838,000 , compared to $ 4,219,000 at december 31 , 2017. since inception through december 31 , 2018 , we have incurred aggregate losses of $ 74,211,000. these losses are primarily due to selling , general and administrative and research and development expenses incurred in connection with developing and seeking regulatory approval for a former drug candidate , which activities we have now discontinued , the development and commercialization of novel compounded formulations and the development of our pharmacy operations . as of the date of this annual report , we believe that cash and cash equivalents of $ 6,638,000 and restricted investments of $ 200,000 totaling approximately $ 6,838,000 at december 31 , 2018 , will be sufficient to sustain our planned level of operations and capital expenditures for at least the next 12 months . we also may consider the sale of certain assets including , but not limited to , part of , or all of , our ownership interest in eton and or any of our subsidiaries .
| gross profit and margin replace_table_token_3_th the increase in gross profit and gross margin between periods is largely attributable to increased efficiencies in our production process and utilization of capacities as a result of increased output , in particular , at njof . we estimate gross margins at njof were greater than 60 % during 2018. selling , general and administrative expenses our selling , general and administrative expenses include personnel costs , including wages and stock-based compensation , corporate facility expenses , and investor relations , consulting , insurance , filing , legal and accounting fees and expenses as well as costs associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations . the following presents our selling , general and administrative expenses for the year ended december 31 , 2018 and 2017 : for the year ended december 31 , $ 2018 2017 variance selling , general and administrative $ 29,243,000 $ 25,019,000 $ 4,224,000 38 the increase in general and administrative expenses between periods was largely attributable to increased sales commission amounts , legal expenses and settlements incurred associated with ongoing litigation and costs related to the operations of melt . research and development expenses our research and development expenses primarily include expenses related to the development of acquired intellectual property , investigator-initiated research and evaluations and other costs related to the clinical development of our assets . the following presents our research and development expenses for the years ended december 31 , 2018 and 2017 : for the year ended december 31 , $ 2018 2017 variance research and development $ 825,000 $ 413,000 $ 412,000 the increase in research and development expenses between periods was primarily attributable to the increase in formulation development studies and the clinical development program for our subsidiaries radley and melt ( prior to its deconsolidation ) that occurred during the year ended december 31 , 2018. interest expense , net interest expense , net was $ 2,728,000 and $ 3,026,000 for the years ended december 31 , 2018 and 2017 , respectively . the decrease was primarily due to interest expense
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our revenue recognition policies are more fully described in the “ critical accounting policies and significant judgments and estimates ” section below . cost of revenues cost of revenues includes the direct costs associated with the assembly and purchase of components for functional neurological products , drug delivery and biologic products , and clearpoint capital equipment which we have sold , and for which we have recognized the revenue in accordance with our revenue recognition policy . cost of revenues also includes the allocation of manufacturing overhead costs and depreciation of loaned systems installed under our clearpoint placement program , as well as provisions for obsolete , impaired , or excess inventory . research and development costs our research and development costs consist primarily of costs associated with the conceptualization , design , testing , and prototyping of our clearpoint system products . such costs include salaries , travel , and benefits for research and development personnel , including related share-based compensation ; materials and laboratory supplies in research and development activities ; consultant costs ; and licensing costs related to technology not yet commercialized . we anticipate that , over time , our research and development costs may increase as we : ( i ) continue to develop enhancements to our clearpoint system ; ( ii ) resume our cleartrace system product development efforts ; and ( iii ) seek to expand the application of our technological platforms . from our inception through december 31 , 2018 , we have incurred approximately $ 53 million in research and development expenses . product development timelines , likelihood of success , and total costs can vary widely by product candidate . there are also risks inherent in the regulatory clearance and approval process . at this time , we are unable to estimate with any certainty the costs that we will incur in either the further development of our cleartrace system for commercialization , or in our efforts to expand the application of our technological platforms . 40 sales and marketing , and general and administrative expenses our sales and marketing , and general and administrative expenses consist primarily of salaries , incentive-based compensation , travel and benefits , including related share-based compensation ; marketing costs ; professional fees , including fees for attorneys and outside accountants ; occupancy costs ; insurance ; and other general and administrative expenses , which include , but are not limited to , corporate licenses , director fees , hiring costs , taxes , postage , office supplies and meeting costs . our sales and marketing expenses are expected to increase due to costs associated with the commercialization of our clearpoint system and the increased headcount necessary to support growth in operations . critical accounting policies and significant judgments and estimates our management 's 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 united states , or gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported expenses during the reporting periods . the accounting estimates that require our most significant , difficult and subjective judgments have an impact on revenue recognition , the determination of share-based compensation and financial instruments . we evaluate our estimates and judgments on an ongoing basis . 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 consolidated financial statements included elsewhere in this annual report , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . revenue recognition . our revenues are comprised primarily of : ( 1 ) product revenues resulting from the sale of functional neurological products , and drug delivery and biologic products ; ( 2 ) product revenues resulting from the sale of clearpoint capital equipment ; ( 3 ) functional neurosurgery and related service revenues resulting from the performance of product line commercialization planning and execution for a third party ; ( 4 ) clinical case support revenues in connection with customer-sponsored clinical trials ; and ( 5 ) revenues resulting from the rental , service , installation , training and shipping related to clearpoint capital equipment . we recognize revenue when control of our products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services . this process involves identifying the contract with a customer , determining the performance obligations in the contract , determining the contract price , allocating the contract price to the distinct performance obligations in the contract , and recognizing revenue when the performance obligations have been satisfied . a performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract . we consider a performance obligation satisfied once we have transferred control of a good or service to the customer , meaning the customer has the ability to use and obtain the benefit of the good or service . we recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control . story_separator_special_tag lines of business ; timing of revenue recognition ● functional neurosurgery product , and biologics and drug delivery systems product sales : revenues from the sale of functional neurosurgery products ( consisting of disposable products sold commercially and related to cases utilizing our clearpoint system ) , and biologics and drug delivery systems ( consisting primarily of disposable products related to customer-sponsored clinical trials utilizing the clearpoint system ) , are generally based on customer purchase orders , the predominance of which require delivery within one week of the order having been placed , and are recognized at the point in time of delivery to the customer , which is the point at which legal title , and risks and rewards of ownership , along with physical possession , transfer to the customer . ● capital equipment sales o capital equipment sales preceded by evaluation periods : the predominance of capital equipment sales ( consisting of integrated computer hardware and software that are integral components of our clearpoint system ) are preceded by customer evaluation periods of generally 90 days . during these evaluation periods , installation of , and training of customer personnel on , the systems have been completed and the systems have been in operation . accordingly , 41 revenue from capital equipment sales following such evaluation periods is at the point in time that we are in receipt of an executed purchase agreement or purchase order . o capital equipment sales not preceded by evaluation periods : revenue from sales of capital equipment not having been preceded by an evaluation period is recognized at the point in time that the equipment has been delivered to the customer . for both types of capital equipment sales described above , our determination of the point in time at which to recognize revenue represents that point at which the customer has legal title , physical possession , and the risks and rewards of ownership , and we have a present right to payment . ● functional neurosurgery and related services : revenues from functional neurosurgery and related services are recognized over the period of time such services are rendered . ● biologics and drug delivery services o outsourced recruitment and or designation of a clinical services liaison between our customer and us : we recognize revenue at the point in time that the liaison is either recruited or designated , which is the point at which the customer is able to direct , and obtain benefit from , use of the liaison . we made this determination based on the decision made by the customer to outsource this function to us , rather than to incur its own recruiting costs . upon such recruitment or designation , the liaison becomes the customer 's outsourced clinical support services coordinator . o outsourced technical clinical support of cases performed pursuant to customer-sponsored clinical trials : we recognize revenue at the point in time a clinical trial case is performed based on the allocated per-case transaction price . o other related services : we recognize revenue for such services at the point in time that the performance obligation has been satisfied . ● capital equipment-related services o rental , service and other revenues : revenues from rental of clearpoint capital equipment are recognized ratably on a monthly basis over the term of the rental agreement , which is less than one year . revenue from service of clearpoint capital equipment previously sold to customers is based on agreements with terms ranging from one to three years and revenue is recognized ratably on a monthly basis over the term of the service agreement . a time-elapsed output method is used for rental and service revenues because we transfer control evenly by providing a stand-ready service . ● installation , training and shipping : consistent with our recognition of revenue for capital equipment sales as described above , fees for installation , training and shipping fees in connection with sales of capital equipment that have been preceded by customer evaluation periods are recognized as revenue at the point in time we are in receipt of an executed purchase order for the equipment . installation , training and shipping fees related to capital equipment sales not having been preceded by an evaluation period are recognized at the point in time that the related services are performed . inventory . inventory is carried at the lower of cost ( first-in , first-out method ) or net realizable value . all items included in inventory relate to our functional neurological products , drug delivery and biologic products , and clearpoint capital equipment . software license inventory related to clearpoint systems undergoing on-site customer evaluation is included in inventory in the accompanying consolidated balance sheets . all other software license inventory is classified as a non-current asset . we periodically review our inventory for obsolete items and provide a reserve upon identification of potentially obsolete items . share-based compensation . we account for compensation for all arrangements under which employees and others receive shares of stock or other equity instruments ( including options and warrants ) based on fair value . the fair value of each award is estimated as of the grant date and amortized as compensation expense over the requisite vesting period . the fair values of our share-based awards are estimated on the grant dates using the black-scholes valuation model . this valuation model requires the input of highly subjective assumptions , including the expected stock volatility , estimated award terms and risk-free interest rates for the expected terms . to estimate 42 the expected terms , we utilize the “ simplified ” method for “ plain vanilla ” options discussed in the sec 's staff accounting bulletin 107 , or sab 107. we believe that all factors listed within sab 107 as prerequisites for utilizing the simplified method apply to us and to our share-based compensation arrangements .
| there were no increases in biologics and drug delivery product prices during 2018 that would be reasonably expected to affect a typical customer order . capital equipment revenue , consisting of sales of clearpoint reusable hardware and software , decreased 62 % to $ 420,000 for the year ended december 31 , 2018 , from $ 1.1 million for the same period in 2017. revenues from this product line historically have varied from period to period . this decrease was due primarily to a decrease in the number of clearpoint systems sold . there were no 43 increases in capital equipment product prices during the year ended december 31 , 2017 that would be reasonably expected to affect a typical customer order . capital equipment-related services , consisting of fees for capital equipment rental , service , installation , training and shipping , increased 12 % to $ 393,000 for the year ended december 31 , 2018 , from $ 351,000 for the same period in 2017. the increase was due primarily to an increase in service fee revenue , which was partially offset by decreases in fees from installation , training and shipping services , consistent with the decrease in capital equipment sales revenue . cost of revenues . cost of revenues was $ 2.4 million for the year ended december 31 , 2018 , representing gross margin of 67 % , compared to $ 2.9 million for the same period in 2017 , representing gross margin of 61 % . the increase in gross margin was due primarily to a favorable sales mix , with disposable product sales and service revenues , both with higher margins relative to capital equipment sales , representing a higher percentage of sales during the year ended december 31 , 2018 , relative to the same period in 2017. research and development costs . research and development costs were $ 2.3 million for the year ended december 31 , 2018 , compared to $ 2.8 million for the same period in
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liquidity and capital resources cash flow – operating activities cash generated from operating activities in 2015 totaled $ 173.4 million compared to $ 167.8 million generated in 2014 . the increase in cash generated was driven by higher net income partially offset by working capital . changes in working capital balances resulted in a $ 28.1 million use of cash in 2015 compared to $ 2.3 million source of cash in the prior year . cash generated from operating activities in 2013 totaled $ 165.0 million and changes in working capital balances resulted in a $ 16.8 million source of cash . the use of cash related to working capital balance in 2015 was primarily driven from lower accounts payable of $ 26.3 million due to timing of payments . other uses of cash include higher receivables due to sales timing and increased inventory due to strategic investments . the use of cash related to working capital balance in 2014 was primarily driven from higher inventory of $ 23.4 million due to strategic initiatives , impact of west coast port congestion and timing of shipments . this use of cash was offset partially by an $ 8.6 million decrease in trade receivables due to strong collection efforts and timing and a $ 21.8 million increase in current liabilities from timing of accounts payable and higher compensation , benefits and marketing accruals partially offset by a decrease in tax related accruals . the corporation places special emphasis on management and control of working capital with a particular focus on trade receivables and inventory levels . the success achieved in managing receivables is in large part a result of doing business with quality customers and maintaining close communication with them . management believes recorded trade receivable valuation allowances at the end of 2015 are adequate to cover the risk of potential bad debts . allowances for non-collectible trade receivables , as a percent of gross trade receivables , totaled 1.7 percent , 2.1 percent and 2.6 percent at the end of fiscal years 2015 , 2014 and 2013 , respectively . - 25 - the corporation 's inventory turns were 12 , 12 and 15 , for fiscal years 2015 , 2014 and 2013 , respectively . the decrease in inventory turns from 2013 is due to strategic initiatives . cash flow – investing activities capital expenditures , including capitalized software , were $ 115.0 million in 2015 , $ 112.7 million in 2014 and $ 78.9 million in 2013 . these expenditures continue to focus on machinery , equipment and tooling required to support new products , continuous improvements and cost savings initiatives in our manufacturing processes as well as the implementation of new integrated information systems to support business process transformation . the corporation anticipates capital expenditures for 2016 to total $ 105 million to $ 110 million , primarily related to new products , operational process improvements and capabilities and the business process transformation project referred to above . in 2014 , the investing activities reflected a net cash outflow of $ 61.8 million related to the acquisition of vcg . the acquisition of vcg adds brands , strong customer relationships and quality products to the corporation 's hearth and home technologies business . refer to the business combination note in the notes to consolidated financial statements for additional information . in 2014 , the corporation completed the sales of a facility located in south gate , california , a facility and equipment located in chicago , illinois and california air emission credits . the proceeds from these sales of $ 16 million are reflected in the consolidated statement of cash flows as “ proceeds from sale of property , plant and equipment ” for 2014. cash flow – financing activities the corporation , certain domestic subsidiaries of the corporation , the lenders and wells fargo bank , national association , as administrative agent , entered into a second amended and restated credit agreement ( the `` credit agreement '' ) on june 9 , 2015. the credit agreement amended and restated the corporation 's existing $ 250 million revolving credit facility dated september 28 , 2011. as of january 2 , 2016 , there was $ 40 million outstanding under the $ 250 million revolving credit facility of which $ 35 million was classified as long-term as the corporation does not expect to repay the borrowings within a year and $ 5 million was classified as current as the corporation does expect to repay the borrowings within a year . the corporation , certain domestic subsidiaries of the corporation , the lenders and wells fargo bank , national association , as administrative agent , entered into the first amendment to second amended and restated credit agreement ( the `` credit agreement amendment '' ) on january 6 , 2016. the credit agreement amendment amends the second amended and restated credit agreement dated as of june 9 , 2015. the credit agreement was amended to , among other things , increase the revolving commitment of the lenders from $ 250 million to $ 400 million ( while retaining the corporation 's option under the credit agreement to increase its borrowing capacity by an additional $ 150 million ) in order to provide funding for the expected pay off of maturing senior notes and to extend the maturity date from june 2020 to january 2021. the revolving credit facility is the primary source of committed funding from which the corporation finances its planned capital expenditures and strategic initiatives , such as acquisitions , repurchases of common stock and certain working capital needs . non-compliance with the various financial covenant ratios in the revolving credit facility or the senior notes could prevent the corporation from being able to access further borrowings under the revolving credit facility , require immediate repayment of all amounts outstanding with respect to the revolving credit facility and senior notes and or increase the cost of borrowing . story_separator_special_tag the credit agreement contains a number of covenants , including covenants requiring maintenance of the following financial ratios as of the end of any fiscal quarter : a consolidated interest coverage ratio of not less than 4.0 to 1.0 , based upon the ratio of ( a ) consolidated ebitda ( as defined in the credit agreement ) for the last four fiscal quarters to ( b ) the sum of consolidated interest charges ; and a consolidated leverage ratio of not greater than 3.5 to 1.0 , based upon the ratio of ( a ) the quarter-end consolidated funded indebtedness ( as defined in the credit agreement ) to ( b ) consolidated ebitda for the last four fiscal quarters . the most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.5 to 1.0 included in the credit agreement . under the credit agreement , consolidated ebitda is defined as consolidated net income before interest expense , income taxes and depreciation and amortization of intangibles , as well as non-cash , nonrecurring charges and all non-cash items increasing net income . at january 2 , 2016 , the corporation was well below the maximum allowable ratio and was in compliance - 26 - with all of the covenants and other restrictions in the credit agreement and the note purchase agreement . the corporation expects to remain in compliance over the next twelve months . in 2006 , the corporation refinanced $ 150 million of borrowings outstanding under its prior revolving credit facility with 5.54 percent , ten-year unsecured senior notes ( due 2016 ) issued through the private placement debt market . interest payments are due semi-annually on april 1 and october 1 of each year and the principal is due in a lump sum on april 6 , 2016. these senior notes were classified as long term as of january 2 , 2016 since the corporation will pay off the senior notes upon maturity with revolving credit facility borrowings expected to remain outstanding for more than twelve months . during 2015 , the corporation repurchased 550,000 shares of its common stock at a cost of approximately $ 26.7 million , or an average price of $ 48.47 per share . the board authorized $ 200 million on november 9 , 2007 , and an additional $ 200 million on november 7 , 2014 , for repurchases of the corporation 's common stock . as of january 2 , 2016 , approximately $ 192.7 million of this authorized amount remained unspent . during 2014 , the corporation repurchased 1,665,850 shares of its common stock at a cost of approximately $ 67.9 million , or an average price of $ 40.76 per share . during 2013 , the corporation repurchased 740,000 shares of its common stock at a cost of approximately $ 27.5 million , or an average price of $ 37.15 per share . a cash dividend has been paid every quarter since april 15 , 1955 , and quarterly dividends are expected to continue . cash dividends were $ 1.045 per common share for 2015 , $ 0.99 for 2014 and $ 0.96 for 2013 . the last quarterly dividend increase was from $ 0.25 to $ 0.265 per common share effective with the may 29 , 2015 dividend payment for shareholders of record at the close of business on may 15 , 2015. the average dividend payout percentage for the most recent three-year period has been 77 percent of prior year earnings or 28 percent of prior year cash flow from operating activities . cash , cash equivalents and short-term investments totaled $ 32.8 million at the end of 2015 compared to $ 37.2 million at the end of 2014 and $ 72.3 million at the end of 2013 . these funds , coupled with cash from future operations , borrowing capacity under the existing facility as amended january 6 , 2016 and the ability to access capital markets are expected to be adequate to fund operations and satisfy cash flow needs for at least the next twelve months . as of the end of 2015 , $ 13.1 million of cash was held overseas and considered permanently reinvested . if such amounts were repatriated it could result in additional tax expense to the corporation . the corporation does not believe asserting this cash as permanently reinvested will have any impact on its liquidity . contractual obligations the following table discloses the corporation 's obligations and commitments to make future payments under contracts : replace_table_token_5_th ( 1 ) interest has been included for all debt at the fixed or variable rate in effect as of january 2 , 2016 , as applicable . see note 10 `` long-term debt '' in the notes to consolidated financial statements for further information . ( 2 ) purchase obligations include agreements to purchase goods or services that are enforceable , legally binding and specify all significant terms , including the quantity to be purchased , the price to be paid and the timing of the purchase . ( 3 ) other long-term obligations represent payments due to members who are participants in the corporation 's deferred and long-term incentive compensation programs , liability for unrecognized tax liabilities and contribution and benefit payments expected to be made pursuant to the corporation 's post-retirement benefit plans . it should be noted the obligations related to post-retirement benefit plans are not contractual and the plans could be amended at the discretion of the corporation . the disclosure of contributions and benefit payments has been limited to 10 years , as information beyond this time period was not available . litigation and uncertainties the corporation is involved in various kinds of disputes and legal proceedings that have arisen in the ordinary course of business , including pending litigation , environmental remediation , taxes and other claims .
| gross profit as a percent of net sales increased 60 basis points in 2014 as compared to 2013 due to higher volume , price realization and strong operational performance offset partially by unfavorable product mix , investments in operations , higher warranty costs and increased restructuring and transition costs . selling and administrative expenses selling and administrative expenses increased 3.6 percent in 2015 but were flat as a percentage of net sales driven by higher freight costs , strategic investments and acquisition impact , offset by lower incentive based compensation and cost reductions . selling and administrative costs increased 7.0 percent in 2014 due to volume related expenses , higher freight costs , investments in selling and growth initiatives , increased group medical costs , higher incentive-based compensation and costs associated with an acquisition . selling and administrative expenses include freight expense for shipments to customers , product development costs and amortization expense of intangible assets . refer to summary of significant accounting policies and goodwill and other intangible assets in the notes to consolidated financial statements for further information regarding the comparative expense levels for these items . - 23 - gain/loss on sale of assets the corporation realized gains totaling $ 10.7 million on the sale of two facilities and california air emission credits in 2014. the corporation realized a $ 2.5 million loss on the sale of a non-core office furniture business in 2013. restructuring and impairment charges as a result of the corporation 's ongoing business simplification and cost reduction strategies , the corporation made the decision to exit a small line of business within our hearth products segment during 2015. the corporation incurred $ 0.9 million of restructuring charges as the result of this decision , of which $ 0.8 million were included in cost of sales . during 2014 , the corporation made decisions to close three office furniture manufacturing facilities located in florence , alabama , chicago , illinois and nalagarh , india
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in addition , we own and invest , as a non-operating working interest owner , in oil a nd natural gas assets that are primarily located in texas and new mexico . there continues to be uncertainty with respect to the global economic environment , and oil and natural gas prices have been depressed . during the fourth quarter of 2016 , our average number of rigs operating in the united states was 66 compared to an average of 88 drilling rigs operating during the same period in 2015. during the fourth quarter of 2016 , our average number of rigs operating in canada was two compared to an average of three drilling rigs operating during the fourth quarter of 2015. we have addressed our customers ' needs for drilling horizontal wells in shale and other unconventional resource plays by expanding our areas of operation and improving the capabilities of our drilling fleet during the last several years . as of december 31 , 2016 , our rig fleet included 161 apex ® rigs . we expect to add two new apex ® rigs to our fleet during 2017. in connection with the development of horizontal shale and other unconventional resource plays , we have added equipment to perform service intensive fracturing jobs . as of december 31 , 2016 , we had approximately 1.1 million hydraulic horsepower in our pressure pumping fleet ( approximately 1.0 million of which was hydraulic fracturing horsepower ) . we have increased the horsepower of our pressure pumping fleet by more than eight-fold since the beginning of 2009 , although we have not ordered or committed to purchase any new horsepower since october 2014 and there is currently no new horsepower on order . in recent years , the industry-wide addition of new pressure pumping equipment to the marketplace and lower oil and natural gas prices have led to an excess supply of pressure pumping equipment in north america . we maintain a backlog of commitments for contract drilling revenues under term contracts , which we define as contracts with a fixed term of six months or more . our contract drilling backlog as of december 31 , 2016 and 2015 was $ 417 million and $ 710 million , respectively . the decrease in backlog at december 31 , 2016 from december 31 , 2015 , is primarily due to the revenue earned since december 31 , 2015 , including revenue from the receipt of early termination payments , and the expiration and termination of certain of our term contracts . approximately 29 % of the total december 31 , 2016 backlog is reasonably expected to remain after 2017. we generally calculate our backlog by multiplying the dayrate under our term drilling contracts by the number of days remaining under the contract . the calculation does not include any revenues related to other fees such as for mobilization , demobilization and customer reimbursables , nor does it include potential reductions in rates for unscheduled standby or during periods in which the rig is moving or incurring maintenance and repair time in excess of what is permitted under the drilling contract . in addition , our term drilling contracts are generally subject to termination by the customer on short notice and provide for an early termination payment to us in the event that the contract is terminated by the customer . for contracts that we have received an early termination notice , our backlog calculation includes the early termination rate , instead of the dayrate , for the period we expect to receive the lower rate . see “ item 1a . risk factors – our current backlog of contract drilling revenue may continue to decline and may not ultimately be realized , as fixed-term contracts may in certain instances be terminated without an early termination payment. ” for the three years ended december 31 , 2016 , our operating revenues consisted of the following ( dollars in thousands ) : replace_table_token_7_th generally , the profitability of our business is most impacted by two primary factors in our contract drilling segment : our average number of rigs operating and our average revenue per operating day . during 2016 , our average number of rigs operating was 63 in the united states and two in canada compared to 120 in the united states and four in canada in 2015 , and 203 in the united states and eight in canada in 2014. our average rig revenue per operating day was $ 23,040 in 2016 compared to $ 25,560 in 2015 and $ 23,880 in 2014. we had a consolidated net loss of $ 319 million for 2016 compared to consolidated net loss of $ 294 million for 2015 and consolidated net income of $ 163 million for 2014. the financial results for 2015 include pretax non-cash charges totaling approximately $ 288 million . these charges include $ 125 million from the impairment of all goodwill associated with our pressure pumping business , $ 131 million from the write-down of drilling equipment primarily related to mechanical rigs and spare mechanical rig components , $ 22.0 from the write-down of pressure pumping equipment and closed facilities and $ 10.7 million related to the impairment of certain oil and natural gas properties . the financial results for 2014 include a pretax non-cash charge of $ 77.9 million related to the retirement of mechanical rigs and the write-off of excess spare components . 27 our revenues , profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas . during periods of improved commodity pric es , the capital spending budgets of oil and natural gas operators tend to expand , which generally results in increased demand for our services . conversely , in periods when these commodity prices deteriorate , the demand for our services generally weakens a nd we experience downward pressure on pricing for our services . oil and natural gas prices and our number of rigs operating have significantly declined from 2014 . story_separator_special_tag in december 201 6 , our average number of rigs operating was 71 in the united states . in january 201 7 , our average number of rigs operating in creased to 7 6 in the united states . we are also highly impacted by operational risks , competition , the availability of excess equipment , labor issues , weather and various other factors that could materially adversely affect our business , financial condition , cash flows and results of operations . please see “ risk factors ” in item 1a of this report . critical accounting policies in addition to established accounting policies , our consolidated financial statements are impacted by certain estimates and assumptions made by management . the following is a discussion of our critical accounting policies pertaining to property and equipment , goodwill , revenue recognition , the use of estimates and oil and natural gas properties . property and equipment — property and equipment , including betterments which extend the useful life of the asset , are stated at cost . maintenance and repairs are charged to expense when incurred . we provide for the depreciation of our property and equipment using the straight-line method over the estimated useful lives . our method of depreciation does not change when equipment becomes idle ; we continue to depreciate idled equipment on a straight-line basis . no provision for salvage value is considered in determining depreciation of our property and equipment . on a periodic basis , we evaluate our fleet of drilling rigs for marketability based on the condition of inactive rigs , expenditures that would be necessary to bring them to working condition and the expected demand for drilling services by rig type ( such as drilling conventional , vertical wells versus drilling longer , horizontal wells using higher specification rigs ) . the components comprising rigs that will no longer be marketed are evaluated , and those components with continuing utility to our other marketed rigs are transferred to other rigs or to our yards to be used as spare equipment . the remaining components of these rigs will be retired . in 2016 , we retired 19 mechanical rigs but recorded no impairment charge as we had written down 15 of those rigs in 2015 that remained marketed . in 2015 , we identified 24 mechanical rigs and 9 non-apex® electric rigs that would no longer be marketed . also , we had 15 additional mechanical rigs that were not operating . although these 15 rigs remained marketed at that time , we had lower expectations with respect to utilization of these rigs due to the industry shift to higher specification drilling rigs . in 2015 , we recorded a charge of $ 131 million related to the retirement of the 33 rigs , the 15 mechanical rigs that remained marketed but were not operating , and the write-down of excess spare rig components to their realizable values . in 2014 , we identified 55 mechanical rigs that we determined would no longer be marketed , and we recorded a charge of $ 77.9 million related to the retirement of these mechanical rigs and the write-off of excess spare components for the reduced size of our mechanical fleet . we also periodically evaluate our pressure pumping assets , and in 2015 , we recorded a charge of $ 22.0 million for the write-down of pressure pumping equipment and certain closed facilities . there were no similar charges in 2016 or 2014. we review our long-lived assets , including property and equipment , for impairment whenever events or changes in circumstances indicate that the carrying values of certain assets may not be recovered over their estimated remaining useful lives ( “ triggering events ” ) . in connection with this review , assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings . the cyclical nature of our industry has resulted in fluctuations in rig utilization over periods of time . management believes that the contract drilling industry will continue to be cyclical and rig utilization will continue to fluctuate . we estimate future cash flows over the life of the respective assets or asset groupings in our assessment of impairment . these estimates of cash flows are based on historical cyclical trends in the industry as well as management 's expectations regarding the continuation of these trends in the future . provisions for asset impairment are charged against income when estimated future cash flows , on an undiscounted basis , are less than the asset 's net book value . any provision for impairment is measured at fair value . based on recent commodity prices , our results of operations for the year ended december 31 , 2016 and management 's expectations of operating results in future periods , we concluded that no triggering events occurred during the year ended december 31 , 2016 with respect to our contract drilling or pressure pumping segments . our expectations of future operating results were based on the assumption that activity levels in both segments will begin to recover by early 2017 in response to improved future oil prices . during the third quarter of 2015 , oil prices declined and averaged $ 46.42 per barrel , reaching a new low for 2015 of $ 38.22 per barrel in august 2015. in light of these lower oil prices in august , we lowered our expectations with respect to future activity levels in both the contract drilling and pressure pumping businesses . as a result of these revised expectations of the duration of the lower oil and natural gas commodity price environment and the related deterioration of the markets for contract drilling and pressure pumping services during the third quarter of 2015 , we concluded a triggering event had occurred and deemed it necessary to assess the recoverability of long-lived asset groups for both contract drilling and pressure pumping .
| results of operations comparison of the years ended december 31 , 2016 and 2015 the following tables summarize operations by business segment for the years ended december 31 , 2016 and 2015 : replace_table_token_11_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , amortization and impairment and selling , general and administrative expenses . average margin per operating day is defined as margin divided by operating days . the demand for our contract drilling services is impacted by the market price of oil and natural gas . the decline in prices for oil and natural gas , together with the reactivation and construction of new land drilling rigs in the united states in recent years , have resulted in an excess capacity of land drilling rigs compared to demand . also in recent years , customer demand has shifted away from mechanically powered drilling rigs to electric powered drilling rigs , reducing the utilization rates of our mechanically powered drilling rigs . the average market price of oil and natural gas for each of the fiscal quarters and full year in 2016 and 2015 follows : 1 st 2 nd 3 rd 4 th quarter quarter quarter quarter year 2016 : average oil price per bbl ( 1 ) $ 33.18 $ 45.41 $ 44.85 $ < td bgcolor= '' # ffffff ''
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we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue upon the shipment of products or the performance of services when : ( 1 ) persuasive evidence of the arrangement exists ; ( 2 ) goods or services have been delivered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collectability is reasonably assured . when a sales agreement involves multiple deliverables , such as extended support provisions , training to be supplied after delivery of the systems , and test programs specific to customers ' routine applications , the multiple deliverables are evaluated to determine the units of accounting . judgment is required to properly identify the accounting units of multiple element transactions and the manner in which revenue is allocated among the accounting units . judgments made , or changes to judgments made , may significantly affect the timing or amount of revenue recognition . revenue related to the multiple elements is allocated to each unit of accounting using the relative selling price hierarchy . consistent with accounting guidance , the selling price is based upon vendor specific objective evidence ( vsoe ) . if vsoe is not available , third party evidence ( tpe ) is used to establish the selling price . in the absence of vsoe or tpe , estimated selling price is used . during the first quarter of fiscal 2013 , we entered into an agreement with a customer to develop a next generation fox system . the project identifies multiple milestones with values assigned to each . the consideration earned upon achieving the milestone is required to meet the following conditions prior to recognition : ( i ) the value is commensurate with the vendor 's performance to meet the milestone , ( ii ) it relates solely to past performance , ( iii ) and it is reasonable relative to all of the deliverables and payment terms within the arrangement . revenue is recognized for the milestone upon acceptance by the customer . sales tax collected from customers is not included in net sales but rather recorded as a liability due to the respective taxing authorities . provisions for the estimated future cost of warranty and installation are recorded at the time the products are shipped . 19 royalty-based revenue related to licensing income from performance test boards and burn-in boards is recognized upon the earlier of the receipt by us of the licensee 's report related to its usage of the licensed intellectual property or upon payment by the licensee . our terms of sales with distributors are generally free on board , or fob , shipping point with payment due within 60 days . all products go through in-house testing and verification of specifications before shipment . apart from warranty reserves , credits issued have not been material as a percentage of net sales . our distributors do not generally carry inventories of our products . instead , the distributors place orders with us at or about the time they receive orders from their customers . our shipment terms to our distributors do not provide for credits or rights of return . because our distributors do not generally carry inventories of our products , they do not have rights to price protection or to return products . at the time we ship products to the distributors , the price is fixed . subsequent to the issuance of the invoice , there are no discounts or special terms . we do not give the buyer the right to return the product or to receive future price concessions . our arrangements do not include vendor consideration . allowance for doubtful accounts we maintain an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables . we also review our trade receivables by aging category to identify specific customers with known disputes or collection issues . we exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends , general economic conditions in the united states and internationally and changes in customer financial conditions . uncollectible receivables are recorded as bad debt expense when all efforts to collect have been exhausted and recoveries are recognized when they are received . warranty obligations we provide and record the estimated cost of product warranties at the time revenues are recognized on products shipped . while we engage in extensive product quality programs and processes , including actively monitoring and evaluating the quality of our component suppliers , our warranty obligation is affected by product failure rates , material usage and service delivery costs incurred in correcting a product failure . our estimate of warranty reserve is based on management 's assessment of future warranty obligations and on historical warranty obligations . should actual product failure rates , material usage or service delivery costs differ from our estimates , revisions to the estimated warranty liability would be required , which could affect how we account for expenses . inventory obsolescence in each of the last three fiscal years , we have written down our inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if future market conditions are less favorable than those projected by management , additional inventory write-downs may be required . story_separator_special_tag income taxes income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse or the carryforwards are utilized . valuation allowances are established when it is determined that it is more likely than not that such assets will not be realized . a full valuation allowance was established against all deferred tax assets , as management determined that it is more likely than not that deferred tax assets will not be realized , as of may 31 , 2017 and 2016. we account for uncertain tax positions consistent with authoritative guidance . the guidance prescribes a “ more likely than not ” 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 . we do not expect any material change in its unrecognized tax benefits over the next twelve months . we recognize interest and penalties related to unrecognized tax benefits as a component of income taxes . although we file u.s. federal , various state and foreign tax returns , our only major tax jurisdictions are the united states , california , germany and japan . tax years 1997 – 2016 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years . 20 stock-based compensation expense stock-based compensation expense consists of expenses for stock options , restricted stock units , or rsus , and employee stock purchase plan , or espp , purchase rights . stock-based compensation cost for stock options and espp purchase rights is measured at each grant date , based on the fair value of the award using the black-scholes option valuation model , and is recognized as expense over the employee 's requisite service period . this model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable . our employee stock options have characteristics significantly different from those of publicly traded options . for rsus , stock-based compensation cost is based on the fair value of the company 's common stock at the grant date . all of our stock-based compensation is accounted for as an equity instrument . the fair value of each option grant and the right to purchase shares under our espp are estimated on the date of grant using the black-scholes option valuation model with assumptions concerning expected term , stock price volatility , expected dividend yield , risk-free interest rate and the expected life of the award . see note 1 to our consolidated financial statements for additional information relating to stock-based compensation . see notes 11 and 12 to our consolidated financial statements for detailed information regarding the stock option plan and the espp . story_separator_special_tag ended may 31 , 2016 from $ 4.1 million for the fiscal year ended may 31 , 2015 , an increase of 6.5 % . higher r & d expenses in the fiscal year ended may 31 , 2016 were primarily due to increases of $ 0.2 million in each of project expenses and employment related expenses . interest expense . interest expense increased to $ 605,000 for the fiscal year ended may 31 , 2016 from $ 130,000 for the fiscal year ended may 31 , 2015. the increase in interest expense for the fiscal year ended may 31 , 2016 was primarily due to an increase in borrowing under existing debt agreements . other ( expense ) income , net . other expense , net was $ 16,000 for the fiscal year ended may 31 , 2016 , compared with other income , net of $ 211,000 for the fiscal year ended may 31 , 2015. the change between other expense and other income was due primarily to losses or gains realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods . income tax expense . income tax expenses were $ 10,000 and $ 34,000 for the fiscal year ended may 31 , 2016 and 2015 , respectively . 22 liquidity and capital resources we consider cash and cash equivalents as liquid and available for use . as of may 31 , 2017 , we had $ 17.8 million in cash and cash equivalents , compared to $ 0.9 million as of may 31 , 2016. net cash used in operating activities was $ 4.5 million and $ 6.3 million for the fiscal years ended may 31 , 2017 and 2016 , respectively . for the fiscal year ended may 31 , 2017 , net cash used in operating activities was primarily the result of the net loss of $ 5.7 million , as adjusted to exclude the effect of non-cash charge of stock-based compensation expense of $ 1.0 million , and an increase in accounts receivable of $ 3.5 million , partially offset by a decrease in inventories of $ 0.4 million . other changes in cash from operations resulted from an increase in accounts payable as well as an increase in customer deposits and deferred revenue of $ 1.7 million each . the increase in accounts receivable was primarily due to an increase in sales . the decrease in inventories is primarily due to the sales of systems on-hand at the beginning of the period . the increase in accounts payable was primarily due to higher expenditures associated with higher revenue . the increase in customer deposits and deferred revenue was primarily due to the receipt of additional down payments from certain customers .
| higher r & d expenses in the fiscal year ended may 31 , 2017 were primarily due to increases of $ 0.2 million in employment related expenses and $ 0.1 million in project expenses . interest expense . interest expense increased to $ 678,000 for the fiscal year ended may 31 , 2017 from $ 605,000 for the fiscal year ended may 31 , 2016. the increase in interest expense for the fiscal year ended may 31 , 2017 was primarily due to higher average borrowings . other ( expense ) income , net . other expense , net was $ 21,000 and $ 16,000 for the fiscal year ended may 31 , 2017 and 2016 , respectively . the change in other expense was due primarily to losses realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods . income tax expense . income tax expense was $ 25,000 and $ 10,000 for the fiscal year ended may 31 , 2017 and 2016 , respectively . fiscal year ended may 31 , 2016 compared to fiscal year ended may 31 , 2015 net sales . net sales increased to $ 14.5 million for the fiscal year ended may 31 , 2016 from $ 10.0 million for the fiscal year ended may 31 , 2015 , an increase of 44.7 % . the increase in net sales in fiscal 2016 resulted primarily from an increase in net sales of our wafer-level products , partially offset by a decrease in net sales of our tdbi products . net sales of the wafer-level products for fiscal 2016 were $ 8.7 million , and increased approximately $ 5.5 million from fiscal 2015. net sales of the tdbi products for fiscal 2016 were $ 5.8 million , and decreased approximately $ 0.7 million from fiscal 2015. gross profit . gross profit increased to $ 5.1 million for the fiscal year ended may 31 , 2016 from $ 3.8 million for the fiscal year ended may 31 , 2015 , an increase of 34.1 % . gross profit margin for the fiscal year ended may 31 , 2016 was 35.5 % , compared
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general and administrative expenses for the year ended december 31 , 2013 were $ 16.3 million , compared to $ 13.5 million for the same period of 2012. the $ 2.8 million increase in 2013 principally resulted from an increase in compensation , insurance , computer it support , investor relations and legal expenses . 36 exploration expenses . property exploration expenses totaled $ 9.5 million for the year ended december 31 , 2013 , compared to $ 8.0 million during the same period of 2012. the $ 1.5 million increase in exploration expenses principally resulted from an expanded drilling program , including on our las margaritas property during the first quarter of 2013 and from an aerial geophysical survey over our oaxaca property trend . exploration costs associated with definition and delineation drilling of the la arista vein system were reflected in facilities and mine construction expenses . facilities and mine construction expenses . facilities and mine construction expenses during the year ended december 31 , 201 3 increased to $ 22.2 million from $ 16.6 million during 201 2 . the $ 5.6 million increase in facilities and mine construction expenses was principally due to our mill expansion project that commenced in early 2013. in addition to mine construction expenses , facilities and mine construction expense also includes drilling definition and delineation of the la arista vein system . other ( expense ) income . for the year ended december 31 , 201 3 , we recorded other expense of $ 1.4 million , compared to other expense of $ 2.7 million during the same period of 201 2 . the $ 1 . 3 million decrease in other expense when compared to 2012 resulted from a decrease in foreign currency losses of $ 2.5 million and increase in other income of $ 0.6 million , which was partially offset by an increase in impairment of gold and silver bullion of $ 1.8 million . provision for income taxes . for the year ended december 31 , 2013 , income tax expense of $ 8.9 million as compared to an income tax expense of $ 13.3 million for the year ended december 31 , 2012. as of december 31 , 2013 , there were no remaining valuation allowances on the company 's deferred tax assets . see note 7 to the consolidated financial statements for additional information . results of operations – year ended december 31 , 2012 compared to year ended december 31 , 2011 during the year ended december 31 , 201 2 , we sold 26,675 ounces of gold at an average realized price of $ 1,676 per ounce for $ 44.7 million of gross revenue , and 2,446,232 ounces of silver at an average realized price of $ 31 per ounce for approximately $ 75.8 million of gross revenue , compared to 19,617 ounces of gold at an average realized price of $ 1 ,596 per ounce for $ 31.3 million of gross revenues , and 2,077,792 ounces of silver at an average realized price of $ 35 per ounce for approximately $ 72.7 million of gross revenue for 201 1 . mine gross profit for the year ended december 31 , 201 2 was $ 87.8 million compared to $ 80.5 million in the comparable period of 201 1 , an increase of $ 7.3 million or 9.1 % . for the year ended december 31 , 201 2 , we reported a net income of $ 33.7 million , or $ 0.64 per basic share , compared to a net income of $ 58.4 million , or $ 1.10 per basic share , for the year ended december 31 , 201 1 . the $ 26.4 million decrease in net income in 2012 was principally attributable to a $ 12.0 million income tax benefit in 2011 resulting from a reduction to the income tax valuation allowance , as compared to $ 13.3 million of income tax expense in 2012. total costs and expenses for the year ended december 31 , 2012 were $ 38.1 million compared to $ 34.9 million in the comparable period of 201 1 , an increase of $ 3.2 million or 9.2 % . the increase in costs and expenses was primarily due to our operations transitioning to underground mine construction activities and an increase in stock-based compensation . e xploration expense for the year ended december 31 , 201 2 of $ 8.0 million was generally consistent with our level of exploration activity in 2011 of $ 4.9 million . the $ 3.1 million increase in exploration expenses results from higher expenditures in 2012 to evaluate and drill new exploration targets on the el aguila and alta gracia properties , and to evaluate other prospects near our la arista underground mine . facilities and mine construction expenses of $ 16.6 million for the year ended december 31 , 201 2 decreased by $ 4.4 million or 21.0 % when compared to 2011 expenses of $ 21.0 million . the higher cost in 2011 was primarily due to the completion of the second phase of the tailings dam , and expansion of the flotation cells in the mill 's flotation circuit during 2011. general and administrative expenses increased $ 4.6 million or 51.7 % to $ 13.5 million for the year ended december 31 , 201 2 as compared to $ 8.9 million for the comparable period in 201 1 . the increase was attributable to increases in professional fees , salaries and benefits and stock-based compensation . for the years ended december 31 , 201 2 and 201 1 , we recorded a currency translation adjustment gain of $ 2.8 million and a currency translation adjustment loss of $ 3.2 million , respectively , resulting from the translation of our subsidiary 's mexican peso denominated functional currency financial statements into the us dollar reporting currency . 37 non-gaap measures reconciliation of non-gaap measures to total mine cost story_separator_special_tag general and administrative expenses for the year ended december 31 , 2013 were $ 16.3 million , compared to $ 13.5 million for the same period of 2012. the $ 2.8 million increase in 2013 principally resulted from an increase in compensation , insurance , computer it support , investor relations and legal expenses . 36 exploration expenses . property exploration expenses totaled $ 9.5 million for the year ended december 31 , 2013 , compared to $ 8.0 million during the same period of 2012. the $ 1.5 million increase in exploration expenses principally resulted from an expanded drilling program , including on our las margaritas property during the first quarter of 2013 and from an aerial geophysical survey over our oaxaca property trend . exploration costs associated with definition and delineation drilling of the la arista vein system were reflected in facilities and mine construction expenses . facilities and mine construction expenses . facilities and mine construction expenses during the year ended december 31 , 201 3 increased to $ 22.2 million from $ 16.6 million during 201 2 . the $ 5.6 million increase in facilities and mine construction expenses was principally due to our mill expansion project that commenced in early 2013. in addition to mine construction expenses , facilities and mine construction expense also includes drilling definition and delineation of the la arista vein system . other ( expense ) income . for the year ended december 31 , 201 3 , we recorded other expense of $ 1.4 million , compared to other expense of $ 2.7 million during the same period of 201 2 . the $ 1 . 3 million decrease in other expense when compared to 2012 resulted from a decrease in foreign currency losses of $ 2.5 million and increase in other income of $ 0.6 million , which was partially offset by an increase in impairment of gold and silver bullion of $ 1.8 million . provision for income taxes . for the year ended december 31 , 2013 , income tax expense of $ 8.9 million as compared to an income tax expense of $ 13.3 million for the year ended december 31 , 2012. as of december 31 , 2013 , there were no remaining valuation allowances on the company 's deferred tax assets . see note 7 to the consolidated financial statements for additional information . results of operations – year ended december 31 , 2012 compared to year ended december 31 , 2011 during the year ended december 31 , 201 2 , we sold 26,675 ounces of gold at an average realized price of $ 1,676 per ounce for $ 44.7 million of gross revenue , and 2,446,232 ounces of silver at an average realized price of $ 31 per ounce for approximately $ 75.8 million of gross revenue , compared to 19,617 ounces of gold at an average realized price of $ 1 ,596 per ounce for $ 31.3 million of gross revenues , and 2,077,792 ounces of silver at an average realized price of $ 35 per ounce for approximately $ 72.7 million of gross revenue for 201 1 . mine gross profit for the year ended december 31 , 201 2 was $ 87.8 million compared to $ 80.5 million in the comparable period of 201 1 , an increase of $ 7.3 million or 9.1 % . for the year ended december 31 , 201 2 , we reported a net income of $ 33.7 million , or $ 0.64 per basic share , compared to a net income of $ 58.4 million , or $ 1.10 per basic share , for the year ended december 31 , 201 1 . the $ 26.4 million decrease in net income in 2012 was principally attributable to a $ 12.0 million income tax benefit in 2011 resulting from a reduction to the income tax valuation allowance , as compared to $ 13.3 million of income tax expense in 2012. total costs and expenses for the year ended december 31 , 2012 were $ 38.1 million compared to $ 34.9 million in the comparable period of 201 1 , an increase of $ 3.2 million or 9.2 % . the increase in costs and expenses was primarily due to our operations transitioning to underground mine construction activities and an increase in stock-based compensation . e xploration expense for the year ended december 31 , 201 2 of $ 8.0 million was generally consistent with our level of exploration activity in 2011 of $ 4.9 million . the $ 3.1 million increase in exploration expenses results from higher expenditures in 2012 to evaluate and drill new exploration targets on the el aguila and alta gracia properties , and to evaluate other prospects near our la arista underground mine . facilities and mine construction expenses of $ 16.6 million for the year ended december 31 , 201 2 decreased by $ 4.4 million or 21.0 % when compared to 2011 expenses of $ 21.0 million . the higher cost in 2011 was primarily due to the completion of the second phase of the tailings dam , and expansion of the flotation cells in the mill 's flotation circuit during 2011. general and administrative expenses increased $ 4.6 million or 51.7 % to $ 13.5 million for the year ended december 31 , 201 2 as compared to $ 8.9 million for the comparable period in 201 1 . the increase was attributable to increases in professional fees , salaries and benefits and stock-based compensation . for the years ended december 31 , 201 2 and 201 1 , we recorded a currency translation adjustment gain of $ 2.8 million and a currency translation adjustment loss of $ 3.2 million , respectively , resulting from the translation of our subsidiary 's mexican peso denominated functional currency financial statements into the us dollar reporting currency . 37 non-gaap measures reconciliation of non-gaap measures to total mine cost
| record mine construction has increased for prepared mineralized material by 45 % as compared to 2012. a drift to access the mineralized zone referred to as splay 5 was completed at the end of the second quarter of 2013. we began mining of mineralized material from this vein in the fourth quarter of 2013. we are currently mining the wider veins using the long-hole open stoping method , and the narrower veins using the cut and fill method . the el aguila mill expansion is expected to increase the mill 's nominal flotation circuit processing capacity to 1,500 tonnes per day . commissioning of the expanded mill took place at the end of 2013. although the mill is expected to have the capacity to process 1,500 tonnes of mineralized material per day , achieving this processing rate is also dependent on our ability to progress the la arista underground mine to a point that we can extract mineralized material from the mine at a minimum average rate of 1,500 tonnes per day . although we are targeting a mining processing rate for mineralized material of 1,500 tonnes per day in the future , we expect a ramp up towards that capacity and there is no assurance that this mining rate can be achieved or sustained over the long-term . our 2014 mine plan anticipates that we will be mining areas of the deposit that contain higher levels of base metals along with the primary production of gold and silver , as compared to 2013 levels . we are targeting a mill production range of 85,000 to 100,000 ounces of precious metal gold equivalent in 2014 , assuming a 63:1 silver to gold ratio . below are certain key operating statistics for our la arista underground mine for 2013 and 2012. replace_table_token_4_th 35 replace_table_token_5_th ( 1 ) mill production represents metal contained in concentrates produced at the mill , which is before payable metal deductions are levied by the buyer of our concentrates . payable metal deduction quantities are defined in our contracts
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the company expects to ship between 231,000 and 236,000 motorcycles to dealers in 2018 , which is down approximately 2 % to 4 % from 2017. the company 's shipment expectation assumes that u.s. dealer retail sales will be down , partially offset by growth in international retail sales . the company expects 2018 year-end u.s. retail inventory to be flat to 2017 and flat to up in international markets as it continues to add new dealers . during 2018 , the company expects retail sales to be positively impacted by : increased focus and investment on growing global ridership new product momentum with model-year 2018 motorcycles and the addition of new high-impact models yet to be introduced a rebound in emerging-market retail sales performance expansion of the international dealer network however , these positive impacts are expected to be more than offset by strong headwinds including : a very weak u.s. industry for new motorcycles driven by flat to declining total demand for combined new and used motorcycles and soft , but improving , harley-davidson used motorcycle prices competitive pressure from continued new product introductions throughout markets globally , particularly in lower price , smaller displacement motorcycles operating income as a percent of revenue for the motorcycles segment is expected to be approximately 9.5 % to 10.5 % for the full year 2018. this reduction of approximately 2 to 3 percentage points compared to 2017 , is primarily due to expected manufacturing optimization plan costs of $ 120 to $ 140 million . also , operating margin will be reduced by approximately 0.2 percentage points due to the adoption of an accounting standard update that will require the company to present the non-service cost components of its pension and postretirement plan expense as non-operating income . the company estimates this will result in approximately $ 10 million of non-operating income in 2018 that would have been included in operating income under existing accounting standards . the new presentation will be applied retrospectively to prior periods in the company 's results for 2018 and forward . gross margin as a percent of revenue in 2018 is expected to benefit from pricing on model-year 2018 and 2019 motorcycles , a more favorable foreign currency exchange environment than 2017 and positive mix . however , the company expects these positive impacts to be more than offset by rising steel and aluminum costs and increased manufacturing expense . manufacturing expense is expected to be higher than in 2017 , due in part to increased depreciation from recent capital investments related to the new model-year 2018 softail motorcycles . however , the larger driver of increased manufacturing costs in 2018 , as compared to 2017 , will be higher costs of $ 20 to $ 25 million due to temporary inefficiencies related to the manufacturing optimization plan . the company expects selling , administrative and engineering expense to be higher in 2018 compared to 2017 , but level with 2017 when expressed as a percent of revenue . the company expects selling , administrative and engineering expense to be up behind increased investments in marketing and product development as the company works to grow ridership globally . in the first quarter of 2018 , the company expects to ship 60,000 to 65,000 motorcycles to dealers , which is down approximately 8 % to 15 % percent from 2017. while the company expects u.s. retail inventory will be tighter than in the first quarter of 2017 , it believes the composition of previous and current model-year motorcycles will be considerably improved from last year . the company expects motorcycles segment operating income as a percent of revenue in the first quarter of 24 2018 to be down approximately 5 percentage points due to approximately $ 57 million of restructuring expense related to the manufacturing optimization plan , lost absorption from lower production and higher selling , administrative and engineering expense as marketing and product development expenses increase . additionally , as the company increases its investment in electric motorcycle technology , products and infrastructure it expects to spend an incremental $ 25 to $ 50 million per year over the next several years . the company expects operating income from financial services to be down in 2018 compared to 2017 due to lower net interest income , partially offset by a lower provision for credit losses . capital expenditures in 2018 are expected to be $ 250 to $ 270 million , which includes approximately $ 50 million to support the manufacturing optimization plan . the company anticipates it will have the ability to fund all capital expenditures in 2018 with cash flows generated by operations . finally , the company expects its full year effective tax rate will be approximately 23.5 % to 25 % , down approximately 10 percentage points from the rate that would have been expected excluding the impact of the 2017 tax act . this guidance excludes the effect of potential future adjustments associated with revisions to the $ 53.1 million tax expense recorded in the fourth quarter of 2017 related to the 2017 tax act , other new tax legislation or audit settlements . given the complexity and timing of the 2017 tax act , the company has recorded the impact of the 2017 tax act in the fourth quarter of 2017 based on reasonable estimates and considers these estimates to be provisional under sec staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act ( sab 118 ) . future guidance , interpretations and pronouncements may add clarity to the numerous aspects of the 2017 tax act . this future clarification may give rise to additional unanticipated considerations and revisions to the company 's provisional estimates related to the 2017 tax act included in the company 's 2017 income tax provision . any such adjustments will be recorded as discrete income tax expenses or benefits in future periods . story_separator_special_tag manufacturing optimization plan costs and savings ( 1 ) the following table summarizes the expected costs and savings associated with the company 's manufacturing optimization plan which is described in more detail in the `` overview '' above . the restructuring costs relate to employee termination benefits , accelerated depreciation and other project implementation costs . replace_table_token_9_th the company expects total capital expenditures of $ 75 million associated with the manufacturing optimization plan through 2019 . 25 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 28 segment results the following table includes the condensed statement of operations for the motorcycles segment ( in thousands ) : replace_table_token_14_th the following table includes the estimated impact of significant factors affecting the comparability of net revenue , cost of goods sold and gross profit from 2016 to 2017 ( in millions ) : replace_table_token_15_th the following factors affected the comparability of net revenue , cost of goods sold and gross profit from 2016 to 2017 : the decrease in volume was due to lower wholesale motorcycle shipments , as well as lower p & a and general merchandise sales . p & a and general merchandise sales were down due in large part to lower motorcycle shipments and lower retail motorcycle sales . on average , wholesale prices for motorcycles shipped in 2017 were higher than in the prior year resulting in a favorable impact on revenue . the positive impact on revenue was partially offset by increased costs related to the additional content added to motorcycles shipped in 2017 as compared to last year . revenue was positively impacted by slightly stronger weighted-average foreign currency rates , relative to the u.s. dollar , as compared to last year . in addition , cost was favorably impacted by a higher net gain resulting from the remeasurement of foreign-denominated balance sheet accounts net of losses incurred on hedging activities , as compared to last year . shipment mix changes resulted in a negative impact on gross profit resulting from unfavorable changes in the mix of models within motorcycle families as well as changes in p & a product mix . raw material prices were higher due primarily to increased steel and aluminum costs . manufacturing costs were negatively impacted by lower fixed cost absorption due to lower production volumes , higher model-year startup costs and higher depreciation . operating expense which consists of selling , administrative and engineering expenses , was down compared to 2016. the decrease in spending was due in large part to aggressive cost management , lower employee costs following a 2016 reorganization and the non-recurrence of related employee termination costs recorded in the fourth quarter of 2016 . 29 during the fourth quarter of 2017 , the company recorded a $ 29.4 million charge associated with the previously disclosed nhtsa investigation opened in 2016 related to certain motorcycles equipped with anti-lock breaking systems . in january 2018 , the company announced a voluntary recall of model-year 2008-2011 touring and v-rod ® motorcycles which the company believes addresses the nhtsa investigation . despite this charge , overall warranty and recall costs in 2017 were favorable compared to 2016 driven by lower year-over-year warranty expense . financial services segment segment results the following table includes the condensed statement of operations for the financial services segment ( in thousands ) : replace_table_token_16_th interest income was favorable in 2017 due to higher average retail receivables partially offset by lower average wholesale receivables and lower average yields across the portfolios . other income was favorable due to increased licensing revenue and investment income . securitization and servicing income was lower primarily due to a $ 9.3 million gain on the sale of finance receivables recognized as a result of the second quarter 2016 off-balance sheet asset-backed securitization . there was no comparable transaction in the current year . interest expense increased due to a higher cost of funds , partially offset by lower average outstanding debt . the provision for credit losses decreased $ 4.2 million compared to 2016. the retail motorcycle provision decreased $ 6.5 million during 2017 as a result of a smaller increase in the retail reserve rate and lower receivables partially offset by higher retail credit losses . credit losses were higher as a result of unfavorable performance across the retail motorcycle portfolio . the wholesale provision increased $ 1.0 million due to a smaller decrease in the wholesale reserve rate compared to 2016. annual losses on the company 's retail motorcycle loans were 1.90 % during 2017 compared to 1.83 % in 2016. the 30-day delinquency rate for retail motorcycle loans at december 31 , 2017 decreased to 4.21 % from 4.25 % at december 31 , 2016. changes in the allowance for credit losses on finance receivables were as follows ( in thousands ) : replace_table_token_17_th ( a ) related to the sale of finance receivables during the second quarter of 2016 with a principal balance of $ 301.8 million through an off-balance sheet asset-backed securitization transaction ( see note 10 of the notes to consolidated financial statements for additional information ) . at december 31 , 2017 , the allowance for credit losses on finance receivables was $ 186.3 million for retail receivables and $ 6.2 million for wholesale receivables . at december 31 , 2016 , the allowance for credit losses on finance receivables was $ 166.8 million for retail receivables and $ 6.5 million for wholesale receivables . 30 the company 's periodic evaluation of the adequacy of the allowance for credit losses on finance receivables is generally based on the company 's past loan loss experience , known and inherent risks in the portfolio , current economic conditions and the estimated value of any underlying collateral . please refer to note 5 of the notes to consolidated financial statements for further discussion regarding the company 's allowance for credit losses on finance receivables .
| 26 motorcycle retail sales and registration data harley-davidson motorcycle retail sales ( a ) the following table includes retail unit sales of new harley-davidson motorcycles : replace_table_token_11_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 new retail sales , and the company does not regularly verify the information that its dealers supply . this information is subject to revision . ( b ) includes austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland and the united kingdom . in the u.s. , retail sales of new harley-davidson motorcycles were lower than in 2016 driven by ongoing industry weakness and limited availability of model-year 2018 product . the company believes the industry for new motorcycles continued to be adversely impacted by soft used motorcycle prices , although prices did improve in the fourth quarter of 2017 on a year-over-year basis . in addition , retail sales of used harley-davidson motorcycles in the u.s. , which the company believes is an important indicator of overall demand for the company 's motorcycles , were up through november 2017 year-to-date . combined retail sales of new and used harley-davidson motorcycles in the u.s. were down slightly on a year-to-date basis through november 2017 , as compared to the same period in 2016. however , the company 's 2017 november year-to-date share of combined new and used motorcycles registered increased for the ninth consecutive year . ( source for used data : ihs markit used registrations for on-highway and dual purpose motorcycles with engines 601 and greater in the u.s. from 2008 through november 2017 ) . strong prices for used harley-davidson motorcycles in the u.s. are key to the company 's focus on driving value for its riders , dealers and the brand . in the fourth quarter of 2017 , positive momentum in used motorcycle pricing continued from the third quarter . used harley-davidson motorcycle wholesale prices at auction remained above year-ago
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our interest expense increased $ 1.4 million , or 8 % , to $ 18.0 million in 2010 from $ 16.6 million in 2009. as a result of $ 30 million in borrowings on a second lien note at a 14 % rate , we paid down our first lien revolver at an annual rate of approximately 4 % . gain on sale of oil and gas properties . our gain on sale of oil and gas properties increased $ 3.8 million to $ 4.1 million in 2010 from $ 0.3 million in 2009. in march 2010 , we sold our non-operated working interest in the jasmin , california property resulting in a gain on sale of $ 4.1 million . realized gain on settled commodity derivatives . our realized gain on settled commodity derivatives decreased $ 7.6 million , or 56 % , to $ 5.9 million in 2010 from $ 13.5 million in 2009. the change was primarily related to higher commodity prices during 2010 that lowered our realized gain . cancelled private placement . during 2010 , we incurred expenditures of $ 2.4 million in connection with our efforts to sell preferred stock through a private placement offering . cost incurred is comprised primarily of legal fees , printing cost , travel and audit fees . the offering was cancelled in august 2010. change in fair value of warrant put option . the unrealized gain from the change in the fair value of the warrant put option increased $ 115 million to a gain of $ 34.3 million for 2010 , as compared to a 72 $ 80.6 million loss for the period ended december 31 . 2009. this gain of $ 34.3 million resulted from a decrease in the value of the warrant put option from $ 81.5 million as of december 31 , 2009 to $ 47.1 million as of december 23 , 2010. the warrant was exercised for class a units of bcec and which were subsequently redeemed in exchange for shares of our former class a common stock in connection with our corporate restructuring and , therefore , no exercise occurred after december 23 , 2010. accretion of debt discount . our expense for accretion of debt discount increased $ 0.9 million , or 11 % , to $ 8.9 million for the year ended december 31 , 2010. the accretion expense is related to the amortization of the debt discount for bcec 's series a , series b and series c senior subordinated unsecured notes . liquidity and capital resources we completed our corporate restructuring on december 23 , 2010. the cash flows presented below for the audited period ended december 23 , 2010 exclude the audited eight day period from inception through december 31 , 2010. the operating cash flows , investing cash flows , and financing cash flows associated with the eight day period ended december 31 , 2011 were $ ( 1.6 ) million , $ ( 0.8 ) million , and $ , respectively . our primary sources of liquidity to date have been proceeds from our initial public offering , corporate restructuring , capital contributions from investors , borrowings under our credit facility and cash flows from operations . our primary use of capital has been for the acquisition and development of oil and natural gas properties . on december 15 , 2011 the company sold 10,000,000 shares of our common stock in our ipo at $ 17.00 per share , less $ 1.105 per share for underwriting discounts and commissions . other expenses related to the issuance and distribution of these shares were approximately $ 3 million . on march 29 , 2011 , we entered into $ 300 million senior secured revolving credit facility to provide us with additional liquidity and flexibility for capital expenditures . as of december 31 , 2011 , we had $ 6.6 million of indebtedness outstanding and $ 213.4 million of borrowing capacity available under our credit facility . on november 23 , 2011 , our borrowing base was increased to $ 220 million . the size of our borrowing base is at the discretion of the lenders under our credit facility and is dependent upon a number of factors , including commodity prices and oil and gas reserve levels . for a summary of the material provisions of our credit facility , see `` credit facility . '' we expect that in the future our commodity derivative positions will help us stabilize a portion of our expected cash flows from operations despite potential declines in the price of oil and natural gas . please see `` item 7a.quantitative and qualitative disclosures on market risks . '' we actively review acquisition opportunities on an ongoing basis . our ability to make significant additional acquisitions for cash is dependent on our obtaining additional equity or debt financing , which we may not be able to obtain on terms acceptable to us or at all . replace_table_token_37_th 73 cash flows provided by operating activities net cash provided by operating activities was $ 57.6 million for the year ended december 31 , 2011 , compared to $ 22.8 million provided by operating activities for the period ended december 23 , 2010. the increase in operating activities resulted primarily from an increase in revenues , increased production , and increased commodity prices offset by cash utilized in connection with changes in working capital when comparing the periods . story_separator_special_tag cash utilized by changes in working capital for the year ended december 31 , 2011 was $ 7.0 million as compared to $ 5.8 million that was provided by changes in working capital for the comparable period during 2010. decreases in working capital of $ 7.0 million for the year ended december 31 , 2011 is comprised primarily of increases in accounts receivable of $ 11.7 million offset by an increase in accounts payables and accrued liabilities ( exclusive of capital accruals ) of $ 6.0 million due primarily to timing of accounts payable check distributions . increases in working capital of $ 5.8 million during 2010 is due primarily to an increase in trade payables and accrued expenses ( exclusive of capital accruals ) of $ 6.5 million , partially offset by an increase in trade receivables of $ 0.7 million . net cash provided by operating activities was $ 11.1 for the year ended december 31 , 2009. cash used by changes in working capital for the year ended december 31 , 2009 was $ 2.8 million . cash flows provided by ( used in ) investing activities expenditures for development of oil and natural gas properties and natural gas plants are the primary use of our capital resources . net cash used in investing activities for the year ended december 31 , 2011 was $ 158.9 million , compared to $ 32.1 million cash used in investing activities for the period ended december 23 , 2010. for the year ended december 31 , 2011 , net cash used for the development of oil and natural gas properties was $ 156.9 million including $ 22.7 million for a natural gas plant and other facilities . for the period ended december 23 , 2010 , excluding our corporate restructuring , net cash used in investing activities was $ 32.1 million , of which we spent approximately $ 1.1 million on acquisitions , $ 34.7 million for the exploration and development of oil and gas properties including $ 4.0 million for a natural gas plant and other facilities , advanced $ 3.7 million to fund hec 's exploration and development program , offset by the receipt of proceeds in the amount of $ 7.5 million for the sale of the jasmin field . in connection with our corporate restructuring , $ 59 million in cash along with common stock valued at $ 21.1 million was used to acquire hec . for the year ended december 31 , 2009 , net cash used in investing activities was $ 7.2 million , of which we spent approximately $ 0.7 million for the acquisition of oil and gas properties and $ 6.6 million for the exploration and development of oil and gas properties . cash flows provided by ( used in ) financing activities net cash flow provided by financing activities for the year ended december 31 , 2011 was $ 103.4 million primarily related to the sale of common stock , net of offering expenses , in the amount of $ 155.9 million offset by a net reduction in debt from payments on our credit facility in the amount of $ 48.8 million . cash used for deferred financing costs was approximately $ 2.3 million and we spent $ 1.4 million to satisfy employee tax withholding requirements related to common stock that was granted during the period . net cash provided by financing , excluding corporate restructuring , was $ 9.3 million for the period ended december 23 , 2010 , primarily related to net borrowings in the amount of $ 12.7 million offset by deferred financing charges in the amount of $ 3.4 million . net cash used in financing activities was $ 5.5 million for the year ended december 31 , 2009 , primarily the result of making debt payments on our credit facility . in connection with our corporate restructuring , we received net proceeds of approximately $ 265 million from the sale of shares of our common stock to west face capital and to certain clients of aimco . proceeds from this transaction in the amount of $ 59 million along with common stock valued at $ 21.1 million was used to acquire hec , $ 17.3 million of the proceeds were used for debt 74 extinguishment penalties , and $ 182 million was used to retire bcec 's second lien term loan , the senior subordinated notes and a related party note payable , and to make a $ 29 million principal payment on bcec 's line of credit . credit facility on march 29 , 2011 , we entered into a credit agreement providing for a $ 300 million senior secured revolving credit facility with an initial borrowing base of $ 130 million with a $ 5 million subfacility for standby letters of credit . on september 15 , 2011 , our borrowing base was increased to $ 180 million with a $ 15 million sub facility for standby letters of credit . on december 2 , 2011 , our borrowing base was increased to $ 220 million with a $ 15 million subfacility for standby letters of credit . our borrowing base under the credit agreement is redetermined semiannually on each april 1 and october 1 and may be redetermined up to one additional time between such scheduled determinations upon our request or upon the request of the required lenders ( defined as lenders holding 66 2 / 3 % of the aggregate commitments ) . the borrowing base is determined by the value of our oil and gas reserves . the borrowing base is redetermined ( i ) in the sole discretion of the administrative agent and all of the lenders , ( ii ) in accordance with their customary internal standards and practices for valuing and redetermining the value of oil and gas properties in connection with reserve based oil and natural gas loan transactions , ( iii ) in conjunction with the
| during 2011 , we drilled and completed approximately 100 wells as compared to 42 wells during 2010. operating expenses replace_table_token_29_th 67 replace_table_token_30_th lease operating expenses . our lease operating expenses increased $ 6.7 million , or 45 % , to $ 21.5 million for the year ended december 31 , 2011 from $ 14.8 million for the period ended december 23 , 2010 and decreased on an equivalent basis from $ 18.18 per boe to $ 13.43 per boe . the increase in lease operating expense was related to increased production volumes due to the acquisition of hec on december 23 , 2010 and increased production attributable to our drilling program . the period ended december 23 , 2010 does not include hec lease operating expenses , which were $ 2.0 million . during the year ended december 31 , 2011 , gauging and pumping , compressor rentals , well servicing and testing , and gas plant maintenance and repairs were $ 1.8 million , $ 1.0 million , $ 1.0 million and $ 0.8 million higher , respectively , than the period ended december 23 , 2010. the decrease in lease operating expenses on an equivalent basis was primarily related to the lower operating costs of the wells acquired from hec . on an equivalent basis , the lease operating expense for the wells acquired from hec was $ 7.50 per boe during the period ended december 23 , 2010 as compared to the lease operating expense for bcec 's wells which was $ 18.18 per boe during the period ended december 23 , 2010. severance and ad valorem taxes . our severance and ad valorem taxes increased $ 4.5 million , or 276 % , to $ 6.1 million for the year ended december 31 , 2011 from $ 1.6 million for the period ended december 23 , 2010 and increased on a boe basis from $ 1.99 to $ 3.81. the increase was primarily related to a 97 % increase in production volumes
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outlook for 2017 in 2017 , we will continue to focus on leveraging the growth synergies provided by the heidrive acquisition in january 2016 to expand our business in our served markets . with strong cash flows and an improved debt position , we will continue to evaluate and pursue strategic acquisitions to enhance our growth opportunities in the future . in addition , we will continue to execute the ongoing critical issues as defined by our strategy , developed in 2013. the critical issues from that strategy include : 1 ) creating an effective corporate structure to leverage the resources and capabilities of the combined entity . 2 ) continue implementing our new erp system to provide the infrastructure necessary to support the planned growth of the company . we estimate the erp system implementation to be completed during 2018 . 3 ) plan and implement a structured approach to identify the requirements of our target markets and to create and implement solutions to ensure we meet the requirements of those markets 4 ) through the continued enhancement and development of our operational effectiveness team , implement ast to drive continuous improvement in all areas of our business . completed critical issues : we successfully launched a new and integrated website in 2016 to better meet the needs of our current business environment . allied motion is an applied technology/know-how motion company , and to grow , we will continue to invest in the technical resources to ensure we can move forward with our mantra to create motion solutions that change the game and to meet the emerging needs of our customers in our served market segments . in support of our sales efforts , we have three solution centers ( united states , europe and asia ) that are providing the support required to sell multi-technology solutions . we have a number of new multi-product motion control solution wins that will be ramping up during 2017 and a very active pipeline of new opportunities where our integrated solution capability has provided us with a competitive advantage . we anticipate that our investment in these key resources will help drive our growth now and in the future and we plan to continue investing in these resources during 2017. we further expect this shift from a component supplier to a more complete solutions provider , along with the application of ast , to drive margin improvement . our global production footprint provides us with the opportunity to be a good value proposition and supplier for global companies who require support around the world . we will continue to evaluate and find areas to leverage our current manufacturing and sales footprint to drive sales and improve efficiencies . further development and promotion of our parent brand , allied motion , will continue in 2017. a global structure has been defined and we intend to use that to our advantage in the marketplace . 19 critical accounting policies the company has prepared its financial statements in conformity with accounting principles generally accepted in the united states , and these statements necessarily include some amounts that are based on informed judgments and estimates of management . the company 's significant accounting policies are discussed in note 1 of item 8 , financial statements and supplementary data of this report . the policies are reviewed on a regular basis . the company 's critical accounting policies are subject to judgments and uncertainties which affect the application of such policies . the company uses historical experience and all available information to make these judgments and estimates . as discussed below the company 's financial position or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies . in the event estimates or assumptions prove to be different from actual amounts , adjustments are made in subsequent periods to reflect more current information . the company 's critical accounting policies include : revenue recognition the company derives revenues from the sale of products and services . see note 1 , business and summary of significant accounting policies revenue recognition to the company 's consolidated financial statements for a description of the company 's revenue recognition policies . although most of the company 's sales agreements contain standard terms and conditions , certain agreements non-standard terms and conditions . as a result , judgment is sometimes required to determine the appropriate accounting . if the company 's judgments regarding revenue recognition prove incorrect , the company 's revenues in particular periods may be adversely affected . see note 1 , business and summary of significant accounting policies recently issued accounting pronouncements to the company 's consolidated financial statements for a description of the new revenue standard , asu 2014-09 , revenue from contracts with customers that will be effective for interim and annual reporting periods beginning january 1 , 2018. allowance for doubtful accounts the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . the allowance is based on historical experience and judgments based on current economic and customer specific factors . significant judgments are made by management in connection with establishing the company 's customers ' ability to pay at the time of shipment . despite this assessment , from time to time , the company 's customers are unable to meet their payment obligations . the company continues to monitor customers ' credit worthiness , and use judgment in establishing the estimated amounts of customer receivables which may not be collected . a significant change in the liquidity or financial position of the company 's customers could have a material adverse impact on the collectability of accounts receivable and future operating results . see note 1 , business and summary of significant accounting policies accounts receivable , of our consolidated financial statements for information regarding trade accounts receivable and the allowance for doubtful accounts . story_separator_special_tag inventory valuation inventories include material , direct labor and related manufacturing overhead , and are stated at the lower of cost or market determined on a first-in , first-out basis . we record inventory when we take delivery and title to the product according to the terms of each supply agreement . the company monitors and forecasts expected inventory needs based on sales forecasts . inventory is written down or written off when it becomes obsolete or when it is deemed excess . these determinations involve the exercise of significant judgment by management . if actual market conditions are significantly different from those projected by management , the recorded reserve may be adjusted , and such adjustments may have a significant impact on the company 's results of operations . demand for the company 's products can fluctuate significantly , and in the past the company has recorded substantial charges for inventory obsolescence . see note 1 , business and summary of significant accounting policies - inventories , of our consolidated financial statements for information regarding inventory valuation as well as excess and obsolete inventory provisions . 20 income taxes the company records deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts recorded in the consolidated financial statements , and for operating loss and tax credit carryforwards . realization of the recorded deferred tax assets is dependent upon the company generating sufficient taxable income in the appropriate tax jurisdiction in future years to obtain benefit from the reversal of net deductible temporary differences and from tax credit and operating loss carryforwards . we regularly assess our ability to realize our deferred tax assets . assessments of the realization of deferred tax assets require that management consider all available evidence , both positive and negative , and make significant judgments about many factors , including the amount and likelihood of future taxable income . a valuation allowance is provided to the extent that management deems it more likely than not that the net deferred tax assets will not be realized . the amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed . see note 1 , business and summary of significant accounting policies income taxes , of our consolidated financial statements for information on how we record current and deferred income taxes , valuation allowances and the realization of uncertain tax positions . see note 8 , income taxes , of our consolidated financial statements for information regarding income tax expense as well as the valuation of our deferred income taxes . goodwill as of december 31 , 2016 , we had $ 27,522 of goodwill related to various business acquisitions . we perform impairment tests on goodwill on an annual basis during the fourth quarter of each fiscal year , or on an interim basis if events or circumstances indicate that it is more likely than not that impairment has occurred . goodwill is potentially impaired if the carrying value of the reporting unit that contains the goodwill exceeds its estimated fair value . goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary . if it is determined , based on qualitative factors , that the fair value of the reporting unit may be more likely than not less than carrying amount , or if significant adverse changes in the company 's future financial performance occur that could materially impact fair value , a quantitative goodwill impairment test would be required . the fair value of our reporting unit is generally determined using a combination of an income approach , which estimates fair value based upon future discounted cash flows and a market approach which uses published market prices for analysis . we completed our annual goodwill impairment test in the fourth quarter of 2016 and concluded no impairment of goodwill exists , as our goodwill reporting unit had a calculated fair value in excess of carrying value of greater than 25 % . although goodwill is not currently impaired , there can be no assurance that future impairments will not occur . significant negative industry or economic trends , disruptions to our business , failure to achieve the revenue and cost synergies expected from our acquisitions , or other unexpected significant changes in the use of certain assets could all have a negative effect on fair values in the future . see note 1 , business and summary of significant accounting policies goodwill , of our consolidated financial statements for information on how we record goodwill and impairment charges . see note 3 , goodwill , of our consolidated financial statements for information regarding the carrying values of our goodwill . stock-based compensation we measure compensation cost arising from the grant of share-based payments to employees at fair value and recognize such cost over the period during which the employee is required to provide service in exchange for the award , usually the vesting period . total stock-based compensation expense recognized during the years ended december 31 , 2016 , 2015 , and 2014 was $ 1,893 , $ 1,744 and $ 1,541 , respectively . 21 for awards with service conditions , we recognize compensation cost on a straight-line basis over the requisite service/vesting period once the awards have been earned . for awards with performance conditions , accruals of compensation cost are made based on the probable outcome of the performance conditions . the assumptions used in calculating the fair value of share-based payment awards represent management 's best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if circumstances change and we use different assumptions , our stock-based compensation expense could be materially different in the future .
| the overall increase in revenue was due to increased volume , fluctuations in foreign currency were not a factor . 23 order backlog : the increase in bookings in 2016 compared to 2015 is largely due to addition of heidrive . there were increases in orders for most of our markets outside of vehicle . there has been a decline in orders and backlog reflecting the weakness in our vehicle market caused by generally soft industrial market conditions , a slowdown in the european auto market and product end-of-life wind-downs . gross margin : the 6 % increase in gross profit was largely due to increased volume attributable to market growth . gross profit was revised in the fourth quarter of 2016 related to the correction of accounting for certain intercompany sales . refer to note 12 selected quarterly financial data ( unaudited ) for additional information . selling expenses : selling expenses increased in 2016 compared to 2015 primarily due to the acquisition of heidrive and continued investment in our one allied sales organization to support future growth . selling expenses as a percentage of revenues were 4 % for 2016 and 2015. general and administrative expenses : general and administrative expenses increased in 2016 from 2015 largely due to the acquisition of heidrive . g & a expenses were partially offset by insurance recoveries related to a fire at one of our international locations . as a percentage of revenues , general and administrative expenses was 10 % for 2016 and 2015. engineering and development expenses : engineering and development expenses increased by 14 % in 2016 compared to 2015. the increase is primarily due to the acquisition of heidrive and the continuation of a significant development project to meet the future needs of a target market for allied motion . as a percentage of revenues , engineering and development expenses were 6 % for both 2016 and 2015. business development costs : the company incurred $ 428 of business development costs during
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this acquisition is further described in note 3 “ acquisitions ” in the accompanying notes to consolidated financial statements in part ii , item 8 of this 2012 annual report on form 10-k. on january 26 , 2011 , the company purchased remag , ag ( “ remag ” ) of bern , switzerland for $ 4.9 million . remag distributes a line of precision flow measurement products , some of which they manufacture , for the global industrial market . their small turbine meters complement and expand the company 's existing line of industrial flow products . this acquisition is further described in note 3 “ acquisitions ” in the accompanying notes to consolidated financial statements in part ii , item 8 of this 2012 annual report on form 10-k. on april 1 , 2010 , the company purchased cox instruments , llc ( “ cox ” ) of scottsdale , arizona , and its subsidiary flow dynamics , inc. for $ 7.8 million . cox instruments and flow dynamics manufacture and market precision high performance flow meters that are used in demanding applications such as aerospace , custody transfer and flow measurement test stands . the company merged the two entities into a wholly-owned subsidiary named cox flow measurement , inc. on april 1 , 2010 , and merged the subsidiary into badger meter , inc. on december 31 , 2010. this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements in part ii , item 8 of this 2012 annual report on form 10-k. revenue and product mix prior to the company 's introduction of its own proprietary radio products , for example orion and galaxy , itron water utility-related products were a dominant radio products contributor to the company 's results . itron products are sold under an agreement between the company and itron , inc. that has been renewed multiple times and is in effect until early 2016. the company 's radio products directly compete with itron water radio products . in recent years , many of the company 's customers have selected the company 's proprietary products over itron products . while the company 's proprietary product sales are generally greater than those of the itron licensed products , the company expects that itron products will remain a significant component of sales to water utilities . continuing substantial sales in both product lines underscores the continued acceptance of radio technology by water utilities and affirms the company 's strategy of selling itron products in addition to its own proprietary products . as the industry continues to evolve , the company has been vigilant in anticipating and exceeding customer expectations . in 2011 , the company introduced ama as a hardware and software solution for water and gas utilities , which it believes will help maintain the company 's position as a market leader . the company continues to seek opportunities for additional revenue enhancement . for instance , the company is periodically asked to oversee and perform field installation of its products for certain customers . the company assumes the role of general contractor , hiring installation subcontractors and supervising their work . the company also supports its product and technology sales with the sale of extended service programs that provide additional services beyond the standard warranty . in recent years , the company has sold orion radio technology to natural gas utilities for installation on their gas meters . with the exception of a large sale of gas radios to one particular customer , the revenues from such products and services are not yet significant and the company is uncertain of the potential growth achievable for such products and services in future periods . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > gross margins as a percentage of sales were 38.2 % , 34.2 % and 37.2 % for 2012 , 2011 and 2010 , respectively . the percentage increase in 2012 was due in part to the addition of racine federated 's products , whose margins are generally a higher percentage than the company 's overall weighted margin percentage . margins also increased due to lower costs for castings which fluctuate with the metals market , and higher sales volumes in general which increase overall factory utilization . offsetting these factors was the impact of lower sales of radios to natural gas utilities . gross margins were lower in 2011 compared to 2010 due to significantly higher commodity costs , particularly copper , mitigated somewhat by higher prices charged for the company 's products as well as cost reductions as the company began to transition additional operations to its mexican facilities . this transition was completed in the second quarter of 2011. approximately 70 positions were transferred from the milwaukee facility to the mexican facility as part of a plan to move production to lower-cost facilities . operating expenses selling , engineering and administration expenses in 2012 increased $ 15.5 million , or 24.9 % , over 2011 's expenses . the increase was primarily attributable to the acquisition of racine federated and amortization of intangibles acquired , which were not included in the results for 2011. the remainder of the increase was due to higher employee incentives and normal inflationary increases , offset by continuing cost control measures . in addition , the 2012 amounts include a $ 1.0 million charge in connection with the write down of the company 's investment in an emerging technology company and a $ 1.1 million non-cash pension charge as a result of payouts from the pension plan occurring faster than the assumed rate . story_separator_special_tag selling , engineering and administration costs increased $ 4.3 million , or 7.4 % , in 2011 compared to 2010. the increase was due in part to the inclusion of remag 's expenses which were not included in the 2010 amounts and expenses for the acquisition of cox , which were included in results for only nine months of 2010. other reasons for the increase include higher amortization of various intangibles and software as well as higher costs associated with the technical support of the company 's products . in addition , expenses for 2011 include approximately $ 1.1 million of charges associated with the acquisition of racine federated that was acquired on january 31 , 2012 as well as a non-cash pension curtailment charge as a result of contract negotiations with the company 's only union in which the union agreed to freeze its defined benefit plan at december 31 , 2011 and participate in the company 's defined contribution plan . the 2010 amounts include a one-time credit of $ 0.7 million for the fair value of land received in settlement of claims against a building contractor . operating earnings operating earnings in 2012 increased $ 17.0 million , or 61.8 % , to $ 44.5 million compared to $ 27.5 million in 2011 , as a net result of the higher sales of municipal water and industrial flow products , offset somewhat by higher selling , engineering and administration expenses . in addition , lower costs of certain raw materials also contributed to the increased operating earnings . operating earnings in 2011 decreased $ 17.3 million , or 38.6 % , to $ 27.5 million compared to $ 44.8 million in 2010. the decrease was due to lower sales as a result of lower volumes of product sold , as well as increased selling , engineering and administration expenses . interest expense , net interest expense , net was $ 1.0 million in 2012 compared to $ 0.2 million in 2011. the increase was due primarily to higher borrowings in 2012 associated with the acquisition of racine federated and the company 's stock repurchase program . interest expense , net was $ 0.2 million in 2011 compared to $ 0.4 million in 2010. the decrease was due primarily to lower borrowings in 2011. income taxes income taxes as a percentage of earnings before income taxes were 35.5 % , 29.9 % , and 35.5 % for 2012 , 2011 and 2010 , respectively . the 2011 results include recognition of previously unrecognized tax benefits for certain deductions that were taken on prior tax returns . these benefits total approximately $ 1.3 million and were recognized in earnings in 2011 due to the realization that such benefits became more likely than not upon the conclusion of an irs audit of the company 's 2009 federal income tax return . without these benefits , the provision for income taxes as a percentage of earnings before income 16 taxes for 2011 would have been 34.8 % . the increase in 2012 from 2011 was due to less foreign income , which was taxed at lower rates . the decrease in the effective tax rate between 2011 and 2010 was due to the recognition of previously unrecognized tax benefits discussed above and higher foreign income taxed at lower rates . earnings and diluted earnings per share as a result of the increased operating earnings , offset somewhat by a higher effective tax rate , net earnings were $ 28.0 million in 2012 compared to $ 19.2 million in 2011. on a diluted basis , earnings per share were $ 1.95 in 2012 compared to $ 1.27 in 2011. as a result of the lower operating earnings , mitigated somewhat by a lower effective tax rate , net earnings were $ 19.2 million in 2011 compared to $ 28.7 million in 2010. on a diluted basis , earnings per share were $ 1.27 in 2011 compared to $ 1.91 in 2010. liquidity and capital resources the main sources of liquidity for the company are cash from operations and borrowing capacity . cash provided by operations in 2012 was $ 34.8 million compared to $ 31.3 million in 2011. the increase in cash provided by operations in 2012 compared to 2011 was due to significantly higher earnings , offset by higher inventory balances and a pension plan contribution made in 2012. receivables at december 31 , 2012 were $ 45.6 million compared to $ 41.2 million in 2011. the increase was due in part to the addition of racine federated in 2012 and the resulting increase in sales . the company believes its net receivables balance is fully collectible . inventories at december 31 , 2012 were $ 61.0 million compared to $ 49.4 million at december 31 , 2011. the increase was primarily due to the addition of racine federated in 2012 with the remainder due to the timing of purchases . property , plant and equipment increased as a net result of capital expenditures and the acquisition of racine federated 's property , plant and equipment , offset by depreciation expense . capital expenditures totaled $ 8.2 million in 2012 , $ 5.3 million in 2011 and $ 9.2 million in 2010. these amounts vary due to the timing of capital expenditures . the company believes it has adequate capacity to increase production levels with minimal additional capital expenditures . intangible assets increased to $ 58.4 million at december 31 , 2012 from $ 33.7 million at december 31 , 2011 primarily due to the acquisition of racine federated and the resulting valuation of its intangible assets , partially offset by amortization expense . also , as a result of that acquisition , goodwill increased to $ 35.9 million at december 31 , 2012 compared to $ 9.4 million at december 31 , 2011. short-term debt increased from december 31 , 2011 to december 31 , 2012 as the company borrowed funds for its acquisition of racine federated and for its stock repurchase program .
| weather may have also played a role as poor weather in the midwest and northeast had a negative impact on sales in early 2011 due to its effects on budget demands and installation rates , which did not recur in early 2012. industrial flow products represented 29.0 % of total net sales in 2012 compared to 21.5 % in 2011. these sales increased $ 36.2 million , or 64.0 % , to $ 92.8 million from $ 56.6 million in 2011. as previously noted , racine federated was acquired on january 31 , 2012 and racine federated 's sales were included from that point forward . within this product grouping , racine federated 's sales were $ 32.6 million . the remainder of the increase was due to higher sales in most of the remaining industrial flow product lines . specialty products represented 4.3 % of total net sales in 2012 compared to 6.1 % in 2011. these sales decreased $ 2.3 million in 2012 , or 14.4 % , to $ 13.7 million from $ 16.0 million in 2011. included in this product grouping was $ 8.7 million of sales from racine federated . without these sales , specialty products would have shown a larger sales decrease due to lower sales of radios into the natural gas market . the 2011 sales included higher sales of radios to one particular natural gas customer that did not recur in 2012. international sales for municipal water meters and related technologies are generally made to customers in canada and mexico , which use similar mechanical technology and standards as customers in the u.s. international sales for industrial flow and specialty products are generally made throughout the world . in europe , sales are made primarily in euros . other international sales are made in u.s. dollars or local currencies . international sales increased 53.8 % to $ 48.6 million in 2012 from $ 31.6 million in 2011 primarily due to the addition of racine federated 's product lines . net sales in 2011 decreased $ 13.7 million , or 5.0 % , to $ 262.9 million from $ 276.6 million in 2010. the overall decrease was the net result of lower volumes sold for the company 's
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in june 2018 , caelum announced a complete analysis of cardiac data from a phase 1b trial of cael-101 ( mab 11-1f4 ) for the treatment of relapsed or refractory al amyloidosis demonstrating cael-101 's potential to improve myocardial function as assessed by gls and generate a sustained decrease in n-terminal pro-brain natriuretic peptide levels in al amyloidosis patients experiencing cardiac involvement . columbia university presented the data at the american society of echocardiography 's 29th annual scientific sessions . 41 in december 2018 , caelum announced additional gls data from the phase 1b study of cael-101 in patients with cardiac al amyloidosis , which further confirmed cael-101 's efficiency improving gls and nt-probnp . caelum also announced imaging data from a preclinical study that demonstrate the potential of using radiolabeled cael-101 for real-time imaging of human amyloidosis in vivo . the data were presented during two oral sessions at the 60th american society of hematology ( “ ash ” ) annual meeting . triplex the multicenter phase 2 study of triplex for cytomegalovirus ( “ cmv ” ) control in allogeneic stem cell transplant recipients has concluded , and its primary endpoint was met . the full dataset has been accepted for oral presentation at the 45 th annual meeting of the european society for blood and marrow transplantation ( “ ebmt ” ) being held in frankfurt , germany march 24-27 , 2019. our partner company helocyte is developing this program in collaboration with coh . mb-107 ( xscid gene therapy ) in august 2018 , our partner company mustang announced that it entered into an exclusive worldwide license agreement with st. jude children 's research hospital ( “ st . jude ” ) for the development of a potentially first-in-class ex vivo lentiviral gene therapy for the treatment of x-linked severe combined immunodeficiency ( xscid ) , also known as bubble boy disease . the therapy is currently being evaluated in a phase 1/2 multicenter trial in infants under the age of two . this study is the world 's first lentiviral gene therapy trial for infants with xscid . the therapy is also being investigated in patients over the age of two in a second phase 1/2 trial at the national institutes of health ( “ nih ” ) . mustang believes these may be registration trials . mustang is currently developing xscid in collaboration with st jude . ck-301 ( anti-pd-l1 antibody ) in march 2018 , our partner company checkpoint completed the dose escalation portion of the ongoing phase 1 trial of ck-301 , a fully human anti-pd-l1 antibody , in selected recurrent or metastatic cancers , and initiated the first dose expansion cohort , which is evaluating an 800 mg dose of ck-301 administered every two weeks . in january 2019 , checkpoint announced that the ongoing multi-center clinical trial of anti-pd-l1 antibody ck-301 was expanded to enroll patients in three endometrial and colorectal cohorts intended to support requests for accelerated approval and biologics license application ( “ bla ” ) submissions to the fda . the ongoing trial is also enrolling cohorts of patients with nsclc and cutaneous squamous cell carcinoma . ck-101 ( third-generation egfr inhibitor ) in september 2018 , checkpoint announced interim safety and efficacy data from our phase 1/2 clinical trial of ck-101 , a third-generation egfr tyrosine kinase inhibitor ( “ tki ” ) being evaluated in advanced nsclc . the data were presented in an oral presentation at the international association for the study of lung cancer ( “ iaslc ” ) 19th world conference on lung cancer in toronto . ck-101 was well tolerated across multiple dose groups and safe . durable anti-tumor activity was observed , particularly in treatment-naïve egfr mutation-positive nsclc patients . cutx-101 and aav-based gene therapy in july 2018 , our partner company cyprium announced that the fda granted fast track designation to cutx-101 ( “ copper histidinate ” ) , a product candidate for patients diagnosed with classic menkes disease who have not demonstrated significant clinical progression . cutx-101 is currently in a phase 3 clinical trial . in september 2018 , cyprium announced the publication of preclinical data on adeno-associated virus ( aav ) -based gene therapy combined with subcutaneous cutx-101 for menkes disease in molecular therapy : methods & clinical development . in january 2019 , cyprium received notification from the u.s. fda that the sponsorship of the investigational new drug ( “ ind ” ) application for cutx-101 was transferred to cyprium . mb-102 ( cd123 car t ) in july 2018 , our partner company mustang bio , inc. completed a pre-investigational new drug ( “ pre-ind ” ) meeting with the u.s. food and drug administration ( “ fda ” ) for mb-102 ( “ cd123 car t ” ) . based on the meeting , mustang expects to initiate a phase 1/2 trial of mb-102 in acute myeloid leukemia ( “ aml ” ) , blastic plasmacytoid dendritic cell neoplasm ( “ bpdcn ” ) and high-risk myelodysplastic syndrome in the first half of 2019. in november 2018 , mustang announced that additional safety and efficacy phase 1 data evaluating mb-102 ( cd123 car ) in relapsed or refractory aml and bpdcn were presented in an oral session at the american association for cancer research ( “ aacr ” ) special conference on tumor immunology and immunotherapy . 42 in december 2018 , the fda granted orphan drug designation to mb-102 ( cd123 car t ) for the treatment of bpdcn , a rare and incurable blood cancer with a median survival of less than 18 months and no standard of care . mb-101 ( il13rα2-specific car t ) in may 2018 , mustang announced the publication of preclinical data in jci insight demonstrating that glioblastoma-targeted cd4+ car t cells mediate superior antitumor activity over cd8+ car t cells . the data , published by research partner city of hope , will be applied in the ongoing phase 1 trial of il13rα2-specific car t mb-101 in glioblastoma . story_separator_special_tag oncolytic virus ( c134 ) in february 2019 , mustang announced that they partnered and entered into an exclusive worldwide license agreement with nationwide children 's hospital to develop an oncolytic virus ( c134 ) for the treatment of glioblastoma multiforme ( “ gbm ” ) . mustang intends to combine the oncolytic virus with mb-101 ( il13rα2-specific car ) to potentially enhance efficacy in treating gbm . mb-103 ( her2-specific car t ) in october 2018 , mustang announced that a first-of-its-kind phase 1 clinical trial evaluating the safety and effectiveness of intraventricular delivery of car t cells to the brains of patients with her2-positive breast cancer with brain metastases was initiated at city of hope . city of hope dosed the first patient in december 2018. in addition , mustang announced that city of hope dosed the first patient in a phase 1 clinical trial of her2-specific car t cells in treating recurrent or refractory grade iii-iv glioma . the trial is evaluating the side effects and best dose of her2-specific car t cells in treating patients with grade iii-iv glioma that has come back or does not respond to treatment . ck-103 ( bet inhibitor ) in april 2018 , preclinical data was presented on checkpoint 's bet inhibitor , ck-103 , at the aacr annual meeting . ck-103 demonstrated combinatorial effects in an in vivo model with anti-pd-1 antibodies , which may support the development of ck-103 as an anti-cancer agent alone and in combination with ck-301 . cndo-109 in june 2018 , data from a phase 1 trial evaluating cndo-109-activated allogeneic natural killer ( “ nk ” ) cells in aml patients were published in the journal biology of blood and marrow transplantation . the data demonstrated that cndo-109-activated nk cells are safe , well tolerated and may be capable of extending complete remissions in high-risk aml patients . aav gene therapy in january 2018 , our partner company aevitas entered into a sponsored research agreement with the laboratory of guangping gao , ph.d. , at the university of massachusetts medical school to evaluate construct optimization for our aav gene therapy treatment for complement-mediated diseases , including dry age-related macular degeneration , paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome . in august 2018 , aevitas announced that it entered into a sponsored research agreement with the laboratory of wenchao song , ph.d. , at the university of pennsylvania to evaluate our aav gene therapy technology in the university 's proprietary animal models of complement-mediated diseases . 2018 venture notes in the quarter ended march 2018 , we closed a private placement of promissory notes for an aggregate of $ 21.7 million ( the “ 2018 venture notes ” ) through national securities corporation ( “ nsc ” ) , a wholly-owned subsidiary of national , and , at the time a related party by virtue of our ownership of national . we intend to use the proceeds from the 2018 venture notes to acquire and license medical technologies and products through existing or recently formed partner companies . nsc acted as the sole placement agent for the 2018 venture notes . we paid nsc a fee of $ 1.7 million during the year ended december 31 , 2018 in connection with its placement of the 2018 venture notes . sale of national in november 2018 , we entered into an agreement to sell our 56.1 % majority stake in national holdings corporation , to nhc holdings , llc , a wholly-owned subsidiary of b. riley financial , inc. under the terms of the agreement , we sold approximately 3.0 million of our shares in national , in an initial closing on november 16 , 2018 at $ 3.25 per share for proceeds of $ 9.8 million . we sold our remaining 4.0 million shares at the same per-share price in february 2019 for proceeds of $ 13.1 million . the aggregate purchase price totaled approximately $ 22.9 million for our 56.1 % stake and following the second closing we no longer owned shares in national . 43 critical accounting policies and use of estimates see note 2 to the consolidated financial statements . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > note 1 : includes the following partner company : aevitas , caelum , cellvation , cyprium , escala , helocyte and tamid the increase in stock-based compensation for avenue and mustang is attributable to new grants made to new hires , while the decrease in fortress , checkpoint , and the “ other ” category is due to overall vesting of grants as well as the decrease in value attributed to marking to market grants held by non-employees . the decrease in fortress research and development spending is due to the lower research and development headcount subsequent to the transfer of fortress research and development employees to tgtx , a related party , in the quarter ended september 30 , 2018. checkpoint 's increase in research and development spending is attributable to the increased manufacturing costs and clinical trial expense for ck-101 and ck-301 . mustang 's increase in research and development spending is attributable to the fitting out of the cell processing facility , as well as increased headcount . the decrease in “ other ” is attributable to costs incurred by caelum for the start-up of product development activities , and helocyte for the start-up of sponsored research activities not replicated in 2018. general and administrative expenses increased $ 2.5 million , or 5 % , from the year ended december 31 , 2017 to the year ended december 31 , 2018. the following table shows the change in general and administrative spending for fortress and by partner company : replace_table_token_6_th note 1 : includes cost of outsourced sales force note 2 : includes the following partner companies : aevitas , caelum , cellvation , cyprium , escala , helocyte and tamid 46 for the year ended december 31 , 2018 , the increase in general
| for the year ended december 31 , 2018 and 2017 , research and development expenses were approximately $ 83.3 million and $ 48.3 million , respectively . additionally , during the year ended december 31 , 2018 and 2017 , we expensed approximately $ 4.1 million and $ 4.2 million , respectively , in costs related to the acquisition of licenses . the table below provides a summary of research and development costs associated with the development of our licenses by entity , excluding noncash stock-based compensation expenses , for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th note 1 : includes the following partner companies : aevitas , caelum , cellvation , cyprium , helocyte and tamid noncash , stock-based compensation expense included in research and development for the year ended december 31 , 2018 and 2017 , was $ 5.3 million and $ 4.0 million , respectively . 44 general and administrative expenses general and administrative expenses consist principally of personnel related costs , professional fees for legal , consulting , audit and tax services , rent and other general operating expenses not otherwise included in research and development expenses . for the years ended december 31 , 2018 and 2017 , general and administrative expenses were $ 53.4 million and $ 50.9 million , respectively . stock based compensation expense included in general and administrative expenses in 2018 and 2017 was $ 9.7 million and $ 9.4 million , respectively . the table below provides a summary by entity of general and administrative expenses excluding non-cash stock compensation expenses for the years ended december 31 , 2018 and 2017 , respectively : replace_table_token_3_th note 1 : includes cost of outsourced sales force note 2 : includes the following partner companies : aevitas , caelum , cellvation , cyprium , escala , helocyte and tamid comparison of years ended december 31 , 2018 and 2017 replace_table_token_4_th 45 for the year ended december 31 , 2018 , $ 3.5 million of revenue was in connection with checkpoint 's collaborative agreements with tgtx , and $ 23.4 million of revenue related primarily to the sale of journey branded and generic
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loans deemed to be “ acceptable quality ” are rated 1 through 4 , with a rating of 1 established for loans with minimal risk . loans deemed to be of “ questionable quality ” are rated 5 ( watch ) or 6 ( special mention ) . loans with adverse classifications ( substandard , doubtful or loss ) are rated 7 , 8 or 9 , respectively . commercial mortgage , multi-family , construction and commercial loans are rated individually and each lending officer is responsible for risk rating loans in their portfolio . these risk ratings are then reviewed by the department manager and or the chief lending officer and the credit department . the risk ratings are also confirmed through periodic loan review examinations , which are currently performed by an independent third party , and periodically by the credit committee in the credit renewal or approval process . in addition , the bank requires an annual review be performed for commercial and commercial real estate loans above certain dollar thresholds , depending on loan type , to help determine the appropriate risk rating . management estimates the amount of loan losses for groups of loans by applying quantitative loss factors to loan segments at the risk rating level , and applying qualitative adjustments to each loan segment at the portfolio level . quantitative loss factors give consideration to historical loss experience by loan type based upon an appropriate look-back period and adjusted for a loss emergence period . quantitative loss factors are evaluated at least annually . management completed its annual evaluation of the quantitative loss factors for the quarter ended september 30 , 2017. qualitative adjustments give consideration to other qualitative or environmental factors such as trends and levels of delinquencies , impaired loans , charge-offs , recoveries and loan volumes , as well as national and local economic trends and conditions . qualitative adjustments reflect risks in the loan portfolio not captured by the quantitative loss factors and , as such , are evaluated from a risk level perspective relative to the risk levels present over the look-back period . qualitative adjustments are evaluated at least quarterly . the reserves resulting from the application of both of these sets of loss factors are combined to arrive at the allowance for loan losses . management believes the primary risks inherent in the portfolio are a general decline in the economy , a decline in real estate market values , rising unemployment or a protracted period of elevated unemployment , increasing vacancy rates in commercial investment properties and possible increases in interest rates in the absence of economic improvement . any one or a combination of these events may adversely affect borrowers ' ability to repay the loans , resulting in increased delinquencies , loan losses and future levels of provisions . accordingly , the company has provided for loan losses at the current level to address the current risk in its loan portfolio . management considers it important to maintain the ratio of the allowance for loan losses to total loans at an acceptable level given current economic conditions , interest rates and the composition of the portfolio . although management believes that the company has established and maintained the allowance for loan losses at appropriate levels , additions may be necessary if future economic and other conditions differ substantially from the current operating environment . management evaluates its estimates and assumptions on an ongoing basis giving consideration to historical 41 experience and other factors , including the current economic environment , which management believes to be reasonable under the circumstances . such estimates and assumptions are adjusted when facts and circumstances dictate . illiquid credit markets , volatile securities markets , and declines in the housing and commercial real estate markets and the economy generally have combined to increase the uncertainty inherent in such estimates and assumptions . as future events and their effects can not be determined with precision , actual results could differ significantly from these estimates . changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods . in addition , various regulatory agencies periodically review the adequacy of the company 's allowance for loan losses as an integral part of their examination process . such agencies may require the company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination . although management uses the best information available , the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change . the company 's available for sale securities portfolio is carried at estimated fair value , with any unrealized gains or losses , net of taxes , reported as accumulated other comprehensive income or loss in stockholders ' equity . estimated fair values are based on market quotations or matrix pricing as discussed in note 5 to the consolidated financial statements . securities which the company has the positive intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost . management conducts a periodic review and evaluation of the securities portfolio to determine if any declines in the fair values of securities are other-than-temporary . in this evaluation , if such a decline were deemed other-than-temporary , management would measure the total credit-related component of the unrealized loss , and recognize that portion of the loss as a charge to current period earnings . the remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income . the fair value of the securities portfolio is significantly affected by changes in interest rates . in general , as interest rates rise , the fair value of fixed-rate securities decreases and as interest rates fall , the fair value of fixed-rate securities increases . story_separator_special_tag the company determines if it has the intent to sell these securities or if it is more likely than not that the company would be required to sell the securities before the anticipated recovery . if either exists , the entire decline in value is considered other-than-temporary and would be recognized as an expense in the current period . in its evaluations , the company did not recognize an other-than-temporary impairment charge on securities for the years ended 2017 , 2016 and 2015 . the determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities and estimates of future taxable income . such estimates are subject to management 's judgment . a valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items . the company did not require a valuation allowance at december 31 , 2017 and 2016 . 42 analysis of net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the rates of interest earned on such assets and paid on such liabilities . average balance sheet . the following table sets forth certain information for the years ended december 31 , 2017 , 2016 and 2015 . for the periods indicated , the total dollar amount of interest income from average interest-earning assets and the resultant yields , as well as the interest expense on average interest-bearing liabilities is expressed both in dollars and rates . no tax equivalent adjustments were made . average balances are daily averages . replace_table_token_23_th ( 1 ) average outstanding balance amounts are at amortized cost . ( 2 ) average outstanding balances are net of the allowance for loan losses , deferred loan fees and expenses , and loan premiums and discounts and include non-accrual loans . ( 3 ) net interest income divided by average interest-earning assets . 43 rate/volume analysis . the following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated . information is provided in each category with respect to : ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( ii ) changes attributable to changes in rate ( changes in rate multiplied by prior volume ) ; and ( iii ) the net change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_24_th comparison of financial condition at december 31 , 2017 and december 31 , 2016 total assets increased $ 344.8 million , or 3.6 % , to $ 9.85 billion at december 31 , 2017 , from $ 9.50 billion at december 31 , 2016 . the increase in total assets was primarily due to a $ 322.2 million increase in total loans and a $ 46.5 million increase in total cash and cash equivalents , partially offset by a $ 20.9 million decrease in premises and equipment and a $ 7.6 million decrease in total investments . total loans increased $ 322.2 million , or 4.6 % , to $ 7.33 billion at december 31 , 2017 , from $ 7.00 billion at december 31 , 2016 . for the year ended december 31 , 2017 , loan originations , including advances on lines of credit , totaling $ 3.70 billion was partially offset by repayments of $ 3.34 billion and loan sales of $ 24.9 million . the loan portfolio had net increases of $ 192.5 million in commercial mortgage loans , $ 127.8 million in construction loans , $ 114.4 million in commercial loans and $ 1.8 million in multi-family mortgage loans , partially offset by net decreases of $ 69.3 million in residential mortgage loans and $ 42.8 million in consumer loans . commercial loans , consisting of commercial real estate , multi-family , construction and commercial loans , totaled $ 5.71 billion , accounting for 77.9 % of the loan portfolio at december 31 , 2017 , compared to $ 5.28 billion , or 75.3 % of the loan portfolio at december 31 , 2016 . the company intends to continue to focus on the origination of commercially-oriented loans . retail loans , which consist of one- to four-family residential mortgage and consumer loans , such as fixed-rate home equity loans and lines of credit , totaled $ 1.62 billion and accounted for 22.1 % of the loan portfolio at december 31 , 2017 , compared to $ 1.73 billion , or 24.7 % , of the loan portfolio at december 31 , 2016 . the company does not originate or purchase sub-prime or option arm loans . prior to september 30 , 2008 , the company originated “ alt-a ” mortgages in the form of stated income loans with a maximum loan-to-value ratio of 50 % on a limited basis . 44 the balance of these “ alt-a ” loans at december 31 , 2017 was $ 4.2 million . of this total , there were no loans that were 90 days or more delinquent . the company participates in loans originated by other banks , including participations designated as shared national credits ( “ snc ” ) . the company 's gross commitments and outstanding balances as a participant in sncs were $ 342.5 million and $ 223.9 million , respectively , at december 31 , 2017 . at december 31 , 2017 , no snc relationships were classified as substandard . the company had outstanding junior lien mortgages totaling $ 205.1 million at december 31 , 2017 .
| average interest-earning assets increased $ 490.9 million , or 6.3 % , to $ 8.31 billion for 2016 , compared to $ 7.82 billion for 2015. the average outstanding loan balances increased $ 454.4 million , or 7.3 % , to $ 6.67 billion for 2016 from $ 6.22 billion for 2015 , the average balance of securities available for sale decreased $ 20.3 million , or 2.0 % , to $ 1.01 billion for 2016 , compared to $ 1.03 billion for 2015 , and the average balance of investment securities held to maturity increased $ 5.5 million , or 1.2 % , to $ 478.9 million for 2016 , compared to $ 473.4 million for 2015. the yield on interest-earning assets decreased nine basis points to 3.64 % for 2016 , from 3.73 % for 2015 , due to a reduction in both the weighted average yield on total loans and securities available for sale , partially offset by an increase in the weighted average yield on fhlbny stock . interest expense increased $ 1.8 million , or 4.4 % , to $ 43.7 million for 2016 , from $ 41.9 million for 2015. the increase in interest expense was primarily attributable to an increase in average interest-bearing deposits for the year , which largely funded the growth in average interest-earning assets . the increase in interest expense was partially offset by a shift in the funding composition to lower-costing core deposits from time deposits and borrowings . the average rate paid on interest-bearing liabilities remained unchanged at 0.66 % for 2016 , compared to 2015. the average rate paid on interest-bearing deposits increased two basis points to 0.33 % for 2016 , from 0.31 % for 2015. the average rate paid on borrowings decreased one basis point to 1.70 % for 2016 , from 1.71 % for 2015. the average balance of interest-bearing liabilities increased $ 327.4 million to $ 6.66 billion for 2016 , compared to $ 6.33 billion for 2015. average interest-bearing deposits increased $ 354.1 million , or 7.5 % , to $ 5.08 billion for 2016 , from $ 4.72 billion for 2015. within average interest-bearing deposits , average interest-bearing core deposits increased $ 412.5 million , or 10.5 % , for 2016 , compared with 2015 , while average time
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the reserve or write-down is equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , inventory reserves or write-downs may be required that could negatively impact our gross margin and operating results . 18 beginning on january 1 , 2009 , inventories are stated at the lower of cost or market , determined by the first in first out cost method . prior to january 1 , 2009 , inventories were determined using the weighted average cost method . the conversion to first in first out cost method had no material effect on the financial statements for the fiscal year ended december 31 , 2009 as or on prior fiscal years . work-in-progress and finished goods inventories consist of raw materials , direct labor and overhead associated with the manufacturing process . provisions are made for obsolete or slow-moving inventory based on management estimates . inventories are written down based on the difference between the cost of inventories and the net realizable value based upon estimates about future demand from customers and specific customer requirements on certain projects . goodwill goodwill resulted from our acquisition of dale renewables consulting , inc. we perform a goodwill impairment test on an annual basis and will perform an assessment between annual tests in certain circumstances . the process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis . in estimating the fair value of our business , we make estimates and judgments about our future cash flows . our cash flow forecasts are based on assumptions that are consistent with the plans and estimates we use to manage our business . revenue recognition the company 's two primary business segments include photovoltaic installation , integration and sales , and cable , wire and mechanical assemblies . photovoltaic installation , integration and sales in our photovoltaic systems installation , integration and sales segment , revenue on product sales is recognized when there is evidence of an arrangement , title and risk of ownership have passed ( generally upon delivery ) , the price to the buyer is fixed or determinable and collectability is reasonably assured . customers do not have a general right of return on products shipped therefore we make no provisions for returns . during the year ended december 31 , 2009 , the company did recognize one product sale on a bill and hold arrangement . in the 2009 instance , the customer requested that we store product to combine with a subsequent order in order to reduce their transportation costs . since all criteria for revenue recognition had been met the company recognized revenue on this sale . there were no bill and hold sales outstanding at december 31 , 2010 or 2009. revenue on photovoltaic system construction contracts is generally recognized using the percentage of completion method of accounting . at the end of each period , the company measures the cost incurred on each project and compares the result against its estimated total costs at completion . the percent of cost incurred determines the amount of revenue to be recognized . payment terms are generally defined by the contract and as a result may not match the timing of the costs incurred by the company and the related recognition of revenue . such differences are recorded as costs and estimated earnings in excess of billings on uncompleted contracts or billings in excess of costs and estimated earnings on uncompleted contracts . the company determines its customer 's credit worthiness at the time the order is accepted . sudden and unexpected changes in customer 's financial condition could put recoverability at risk . for the year ended december 31 , 2009 , the company recognized revenue for one photovoltaic system construction contract using the zero margin method of revenue recognition . in the third quarter of 2009 , the company recognized revenue of approximately $ 13,061,000 and gross profit of approximately $ 3,209,000 related to this contract using the percentage-of-completion method of revenue recognition . however , in the fourth quarter of 2009 the company modified its revenue recognition method on this contract to the zero margin method since the financing structure the customer had in place to pay the outstanding balance on the contract did not fund as expected . the contract was for approximately $ 19,557,000. as of december 31 , 2009 the company had recognized revenue on the contract up to the incurred contract cost of approximately $ 14,852,000 , deferring revenue of approximately $ 4,563,000. in december 2009 the company made certain guarantees to assist its customer in obtaining financing for the contract . the company recorded a liability at the estimated fair value of approximately $ 142,000 related to these guarantees . at december 31 , 2010 the fair value of the guarantee , net of amortization was approximately $ 127,000. as of december 31 , 2009 , the deferred revenue of $ 4,563,000 had been netted on our balance sheet against the note and accounts receivable related to this contract . on december 22 , 2010 , the company entered into a note purchase and sale agreement discounting the note receivable and receiving a cash payment of $ 1,000,000. the purchase price of the note was determined based on the present value of the obligation over the likely repayment period , the risk involved with the payment of such term , and the unsecured nature of the obligation , and the release of any claims against the company by the issuer of the note related to the finance structure and assumptions . as a result of the transaction , the company recognized approximately $ 464,000 of the revenue that had been previously deferred and that as a result of the transaction there is no additional revenue to be recognized and the note has been settled . story_separator_special_tag additionally in 2009 , for a separate construction contract the company determined the use of the completed contract method of revenue recognition was appropriate . at december 31 , 2009 we have recorded on our balance sheet approximately $ 5,557,000 of cost related to this contract in the caption cost and estimated earnings in excess of billings on uncompleted contracts . in our second fiscal quarter ended 19 june 30 , 2010 it was determined that the customer was unable to perform on its payment obligations under the contract . the company took possession of the facility and its related power purchase agreement ( ppa ) in lieu of payment . the company reclassified the amount recorded in costs and estimated earnings in excess of billings on uncompleted contracts ( approximately $ 5,557,000 ) and the remaining costs to complete the contract ( approximately $ 4,459,000 ) to assets held for sale on its balance sheet . at december 31 , 2010 , value of the asset held for sale on our balance sheet is approximately $ 6,669,000 , the cost of the project ( approximately $ 10,016,000 ) less the section 1603 grant-in-lieu of tax credits of approximately $ 3,347,000. in our solar photovoltaic business , contract costs include all direct material and labor costs and those indirect costs related to contract performance , such as indirect labor , supplies , tools , repairs , and depreciation costs . selling and general and administrative costs are charged to expense as incurred . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . changes in job performance , job conditions , and estimated profitability , including those arising from contract penalty provisions , and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined . profit incentives are included in revenues when their realization is reasonably assured . the asset , costs and estimated earnings in excess of billings on uncompleted contracts represents revenues recognized in excess of amounts billed . the liability , billings in excess of costs and estimated earnings on uncompleted contracts , represents billings in excess of revenues recognized . cable , wire and mechanical assemblies in our cable , wire and mechanical assemblies business the company recognizes the sales of goods when there is evidence of an arrangement , title and risk of ownership have passed , the price to the buyer is fixed or determinable and collectability is reasonably assured . there are no formal customer acceptance requirements or further obligations related to our assembly services once we ship our products . customers do not have a general right of return on products shipped therefore we make no provisions for returns . we make determination of our customer 's credit worthiness at the time we accept their order . product warranties we offer the industry standard of 20 years for our solar modules and industry standard five ( 5 ) years on inverter and balance of system components . due to the warranty period , we bear the risk of extensive warranty claims long after we have shipped product and recognized revenue . in our cable , wire and mechanical assemblies business , historically our warranty claims have not been material . in our solar photovoltaic business our greatest warranty exposure is in the form of product replacement . until the third quarter of fiscal 2007 , the company purchased its solar panels from third-party suppliers and since the third-party warranties are consistent with industry standards we considered our financial exposure to warranty claims immaterial . since the company does not have sufficient historical data to estimate its exposure , we have looked to historical data reported by other solar system installers and manufacturers . in our cable , wire and mechanical assemblies business our current standard product warranty for our mechanical assembly product ranges from one to five years . the company has provided a warranty provision of approximately $ 296,000 and $ 503,000 for the years ended december 31 , 2010 and 2009 , respectively . performance guarantee on december 18 , 2009 , the company entered into a 10-year energy output guaranty related to the photovoltaic system installed for solar tax partners 1 , llc ( stp ) at the aerojet facility in rancho cordova , ca . the guaranty provided for compensation to stp 's system lessee for shortfalls in production related to the design and operation of the system , but excluding shortfalls outside the company 's control such as government regulation . the company believes that the probability of shortfalls are unlikely and if they should occur be covered under the provisions of its current panel and equipment warranty provisions . the accrual for warranty claims consisted of the following at december 31 , 2010 and 2009 ( in thousands ) : replace_table_token_2_th stock based compensation the company accounts for stock-based compensation under the provisions of fasb asc 718 ( statement of financial accounting standards no . 123 ( revised 2004 ) , share-based payment . ) which requires the company to measure the stock-based compensation costs of share-based compensation arrangements based on the grant-date fair value and 20 recognizes the costs in the financial statements over the employee requisite service period . stock-based compensation expense for all stock-based compensation awards granted was based on the grant-date fair value estimated in accordance with the provisions of fasb asc 718. prior to 2006 the company had not issued stock options or other forms of stock-based compensation . determining the appropriate fair value model and calculating the fair value of share-based payment awards require the input of highly subjective assumptions , including the expected life of the share-based payment awards and stock price volatility . the assumptions used in calculating the fair value of share-based payment awards represent management 's best estimates , but these estimates involve inherent uncertainties and the application of management judgment .
| cost of goods sold in the photovoltaic installation , integration and sales segment was approximately $ 27,020,000 ( 88.0 % of sales ) for the year ended december 31 , 2010 compared to approximately $ 42,660,000 ( 89.6 % of net sales ) for the year ended december 31 , 2009. the decrease in costs of goods sold was a direct result in decreased net sales in this segment . the company expects that costs will remain stable at current levels in fiscal 2011 , with gross margins remaining stable . cost of goods sold in the cable , wire and mechanical assembly segment were approximately $ 2,262,000 ( 68.2 % of net sales ) for the year ended december 31 , 2010 compared to approximately $ 3,129,000 ( 63.5 % of net sales ) for the year ended december 31 , 2009. the increase as a percentage of net sales is attributable to product mix and increase in the copper wire component of our material costs , a key component in the cable wire segment . the company expects margins to remain stable in this segment . general and administrative expenses general and administrative expenses were approximately $ 7,578,000 for the year ended december 31 , 2010 and approximately $ 8,849,000 for the year ended december 31 , 2009 a decrease of 14.4 % . as a percentage of net sales , general and administrative expenses were 22.3 % and 16.8 % , for the years ended december 31 , 2010 and 2009 , respectively . the company initiated significant cost reduction efforts in the third and fourth quarters of fiscal 2010 and expects to maintain those levels in fiscal 2011. significant elements of general and administrative expenses for the year ended december 31 , 2010 include employee related expense of approximately $ 3,342,000 , information technology costs of approximately $ 194,000 , insurance costs of approximately $ 261,000 , professional and consulting fees of approximately $ 1,473,000 , rent of approximately $ 310,000 , travel and lodging costs of $ 131,000 , stock compensation expense of $ 162,000 and bad debt expense of $ 523,000. the bad debt expense
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in recent years , the industry has seen an increase in ultra tissue products as industry participants have added or improved through-air-dried , or tad , or equivalent production capacity . our consumer products segment competes based on product quality , customer service and price . we deliver customer-focused business solutions by assisting in managing product assortment , category management , and pricing and promotion optimization . demand and pricing for consumer tissue products is currently being affected by increased supply as a result of new tissue machines that have been added or publicly announced in north america , as well as changing dynamics in the at-home tissue segment as a result of changing consumer purchasing habits , consolidations and new entrants in the consumer retail channel , and new and evolving sales and distribution channels . these changing conditions contribute to a very competitive environment for consumer tissue . we expect a reduction in our overall tissue volume sales in 2018 as a result of the loss of a portion of sales to our largest tissue customer . our pulp and paperboard business is affected by macro-economic conditions around the world and has historically experienced cyclical market conditions . as a result , historical prices for our products and sales volumes have been volatile . product pricing is significantly affected by the relationship between supply and demand for our products . product supply in the industry is influenced primarily by fluctuations in available manufacturing production , which tends to increase during periods when prices remain strong . in addition , currency exchange rates affect u.s. supplies of paperboard , as non-u.s. manufacturers are more attracted to the u.s. market when the dollar is relatively strong . paperboard pricing increased in 2017 compared to 2016. the markets for our products are highly competitive . our business is capital intensive , which leads to high fixed costs and large capital outlays and generally results in continued production as long as prices are sufficient to cover variable costs . these conditions have contributed to substantial price competition , particularly during periods of reduced demand . some of our competitors have lower production costs , greater buying power and are integrated , and , as a result , may be less adversely affected than we are by price decreases . net sales consist of sales of consumer tissue , paperboard , and to a lessor extent pulp , net of discounts , returns and allowances and any sales taxes collected . 22 operating costs prices for our principal operating cost items are variable and directly affect our results of operations . for example , as economic conditions improve , we normally would expect at least some upward pressure on our operating costs . competitive market conditions can limit our ability to pass cost increases through to our customers . the following table shows our principal operating cost items and associated percentage of net sales for each of the past three years : replace_table_token_3_th 1 includes internal and external transportation costs . 2 excluding related labor costs . 3 costs for manchester are included from the december 16 , 2016 acquisition date forward . wages and benefits . costs related to our employees primarily consist of wages and related benefit costs and payroll taxes . wage and benefit costs for 2017 decreased compared to 2016 primarily due to decreased labor costs resulting from the implementation of our warehouse automation project at several of our consumer products segment 's facilities , the closure of our oklahoma city facility and the december 2016 shutdown of two paper machines at our neenah , wisconsin facility , partially offset by annual wage increases and the inclusion of manchester . transportation . fuel prices , mileage driven and line-haul rates largely impact transportation costs for the delivery of raw materials to our manufacturing facilities , internal inventory transfers and delivery of our finished products to customers . changing fuel prices particularly affect our margins for consumer products because we supply customers throughout the u.s. and transport unconverted parent rolls from our tissue mills to our tissue converting facilities . our transportation costs for 2017 increased compared to 2016 due primarily to increased fuel prices , increased internal case shipments as a result of the closure of our oklahoma city facility , location of inventory and customer demand , higher shipping rates due to inclement weather as a result of hurricanes in the southeast in the third quarter of 2017 , and the inclusion of manchester . purchased pulp . we purchase a significant amount of the pulp needed to manufacture our consumer products , and to a lesser extent our paperboard , from external suppliers . for 2017 , total purchased pulp costs decreased compared to 2016 , due primarily to reduced tissue shipments and the shutdown of two higher cost paper machines at our neenah facility , partially offset by increased purchased pulp usage because of major maintenance outages at our idaho and arkansas pulp and paperboard facilities and elevated pulp prices resulting from robust market demand . chemicals . we consume a substantial amount of chemicals in the production of pulp and paperboard , as well as in the production of tad tissue . the chemicals we generally use include polyethylene , caustic , starch , sodium chlorate , latex and paper processing chemicals . a portion of the chemicals used in our manufacturing processes , particularly in the paperboard extrusion process , are petroleum-based and are impacted by petroleum prices . in 2017 , our chemical costs remained relatively flat compared to 2016. chips , sawdust and logs . we purchase chips , sawdust and logs that we use to manufacture pulp . we source residual wood fibers under both long-term and short-term supply agreements , as well as in the spot market . chips , sawdust 23 and log costs decreased in 2017 compared to 2016 due to favorable pricing , lower pulp production and improved pulping yields . depreciation . story_separator_special_tag we record substantially all of our depreciation expense associated with our plant and equipment in `` cost of sales '' on our consolidated statements of operations . depreciation expense for 2017 increased compared to 2016 , primarily as a result of higher depreciation related to capital spending during recent periods , accelerating depreciation on certain oklahoma city assets in association with the march 2017 facility closure , and the inclusion of depreciation related to manchester . packaging supplies . as a significant producer of private label consumer tissue products , we package to order for retail chains , wholesalers and cooperative buying organizations . under our agreements with those customers , we are responsible for the expenses related to the unique packaging of our products for direct retail sale to their consumers . for 2017 , packaging costs increased slightly compared to 2016 due to higher poly and corrugate pricing , which was partially offset by reduced tissue shipments . maintenance and repairs . we regularly incur significant costs to maintain our manufacturing equipment . we perform routine maintenance on our machines and periodically replace a variety of parts such as motors , pumps , pipes and electrical parts . major equipment maintenance and repairs in our pulp and paperboard segment also require maintenance shutdowns approximately every 18 to 24 months at both our idaho and arkansas facilities , which increase costs and may reduce net sales in the quarters in which the major maintenance shutdowns occur . in 2017 , maintenance costs decreased compared to 2016 due to reduced maintenance spending in our consumer products segment , primarily at our neenah , ladysmith , lewiston and oklahoma city facilities , partially offset by increased major maintenance spending in our pulp and paperboard segment . we do not expect any planned major maintenance activities in 2018. in addition to ongoing maintenance and repair costs , we make capital expenditures to increase our operating capacity and efficiency , improve safety at our facilities and comply with environmental laws . in 2017 , we spent $ 194.0 million on capital expenditures , excluding capitalized interest of $ 4.6 million , which included $ 152.6 million of capital spending on strategic projects and other projects designed to reduce future manufacturing costs and provide a positive return on investment . these strategic projects in 2017 and 2016 consist primarily of the continuous pulp digester at our idaho pulp and paperboard facility , the expansion of our shelby , north carolina facility , and the warehouse automation projects at several of our consumer products segment 's facilities . during 2016 , excluding capitalized interest of $ 2.3 million , we spent $ 153.4 million on capital expenditures , which included $ 93.9 million of strategic capital spending . energy . we use energy in the form of electricity , hog fuel , steam and natural gas to operate our mills . energy prices may fluctuate widely from period-to-period due primarily to volatility in weather and electricity and natural gas rates . we generally strive to reduce our exposure to volatile energy prices through conservation . in addition , a cogeneration facility that produces steam and electricity at our lewiston , idaho manufacturing site helps to lower our energy costs . energy costs for 2017 were flat compared to 2016 as increased usage at our arkansas and idaho pulp and paperboard facilities , due to extended turbine generator outages and higher natural gas prices , were offset by reduced usage as a result of shutdowns of two paper machines at neenah and the oklahoma city closure . to help mitigate our exposure to changes in natural gas prices , we use firm-price contracts to supply a portion of our natural gas requirements . as of december 31 , 2017 , these contracts covered approximately 17 % of our expected average monthly natural gas requirements for 2018 , which includes approximately 30 % of the expected average monthly requirements for the first quarter . our energy costs in future periods will depend principally on our ability to produce a substantial portion of our electricity needs internally , on changes in market prices for natural gas and on our ability to reduce our energy usage through conservation . other . other costs consist of miscellaneous operating costs , which increased for the year ended december 31 , 2017 compared to 2016 primarily due to the inclusion of manchester , in addition to increases in certain other costs , most notably higher inventory costs recognized in the first quarter of 2017 resulting from planned production curtailments at the end of the fourth quarter of 2016. these increases were partially offset by insurance recoveries primarily related to claim settlements at our las vegas and shelby facilities , as discussed in note 18 , `` business interruption and insurance recovery . '' selling , general and administrative expenses selling , general and administrative expenses primarily consist of compensation and associated expenses for sales and administrative personnel , as well as commission expenses related to sales of our products . 24 interest expense interest expense is primarily comprised of interest on our $ 275 million aggregate principal amount of 4.5 % senior notes issued january 2013 and due 2023 , which we refer to as the 2013 notes , and interest on our $ 300 million aggregate principal amount of 5.375 % senior notes issued in 2014 and due in 2025 , which we refer to as the 2014 notes . interest expense also includes interest on the amount drawn under our revolving credit facilities and amortization of deferred issuance costs associated with all of our notes and revolving credit facilities . income taxes income taxes are based on reported earnings and tax rates in jurisdictions in which our operations occur and offices are located , adjusted for available credits , changes in valuation allowances and differences between reported earnings and taxable income using current tax laws and rates .
| spent for plant and equipment in 2017 , which increased due to our investments in strategic capital projects , including our continuous pulp digester project at our lewiston , idaho facility and our new tissue machine and related converting equipment in shelby , north carolina . net cash flows used for investing activities increased $ 144.0 million in 2016 compared to 2015. this was largely driven by the acquisition of manchester in 2016. cash spent for plant and equipment increased $ 26.4 million compared to 2015 due to our investments in strategic capital projects , including our continuous pulp digester project at our lewiston facility . in addition , net investing cash flows were impacted by the conversion of $ 0.3 million of short-term investments into cash during 2016 , compared to the conversion of $ 49.8 million of short-term investments into cash during 2015. financing activities —net cash flows from financing activities were $ 13.9 million for 2017 , and were largely driven by net borrowings on our revolving credit facilities of $ 20.0 million partially offset by $ 4.9 million in repurchases of our outstanding common stock pursuant to our most recent $ 100 million stock repurchase program . net cash flows from financing activities were $ 67.1 million for 2016 and were largely driven by net borrowings on our revolving credit facilities of $ 135.0 million , partially offset by $ 65.3 million in repurchases of our outstanding common stock pursuant to our most recent $ 100 million stock repurchase program . capital resources due to the competitive and cyclical nature of the markets in which we operate , there is uncertainty regarding the amount of cash flows we will generate during the next twelve months . however , we believe that our cash flows from operations , our cash on hand and our borrowing capacity under our senior secured revolving
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23 gross margin - 2010 vs. 2009 gross margin decreased over two percentage points in 2010. during 2010 , we incurred warranty expense of $ 14.4 million for arbitration claims in sweden , which were settled in the third quarter of 2010. gross margin in 2010 was also lower due to higher material costs , such as copper . operating expenses - 2011 vs. 2010 itron international operating expenses in 2011 included a goodwill impairment charge of $ 584.8 million associated with two of its reporting units , as discussed in overview . restructuring expenses were $ 51.5 million primarily associated with accrued severance and asset impairments . operating expenses ( including sales and marketing , product development , general and administrative , and amortization of intangible assets ) increased $ 26.5 million in 2011 , compared with 2010 , of which $ 12.6 million represented the net translation effect of foreign currencies to the u.s. dollar . the operating expenses of sales and marketing , product development , general and administrative , and amortization of intangible assets as a percentage of revenue were 25 % , compared with 26 % in 2010. operating expenses - 2010 vs. 2009 operating expenses were $ 277.6 million , or 26 % of revenues , for 2010 , compared with $ 288.2 million or 27 % or revenues , for 2009. the $ 10.5 million decrease was the result of a scheduled reduction in amortization of intangible assets of $ 20 million and a $ 6.0 million decrease due to a stronger u.s. dollar against the euro , which was partially offset by increased sales and marketing and product development . corporate unallocated : operating expenses not directly associated with an operating segment are classified as “ corporate unallocated. ” these expenses decreased 2 % to $ 42.6 million in 2011 , compared with 2010 , primarily due to decreased bonus and profit sharing expense . corporate unallocated expenses increased $ 14.1 million in 2010 , compared with 2009 , primarily due to increased compensation expense from the reinstatement of our bonus and profit sharing plans . operating expenses the following table details our total operating expenses in dollars and as a percentage of revenues : replace_table_token_12_th 2011 vs. 2010 operating expenses in 2011 included a goodwill impairment of $ 584.8 million associated with two of our reporting units , as discussed in overview . restructuring expenses were $ 68.1 million primarily associated with accrued severance and asset impairments . operating expenses ( including sales and marketing , product development , general and administrative , and amortization of intangible assets ) increased $ 35.2 million in 2011 , compared with 2010 , of which $ 13.1 million represented the net translation effect of foreign currencies to the u.s. dollar . the operating expenses of sales and marketing , product development , general and administrative , and amortization of intangible assets as a percentage of revenue were 23 % in 2011 and 2010. higher costs related to product development for new and enhanced products , as well as higher marketing expense associated with the pursuit of smart grid opportunities were partially offset by a scheduled decrease in amortization of intangible assets . 2010 vs. 2009 operating expenses increased $ 21.6 million , or 4 % , in 2010 , compared with 2009 , primarily as a result of increased compensation expense , which was partially offset by lower amortization of intangible assets of $ 29.5 million and foreign exchange fluctuations of $ 2.9 million . 24 other income ( expense ) the following table shows the components of other income ( expense ) : replace_table_token_13_th interest income : interest income is generated from our cash and cash equivalents . interest rates have continued to remain low . interest expense : interest expense continues to decline each period as a result of our declining principal balance of debt outstanding . total debt was $ 452.5 million , $ 610.9 million , and $ 781.8 million at december 31 , 2011 , 2010 , and 2009 , respectively . amortization of prepaid debt fees : amortization of prepaid debt fees in 2011 was higher than 2010 due to the $ 2.4 million write-off of unamortized prepaid debt fees associated with our 2007 credit facility that was replaced with the 2011 credit facility . amortization of prepaid debt fees fluctuate each year as debt is repaid early . as debt is repaid early , the related portion of unamortized prepaid debt fees is written-off . refer to item 8 : “ financial statements and supplementary data , note 6 : debt ” in this annual report on form 10-k for additional details related to our long-term borrowings . loss on extinguishment of debt : during the first quarter of 2009 , we entered into exchange agreements with certain holders of our convertible senior subordinated notes ( convertible notes ) to issue , in the aggregate , approximately 2.3 million shares of common stock , valued at $ 132.9 million , in exchange for , in the aggregate , $ 121.0 million principal amount of the convertible notes , representing 35 % of the aggregate principal outstanding at the date of the exchanges . as a result , we recognized a net loss on extinguishment of debt of $ 10.3 million , calculated as the inducement loss , plus an allocation of advisory fees less the revaluation gain . for a description of the redemption of our subordinated notes and the induced conversion of a portion of our convertible notes , refer to item 8 : `` financial statements and supplementary data , note 6 : debt '' included in this annual report on form 10-k. during the second quarter of 2009 , we paid the remaining $ 109.2 million outstanding balance of our senior subordinated notes and recognized a loss on extinguishment of $ 2.5 million . story_separator_special_tag other income ( expense ) , net : other expenses , net , consist primarily of unrealized and realized foreign currency gains and losses due to balances denominated in a currency other than the reporting entity 's functional currency and other non-operating income ( expenses ) . foreign currency losses , net of hedging , were $ 4.7 million in 2011 , compared with net foreign currency losses of $ 3.1 million in 2010 and $ 5.7 million in 2009. financial condition cash flow information : replace_table_token_14_th cash and cash equivalents was $ 133.1 million at december 31 , 2011 , compared with $ 169.5 million at december 31 , 2010 . the 25 decrease in the cash and cash equivalents balance during 2011 was primarily the result of repayments of debt , the repurchase of common stock , and minor business acquisitions in 2011. cash and cash equivalents was $ 169.5 million at december 31 , 2010 , compared with $ 121.9 million at december 31 , 2009 , primarily due to improved operating results , partially offset by increased debt repayments . operating activities cash provided by operating activities in 2011 , inclusive of the impact of $ 12.8 million in cash payments made related to restructuring projects in 2011 , was relatively constant when compared with 2010. the $ 113.8 million increase in cash provided by operating activities for 2010 directly corresponds with the increase in our 2010 net income , compared with 2009. investing activities net cash used in investing activities in 2011 was $ 22.5 million higher , compared with 2010. several business acquisitions totaling $ 20.1 million contributed to the increase in 2011 , while property , plant , and equipment acquisitions in 2011 were comparable with 2010. acquisitions of property , plant , and equipment in 2010 increased 19 % , compared with 2009 , as a result of the timing of payments between the two years . financing activities net cash used in financing activities in 2011 was $ 60.8 million higher , compared with 2010. during 2011 , net repayments on borrowings were $ 178.1 million compared with $ 155.2 million in 2010. on october 24 , 2011 , our board of directors authorized a repurchase program of up to $ 100 million of our common stock through october 23 , 2012. during 2011 , we repurchased $ 29.4 million of our common stock . refer to item 8 : “ financial statements and supplementary data , note 14 : shareholders ' equity ” in this annual report on form 10-k for additional details related to our share repurchase program . during 2010 , we repaid $ 155.2 million in borrowings , compared with $ 275.8 million in 2009 , which included utilizing $ 160.4 million in net proceeds from a public offering of approximately 3.2 million shares of common stock . effect of exchange rates on cash and cash equivalents changes in exchange rates on the cash balances of currencies held in foreign denominations resulted in a decrease of $ 555,000 and $ 2.1 million , and an increase of $ 4.8 million in 2011 , 2010 , and 2009 , respectively . our primary foreign currency exposure relates to non-u.s. dollar denominated transactions in our international subsidiary operations , the most significant of which is the euro . non-cash transactions : during 2009 , we completed exchanges with certain holders of our convertible notes in which we issued , in the aggregate , approximately 2.3 million shares of common stock recorded at $ 123.4 million , in exchange for $ 107.8 million net carrying amount of the convertible notes and the reversal of deferred taxes of $ 5.8 million . refer to item 8 : “ financial statements and supplemental data , note 6 : debt ” included in this annual report on form 10-k for a further discussion associated with the exchange agreements and the derecognition requirement for induced conversions . off-balance sheet arrangements : we have no off-balance sheet financing agreements or guarantees as defined by item 303 of regulation s-k at december 31 , 2011 and december 31 , 2010 that we believe are reasonably likely to have a current or future effect on our financial condition , results of operations , or cash flows . 26 disclosures about contractual obligations and commitments : the following table summarizes our known obligations to make future payments pursuant to certain contracts as of december 31 , 2011 , as well as an estimate of the timing in which these obligations are expected to be satisfied . replace_table_token_15_th ( 1 ) borrowings are disclosed within item 8 : “ financial statements and supplementary data , note 6 : debt ” included in this annual report on form 10-k , with the addition of estimated interest expense but not including the amortization of prepaid debt fees . ( 2 ) operating lease obligations are disclosed in item 8 : “ financial statements and supplementary data , note 12 : commitments and contingencies ” included in this annual report on form 10-k and do not include common area maintenance charges , real estate taxes , and insurance charges for which we are obligated . ( 3 ) we enter into standard purchase orders in the ordinary course of business that typically obligate us to purchase materials and other items . purchase orders can vary in terms , which include open-ended agreements that provide for estimated quantities over an extended shipment period , typically up to one year at an established unit cost . our long-term executory purchase agreements that contain termination clauses have been classified as less than one year , as the commitments are the estimated amounts we would be required to pay at december 31 , 2011 if the commitments were canceled . ( 4 ) other long-term liabilities consist of warranty obligations , estimated pension benefit payments , and other obligations .
| revenues for openway products and services held relatively constant , while revenues for smart gas modules increased and product mix provided the balance of the $ 15.3 million increase in itron north america revenues . two customers individually represented 17 % and 16 % of itron north america revenues in 2011. three customers individually represented 21 % , 15 % , and 12 % of itron north america revenues in 2010. revenues - 2010 vs. 2009 revenues increased $ 561.7 million , or 91 % , in 2010 , primarily due to the deployment of our smart metering contracts in 2010. our smart metering contracts accounted for 49 % of operating segment revenues for 2010 , compared with 17 % in 2009. revenues for standard and advanced meters , software , and services increased 18 % in 2010. no customer represented more than 10 % of itron north america revenues in 2009. gross margin - 2011 vs. 2010 gross margin was 32.5 % in 2011 , compared with 33.5 % in 2010. increased warranty charges associated with three unrelated situations resulted in an increase of $ 22.7 million in costs , or a decrease of two percentage points in gross margin . warranty charges of $ 12.6 million were associated with a vendor supplied component , $ 4.7 million were due to corrective actions for specific customers , and $ 6.6 million resulted from the identification of a specific batch of commercial and industrial ( c & i ) meters that were manufactured with a misaligned automated solder-feeder . in addition , increased revenues and margins for smart gas communication modules and non-openway services were partially offset by higher openway project costs . 22 gross margin - 2010 vs. 2009 gross margin decreased nearly one percentage point in 2010 , due to a higher mix of smart metering systems and technology , which had lower margins than advanced metering systems and technology . gross margins on smart metering systems have improved during 2010 , as a result of lower costs associated with newer generations . operating expenses - 2011 vs. 2010 itron north america operating expenses increased $ 26.2 million , or 14 % , in 2011 , primarily
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in response , our customers in the downstream energy sector sharply altered downward capital spending for new capacity , revamping and turnaround for routine maintenance . additionally , the nuclear market capital spending for both new capacity and to maintain existing facilities has dramatically shifted downward . it is reportedly down 25 to 35 % compared with 3 to 4 years ago . we continue to operate in this time of contracted capital spending within the energy and nuclear markets which has had the effect of measurably reducing new orders and consequently reduced levels for sales . for both energy and nuclear markets these current conditions present challenges , however , the long term view for these end markets is that fundaments will drive increasing demand . these include rising populations , strong emerging market economic growth , overall global economic expansion , which will result in capital investment to satisfy increasing global demand . our naval nuclear propulsion market has demand tied to aircraft carrier and submarine vessel construction schedules of the primary shipyards who service the u.s. navy . we expect growth in our naval nuclear propulsion business based on our strategic actions to increase our market share and expected demand . for more information , refer to the heading `` strategy and outlook `` within this item 7 of this annual report on form 10-k. we believe the long-term outlook in our key markets supports our strategy . in the near term , new order levels are expected to remain volatile , resulting in both relatively strong and weak periods . 20 the chart below shows the impact of our diversification strategy . nearly 70 % of our backlog at the end of fiscal year 2017 is from markets not served in the fiscal 2007-2009 time frame . story_separator_special_tag > we also incurred a pre-tax restructuring charge of $ 1,718 ( $ 1,164 after tax ) for severance costs related largely to a voluntary early retirement program we offered in the fourth quarter of fiscal 2015 and to certain involuntary headcount reductions which occurred in the same quarter . the cost reductions in fiscal 2016 sg & a were partly due to this restructuring as well as lower selling , commission and other compensation expenses related to lower sales and earnings . other income in fiscal 2016 was $ 1,789. this was due to cancellation fees received from customers primarily for two orders totaling $ 7,168 which were cancelled in fiscal 2016. there was no other income in fiscal 2015. interest income for fiscal 2016 was $ 261 , up from $ 189 in fiscal 2015. interest expense for fiscal 2016 was $ 10 compared with $ 11 in fiscal 2015. our effective tax rate in fiscal 2016 was 30 % compared with an effective tax rate of 32 % for fiscal 2015. this decrease in rates was due to the retroactive reinstatement of the r & d tax credit . 22 net income for fiscal 2016 and income per diluted share was $ 6,131 and $ 0.61 , respectively . net income in fiscal 2015 was $ 14,735 or $ 1.45 per diluted share , and excluding the impact of the restructuring charge , was $ 15,899 and $ 1.57 , respectively . stockholders ' equity the following discussion should be read in conjunction with our consolidated statements of changes in stockholders ' equity that can be found in item 8 of part ii of this annual report on form 10-k. the following table shows the balance of stockholders ' equity on the dates indicated : march 31 , 2017 march 31 , 2016 march 31 , 2015 $ 114,110 $ 109,380 $ 116,551 fiscal 2017 compared with fiscal 2016 stockholders ' equity increased $ 4,730 or 4 % , at march 31 , 2017 compared with march 31 , 2016. the increase was primarily due to earnings . on march 31 , 2017 , our net book value per share was $ 11.72 , up 3 % over march 31 , 2016. fiscal 2016 compared with fiscal 2015 stockholders ' equity decreased $ 7,171 or 6 % , at march 31 , 2016 compared with march 31 , 2015. this decrease was primarily due to our repurchase of 539 shares at a cost of $ 9,441 , partially offset by net income earned in fiscal 2016. see item 5 of this annual report on form 10-k for more information on our stock repurchase program . on march 31 , 2016 , our net book value per share was $ 11.34 , down 1 % over march 31 , 2015. liquidity and capital resources the following discussion should be read in conjunction with our consolidated statements of cash flows and consolidated balance sheets appearing in item 8 of part ii of this annual report on form 10-k : replace_table_token_4_th ( 1 ) working capital equals current assets minus current liabilities . ( 2 ) working capital ratio equals current assets divided by current liabilities . we use the above ratios to measure our liquidity and overall financial strength . net cash generated by operating activities for fiscal 2017 was $ 12,389 , compared with $ 18,751 for fiscal 2016. cash usage from changes in unbilled revenues and lower cash generated from accounts receivable were responsible for the decrease in cash generated compared with fiscal 2016. capital spending in fiscal 2017 was $ 325 , compared with $ 1,153 in fiscal 2016. capital expenditures in each of fiscal 2017 and fiscal 2016 were approximately 90 % for facilities along with machinery and equipment and the remaining 10 % for all other items . there were no share repurchases in fiscal 2017 and dividend payments were $ 3,492 in fiscal 2017. share repurchases of $ 9,441 to repurchase 539 shares , and dividend payments of $ 3,296 occurred in fiscal 2016. cash and investments were $ 73,474 on march 31 , 2017 compared with $ 65,072 on march 31 , 2016 , up $ 8,402 or 13 % . story_separator_special_tag 23 we invest net cash generated from operations in excess of cash held for near-term needs in short-term , less than 365 days , certificates of deposit , money market accounts or u.s. government instruments , generally with maturity periods of up to 180 days . our money market account is used to securitize our outstanding letters of credit , which reduces our cost on those letters of credit . approximately 95 % of our cash and investm ents are held in the u.s. the remaining 5 % is invested in our china operations . capital expenditures for the fiscal year ending march 31 , 2018 are expected to be between approximately $ 2,500 and $ 3,000. approximately 80 % of our fiscal 2018 capital expenditures are expected to be for machinery and equipment , with the remaining amounts expected to be used for other items . our revolving credit facility with jp morgan chase provides us with a line of credit of $ 25,000 , including letters of credit and bank guarantees . in addition , our jp morgan chase agreement allows us to increase the line of credit , at our discretion , up to another $ 25,000 , for total availability of $ 50,000. borrowings under this credit facility are secured by all of our assets . we also have a $ 5,000 unsecured line of credit with hsbc , n.a . letters of credit outstanding on march 31 , 2017 and march 31 , 2016 were $ 8,372 and $ 11,982 , respectively . the outstanding letters of credit as of march 31 , 2017 were issued by jp morgan chase , hsbc , as well as bank of america , n.a . ( under our previous credit facility ) . there were no other amounts outstanding on our credit facilities at march 31 , 2017 and march 31 , 2016. the borrowing rate under our jp morgan chase facility as of march 31 , 2017 was the bank 's prime rate , or 4 % . availability under the jp morgan chase and hsbc lines of credit was $ 25,761 and $ 26,330 at march 31 , 2017 and march 31 , 2016 , respectively . we believe that cash generated from operations , combined with our investments and available financing capacity under our credit facility , will be adequate both to meet our cash needs for the immediate future and to support our growth strategies . contractual obligations as of march 31 , 2017 , our contractual and commercial obligations for the next five fiscal years ending march 31 and thereafter were as follows : replace_table_token_5_th ( 1 ) for additional information , see note 6 to the consolidated financial statements in item 8 of part ii of this annual report on form 10-k. ( 2 ) amounts represent anticipated contributions during fiscal 2017 to our postretirement medical benefit plan , which provides healthcare benefits for eligible retirees and eligible survivors of retirees . on february 4 , 2003 , we terminated postretirement healthcare benefits for our u.s. employees . benefits payable to retirees of record on april 1 , 2003 remained unchanged . we expect to be required to make cash contributions in connection with these plans beyond one year , but such amounts can not be estimated . no contributions are expected to be made to our defined benefit pension plan for fiscal 2018. orders and backlog orders in fiscal 2017 decreased 21 % to $ 66,128 from $ 83,997 in fiscal 2016 , net of $ 6,467 of cancellations which occurred in fiscal 2017 and $ 12,095 of cancellations which occurred in fiscal 2016. excluding the cancellations , gross orders were $ 72,595 and $ 96,092 in fiscal 2017 and fiscal 2016 , respectively . orders represent communications received from customers requesting us to supply products and services . revenue is recognized on orders received in accordance with our revenue recognition policy described in note 1 to the consolidated financial statements contained in item 8 of part ii of this annual report on form 10-k. net domestic orders were 74 % , or $ 48,927 , and net international orders were 26 % , or $ 17,201 , of our total net orders in fiscal 2017. this compared to net domestic orders of $ 56,383 , or 67 % , of total net orders , and international orders of $ 27,614 , or 33 % , of our total orders in fiscal 2016. domestic orders decreased by $ 7,456 , or 13 % as a result of lower demand in the refining and petrochemical processing industries , partly offset by a large non-typical order for the u.s. navy . net international orders decreased by $ 10,413 , or 38 % . backlog was $ 82,590 at march 31 , 2017 , down 24 % compared with $ 107,963 at march 31 , 2016. backlog is defined by us as the total dollar value of orders received for which revenue has not yet been recognized . all orders in backlog represent orders from 24 our traditional markets in established product lines . approximately 45 % to 55 % of orders currently in our backlog are expected to be converted to sales within one year . at march 31 , 2017 , approximately 16 % o f our backlog was attributed to equipment for refinery project work , 12 % for chemical and petrochemical projects , 8 % for power , including nuclear energy , 61 % for u.s. navy projects and 3 % for other industrial or commercial applications . at march 31 , 2016 , approximately 21 % of our backlog was attributed to equipment for refinery project work , 11 % for chemical and petrochemical projects , 17 % for power , including nuclear energy , 47 % for u.s. navy projects and 4 % for other industrial or commercial applications . at march 31 , 2017 , we had no projects on hold .
| 21 our gross margin for fiscal 2017 was 24.1 % compared with 25.8 % for fiscal 2016. the reduction in gross margin was primarily du e to a very competitive pricing environment for orders received in fiscal 2017 and business mix partially offset by a large non-typical order which converted in the second half of the fiscal year . gross profit for fiscal 2017 decreased $ 1,094 , or 5 % compa red with fiscal 2016 due to the same factors which impacted gross margin . selling , general and administrative , or sg & a , expense for fiscal 2017 was $ 14,858 , down 10 % or $ 1,707 , compared with $ 16,565 in fiscal 2016. the reduction in sg & a expenses was primarily due to lower sales commissions and cost reduction efforts which occurred in fiscal 2017 as well as the benefit of an insurance settlement of $ 759. sg & a as a percentage of sales in fiscal 2017 improved to 16.2 % of sales compared with 18.4 % of sales in fiscal 2016. in fiscal 2017 we incurred a pre-tax restructuring charge of $ 630 ( $ 441 after tax ) for severance costs related to a reduction in force to align headcount with the business environment . this initiative contributed to cost savings in fiscal 2017. there was no other income in fiscal 2017. other income in fiscal 2016 of $ 1,789 was due to cancellation fees received from customers for two orders which were cancelled in fiscal 2016. interest income for fiscal 2017 was $ 386 , up from $ 261 in fiscal 2016. interest expense for fiscal 2017 was $ 10 , the same as in fiscal 2016. our effective tax rate in fiscal 2017 was 29 % compared with an effective tax rate of 30 % for fiscal 2016. net income and income per diluted share for fiscal 2017 , were $ 5,023 and $ 0.52 , respectively , compared with net income and income per diluted share of $ 6,131 and $ 0.61 , respectively , for fiscal 2016. net income and income per diluted share for fiscal 2017 were $ 5,464 and $ 0.56 , excluding the
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our actual results could differ materially from those anticipated by the forward-looking information . factors that may cause such differences include , but are not limited to , availability and cost of financial resources , results of our research and development , or r & d , efforts and clinical trials , product demand , market acceptance and other factors discussed in this annual report in item 1a , risk factors and the company 's other securities and exchange commission , or sec , filings . the following discussion should be read in conjunction with our financial statements and the related notes included elsewhere in this filing . overview we are an innovative biopharmaceutical company seeking to develop first-in-class pharmaceuticals designed to address diseases with significant unmet medical need . our most advanced product candidate is entolimod , which we are developing as a radiation countermeasure and an immunotherapy for oncology and other indications . we conduct business in the united states and in the russian federation through several legal entities , one of which is wholly-owned , and two of which are owned in collaboration with financial partners . see item 1 , business for more information on our product candidates and our strategic partnerships . we refer to cleveland biolabs , inc. , or cbli , along with our wholly-owned subsidiary biolab 612 , llc , or biolab 612 , as cbli stand-alone . we refer to cbli stand-alone , in combination with , consolidated joint venture panacela labs , inc. , or panacela , as cbli consolidated . our joint venture incuron , llc , or incuron , was deconsolidated on november 25 , 2014. as such , the incuron balance sheet , including cash , cash equivalents and short-term investments and all of its other assets and liabilities are no longer part of our consolidated balance sheet as of december 31 , 2014. in addition , incuron 's detailed results of operations were consolidated through november 25 , 2014 , after which we recognized only our equitable interest in incuron 's results of operation as a single line item classified as an operating expense in our statement of operations through december 31 , 2014 , as incuron 's operations are an extension of our core business . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses , income taxes , stock-based compensation , investments and in-process research and development . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources . actual results may differ from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements . revenue recognition revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed and determinable , collectability is reasonably assured , contractual obligations have been satisfied and title and risk of loss have been transferred to the customer . we generate our revenue from two different types of contractual arrangements : cost-reimbursable grants and contracts and fixed-price grants and contracts . costs consist primarily of actual internal labor charges , subcontractor and material costs incurred , plus an allocation of fringe benefits , overhead and general and administrative expenses , based on the terms of the contract . revenues on cost-reimbursable grants and contracts are recognized in an amount equal to the costs incurred during the period , plus an estimate of the applicable fee earned . the estimate of the applicable fee earned is 49 determined by reference to the contract : if the contract defines the fee in terms of risk-based milestones and specifies the fees to be earned upon the completion of each milestone , then the fee is recognized when the related milestones are earned . otherwise , we compute fee income earned in a given period by using a proportional performance method based on costs incurred during the period as compared to total estimated project costs and application of the resulting fraction to the total project fee specified in the contract . revenues on fixed-price grants and contracts are recognized using a percentage-of-completion method , which uses assumptions and estimates , as appropriate . these assumptions and estimates are developed in coordination with the principal investigator performing the work under the fixed-price grants to determine levels of accomplishments throughout the life of the grant . stock-based compensation we expense all share-based awards to employees and consultants , including grants of stock options and shares , based on their estimated fair value at the date of grant . costs of all share-based payments are recognized over the requisite service period that an employee or consultant must provide to earn the award ( i.e. , the vesting period ) and allocated to the functional operating expense associated with that employee or consultant . story_separator_special_tag fair value of financial instruments the carrying value of cash and cash equivalents , accounts receivable , short-term investments , accounts payable and accrued expenses approximates fair value due to the relatively short maturity of these instruments . common stock warrants , which are classified as liabilities , are recorded at their fair market value as of each reporting period . the measurement of fair value requires the use of techniques based on observable and unobservable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . the inputs create the following fair value hierarchy : level 1 quoted prices for identical instruments in active markets . level 2 quoted prices for similar instruments in active markets ; quoted prices for identical or similar instruments in markets that are not active ; and model-derived valuations where inputs are observable or where significant value drivers are observable . level 3 instruments where significant value drivers are unobservable to third parties . we use the black-scholes model to determine the fair value of certain common stock warrants on a recurring basis and classify such warrants in level 3. the black-scholes model utilizes inputs consisting of : ( i ) the closing price of our common stock ; ( ii ) the expected remaining life of the warrants ; ( iii ) the expected volatility using a weighted-average of historical volatilities of cbli and a group of comparable companies ; and ( iv ) the risk-free market rate . as of december 31 , 2014 , we held approximately $ 1.0 million in accrued expenses classified as level 3 securities for warrants to purchase common stock and for compensatory stock options not yet issued . income taxes determining the consolidated provision for income tax expense , deferred tax assets and liabilities and related valuation allowance , if any , involves judgment . on an on-going basis , we evaluate whether a valuation allowance is needed to reduce our deferred income tax assets to an amount that is more likely than not to be realized . the evaluation process includes assessing historical and current results in addition to future expected results . upon determining that we would be able to realize our deferred tax assets , an adjustment to the deferred tax valuation allowance would increase income in the period we make such determination . revenue our revenue originates from grants and contracts from both united states federal government sources and russian federation government sources and service contracts with incuron . u.s. federal grants and contracts are 50 provided to advance research and development for product candidates that are of interest for potential sale to the u.s. department of defense , or dod , or the biomedical advanced research and development authority of the u.s. department of health and human services , or barda . state grants are usually designed to stimulate economic activity . russian government contracts are provided to develop the biotechnology and pharmaceutical industries in russia . we provide various research , management , business development and clinical advisory and management services to incuron . research and development expenses research and development , or r & d , costs are expensed as incurred . advance payments are deferred and expensed as performance occurs . r & d costs include the cost of our personnel consisting of salaries , incentive and stock-based compensation , out-of-pocket pre-clinical and clinical trial costs usually associated with contract research organizations , drug product manufacturing and formulation and a pro-rata share of facilities expense and other overhead items . story_separator_special_tag table sets forth details regarding the sources of our government grant and contract revenue in 2012 and 2013 : replace_table_token_6_th ( 1 ) the grants received from russian government entities are denominated in russian rubles ( rur ) . the revenue above was calculated using average exchange rates for the periods presented . ( 2 ) the contracts received from russian government entities are denominated in russian rubles ( rur ) . the revenue above was calculated using average exchange rates for the periods presented . 53 research and development expenses r & d expenses decreased from $ 22.5 million for the year ended december 31 , 2012 to $ 19.5 million for the year ended december 31 , 2013 , representing a decrease of $ 3.0 million , or 13 % . this net decrease primarily reflected decreases of $ 2.7 million related to entolimod 's biodefense indication , as the development in 2013 focused on a less expensive , non-irradiated non-human primate study , and $ 1.6 million related to a narrowed scope of development for the compounds under development by panacela . these decreases were partially offset by an increase of $ 1.2 million related to curaxin development , primarily due to the initiation of a clinical trial in the united states for cbl0137 . the following table sets forth our r & d expenses by drug candidate : replace_table_token_7_th general and administrative expenses g & a costs increased from $ 11.1 million for the year ended december 31 , 2012 to $ 12.0 million for the year ended december 31 , 2013 , representing an increase of $ 0.9 million , or 8 % . this net increase was primarily attributable to increases of $ 1.0 million related to our russian-based subsidiary and joint ventures , $ 0.4 million in corporate legal and intellectual property fees and $ 0.4 million due to a reduction in incentive tax refunds . these increases were partially offset by decreases of $ 0.7 million in business development expenses and $ 0.2 million in non-cash stock-based compensation .
| the revenue differences related to our contracts , grants and service contracts between the periods and details regarding the sources of our government grant and contract revenue are set forth in the following table : replace_table_token_3_th ( 1 ) the contracts received from russian government entities are denominated in russian rubles ( rur ) . the revenue above was calculated using average exchange rates for the periods presented . 51 we anticipate our revenue over the next year will continue to be derived primarily from government grants and contracts and service contracts from incuron . the following table sets forth information regarding our currently active contracts : replace_table_token_4_th ( 1 ) the contract values above are calculated based on the cumulative revenue recognized to date plus our backlog valued at the december 31 , 2014 exchange rate . since december 31 , 2014 , the russian ruble : dollar exchange rate has increased from 56.2584 to 66.0585 as of february 12 , 2015. based on the february 12 , 2015 exchange rate , the funded backlog value decreased from $ 2.4 million to $ 2.0 million and the unfunded backlog value decreased from $ 1.4 million to $ 1.2 million . research and development expenses r & d expenses decreased from $ 19.5 million for the year ended december 31 , 2013 to $ 9.7 million for the year ended december 31 , 2014 , representing a decrease of $ 9.8 million , or 50 % . $ 5.3 million of this net decrease related to reduced utilization of third-party vendors including reductions of $ 3.1 million for entolimod for a biodefense indication , $ 1.8 million for panacela compounds , $ 0.7 million for curaxin compounds , and $ 0.7 million for cblb612 , which were partially offset by a $ 1.0 million increase in entolimod for oncology applications . in addition , compensation expense decreased by $ 3.7 million primarily attributable to personnel transferred to buffalo biolabs , llc in the fourth quarter of 2013. of the $ 3.7 million in reduced compensation expense , $ 3.6 million relates to cash compensation and $ 0.1 million relates to non-cash compensation . reduced facilities and travel costs accounted for
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u.s. urology procedure volume was approximately 88,000 in 2012 , compared to approximately 93,000 in 2011 and 85,000 in 2010. the 2012 urology decline was driven by lower dvp procedure volume . we consider dvp to be the standard of care for the surgical treatment of prostate cancer in the u.s. about 62,000 dvps were performed in 2012 , compared to 73,000 in 2011 and 68,000 in 2010. the approximately 15 % reduction in 2012 dvp procedures in the u.s. reflects pressures from reduced levels of psa testing and increased use of non-surgical disease management . other ( non-dvp ) urology procedures , including partial and full nephrectomy , increased approximately 27 % in 2012 to 26,000 cases . general surgery is our third largest and fastest growing specialty . overall u.s. general surgery procedure volume grew from approximately 10,000 cases in 2010 to approximately 15,000 in 2011 and to approximately 42,000 in 2012. general surgery growth was led by an increase in cholecystectomy and colorectal procedures . da vinci single-site instrumentation was fda cleared for u.s. cholecystectomies in december 2011. since launch , over 450 customers have purchased single site instruments . multi-port robotic cholecystectomies are also being performed . international procedures overall international procedure volume grew to approximately 83,000 in 2012 , compared to approximately 68,000 in 2011 and 50,000 in 2010. dvp accounted for the majority of international procedures , having grown from about 30,000 in 2010 to 40,000 in 2011 and to 47,000 in 2012. the overall international procedure growth rate of approximately 22 % in 2012 was lower than the 36 % growth rate in 2011 , primarily due to lower european growth rates resulting from austerity measures , psa testing , non-surgical disease management trends and other company specific matters . business model we generate revenue from both the initial capital sales of da vinci surgical systems as well as recurring revenue , derived from sales of instruments , accessories , and service . the da vinci surgical system generally sells for between $ 1.0 million and $ 2.3 million , depending upon configuration and geography , and represents a significant capital equipment investment for our customers . we generate recurring revenue as our customers consume our endowrist instruments and accessory products used in performing procedures with the da vinci surgical system . endowrist instruments and accessories have a limited life and will either expire or wear out as they are used in surgery , at which point they are replaced . we also generate recurring revenue from ongoing system service . we typically enter into service contracts at the time systems are sold at an annual rate of approximately $ 100,000 to $ 170,000 per year , depending upon the configuration of the underlying system . these service contracts have generally been renewed at the end of the initial contractual service periods . recurring revenue has grown at a rate equal to or faster than the rate of growth of system revenue . recurring revenue increased from $ 752.7 million , or 53 % of total revenue in 2010 to $ 979.5 million , or 56 % of total revenue in 2011 to $ 1,245.9 million , or 57 % of total revenue in 2012. the increase in recurring revenue relative to system revenue reflects continuing adoption of procedures on a growing base of installed da vinci surgical systems . we expect recurring revenue to become a larger percentage of total revenue in the future . the installed base of da vinci surgical systems has grown to 2,585 at december 31 , 2012 , compared with 2,132 at december 31 , 2011 and 1,752 at december 31 , 2010 . 44 we provide our products through a direct sales organization in the u.s. and in europe , excluding spain , italy , greece and eastern european countries . in january 2012 , we acquired our korean distributor and began selling directly to korean customers . beginning in 2013 , we also will provide our products through a direct sales organization in the czech republic , slovakia , and hungary , whereas prior to 2013 , these markets were served by a distributor . in the remainder of our world markets , we provide our products through distributors . regulatory activities we believe that we have obtained the clearances required to market our products to our targeted surgical specialties within the u.s. and most of europe . as we make additions to target procedures and introduce new products , we will continue to seek necessary clearances . in november 2009 , we received shonin approval from the mhlw for our da vinci s surgical system in japan . the initial sales were primarily made to early adopters . since receiving the approval , we have been focusing our efforts on obtaining specific reimbursement for da vinci procedures in japan and building our own organization , intuitive surgical japan . prior to april 2012 , we had partnered with the experienced regulatory team from jjkk to assist in navigating the japanese regulatory process . in april 2012 , the marketing authorization application for da vinci products was transferred to intuitive surgical japan from jjkk , and intuitive surgical japan now has primary responsibility for regulatory support of our products in japan . we continue to partner with adachi co. , ltd as our separate independent distribution partner for marketing , selling , and servicing our products in japan . effective april 2012 , we obtained national reimbursement for the dvp procedures in japan , our only reimbursed procedure to date . in october 2012 , we obtained mhlw approval for da vinci si surgical systems in japan . if we are not successful in obtaining additional regulatory clearances , importation licenses , and adequate procedure reimbursements for future products and procedures , then the demand for our products in japan could be limited . 2012 business events and trends economic environment . story_separator_special_tag the credit and sovereign debt issues impacting europe have slowed capital sales and curtailed procedure growth throughout most of 2012. european procedure growth was lower than we anticipated in 2012. although capital sales and procedure growth outside of europe have been strong , european uncertainties could adversely impact demand for our products globally . demand for da vinci systems fluctuates quarter to quarter based upon changing economic and geopolitical factors . da vinci prostatectomy . we believe the u.s. preventive services task force recommendation against psa screening , as well as suggested changes in treatment pattern for low risk prostate cancer away from definitive treatment have led to a decline in our dvp business . we estimate that dvp procedures in the u.s. declined approximately 15 % during the year ended december 31 , 2012 compared with 2011. we are unable to predict the extent to which these recommendations and treatment pattern changes will be followed by governments or clinicians in non-u.s. jurisdictions . new product introductions da vinci skills simulator . in the first quarter of 2011 , we began shipping our da vinci skills simulator . the simulator is a practice tool for the da vinci si surgical system that gives a user the opportunity to efficiently practice in his or her facility with the da vinci surgeon console controls . the simulator incorporates three-dimensional , physics-based computer simulation technology to immerse the user within a virtual environment . the user navigates through the environment and completes exercises by controlling virtual instruments from the surgeon console . upon completion of a skills exercise , the simulator provides a quantitative assessment of user performance based on a variety of task-specific metrics . the simulator is intended to augment , not replace , existing training programs for the da vinci si surgical system . most da vinci skills simulators have been sold in connection with new da vinci si surgical system sales . we sold 425 and 383 da vinci skills simulators during the years ended december 31 , 2012 and 2011 , respectively . 45 da vinci single-site instruments . da vinci single-site is a set of non-wristed instruments and accessories that allow the da vinci si systems to work through a single incision , typically in the umbilicus , rather than multiple incisions . single incision surgery is intended to minimize invasiveness to patients by reducing the number of ports required to enter the body and is typically utilized for less complex surgery than multi-port surgery . non-robotic single incision surgery today is typically performed with modified laparoscopic instruments . early clinical adoption of this manual technique has been mostly positive , although physicians have reported that manual single incision surgery is technically and ergonomically challenging . da vinci single-site instruments and accessories were designed to address these issues . in february 2011 , we received the ce mark for our da vinci single-site instrument kit and began selling these new products in europe . the majority of da vinci single-site procedures performed in europe to date have been cholecystectomies . in december 2011 , we received u.s. fda regulatory clearance to market our single-site instrumentation in the u.s. for laparoscopic cholecystectomy procedures , our only u.s. clearance to date . we are encouraged by hospital , surgeon , and patient interest in da vinci single-site , with over 450 u.s. customers having purchased da vinci single-site kits as of december 31 , 2012. however , as we are in the early stages of introducing this instrumentation to the u.s. market , we are not able to predict the extent to which da vinci single-site may be adopted . during the third quarter of 2012 , we submitted our 510 ( k ) submission to the fda for single-site instruments and indications for use in benign hysterectomy and salpingo oophorectomy . da vinci firefly fluorescence imaging . in the first quarter of 2011 , we launched our firefly fluorescence imaging product ( firefly ) for use with the da vinci si surgical system in the u.s. and europe . this new imaging capability combines a fluorescent dye with a specialized da vinci camera head , endoscope and laser-based illuminator to allow surgeons to identify vasculature in three dimensions beneath tissue surfaces to visualize critical anatomy . firefly kits configured into new da vinci system sales are included in systems revenue , while firefly kits sold separately for existing systems are included in instruments and accessories revenue . adoption of firefly is progressing , with its primary utilization in partial nephrectomy procedures . firefly is also being used in certain gynecology and general surgery cases . endowrist one vessel sealer . in december 2011 , we received fda clearance for the endowrist one vessel sealer . the endowrist one vessel sealer is a wristed , single-use instrument intended for bipolar coagulation and mechanical transection of vessels up to 7 mm in diameter and tissue bundles that fit in the jaws of the instrument . this instrument enables da vinci si surgeons to fully control vessel sealing , while providing the benefits of da vinci surgery . this instrument is designed to enhance surgical efficiency and autonomy in a variety of general surgery and gynecologic procedures . clinical response to the endowrist one vessel sealer has been encouraging , with positive commentary on precision , articulation , vessel sealing quality and thermal spread . we expect applications for the endowrist one vessel sealer to be centered on general surgery and gynecologic oncology procedures . we are still in the early stages of introducing endowrist one vessel sealer and are not able to predict the extent to which the endowrist one vessel sealer may be adopted . endowrist stapler 45. in october 2012 , we received fda clearance for the endowrist stapler 45 instrument with blue and green 45 mm reloads . the endowrist stapler 45 is a wristed , stapling instrument intended for resection , transection and or creation of anastomoses in general , gynecologic and urologic surgery .
| million used to repurchase and retire 0.4 million shares of common stock , and $ 114.2 million used for capital expenditures and the purchase of intellectual property . we ended fiscal 2012 with 2,362 employees , compared to 1,924 at the end of fiscal 2011. headcount additions were made predominantly to our field sales , manufacturing , and r & d organizations . technology and other acquisitions we continue to make strategic acquisitions of intellectual property and related technologies . total investments in intellectual property and related technologies during the year ended december 31 , 2012 were $ 41.6 million , compared to $ 16.8 million during the year ended december 31 , 2011. amortization expense related to purchased intellectual property for the year ended december 31 , 2012 and 2011 were $ 23.1 million and $ 17.8 million , respectively . on january 11 , 2012 , we completed the acquisition of our korean distributor . the total purchase consideration of the acquisition was not material , and the acquisition has not had a material impact on the results of our operations . 47 results of operations the following table sets forth , for the years indicated , certain consolidated statements of income information ( in millions ) : replace_table_token_5_th total revenue total revenue increased by 24 % during the year ended december 31 , 2012 from the year ended december 31 , 2011. total revenue increased to $ 2,178.8 million during the year ended december 31 , 2012 from $ 1,757.3 million during the year ended december 31 , 2011 and from $ 1,413.0 million during the year ended december 31 , 2010. total revenue growth for these periods was driven by the continued adoption of da vinci surgery , resulting largely from growth in u.s. gynecologic procedures , including dvh , sacrocolpopexy , endometriosis resection , and myomectomy ; u.s. general surgery procedures , including cholecystectomy and colorectal procedures ; and dvp in international markets , partially offset by a decline of approximately 15 % in dvp procedures
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additionally , in march 2018 , we introduced the xhance xperience program to offer select physicians and their patients an opportunity to gain initial experience with xhance . physicians can enroll a limited number of eligible patients in this program . patients will receive up to two xhance prescriptions at no cost to them ( $ 0 co-pay ) , and physicians will receive an opportunity for feedback on patient experience . we believe the positive experience that physicians and patients have with xhance in this program will help drive demand for xhance during the retail launch , starting in early april 2018. market access . we have been engaging payors with the goal of securing tier 3 commercial coverage , primarily with a single step edit and no prior authorization . we have engaged with approximately 40 plans representing approximately 85 % of commercial lives . in meeting with potential payors , we have shared what we believe is our compelling economic value proposition . our analyses show that xhance will have a comparatively low pharmacy budget impact and our clinical trial data suggest that xhance may produce an offsetting benefit by helping reduce the rate of surgery with its related costs . for an insurance plan , this could represent a potential overall cost reduction for the population of patients with nasal polyps , as the overall cost of xhance could be less than the offsetting costs related to the reduction in surgeries . during clinical studies , xhance was also associated with an improvement in reported work productivity in treated patients , which should be valued by employers and patients . further , we believe the cost of xhance to insurance plans will likely be significantly less than the projected costs of monoclonal antibodies that are currently in development for the treatment of nasal polyps . we expect to achieve approximately 65 % coverage of commercial lives during the retail launch of xhance , and will seek to increase the number of covered lives during the first year . we have contracted with the centers for medicare and medicaid services regarding certain government covered lives . further , we plan to introduce a co-pay assistance program and other patient affordability programs to appropriately support patient access to xhance . infrastructure . we continue to develop our internal capabilities and grew from 21 employees as of january 1 , 2017 to 82 employees as of march 1 , 2018 to support a commercial stage company . we have implemented an enterprise resource planning system to expand our operational and commercial finance capabilities . we have implemented a robust healthcare compliance program to guide our staff 's and our partners ' compliance with rules and regulations regarding pharmaceutical sales . in managing our growth , we have remained focused on fostering our one mission culture . in additional to xhance 's existing indication for nasal polyps , we plan to initiate additional clinical trials in the fourth quarter of 2018 to seek a follow-on indication for the treatment of chronic sinusitis in order to broaden our market opportunity . xhance is the second commercial product that we have developed utilizing an optinose eds . our first commercial product , indicated for the acute treatment of migraines in adults , was licensed in 2013 to avanir pharmaceuticals , inc. , or avanir , and was approved by the fda in january 2016 . 85 financial operations overview the following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items . licensing revenues to date , we have not generated any revenues from product sales . substantially all of our revenue to date has been derived from the avp-825 license agreement . we do not expect to generate significant product revenue until we commercialize xhance and our other product candidates . in july 2013 , we , through our wholly owned subsidiary , optinose as , entered into the avp-825 license agreement under which we granted an exclusive license to avanir to further develop and commercialize avp-825 ( now marketed as onzetra xsail ) . under the terms of the avp-825 license agreement , we have received $ 70.0 million in aggregate licensing revenues to date in connection with the initial signing and the achievement of development milestones , including a $ 47.5 million payment upon fda approval of avp-825 in the first quarter of 2016. we are eligible to receive up to an additional $ 50.0 million upon the achievement of annual sales milestones and tiered low double-digit royalty payments once and if net sales of the product exceed a specified cumulative threshold . we do not expect to generate any additional revenue from the avp-825 license agreement in the near term . research and development expense research and development expense consists substantially of costs incurred in connection with the development and pursuit of regulatory approval for xhance for the treatment of nasal polyps . we expense research and development costs as incurred . these expenses include : ▪ personnel expenses , including salaries , benefits and stock-based compensation expense ; ▪ costs of funding research performed by third parties , including pursuant to agreements with contract research organizations , or cros , as well as investigative sites and consultants that conduct our preclinical studies and clinical trials ; ▪ expenses incurred under agreements with contract manufacturing organizations , or cmos , including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials ; ▪ consultant fees and expenses associated with outsourced professional scientific development services ; ▪ expenses for regulatory activities , including filing fees paid to regulatory agencies and costs incurred to compile and respond to filings with the fda ; ▪ costs incurred to maintain , expand and protect our patent portfolio as it relates to product candidates in development ; and ▪ allocated expenses for facility costs , including rent , utilities , depreciation and maintenance . story_separator_special_tag certain regulatory , patent and pre-commercialization expenses classified as research and development expenses prior to the fda approval of xhance in september 2017 have been classified as selling , general and administrative expenses if incurred post approval of xhance to the extent that these expenses support the commercialization of xhance . we typically use our employee , consultant and infrastructure resources across our research and development programs . although we track certain outsourced development costs by product candidate , we do not allocate personnel costs or other internal costs to specific product candidates . we plan to incur research and development expenses for the foreseeable future as we expect to continue the development of xhance for a follow-on indication for the treatment of chronic sinusitis and our other product candidates . at this time , due to the inherently unpredictable nature of preclinical and clinical development , and given the preliminary nature of our clinical trial design for xhance for a follow-on indication for the treatment of chronic sinusitis and the fda-mandated pediatric studies for xhance , and the early stage of our other product candidates , we are unable to estimate with any certainty the costs we will incur and the timelines we will require in our continued development efforts . 86 selling , general and administrative expense selling , general and administrative expense consists primarily of personnel expenses , including salaries , benefits and stock-based compensation expense , for employees in executive , finance , accounting , business development , legal and human resource functions . general and administrative expense also includes corporate facility costs , including rent , utilities , depreciation and maintenance , not otherwise included in research and development expense , as well as regulatory fees and professional fees for legal , patent , accounting and other consulting services . we anticipate that our general and administrative expenses will increase in 2018 as compared to 2017 as a result of an expanded infrastructure and an increased headcount to support the commercialization of xhance . we also anticipate higher corporate infrastructure costs including , but not limited to accounting , legal , human resources , consulting and investor relations expenses , as well as increased director and officer insurance premiums , associated with operating as a public company . sales and marketing related expenses consist of market research and other market preparation and pre-commercial activities ahead of making xhance available through retail pharmacies , expected to occur in early april 2018 , as well as salaries and related benefits for employees focused on such efforts . we anticipate that our sales and marketing and related expenses will increase in 2018 as compared to 2017 as a result of an increase in headcount and the commercial launch of xhance in the united states , including the engagement of a dedicated contract sales organization . interest ( income ) expense interest ( income ) expense consists of interest earned on our cash and cash equivalents held with institutional banks and interest expense related to our long-term debt and amounts amortized and accrued under our convertible notes that were converted into preferred stock in march 2017. other ( income ) expense other ( income ) expense consists primarily of grant and other income as a result of government cost reimbursements for research and development activities over a contractually defined period , as well as foreign currency ( income ) losses due to exchange rate fluctuations on transactions denominated in a currency other than our functional currency . critical accounting policies our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reported period . we base our estimates on 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 . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions and conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this report , we believe that the following accounting policies are those most critical to the preparation of our consolidated financial statements . revenue recognition we have generated revenue primarily through licensing arrangements , which generally contain multiple elements , or deliverables , including licenses and research and development activities we perform on behalf of the licensee . revenues are recognized when ( 1 ) persuasive evidence of an arrangement exists , ( 2 ) delivery has occurred or services have been rendered , ( 3 ) the price is fixed or determinable and ( 4 ) collectability is reasonably assured . currently , our only source of revenue is the avp-825 license agreement . the avp-825 license agreement includes licensed rights to patented technology , non-refundable up-front license fees , research services , and regulatory and sales milestones as well as royalty payments . 87 for arrangements with multiple elements , we recognize revenue in accordance with the financial accounting standards board , or fasb , accounting standards update , or asu , no . 2009-13 , multiple-deliverable revenue arrangements , which provides guidance for separating and allocating consideration in a multiple element arrangement . the selling prices of deliverables under an arrangement may be derived using third-party evidence , or tpe , or a best estimate of selling price , or besp , if vendor-specific objective evidence of selling price , or vsoe , is not available .
| these increases were offset primarily by : ▪ a $ 1.3 million decrease in regulatory expenses as a result of the substantial completion in 2016 of our nda submission activities for xhance for the treatment of nasal polyps ; and ▪ a $ 0.7 million decrease in expenses as a result of the completion of an anthropometric study in preparation for the fda mandated pediatric studies as well as the completion of other early research projects . 90 selling general and administrative expense selling , general and administrative expenses were $ 31.7 million and $ 6.9 million for the years ended december 31 , 2017 and 2016 , respectively . the $ 24.8 million increase was due primarily to : ▪ a $ 9.7 million increase in sales and marketing expenses related to our preparation for the expected commercial launch of xhance in the u.s. for the treatment of nasal polyps ; ▪ a $ 9.1 million increase in personnel and bonus expenses , including non-cash stock-based compensation , due to increases in headcount , as well as increases in bonus expense as a result of the achievement of company performance targets ; ▪ a $ 4.4 million increase in professional fees and consultant expenses related to the completion of our ipo , the support of our expanding infrastructure to prepare for the expected commercial launch of xhance and as a result of operating as a public company ; and ▪ $ 1.7 million increase in facilities and administrative expenses to support expanding business operations . interest ( income ) expense , net interest expense , net , was $ 0.6 million and $ 3.4 million for the years ended december 31 , 2017 and 2016 , respectively . the $ 2.8 million decrease was due primarily to the conversion of convertible notes to shares of preferred stock in march 2017. other ( income ) expense , net other income , net , was $ 0.2 million and $ 0.7 million for the years ended december 31 , 2017 and 2016 , respectively . the income in both periods was attributable primarily to grant eligible research and development expenses incurred by optinose as , our norwegian subsidiary . comparison of the years ended december 31 , 2016 and 2015 the following
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in step one of the goodwill impairment test , we compare our carrying amount ( including goodwill ) of our entity-wide reporting unit and auxilio 's fair value based on market capitalization . we evaluated how this market capitalization measure compared to the performance-based multiples of revenue and earnings methods and feel it most accurately reflects the company 's valuation given our recent revenue growth accompanied by losses which causes performance-based metrics to portray the company at an unrealistic value . our market capitalization is based on the closing price of our common stock as quoted on the otcbb multiplied by our outstanding shares of common stock . there was no impairment of goodwill as a result of the annual impairment tests completed during the fourth quarters of 2013 and 2012. excluding goodwill , we have no intangible assets deemed to have indefinite lives . at december 31 , 2013 , the fair value of auxilio , based on our market capitalization , was approximately $ 30.6 million , exceeding our book value of approximately $ 2,000,000. new customer implementation costs we ordinarily incur additional costs to implement our services for new customers . these costs are comprised primarily of additional labor and support , with the efforts going to identify , map and record all existing devices and support arrangements for all subject devices . once this effort is complete , it need not be repeated . this ordinarily takes one to six months to complete , depending on the size of the new customer . these costs are expensed as incurred , and have a negative impact on our statements of operations and cash flows during the implementation phase . derivative liabilities the company 's derivative warrants and additional investment rights liabilities are measured at fair value using the black-scholes valuation model which takes into account , as of the measurement date , factors including the current exercise price , the term of the instrument , the current price of the underlying stock and its expected volatility , expected dividends on the stock and the risk-free interest rate for the term of the item . these derivative liabilities are revalued at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations under the caption “ change in fair value of derivative liabilities. ” the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap , with no need for management 's judgment in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . please see our audited financial statements and notes thereto which begin on page f-1 of this annual report on form 10-k , which contain accounting policies and other disclosures required by gaap and please refer to the disclosures in note 1 of our financial statements for a summary of our significant accounting policies . 12 story_separator_special_tag margin-right : 0pt '' > other income in 2013 of $ 80,000 was the proceeds from a contract settlement with a former customer . we had no such activity in 2012. income tax expense income tax expense for the year ended december 31 , 2013 was $ 78,419 and was $ 7,440 for the year ended december 31 , 2012. the increase in 2013 is due to taxes for profitable operations this year . the charge in 2012 is primarily for minimum payments and charges for state income taxes in apportioned states that disallow consolidated tax return filings . liquidity and capital resources at december 31 , 2013 , our cash and cash equivalents were $ 4,668,624 and our working capital was $ 253,807. our principal cash requirements were for operating expenses , including equipment , supplies , employee costs , and capital expenditures and funding of the operations . our primary sources of cash were from service and equipment sale revenues and commercial line of credit borrowings . during the year ended december 31 , 2013 , cash provided by operating activities was $ 2,578,804 as compared to cash used for operating activities of $ 29,601 for the same period in 2012. the difference in cash from operating activities in 2012 was primarily due to the costs incurred to implement our new recurring revenue contracts and more aggressive sales and marketing efforts to obtain new clients . we expect to continue to establish recurring revenue contracts to new customers throughout 2014. since we expect higher cost of revenues at the start of our engagement with most new customers , we may seek additional financing , which may include debt and or equity financing or funding through third party agreements . in may 2012 we entered into an asset based line of credit agreement with a financial institution . this facility provides for borrowings up to $ 2,000,000 not to exceed 80 % of eligible receivables . we may seek additional financing , however there can be no assurance that additional financing will be available on acceptable terms , if at all . any equity financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants . management believes that cash generated from debt and or equity financing arrangements along with funds from operations will be sufficient to sustain our business operations over the next twelve months . it is our expectation that near the maturity date in july 2014 , some of the $ 1,700,000 convertible debt will be converted to common stock and the remainder will be paid to the lenders . management believes that cash flows from operations together with cash reserves and our bank line of credit availability will allow us to complete these transactions without disrupting operations . off-balance sheet arrangements our off-balance sheet arrangements consist primarily of conventional operating leases and purchase and story_separator_special_tag in step one of the goodwill impairment test , we compare our carrying amount ( including goodwill ) of our entity-wide reporting unit and auxilio 's fair value based on market capitalization . we evaluated how this market capitalization measure compared to the performance-based multiples of revenue and earnings methods and feel it most accurately reflects the company 's valuation given our recent revenue growth accompanied by losses which causes performance-based metrics to portray the company at an unrealistic value . our market capitalization is based on the closing price of our common stock as quoted on the otcbb multiplied by our outstanding shares of common stock . there was no impairment of goodwill as a result of the annual impairment tests completed during the fourth quarters of 2013 and 2012. excluding goodwill , we have no intangible assets deemed to have indefinite lives . at december 31 , 2013 , the fair value of auxilio , based on our market capitalization , was approximately $ 30.6 million , exceeding our book value of approximately $ 2,000,000. new customer implementation costs we ordinarily incur additional costs to implement our services for new customers . these costs are comprised primarily of additional labor and support , with the efforts going to identify , map and record all existing devices and support arrangements for all subject devices . once this effort is complete , it need not be repeated . this ordinarily takes one to six months to complete , depending on the size of the new customer . these costs are expensed as incurred , and have a negative impact on our statements of operations and cash flows during the implementation phase . derivative liabilities the company 's derivative warrants and additional investment rights liabilities are measured at fair value using the black-scholes valuation model which takes into account , as of the measurement date , factors including the current exercise price , the term of the instrument , the current price of the underlying stock and its expected volatility , expected dividends on the stock and the risk-free interest rate for the term of the item . these derivative liabilities are revalued at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations under the caption “ change in fair value of derivative liabilities. ” the above listing is not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap , with no need for management 's judgment in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . please see our audited financial statements and notes thereto which begin on page f-1 of this annual report on form 10-k , which contain accounting policies and other disclosures required by gaap and please refer to the disclosures in note 1 of our financial statements for a summary of our significant accounting policies . 12 story_separator_special_tag margin-right : 0pt '' > other income in 2013 of $ 80,000 was the proceeds from a contract settlement with a former customer . we had no such activity in 2012. income tax expense income tax expense for the year ended december 31 , 2013 was $ 78,419 and was $ 7,440 for the year ended december 31 , 2012. the increase in 2013 is due to taxes for profitable operations this year . the charge in 2012 is primarily for minimum payments and charges for state income taxes in apportioned states that disallow consolidated tax return filings . liquidity and capital resources at december 31 , 2013 , our cash and cash equivalents were $ 4,668,624 and our working capital was $ 253,807. our principal cash requirements were for operating expenses , including equipment , supplies , employee costs , and capital expenditures and funding of the operations . our primary sources of cash were from service and equipment sale revenues and commercial line of credit borrowings . during the year ended december 31 , 2013 , cash provided by operating activities was $ 2,578,804 as compared to cash used for operating activities of $ 29,601 for the same period in 2012. the difference in cash from operating activities in 2012 was primarily due to the costs incurred to implement our new recurring revenue contracts and more aggressive sales and marketing efforts to obtain new clients . we expect to continue to establish recurring revenue contracts to new customers throughout 2014. since we expect higher cost of revenues at the start of our engagement with most new customers , we may seek additional financing , which may include debt and or equity financing or funding through third party agreements . in may 2012 we entered into an asset based line of credit agreement with a financial institution . this facility provides for borrowings up to $ 2,000,000 not to exceed 80 % of eligible receivables . we may seek additional financing , however there can be no assurance that additional financing will be available on acceptable terms , if at all . any equity financing may result in dilution to existing stockholders and any debt financing may include restrictive covenants . management believes that cash generated from debt and or equity financing arrangements along with funds from operations will be sufficient to sustain our business operations over the next twelve months . it is our expectation that near the maturity date in july 2014 , some of the $ 1,700,000 convertible debt will be converted to common stock and the remainder will be paid to the lenders . management believes that cash flows from operations together with cash reserves and our bank line of credit availability will allow us to complete these transactions without disrupting operations . off-balance sheet arrangements our off-balance sheet arrangements consist primarily of conventional operating leases and purchase and
| service and supply costs increased by approximately $ 3,300,000 as a result of our new customers . our travel related costs in 2013 were approximately $ 300,000 lower compared to 2012 because certain staff training initiatives had been mostly completed in the prior year and new customer implementations in 2013 were geographically closer , requiring less travel . we expect higher cost of revenues at the start of our engagement with most new customers . in addition to the costs associated with implementing our services , we absorb our new customers ' legacy contracts with third-party vendors . as we implement our programs , we strive to improve upon these legacy contracts thus reducing costs over the term of the contract . we anticipate this trend to continue but anticipate an overall increase in the cost of revenues as a result of the expansion of our customer base . sales and marketing sales and marketing expenses include salaries , commissions and expenses of sales and marketing personnel , travel and entertainment , and other selling and marketing costs . sales and marketing expenses were $ 2,112,285 for the year ended december 31 , 2013 , as compared to $ 2,604,783 for the same period in 2012. we incurred sales commissions to employees totaling approximately $ 140,000 in 2013 compared to $ 490,000 in 2012. the reduction is due to the fact that we initiated more new recurring revenue contracts in 2012 than in 2013. in 2013 we terminated a joint marketing agreement with a channel partner thus reducing marketing expense by approximately $ 150,000 compared to 2012. general and administrative general and administrative expenses , which include personnel costs for finance , administration , information systems , and general management , as well as facilities expenses , professional fees , and other administrative costs , increased by $ 131,062 to $ 3,785,778 for the year ended december 31 , 2013. salary expense increased approximately $ 230,000 in 2013 and was primarily due to additional office staff needed to
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we also provide administrative and remarketing services to this entity and earn management fees for these services . the railcars are principally built by and purchased from us and , prior to sale , principally included on our balance sheet as leased railcars for syndication . the entity holds these railcars in the short or medium term with the intent to sell them to third parties , on an ongoing basis . we account for this investment under the equity method of accounting . as of august 31 , 2017 , the carrying amount of the investment was $ 7.0 million which is classified in investment in unconsolidated affiliates in our consolidated balance sheet . 36 the greenbrier companies 2017 annual report overview revenue , cost of revenue , margin and operating profit presented below , include amounts from external parties and exclude intersegment activity that is eliminated in consolidation . ( in thousands ) 2017 2016 2015 revenue : manufacturing $ 1,725,188 $ 2,096,331 $ 2,136,051 wheels & parts 312,679 322,395 371,237 leasing & services 131,297 260,798 97,990 2,169,164 2,679,524 2,605,278 cost of revenue : manufacturing 1,373,967 1,630,554 1,691,414 wheels & parts 288,336 293,751 334,680 leasing & services 85,562 203,782 41,831 1,747,865 2,128,087 2,067,925 margin : manufacturing 351,221 465,777 444,637 wheels & parts 24,343 28,644 36,557 leasing & services 45,735 57,016 56,159 421,299 551,437 537,353 selling and administrative 170,607 158,681 151,791 net gain on disposition of equipment ( 9,740 ) ( 15,796 ) ( 1,330 ) earnings from operations 260,432 408,552 386,892 interest and foreign exchange 24,192 13,502 11,179 earnings before income tax and earnings from unconsolidated affiliates 236,240 395,050 375,713 income tax expense ( 64,014 ) ( 112,322 ) ( 112,160 ) earnings before earnings from unconsolidated affiliates 172,226 282,728 263,553 earnings ( loss ) from unconsolidated affiliates ( 11,764 ) 2,096 1,756 net earnings 160,462 284,824 265,309 net earnings attributable to noncontrolling interest ( 44,395 ) ( 101,611 ) ( 72,477 ) net earnings attributable to greenbrier $ 116,067 $ 183,213 $ 192,832 diluted earnings per common share $ 3.65 $ 5.73 $ 5.93 performance for our segments is evaluated based on operating profit . corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model . management does not allocate interest and foreign exchange or income tax expense for either external or internal reporting purposes . ( in thousands ) 2017 2016 2015 operating profit : manufacturing $ 295,334 $ 415,094 $ 396,921 wheels & parts 14,984 19,948 27,563 leasing & services 31,904 51,723 41,887 corporate ( 81,790 ) ( 78,213 ) ( 79,479 ) $ 260,432 $ 408,552 $ 386,892 the greenbrier companies 2017 annual report 37 story_separator_special_tag > manufacturing operating profit decreased $ 119.8 million or 28.9 % in 2017 compared to 2016 primarily attributed to a decrease in margin due to lower railcar deliveries . the $ 18.2 million or 4.6 % increase in operating profit in 2016 compared to 2015 was primarily attributed to higher margins . wheels & parts segment replace_table_token_5_th * not meaningful the greenbrier companies 2017 annual report 39 wheels & parts revenue decreased $ 9.7 million or 3.0 % in 2017 compared to 2016 primarily as a result of lower wheel set and component volumes due to a decrease in demand partially offset by an increase in parts volume . the $ 48.8 million or 13.2 % decrease in revenue in 2016 compared to 2015 was primarily a result of lower wheel set , component and parts volumes due to a decrease in demand and a decrease in scrap metal volume and pricing . wheels & parts cost of revenue decreased $ 5.4 million or 1.8 % in 2017 compared to 2016 primarily due to lower wheel set and component costs associated with decreased volumes . cost of revenue decreased $ 40.9 million or 12.2 % in 2016 compared to 2015 primarily due to lower wheel set , component and parts costs associated with decreased volumes . wheels & parts margin as a percentage of revenue decreased 1.1 % in 2017 compared to 2016 due to lower wheel set and component volumes . this was partially offset by a more favorable parts product mix and an increase in scrap metal pricing . the 0.9 % decrease in margin percentage in 2016 compared to 2015 was due to lower wheel set and component volumes and a decrease in scrap metal pricing . these were partially offset by a more favorable parts product mix . wheels & parts operating profit decreased $ 5.0 million or 24.9 % in 2017 compared to 2016 primarily attributable to a decrease in margin due to a decrease in wheel set and component volumes . the $ 7.6 million or 27.6 % decrease in operating profit in 2016 compared to 2015 was primarily attributable to a decrease in margin due to a decrease in volumes partially offset by $ 2.3 million in insurance proceeds received in excess of net book value on assets destroyed in a fire at a wheels & parts facility in 2015. leasing & services segment replace_table_token_6_th * not meaningful the leasing & services segment primarily generates revenue from leasing railcars from our lease fleet and providing various management services . from time to time , railcars are purchased from third parties with the intent to resell them . the gross proceeds from the sale of these railcars with leases attached are recorded in revenue and the cost of purchasing these railcars are recorded in cost of revenue . we earn revenue from rent-producing leased railcars for syndication , which are held short term and classified as leased railcars for syndication on our consolidated balance sheet . leasing & services revenue decreased $ 129.5 million or 49.7 % in 2017 compared to 2016 primarily as the result of a $ 116.5 million decrease in the sale of railcars which we had purchased from third parties with the intent to resell them . story_separator_special_tag the decrease in revenue was also due to lower average volume of rent-producing leased railcars held for syndication . the $ 162.8 million or 166.1 % increase in revenue in 2016 compared to 2015 was primarily the result of the sale of railcars for $ 159.4 million that we purchased from a related third party with the intent to resell them and a 14 % increase in management services revenue due to the addition of new management service agreements . this was partially offset by a lower average volume of rent-producing leased railcars for syndication . leasing & services cost of revenue decreased $ 118.2 million or 58.0 % in 2017 compared to 2016 primarily due to a decrease in costs associated with a decline in the volume of railcars sold that we purchased from third parties . this was partially offset by higher transportation and storage costs . cost of revenue increased $ 162.0 million or 387.2 % in 2016 compared to 2015 primarily due to costs associated with the sale of railcars that we purchased from a related third party . 40 the greenbrier companies 2017 annual report leasing & services margin as a percentage of revenue increased 12.9 % in 2017 compared to 2016 primarily as a result of a benefit from fewer sales of railcars that we purchased from third parties which have lower margin percentages . the margin percentage in 2017 compared to 2016 was negatively impacted by higher transportation and storage costs . the 35.4 % decrease in margin percentage in 2016 compared to 2015 was primarily as a result of a lower margin percentage on the syndication , or sale , of railcars purchased from a related third party and a lower average volume of newly built rent-producing railcars . leasing & services operating profit decreased $ 19.8 million or 38.3 % in 2017 compared to 2016 primarily attributed to a decrease in margin and a decrease in net gain on disposition of equipment . the $ 9.8 million or 23.5 % increase in operating profit in 2016 compared to 2015 was primarily attributed to an $ 11.3 million increase in net gain on disposition of equipment and profit from the sale of railcars that we purchased from a related third party . this was partially offset by accelerated depreciation and amortization due to changes in the estimated useful lives of certain assets . the percentage of owned units on lease was 92.1 % at august 31 , 2017 , 91.0 % at august 31 , 2016 and 98.6 % at august 31 , 2015. these percentages exclude newly manufactured railcars not yet on lease . the percentage of owned units on lease as of august 31 , 2016 also included a railcar portfolio acquisition that we purchased with the intent to sell and have subsequently sold . gbw joint venture segment gbw , an unconsolidated 50/50 joint venture , generated total revenue of $ 253.4 million , $ 373.5 million and $ 349.8 million for the years ended august 31 , 2017 , 2016 and 2015 , respectively . the decrease in revenue of $ 120.1 million and 32.2 % in 2017 compared to 2016 was primarily due to a decrease in the volume of repair work . the increase in revenue of $ 23.7 million in 2016 compared to 2015 was primarily due to an increase in volume and favorable pricing . gbw margin as a percentage of revenue for the year ended august 31 , 2017 was negative 1.6 % compared to 9.1 % for the year ended august 31 , 2016 and 6.2 % for the year ended august 31 , 2015. the decrease in margin percentage in 2017 compared to 2016 was primarily due to operating at lower volumes of repair work . the increase in margin percentage in 2016 compared to 2015 was primarily attributed to an increase in labor efficiencies in 2016. during the fourth quarter of 2017 , gbw performed an interim goodwill test as sales and profitability trends declined beyond what was anticipated . as a result of the interim goodwill test , gbw recorded a pre-tax impairment loss of $ 11.2 million for the year ended august 31 , 2017. as of august 31 , 2017 , gbw had $ 41.5 million of goodwill remaining . to reflect our 50 % share of gbw 's results , we recorded a net loss of $ 9.7 million for the year ended august 31 , 2017 and earnings of $ 3.2 million and $ 0.8 million for the years ended august 31 , 2016 and 2015 , respectively . as we account for gbw under the equity method of accounting , our 50 % share of the non-cash impairment loss recognized by gbw was $ 3.5 million after-tax and is included as part of earnings ( loss ) from unconsolidated affiliates on our consolidated statement of income . selling and administrative replace_table_token_7_th selling and administrative expense was $ 170.6 million , or 7.9 % of revenue for the year ended august 31 , 2017 , $ 158.7 million , or 5.9 % of revenue for the year ended august 31 , 2016 and $ 151.8 million , or 5.8 % of revenue for the year ended august 31 , 2015. the greenbrier companies 2017 annual report 41 the $ 11.9 million increase in 2017 compared to 2016 was primarily attributed to a $ 9.2 million increase in legal and consulting costs primarily associated with strategic business development , litigation and it initiatives . the increase was also attributed to the addition of astra rail 's selling and administrative costs which totaled $ 2.6 million since its acquisition on june 1 , 2017 and a $ 0.8 million increase in research and development costs primarily related to our european manufacturing operations . this was partially offset by a $ 1.7 million decrease in the revenue-based fees paid to our joint venture partner in mexico .
| the decrease was also due to a 58.0 % decrease in leasing & services cost of revenue primarily due to a decrease in costs associated with a decline in the volume of railcars sold that we purchased from third parties . the 2.9 % increase in cost of revenue for the year ended august 31 , 2016 as compared to the year ended august 31 , 2015 was primarily due to a 387.2 % increase in leasing & services cost of revenue which was primarily the result of costs associated with the sale of railcars that we purchased from a related third party . margin as a percentage of revenue was 19.4 % for the year ended august 31 , 2017 and 20.6 % for the year ended august 31 , 2016. the overall margin as a percentage of revenue was negatively impacted by a decrease in manufacturing margin to 20.4 % from 22.2 % primarily due to a change in product mix and a reduction in the volume of railcar deliveries . in addition , the overall margin as a percentage of revenue was negatively impacted by a decrease in wheels & parts margin to 7.8 % from 8.9 % , primarily due to lower wheel set and component volumes . the overall margin as a percentage of revenue was positively impacted by an increase in leasing & services margin to 34.8 % from 21.9 % which was primarily a result of a decrease in the syndication , or sale , of railcars that we purchased from third parties which have lower margin percentages . margin as a percentage of revenue was 20.6 % for both the years ended august 31 , 2016 and 2015. the overall margin as a percentage of revenue was positively impacted by an increase in manufacturing margin to 22.2 % from 20.8 % primarily due to a change in product mix and improved production efficiencies . this was offset by a decrease in leasing & services margin to 21.9 % from 57.3 % primarily as a result of a lower margin percentage on the syndication , or sale , of
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within bsg , we also have one of the largest networks of professional distributor sales consultants in north america . we provide our customers with a wide variety of leading third-party branded and exclusive-label professional beauty supplies , including hair color products , hair care products , styling appliances , skin and nail care products and other beauty items . sally beauty supply stores target retail consumers and salon professionals , while bsg exclusively targets salons and salon professionals . for the year ended september 30 , 2014 , our consolidated net sales and operating earnings were $ 3,753.5 million and $ 507.0 million , respectively . we believe sally beauty supply is the largest open-line distributor of professional beauty supplies in the u.s. based on store count . as of september 30 , 2014 , sally beauty supply operated 3,544 company-operated retail stores , 2,793 of which are located in the u.s. , with the remaining 751 company-operated stores located in canada , mexico , chile , peru , the united kingdom , ireland , belgium , france , germany , the netherlands and spain . sally beauty supply also supplied 19 franchised stores located in the united kingdom and certain other european countries . in the u.s. and canada , our sally beauty supply stores average approximately 1,700 square feet in size and are located primarily in strip shopping centers . our sally beauty supply stores carry an extensive selection of professional beauty supplies for both retail customers and salon professionals , featuring an average of 8,000 skus of beauty products across product categories including hair color , hair care , skin and nail care , beauty sundries and electrical appliances . sally beauty supply stores carry leading third-party brands , such as clairol® , chi® , china glaze® , opi® and conair® , as well as an extensive selection of exclusive-label merchandise . store formats , including average size and product selection , for sally beauty supply outside the u.s. and canada vary by marketplace . for the year ended september 30 , 2014 , sally beauty supply 's net sales and segment operating profit were $ 2,308.7 million and $ 431.7 million , respectively , representing 62 % and 67 % of our consolidated net sales and consolidated operating profit before unallocated corporate expenses and share-based compensation expenses , respectively . we believe bsg is the largest full-service distributor of professional beauty supplies in north america , exclusively targeting salons and salon professionals . as of september 30 , 2014 , bsg had 1,103 41 company-operated stores , supplied 162 franchised stores and had a sales force of approximately 981 professional distributor sales consultants selling exclusively to salons and salon professionals in all states in the u.s. , and in canada , puerto rico , mexico and certain european countries . company-operated bsg stores , which primarily operate under the cosmoprof banner , average approximately 2,600 square feet in size and are primarily located in secondary strip shopping centers . bsg stores provide a comprehensive selection of beauty products featuring an average of 9,000 skus that include hair color and care , skin and nail care , beauty sundries and electrical appliances . through bsg 's large store base and sales force , bsg is able to access a significant portion of the highly fragmented u.s. salon industry . bsg stores carry leading third-party brands such as paul mitchell® , wella® , sebastian® , goldwell® , joico® and aquage® , intended for use in salons and for resale by the salons to consumers . bsg is also the exclusive source for certain well-known third-party branded products pursuant to exclusive distribution agreements with certain suppliers within specified geographic territories . for the year ended september 30 , 2014 , bsg 's net sales and segment operating profit were $ 1,444.8 million and $ 217.0 million , respectively , representing 38 % and 33 % of our consolidated net sales and consolidated operating profit before unallocated corporate expenses and share-based compensation expenses , respectively . key industry and business trends we operate primarily within the large and growing u.s. professional beauty supply industry . we believe that a number of key industry and business trends and characteristics will influence our business and our financial results going forward . these key trends and characteristics are discussed elsewhere in this annual report . please see `` key industry and business trends '' in item 1 of this annual report . significant recent acquisitions essential salon on may 31 , 2013 , the company acquired certain assets and business operations of essential salon products , inc. ( `` essential salon '' ) , a professional-only distributor of beauty products operating in the northeastern region of the united states , for approximately $ 15.7 million , subject to certain adjustments . the results of operations of essential salon are included in the company 's consolidated financial statements subsequent to the acquisition date . the assets acquired and liabilities assumed , including intangible assets subject to amortization of $ 9.1 million , were recorded based on their preliminary estimated fair values at the acquisition date . in addition , goodwill of $ 3.1 million ( which is expected to be deductible for tax purposes ) was recorded as a result of this acquisition . we funded this acquisition with cash from operations . the floral group in the fiscal year 2012 , the company acquired floral group , then a 19-store distributor of professional beauty products based in eindhoven , the netherlands , for approximately 22.8 million ( approximately $ 31.2 million ) . the assets acquired and liabilities assumed , including intangible assets subject to amortization of $ 11.8 million , were recorded at their respective fair values at the acquisition date and goodwill of $ 15.0 million ( which is not expected to be deductible for tax purposes ) was recorded as a result of this acquisition . the results of operations of the floral group are included in the company 's consolidated financial statements subsequent to the acquisition date . story_separator_special_tag the acquisition was funded with cash from operations and with borrowings under our abl facility in the amount of approximately $ 17.0 million . in addition to these acquisitions , we completed several other individually immaterial acquisitions during the fiscal years 2014 , 2013 and 2012 at the aggregate cost of approximately $ 4.9 million , $ 6.8 million and $ 12.8 million , respectively . we recorded additional intangible assets subject to amortization of $ 1.4 million and $ 4.0 million in connection with these individually immaterial acquisitions completed in the fiscal year 2014 and 2013 , respectively . additionally , we recorded additional goodwill in the amount of $ 2.6 million , $ 2.0 million and $ 9.4 million , the majority of which is expected to be deductible for tax purposes , in connection with these individually immaterial acquisitions completed in the fiscal year 2014 , 2013 and 2012 , respectively . generally , we funded these acquisitions with cash from operations or borrowings under 42 the abl facility . the valuation of the assets acquired and liabilities assumed in connection with these acquisitions was based on their fair values at the acquisition date . share repurchase programs in march 2013 , we announced that our board of directors approved a share repurchase program authorizing us to repurchase up to $ 700.0 million of our common stock ( the `` 2013 share repurchase program '' ) . in addition , in august 2014 , we announced that our board of directors approved a new share repurchase program authorizing us to repurchase up to $ 1.0 billion of our common stock over the period from august 20 , 2014 to september 30 , 2017 ( the `` 2014 share repurchase program '' ) . in connection with the authorization of the 2014 share repurchase program , the 2013 share repurchase program was terminated . prior to termination of the 2013 share repurchase program , the company had repurchased and retired approximately 21.1 million shares of its common stock at a cost of $ 576.6 million under the 2013 share repurchase program . the 2014 share repurchase program expires on september 30 , 2017. during the fiscal year ended september 30 , 2014 , we repurchased and subsequently retired approximately 12.6 million shares of our common stock under the 2013 share repurchase program at a cost of $ 333.3 million . we reduced common stock and additional paid-in capital , in the aggregate , by these amounts . as required by gaap , we recorded into accumulated deficit any amounts paid to repurchase shares in excess of the balance of additional paid-in capital . we funded these share repurchases with cash from operations , borrowings under the abl facility and a portion of the cash proceeds from our october 2013 debt issuance . during the fiscal year ended september 30 , 2013 , we repurchased and subsequently retired approximately 18.9 million shares of our common stock under the 2013 share repurchase program and the 2012 share repurchase program ( a share repurchase program approved by our board in august 2012 and terminated in connection with the authorization of the 2013 share repurchase program ) at a cost of $ 509.7 million . we reduced common stock and additional paid-in capital , in the aggregate , by these amounts . we funded these share repurchases with a portion of the cash proceeds from our september 2012 debt issuance , cash from operations and borrowings under the abl facility . during the fiscal year ended september 30 , 2012 , we repurchased and retired approximately 7.6 million shares of our common stock from two venture capital investment funds associated with clayton , dubilier & rice , llc at a cost of $ 200.0 million . data security incident in march 2014 , the company disclosed that it had experienced a data security incident in february 2014. the data security incident involved the unauthorized installation of malicious software ( malware ) on certain of our information technology systems , including our sally beauty supply unit 's point-of-sale systems that , we believe , may have illegally accessed and removed a portion of the payment card data ( track 2 ) related to some transactions on our systems primarily during the period from february 21 , 2014 to february 28 , 2014. the costs that we have incurred to date in connection with the data security incident primarily include professional advisory and legal costs relating to our investigation of the data security incident . we may incur additional costs and expenses related to the data security incident in the future . these costs may result from potential liabilities to payment card networks , governmental or third party investigations , proceedings or litigation and legal and other fees necessary to defend against any potential liabilities or claims . at this time , we are unable to determine the probability of or to reasonably estimate the extent of these potential liabilities or a range thereof . the potential liabilities or other remedies against us related to the data security incident may have a material adverse impact on our business , financial condition and operating results . please see `` risk factors we may be adversely affected by any disruption in our information technology systems , '' `` unauthorized access to confidential information and data on our information technology systems and security and data breaches could materially adversely affect our business , 43 story_separator_special_tag plans , such as the sally beauty holdings 2007 omnibus incentive plan . for the fiscal years 2014 , 2013 and 2012 , the total income tax benefit recognized in the consolidated statements of earnings from all share-based compensation plans in which our employees participate or participated was $ 8.2 million , $ 7.1 million and $ 6.2 million , respectively , and resulted in the recognition of deferred tax assets by generally the same amounts . our consolidated statements of cash flows reflect , for the fiscal years 2014 , 2013 and 2012 , excess tax benefits of $ 14.6 million , $ 15.4 million and $ 14.4
| in connection with the remaining foreign currency risk , the company from time to time uses foreign exchange contracts to effectively fix the foreign currency exchange rate applicable to specific anticipated foreign currency-denominated cash flows , thus limiting the potential fluctuations in such cash flows resulting from foreign currency market movements . the company uses foreign exchange contracts to manage the exposure to the u.s. dollar resulting from certain of its international subsidiaries ' purchases of merchandise from third-party suppliers . these subsidiaries have a functional currency other than the u.s. dollartheir functional currency is either the british pound sterling or the euro . as such , at september 30 , 2014 , we hold : ( a ) foreign currency forwards which enable us to sell approximately £6.5 million ( $ 10.6 million , at the september 30 , 2014 exchange rate ) at the weighted average contractual exchange rate of 1.6277 and ( b ) foreign currency forwards which enable us to sell approximately 10.8 million ( $ 13.7 million , at the september 30 , 2014 exchange rate ) at the weighted average contractual exchange rate of 1.2903. these foreign currency forwards expire ratably through september 21 , 2015. the company also uses foreign exchange contracts to mitigate its exposure to changes in foreign currency exchange rates in connection with certain intercompany balances not permanently invested . as such , at september 30 , 2014 , we hold : ( a ) a foreign currency forward which enables us to sell approximately 17.0 million ( $ 21.4 million , at the september 30 , 2014 exchange rate ) at the contractual exchange rate of 1.2690 , ( b ) a foreign currency forward which enables us to sell approximately $ 2.1 million canadian dollars ( $ 1.9 million , at the september 30 , 2014 exchange rate ) at the contractual exchange rate of 1.1210 , ( c ) a foreign currency forward which enables us to buy approximately $ 12.7 million canadian dollars ( $ 11.4 million , at the september 30 , 2014 exchange rate ) at the
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acquisition of brocade communications systems , inc. on november 17 , 2017 , we acquired brocade communications systems , inc. ( “ brocade ” ) for approximately $ 6.0 billion in cash , including retirement of their term loan debt ( the “ brocade merger ” ) , which we financed using the net proceeds from the issuance of our senior unsecured notes , issued in october 2017 , as well as cash on hand . we also assumed all eligible unvested brocade equity awards in the transaction . on december 1 , 2017 , we sold certain brocade businesses for an aggregate of $ 800 million in cash . net revenue a majority of our net revenue is derived from sales of a broad range of semiconductor devices that are incorporated into electronic products , as well as from modules , switches and subsystems . net revenue is also generated from the sale of software solutions that enable our customers to plan , develop , automate , manage , and secure applications across mainframe , distributed , mobile , and cloud platforms . our three reportable segments in fiscal year 2019 were : semiconductor solutions , infrastructure software and ip licensing . our overall net revenue , as well as the percentage of total net revenue generated by sales in our semiconductor solutions and infrastructure software segments , has varied from quarter to quarter , due largely to fluctuations in end-market demand , including the effects of seasonality , which are discussed in detail in part i , item 1. business under “ seasonality ” of this annual report on form 10-k. original equipment manufacturers ( “ oems ” ) , or their contract manufacturers , and distributors typically account for the substantial majority of our semiconductor sales . to serve customers around the world , we have strategically developed relationships with large global electronic component distributors , complemented by a number of regional distributors with customer relationships based on their respective product ranges . we also sell our products to a wide variety of oems or their contract manufacturers . we have established strong relationships with leading oem customers across multiple target markets . our direct sales force focuses on supporting our large oem customers and has specialized product and service knowledge that enables us to sell specific offerings at key levels throughout a customer 's organization . certain customers require us to contract with them directly and with specified intermediaries , such as contract manufacturers . many of our major customer 39 relationships have been in place for many years and are often the result of years of collaborative product development . this has enabled us to build our extensive ip portfolio and develop critical expertise regarding our customers ' requirements , including substantial system-level knowledge . this collaboration has provided us with key insights into our customers ' businesses and has enabled us to be more efficient and productive and to better serve our target markets and customers . we recognize revenue upon delivery of product to the distributors , which can cause our quarterly net revenue to fluctuate significantly . such revenue is reduced for estimated returns and distributor allowances . our traditional software customers generally consist of large enterprises that have computing environments from multiple vendors and are highly complex . we believe our enterprise-wide license model will continue to offer our customers reduced complexity , more flexibility and an easier renewal process that will help drive revenue growth . costs and expenses cost of products sold . cost of products sold consists primarily of the costs for semiconductor wafers and other materials as well as the costs of assembling and testing those products and materials . such costs include personnel and overhead related to our manufacturing operations , which include stock-based compensation expense ; related occupancy ; computer services ; equipment costs ; manufacturing quality ; order fulfillment ; warranty adjustments ; inventory adjustments , including write-downs for inventory obsolescence ; and acquisition costs , which include direct transaction costs and integration-related costs . although we outsource a significant portion of our manufacturing activities , we do have some proprietary semiconductor fabrication facilities . if we are unable to utilize our owned fabrication facilities at a desired level , the fixed costs associated with these facilities will not be fully absorbed , resulting in higher average unit costs and lower gross margins . cost of subscriptions and services . cost of subscriptions and services consists of personnel , project costs associated with professional services or support of our subscriptions and services revenue , and allocated facilities costs and other corporate expenses . personnel costs include stock-based compensation expense . total cost of revenue also includes the purchase accounting effect on inventory , amortization of acquisition-related intangible assets and restructuring charges . research and development . research and development expense consists primarily of personnel costs for our engineers engaged in the design and development of our products and technologies , including stock-based compensation expense . these expenses also include project material costs , third-party fees paid to consultants , prototype development expense , allocated facilities costs and other corporate expenses and computer services costs related to supporting computer tools used in the engineering and design process . selling , general and administrative . selling expense consists primarily of compensation and associated costs for sales and marketing personnel , including stock-based compensation expense , sales commissions paid to our independent sales representatives , advertising costs , trade shows , corporate marketing , promotion , travel related to our sales and marketing operations , related occupancy and equipment costs , and other marketing costs . general and administrative expense consists primarily of compensation and associated costs for executive management , finance , human resources and other administrative personnel , including stock-based compensation expense , outside professional fees , allocated facilities costs , acquisition-related costs and other corporate expenses . amortization of acquisition-related intangible assets . in connection with our acquisitions , we recognize intangible assets that are being amortized over their estimated useful lives of 1 year to 25 years . story_separator_special_tag we also recognize goodwill , which is not amortized , and in-process research and development ( “ ipr & d ” ) , which is initially capitalized as an indefinite-lived intangible asset , in connection with acquisitions . upon completion of each underlying project , ipr & d assets are reclassified as an amortizable purchased intangible asset and amortized over their estimated useful lives . restructuring , impairment and disposal charges . restructuring , impairment and disposal charges consist primarily of compensation costs associated with employee exit programs , alignment of our global manufacturing operations , rationalizing product development program costs , ipr & d impairment , fixed asset impairment , facility and lease abandonments , and other exit costs , including curtailment of service or supply agreements . interest expense . interest expense includes coupon interest , commitment fees , accretion of original issue discount , and amortization of debt premiums and debt issuance costs , and expenses related to debt modification . other income , net . other income , net includes interest income , gains ( losses ) on investments and on foreign currency remeasurement , and other miscellaneous items . provision for ( benefit from ) income taxes . the u.s. tax cuts and jobs act ( “ 2017 tax reform act ” ) made significant changes to the u.s. internal revenue code , including ( 1 ) a decrease in the u.s. corporate tax rate from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , ( 2 ) the accrual of u.s. income tax on foreign earnings when earned , allowing 40 certain foreign dividends to then be tax-exempt , rather than deferring such income tax payments until the foreign earnings are repatriated into the u.s. , and ( 3 ) the transition tax on the mandatory deemed repatriation of accumulated non-u.s. earnings of u.s. controlled foreign corporations ( the “ transition tax ” ) . following the enactment of the 2017 tax reform act , the securities and exchange commission ( “ sec ” ) , issued guidance for situations when there is insufficient information to complete the accounting for certain income tax effects of the 2017 tax reform act . based on our interpretation of the 2017 tax reform act and the sec 's guidance , we recognized an income tax benefit of $ 7,278 million during fiscal year 2018. during fiscal year 2019 we recorded an income tax provision of $ 113 million from a change in estimate of our fiscal year 2018 benefit as a result of proposed u.s. treasury regulations issued in fiscal year 2019 related to the 2017 tax reform act . we also recognized an income tax benefit of $ 1,162 million in fiscal year 2018 primarily as a result of our redomiciliation to the united states in april 2018 ( the “ redomiciliation transaction ” ) . we have structured our operations to maximize the benefit from tax incentives extended to us in various jurisdictions to encourage investment or employment . our tax incentives from the singapore economic development board , an agency of the government of singapore , provide that any qualifying income earned in singapore is subject to tax incentives or reduced rates of singapore income tax . subject to our compliance with the conditions specified in these incentives and legislative developments , these singapore tax incentives are presently expected to expire in november 2025 , subject in certain cases to potential extensions , which we may or may not be able to obtain . absent these tax incentives , the corporate income tax rate in singapore that would otherwise apply to us would be 17 % . we also have a tax holiday on our qualifying income in malaysia , which is scheduled to expire in fiscal year 2028. the tax incentives and tax holiday that we have obtained are also subject to our compliance with various operating and other conditions . if we can not , or elect not to , comply with the operating conditions included in any particular tax incentive , we will lose the related tax benefits and we could be required to refund previously realized material tax benefits . depending on the incentive at issue , we could also be required to modify our operational structure and tax strategy , which may not be as beneficial to us as the benefits provided under the present tax concession arrangements . before taking into consideration the effects of the 2017 tax reform act and other indirect tax impact , the effect of these tax incentives and tax holiday was to increase the benefit from income taxes by approximately $ 923 million and $ 590 million for fiscal years 2019 and 2018 , respectively . for fiscal year 2017 , the effect of these tax incentives and tax holiday was to reduce the overall provision for income taxes by approximately $ 237 million . our interpretations and conclusions regarding the tax incentives are not binding on any taxing authority , and if our assumptions about tax and other laws are incorrect or if these tax incentives are substantially modified or rescinded we could suffer material adverse tax and other financial consequences , which would increase our expenses , reduce our profitability and adversely affect our cash flows . in addition , taxable income in any jurisdiction is dependent upon acceptance of our operational practices and intercompany transfer pricing by local tax authorities as being on an arm 's length basis . due to inconsistencies in application of the arm 's length standard among taxing authorities , as well as lack of adequate treaty-based protection , transfer pricing challenges by tax authorities could , if successful , substantially increase our income tax expense .
| other income , net . other income , net was $ 226 million and $ 144 million in fiscal years 2019 and 2018 , respectively . the increase was primarily due to an increase in unrealized gains on investments partially offset by losses on foreign currency remeasurement . 47 benefit from income taxes . benefit from income taxes was $ 510 million and $ 8,084 million for fiscal years 2019 and 2018 , respectively . the benefit from income taxes in fiscal year 2019 was primarily due to $ 232 million of excess benefit from stock-based awards that vested or were exercised during the year , $ 131 million from the recognition of gross unrecognized tax benefits as a result of audit settlements and lapses of statutes of limitations net of increases in balances related to tax positions taken during the current year , $ 80 million of benefit from deferred tax measurement in state and foreign jurisdictions , $ 66 million of benefit related to internal reorganizations , and $ 54 million of benefit from the partial release of our valuation allowance as a result of the ca merger , partially offset by $ 113 million of expense from a change in estimate of our fiscal year 2018 benefit as a result of proposed u.s. treasury regulations issued in fiscal year 2019 related to the 2017 tax reform act . the benefit from income taxes in fiscal year 2018 was primarily due to income tax benefits recognized from the enactment of the 2017 tax reform act and the redomiciliation transaction . fiscal year 2018 compared to fiscal year 2017 the following tables set forth our results of operations for the periods presented : replace_table_token_8_th the following table sets forth net revenue by segment for the periods presented : net revenue replace_table_token_9_th 48 replace_table_token_10_th our total net revenue increased primarily due to the acquisition of brocade in fiscal year 2018 , as well as strong organic
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for 2016 , in addition to its specific infrastructure and regulatory projects noted above , idacorp and idaho power have established a number of organizational initiatives , including the following : make progress on three core focuses for 2016—improving idaho power 's core business , growing revenues , and enhancing the brand and positioning the company for the future ; continue to enhance and promote idaho power 's safety culture ; grow financial strength by supporting business development in our service territory while actively managing costs ; continue progress toward idacorp 's target dividend payout ratio ; pursue responsible investments that address customer growth while improving reliability , enhancing idaho power customers ' experience , increasing shareholder value , and managing carbon impacts ; and integrate new renewable generation resources into idaho power 's grid and explore intra-hour market opportunities to help achieve greater reliability and improve system dispatch . overview of general factors and trends affecting results of operations and financial condition idacorp 's and idaho power 's results of operations and financial condition are affected by a number of factors , and the impact of those factors is discussed in more detail later in this md & a . to provide context for the discussion elsewhere in this report , some of the more notable factors include the following : regulation of rates and cost recovery : the price that idaho power is authorized to charge for its electric and transmission service is a critical factor in determining idacorp 's and idaho power 's results of operations and financial condition . those rates are established by state regulatory commissions and the ferc , and are intended to allow idaho power an opportunity to recover its expenses and earn a reasonable return on investment . because of the significant impact of ratemaking decisions , and in furtherance of its goal of advancing a purposeful regulatory strategy , idaho power has focused on timely recovery of its costs through filings with the company 's regulators , working to put in place innovative regulatory mechanisms , and on the prudent management of expenses and investments . idaho power has a regulatory settlement stipulation in idaho that remains in effect during 2016. that stipulation includes provisions for the accelerated amortization of certain tax credits to help achieve a minimum 9.5 percent return on year-end equity in the idaho jurisdiction ( idaho roe ) . also during 2016 , idaho power will continue to assess its need to file a general rate case to reset base rates . rate base growth and infrastructure investment : as noted above , the rates established by the ipuc and opuc are determined so as to provide an opportunity for idaho power to recover authorized operating expenses and earn a reasonable return on “ rate base. ” rate base is generally determined by reference to the original cost ( net of accumulated depreciation ) of utility plant in service , subject to various adjustments for deferred taxes and other items . 33 over time , rate base is increased by additions to utility plant in service and reduced by depreciation and retirement of utility plant and write-offs as authorized by the ipuc and opuc . in recent years , idaho power has been pursuing significant enhancements to its utility infrastructure , including major ongoing transmission projects such as the boardman-to-hemingway and gateway west projects , in an effort to ensure an adequate supply of electricity , to provide service to new customers , and to maintain system reliability . idaho power 's existing hydroelectric and thermal generation facilities also require continuing upgrades and component replacement , and the company is undertaking a significant relicensing effort for the hells canyon complex ( hcc ) , its largest hydroelectric generation resource . idaho power expects to include completed capital projects in its next general rate case or , in circumstances where appropriate , a single-issue rate case for individual projects with a significant capital cost . depending on the outcome of the regulatory process and items such as the rate of return authorized by the ipuc and opuc , this growth in rate base has the potential to increase idaho power 's revenues and earnings . economic conditions : economic conditions impact consumer demand for electricity and revenues , collectability of accounts , the volume of off-system sales , and the need to construct and improve infrastructure , purchase power , and implement programs to meet customer load demands . in recent years , idaho power has seen growth in the number of customers in its service area—in 2015 its customer count grew by 1.8 percent , and employment in idaho power 's service area grew by approximately 4.9 percent in 2015 based on idaho department of labor preliminary december 2015 data . idaho power expects that the number of customers will continue to increase in the foreseeable future . to help encourage growth , idaho power has in recent years undertaken efforts to promote economic development and attract industrial and commercial customers to its service area . weather conditions : weather and agricultural growing conditions have a significant impact on energy sales and the seasonality of those sales . relatively low and high temperatures result in greater energy use for heating and cooling , respectively . during the agricultural growing season , which in large part occurs during the second and third quarters , irrigation customers use electricity to operate irrigation pumps , and weather conditions can impact the timing and degree of use of those pumps . idaho power also has tiered rates and seasonal rates , which contribute to increased revenues during higher-load periods , most notably during the third quarter of each year when overall customer demand is highest . further , as idaho power 's hydroelectric facilities comprise nearly one-half of idaho power 's nameplate generation capacity , precipitation levels impact the mix of idaho power 's generation resources . when hydroelectric generation is reduced , idaho power must rely on more expensive generation sources and purchased power . story_separator_special_tag when favorable hydroelectric generating conditions exist for idaho power , they also may exist for other pacific northwest hydroelectric facility operators , lowering regional wholesale market prices and impacting the revenue idaho power receives from off-system sales of its excess power . much of the adverse or favorable impact of this volatility is addressed through the idaho and oregon power cost adjustment ( pca ) mechanisms . mitigation of impact of fuel and purchased power expense : in addition to hydroelectric generation , idaho power relies significantly on coal and natural gas to fuel its generation facilities and power purchases in the wholesale markets . fuel costs are impacted by electricity sales volumes , the terms of contracts for fuel , idaho power 's generation capacity , the availability of hydroelectric generation resources , transmission capacity , energy market prices , and idaho power 's hedging program for managing fuel costs . recently , low natural gas prices have made operation of idaho power 's natural gas power plants more economical , resulting in increased operation of those plants and lessened operation of coal-fired plants . purchased power costs are impacted by the terms of contracts for purchased power , the rate of expansion of alternative energy generation sources such as wind or solar energy , and wholesale energy market prices . idaho power is required by law to purchase power from some purpa generation projects at a specified price regardless of the then-current load demand or wholesale energy market prices . this increases the likelihood that idaho power will at times be required to reduce output from its lower-cost hydroelectric and fossil fuel-fired generation resources and may be required to sell in the wholesale power market the power it purchases from purpa projects at a significant loss , which results in increased customer rates . the idaho and oregon pca mechanisms mitigate in large part the potential adverse impacts of fluctuations in power supply costs to idaho power , including all of the idaho-jurisdiction purpa power purchase costs . regulatory and environmental compliance costs : idaho power is subject to extensive federal and state laws , policies , and regulations , as well as regulatory actions and audits by agencies and quasi-governmental agencies , including the ferc and the north american electric reliability corporation . compliance with these requirements directly influences idaho power 's operating environment and affects idaho power 's operating costs . environmental laws and regulations , in particular , may increase the cost of operating generation plants and constructing new facilities , require that idaho power install additional pollution control devices at existing generating plants , or require that idaho power cease operating certain generation plants . for instance , the boardman coal-fired power plant , in which idaho 34 power owns a 10-percent interest , is scheduled to cease coal-fired operations by the end of 2020 , a decision driven in large part by the substantial cost of environmental controls required by existing regulations . idaho power expects to spend a considerable amount on environmental compliance and controls in the next decade . water management and relicensing of the hells canyon hydroelectric project ( hcc ) : because of idaho power 's reliance on stream flow in the snake river and its tributaries , idaho power participates in numerous proceedings and venues that may affect its water rights , seeking to preserve the long-term availability of its rights for its hydroelectric projects . also , idaho power is involved in renewing its long-term federal license for the hcc , its largest hydroelectric generation source . given the number of parties and issues involved , idaho power 's relicensing costs have been and will continue to be substantial . idaho power can not currently determine the terms of , and costs associated with , any resulting long-term license . story_separator_special_tag idaho power 's operating income , excluding the impact of the sharing mechanisms under idaho regulatory settlement stipulations , increased $ 8.9 million for 2015 compared with 2014. increased sales volumes associated with continued growth in the number of idaho power customers increased operating income by $ 10.3 million , though this was partially offset by a $ 6.7 million decrease from reduced overall usage per customer . increases in depreciation and property taxes , and other operating and maintenance expenses ( which include labor-related expenses ) , combined to decrease operating income by $ 10.4 million in 2015 when compared with 2014. modifications were made to idaho power 's fca mechanism for 2015 to track fluctuations in residential and small commercial sales associated with actual weather conditions , as opposed to normalized weather conditions under the 2014 fca mechanism . the fca mechanism modification , combined with lower sales per customer , provided a $ 12.7 million benefit to operating income in 2015 compared with 2014. additionally , two income tax matters had a significant impact on the comparative results . income taxes in 2015 reflect a $ 7.2 million flow-through impact of a tax deductible make-whole premium idaho power paid upon early redemption of long-term debt during 2015. income tax expense in 2014 included a $ 24.5 million benefit from the cumulative effect of a tax method change made in that year . further , during 2015 idaho power recorded a total of $ 3.2 million as a provision against current revenue related to an october 2014 idaho regulatory settlement stipulation that requires sharing with idaho customers of a portion of 2015 earnings when idaho power 's idaho roe exceeds 10.0 percent . by contrast , during 2014 under a prior , yet similar , idaho regulatory settlement stipulation , idaho power recorded $ 24.7 million for sharing with idaho customers . of that amount , $ 16.7 million was recorded as additional pension expense and $ 8.0 million was recorded as a provision against current revenues to be refunded to customers through a future rate reduction . from 2011 to 2015 , idaho power has shared over $ 120 million with customers through settlement stipulations .
| 6.2 ) rent from electric property , wheeling and other revenue 3.0 other operating and maintenance expenses ( 4.2 ) change in idaho power operating income prior to sharing mechanisms 8.9 change in operating income as a result of sharing mechanisms 21.5 change in idaho power operating income 30.4 non-operating income and expenses ( 0.4 ) change in income tax benefit related to first mortgage bond redemption costs 7.2 change in income tax expense due to cumulative impact of tax method change recorded in 2014 ( 24.5 ) other change in income tax expense ( 11.1 ) total increase in idaho power net income 1.6 other changes ( net of tax ) ( 0.4 ) net income attributable to idacorp , inc. - december 31 , 2015 $ 194.7 35 idacorp 's 2015 net income was nearly equivalent to its 2014 net income . however , there were several notable differences in the drivers of each year 's results .
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( 1 ) non-cash tcja benefit ( expense ) associated with continuing operations of $ 3.4 million was recorded in income tax expense ( benefit ) in the fourth quarter of 2017 as a result of the federal tax rate changing from 35 % to 21 % effective december 22 , 2017. the majority of this benefit was recorded at nw natural . nw holdings eps amounts are calculated using diluted shares of 28.8 million as shown on the nw holdings consolidated statements of comprehensive income . the tcja impacts in the ngd segment and other may not correlate exactly to the consolidated amount due to rounding . see note 11 for additional information on the tcja . 34 story_separator_special_tag to annual employee cost increases . the decrease of $ 2.0 million at nw holdings was primarily driven by increases in professional service costs and expenses associated with developing the water business , partially offset by the increase of $ 1.0 million at nw natural . 2018 compared to 2017 . nw holdings ' and nw natural 's net income from continuing operations were $ 67.3 million and $ 68.0 million , respectively , in 2018 compared to $ 72.1 million and $ 71.7 million , respectively , in 2017 . the decrease was primarily due to the benefit associated with the tcja deferred income tax remeasurement in 2017. excluding the benefit in 2017 associated with the tcja remeasurement , nw holdings adjusted net income from continuing operations decreased $ 1.4 million . see the non-gaap reconciliations at the beginning of item 7 for additional information . the decrease was primarily due to the following factors , all of which were driven by activity at nw natural : an $ 8.9 million decrease in ngd segment margin primarily due to the deferral of excess revenue associated with the federal income tax rate decrease as a result of the tcja ; a $ 4.3 million increase in operations and maintenance expense driven by general payroll and benefits increases as well as increases in professional services and contract labor ; a $ 4.1 million increase in depreciation and amortization primarily due to additional capital expenditures ; and a $ 3.3 million decrease in other income ( expense ) , net , primarily due to an increase in pension and postretirement benefit expense , partially offset by an increase in the equity portion of afudc ; partially offset by a $ 20.2 million decrease in income tax expense due to the decrease in the federal income tax rate as a result of the tcja and lower pretax earnings . 36 2020 outlook we expect to make significant progress on our long-term objectives in the coming year . our natural gas distribution business is focused on providing safe , reliable , and affordable energy in an environmentally responsible way to better the lives of the public we serve . our water and wastewater utility business is committed to reliably providing clean water and safe wastewater services to the public , while also continuing to grow organically and through acquisitions . in 2020 , we remain focused on the strategic pillars of our business : ensuring safe & reliable service ; providing superior customer service ; advancing constructive legislative policies and regulation ; enabling customer growth ; and leading in a low-carbon future . ensuring safe and reliable service . delivering our products safely and reliably to customers is our first priority . at nw natural , we remain focused on safety and emergency response through hands-on , scenario-based training for employees , third-party contractors , and first responders . the reliability , resiliency and safety of our gas system is critical and to this end , we remain focused on investing in necessary upgrades and replacing key system components . safety for our gas infrastructure also includes maintaining and strengthening our cybersecurity defenses , upgrading key technology systems over the next several years , and preparing for large-scale emergency events , such as seismic hazards . our water and wastewater utilities are focused on enhancing their capital expenditure plans to ensure continued safe and reliable service to customers and allow us to readily prioritize capital investments . providing superior customer experience . we have a legacy of providing excellent customer service and a long-standing dedication to continuous improvement , which has resulted in nw natural consistently receiving high rankings in the j.d . power and associates customer satisfaction studies . in 2020 , we intend to strive to enhance our natural gas customers ' experience to meet their evolving expectations by prioritizing improvements to technology and internal processes , to support our customers ' most frequent interactions and highest value touchpoints . advancing constructive legislative policies and regulation . nw natural recently worked with lawmakers and the governor to pass a landmark bill for the state of oregon senate bill 98 is groundbreaking legislation that allows utilities to procure renewable natural gas for homes and businesses . while currently in regulatory rulemaking , nw natural has been pursuing potential renewable natural gas supplies and expects to begin procuring it for customers in 2020. this year , nw natural plans to submit an integrated resource plan to both the oregon and washington commissions outlining our key long-term capital projects and resource plans for conventional and renewable natural gas . nw natural will also continue working with the epa and other stakeholders on an environmentally protective and cost-effective clean-up for the portland harbor superfund site . for our water utilities , we are focused on building relationships with our current and prospective regulators , pursuing efficient approval processes for acquisitions , and engaging in constructive regulatory proceedings . enabling customer growth . natural gas is the preferred energy choice in our service territory given its efficient , affordable , and reliable qualities . we are focused on leveraging these key attributes to capitalize on our region 's strong economic growth . we continue to grow our market share in the residential sector and capture new commercial customers as well as multifamily developments . story_separator_special_tag at nw natural water , we continue to be focused on supporting the fast-growing communities we currently serve and continuing our disciplined acquisition strategy . leading in a low-carbon future . we are deeply committed to a clean energy future and environmental stewardship . it 's why nw natural launched a low-carbon initiative to reduce emissions in the communities we serve by leveraging our modern natural gas pipeline system in new ways , working closely with customers , policymakers and regulators , and embracing cutting-edge technology . in 2020 , we will continue to execute on our rng strategy with plans to procure rng for our customers as prescribed under oregon senate bill 98 , execute on our rng interconnection projects , and develop voluntary renewable product offerings for our customers . a study commissioned with a premier environmental consultant has concluded that natural gas can help achieve crucial emission reductions of 80 % by 2050. nw natural intends to strive to help its customers reduce and offset their consumption , support the development of rng , and explore other innovative solutions to lower the carbon intensity of natural gas , such as power to gas . we also intend to leverage technology and relationships to examine ways to reduce emissions across the entire value chain from suppliers to end-use heating appliances . 37 dividends nw holdings dividend highlights include : replace_table_token_11_th in january 2020 , the nw holdings ' board of directors declared a quarterly dividend on nw holdings common stock of $ 0.4775 per share , payable on february 14 , 2020 , to shareholders of record on january 31 , 2020 , reflecting an indicated annual dividend rate of $ 1.91 per share . see `` financial condition - liquidity and capital resources `` for more information regarding the nw holdings and nw natural dividend policies and regulatory conditions on nw natural dividends to its parent , nw holdings . results of operations regulatory matters regulation and rates natural gas distribution . nw natural 's natural gas distribution business is subject to regulation by the opuc and wutc with respect to , among other matters , rates and terms of service , systems of accounts , and issuances of securities by nw natural . in 2019 , approximately 89 % of ngd customers were located in oregon , with the remaining 11 % in washington . earnings and cash flows from natural gas distribution operations are largely determined by rates set in general rate cases and other proceedings in oregon and washington . they are also affected by weather , the local economies in oregon and washington , the pace of customer growth in the residential , commercial , and industrial markets , and nw natural 's ability to remain price competitive , control expenses , and obtain reasonable and timely regulatory recovery of its natural gas distribution-related costs , including operating expenses and investment costs in plant and other regulatory assets . see `` most recent completed rate cases `` below . mist interstate gas storage . nw natural 's interstate storage activity at mist is subject to regulation by the opuc , wutc , and the federal energy regulatory commission ( ferc ) with respect to , among other matters , rates and terms of service . the opuc also regulates the intrastate storage services at mist , while ferc regulates the interstate storage services at mist . the ferc uses a maximum cost of service model which allows for gas storage prices to be set at or below the cost of service as approved by the agency in nw natural 's last regulatory filing . the opuc schedule 80 rates are tied to the ferc rates , and are updated whenever nw natural modifies ferc maximum rates . other . in june 2018 , nwn gas storage , a wholly-owned subsidiary of nw holdings , entered into a purchase and sale agreement for the sale of all of its ownership interests in gill ranch , a natural gas storage facility located near fresno , california . the sale was approved by the cpuc in december 2019. the wholly owned rate regulated water businesses of nwn water , a wholly owned subsidiary of nw holdings , are subject to regulation by the utility commissions in the states in which they are located , which currently include oregon , washington , and idaho , and is expected to include texas . most recent completed rate cases oregon . effective november 1 , 2018 , the opuc authorized rates to customers based on an roe of 9.4 % , an overall return of 7.317 % , and a capital structure of 50 % common equity and 50 % long-term debt . in march 2019 , the opuc issued an order resolving the remaining matters of the rate case regarding recovery of nw natural 's pension balancing account and the return of tax reform benefits to customers . for additional information , see `` rate mechanisms - pension cost deferral and pension balancing account `` and `` rate mechanisms - tax reform deferral `` below . on december 30 , 2019 , nw natural filed a general rate case in oregon . for more information , see `` regulatory proceeding updates - 2020 oregon rate case `` below . washington . effective january 1 , 2009 , through october 31 , 2019 , the wutc authorized rates to customers based on an roe of 10.1 % and an overall rate of return of 8.4 % with a capital structure of 51 % common equity , 5 % short-term debt , and 44 % long-term debt . effective november 1 , 2019 , the wutc authorized rates to customers based on an roe of 9.4 % and an overall rate of return of 7.161 % with a capital structure of 50.0 % long-term debt , 1.0 % short-term debt , and 49.0 % common equity .
| in march 2019 , the opuc issued an order resolving the remaining open items from nw natural 's 2018 oregon general rate case regarding recovery of the pension balancing account and treatment of the benefits associated with the tcja . as a result of the order , in the first quarter of 2019 , nw natural recorded a disallowance and several benefits and expenses through the consolidated statements of comprehensive income as follows : pension balancing account . approximately $ 12.5 million in previously deferred pension expenses were recognized of which approximately $ 4.6 million was recorded in operations and maintenance expense and $ 7.9 million was recorded in other income ( expense ) , net . these charges were offset with a corresponding increase in revenue of $ 7.1 million and in income tax benefits of $ 2.7 million as the order required the offset of certain deferred tcja benefits against the pension balancing account . additional tcja income tax benefits were realized throughout 2019 to offset the remainder of the $ 12.5 million charge . nw natural also recognized a regulatory pension disallowance of $ 10.5 million with approximately $ 3.9 million recognized in operations and maintenance expense and $ 6.6 million recognized in other income ( expense ) , net , partially offset by related discrete income tax benefits of $ 1.1 million . lastly , nw natural realized $ 3.8 million of deferred regulatory interest accrued on the pension balancing account . 35 deferred tcja benefits and timing variance . in addition , the opuc ordered the return of approximately $ 6.3 million of excess deferred income taxes associated with plant and gas reserves annually beginning april 1 , 2019. as a result , nw natural recognized approximately $ 2.0 million in income tax benefits in the first quarter of 2019. reductions to customer billings commenced april 1 , 2019 and offset these income tax benefits in total by the end of 2019. nw natural will continue reductions to customer billings and recognition of deferred income tax benefits in subsequent years until all benefits have been returned . the increase of $ 1.0 million at nw natural was primarily due
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story_separator_special_tag decreased $ 0.5 million , or 8.5 % due to a significant decrease in the amount of nsf activity . the bank sold a large portion of its investment portfolio in 2010 to generate the cash needed to payoff its advances from the federal home loan bank of indianapolis . investment securities sales produced a gain of $ 3.3 million in 2010 , which was $ 4.2 million , or 56.1 % less than the gain produced by a portfolio restructuring in 2009. in 2009 , the company also recorded a charge to earnings of $ 11.8 million to recognize the other than temporary impairment ( otti ) of pooled trust preferred collateralized debt obligations ( trup cdos ) held in the bank 's investment portfolio . there was no additional otti in 2010 , and as a result , non interest income increased by $ 11.8 million . mortgage loan origination activity increased in 2010 as borrowers took advantage of the low rate environment to refinance , and mortgage loan origination income increased $ 245,000 , or 51.8 % . income on bank owned life insurance policies increased $ 451,000 , or 30.2 % as a reduction in the benefit payable to participating officers and directors allowed the bank to record more of the increase in the cash surrender value as income . other non interest income increased $ 864,000 , or 26.2 % due to higher atm and debit card interchange income and higher rental income on other real estate owned ( oreo ) . 20 other expenses decreased $ 5.3 million , or 10.6 % compared to 2009 due to cost control efforts and a significant reduction in losses and write downs of oreo properties as the decline in property values began to abate . salaries and benefits decreased $ 1.6 million or 7.9 % as salaries and wages decreased $ 0.9 million due to the reduction in fulltime equivalent employees from 362 as of december 31 , 2009 to 342 as of december 31 , 2010 , and the elimination of the bonus program in 2010. employee benefits decreased $ 0.7 million due to the elimination of the matching contribution to the 401 ( k ) plan after the first quarter of 2010 and lower health insurance costs due to the decrease in staff . occupancy expense decreased $ 393,000 , or 12.1 % primarily due to lower maintenance expense as the utilization of outsourced janitorial services was decreased . professional fees increased $ 0.6 million , or 37.9 % in 2010 due to increased legal fees and other collection related services . losses on sales and write downs of oreo decreased from $ 10.5 million in 2009 to $ 3.7 million in 2010 as the rapid decrease in real estate values experienced in 2009 appears to have slowed considerably . fdic deposit insurance assessments increased $ 254,000 , or 8.8 % due to an increase in the bank 's assessment rate as the result of the change in the bank 's risk rating in 2010. other expenses decreased from $ 4.5 million in 2009 to $ 3.9 million in 2010 due to lower atm and debit card processing costs and lower state taxes . the company 's net loss for 2010 , before the provision for income taxes was $ 8.7 million , a decrease of $ 25.6 million from the reported pre tax loss of $ 34.3 million in 2009. in 2009 , we established a valuation allowance of $ 13.8 million against our $ 17 million deferred tax asset ( dta ) , and as a result , only recorded a tax benefit of $ 102,000 on our pre tax loss of $ 34.3 million . in 2010 , we decided to record a tax expense of $ 3.2 million to increase the dta valuation allowance to the full amount of the dta . this resulted in a net loss of $ 11.9 million in 2010 , compared to a net loss of $ 34.2 million in 2009. earnings for the bank are usually highly reflective of the net interest income . economic conditions deteriorated rapidly in 2008 , and the federal open market committee ( fomc ) of the federal reserve lowered the fed funds rate target to 0-0.25 % , where it has remained . the yield curve shape became steeply , positively sloped in 2009 and through 2010. the fed extended its quantitative easing program in 2010 and 2011 in an attempt to keep longer term market rates low and encourage borrowing and fight deflation . this removed some of the slope from the yield curve . loan and investment yields follow long term market yields , and the yield on our loans decreased from 5.84 % in 2009 to 5.70 % in 2010 and 5.53 % in 2011. the yields on our investment securities also decreased each year , from 4.15 % in 2009 to 2.78 % in 2010 and 2.30 % in 2011. in the current environment of historically low interest rates , we have been reinvesting our investment portfolio cash flow into shorter maturity securities and maintaining large cash reserves , which contributed to the decline in the investment yield in 2010 and 2011. funding costs are more closely tied to the short term rates , and the average cost of our deposits decreased from 1.70 % in 2009 to 1.28 % in 2010 and to 1.04 % in 2011. borrowed funds costs are primarily based on the 3 month libor , which also decreased sharply in 2009 before leveling off in 2010 and rising late in 2011. as a result our average cost of borrowed funds decreased from 4.30 % in 2009 to 3.52 % in 2010 and to 2.76 % in 2011. this caused our net interest margin to increase slightly from 3.06 % in 2009 to 3.10 % in 2010 before decreasing slightly to 3.07 % in 2011. the average cost of interest bearing deposits was 1.22 % , 1.49 % , and 1.94 % , for 2011 , 2010 , and 2009 , story_separator_special_tag respectively . the following table shows selected financial ratios for the same three years . replace_table_token_3_th 21 balance sheet activity – due to the poor asset quality and the losses recorded in 2009 and 2010 , the bank faced increased regulatory scrutiny , including a requirement to increase its capital ratios . in 2010 , the corporation continued to focus its balance sheet strategy on restricting asset growth and actively managing capital . during the year , assets decreased $ 124.0 million , or 9.0 % as the bank used loan maturities and investment sales to fund the prepayment of federal home loan bank advances . this balance sheet strategy continued throughout 2011 , with assets decreasing another $ 21.4 million , or 1.7 % , and total borrowed funds decreasing 11.5 % from $ 143.5 million to $ 127.0 million . the investment portfolio primarily consists of mortgage backed securities issued by gnma , and debt securities issued by u.s government agencies and states and political subdivisions . during 2011 , as economic conditions began to improve nationally , we purchased a small amount of intermediate term corporate debt securities . we also continued to hold three pooled trust preferred securities issued by banks and insurance companies . due to the lack of an active market for pooled trust preferred collateralized debt obligations ( trup cdos ) , we utilize an independent third party to value that portion of our investment portfolio . based on these third party valuations , the values of these securities are significantly below our cost . the fair values of each of the three trust preferred cdos improved during 2010 and 2011 , and no other than temporary impairment has been recognized since 2009. our loan portfolio decreased $ 73.4 million as the slowly recovering economic conditions have not resulted in an increase in local loan demand . the largest decreases in the loan portfolio were in construction real estate loans , down $ 22.9 million , or 49.4 % , and commercial and residential real estate loans , which decreased 5.0 % and 5.1 % , respectively . the soft real estate market and the high amount of charge offs in these areas contributed to their declines . we expect the loan portfolio to continue to decrease in the first quarter of 2012 before stabilizing and then beginning to increase before the end of 2012. deposits decreased $ 9.6 million , or 0.9 % , to $ 1.022 billion in 2011. we continued to allow our brokered certificates of deposit to mature without being renewed and replaced that funding with in market deposit growth . we reduced our total brokered cds from $ 47.0 million at december 31 , 2010 to $ 24.0 million at december 31 , 2011. the mix of deposits changed during 2011 as the low interest rate environment caused many customers to put their maturing certificate of deposits into checking and savings accounts . we also did not replace our maturing fhlb advances and repurchase agreements in 2011 , bringing the total amount of non deposit funding down from $ 143.5 million at december 31 , 2010 to $ 127.0 million at december 31 , 2011. this change in the funding structure , along with the decrease in interest rates , contributed to the decrease in interest expense in 2011. asset quality - the corporation uses an internal loan classification system as a means of tracking and reporting problem and potential problem credit assets . loans that are rated one to four are considered “ pass ” or high quality credits , loans rated five are “ watch ” credits , and loans rated six and higher are “ problem assets ” , which includes non performing loans . non performing assets include all loans that are 90 days or more past due , non accrual loans , other real estate owned ( oreo ) , and troubled debt restructurings ( tdrs ) . asset quality began to weaken in 2007 and problem assets increased to $ 157.8 million , or 12.5 % of total assets at december 31 , 2010. throughout 2011 , economic conditions nationally and in southeast michigan improved moderately . although unemployment remains high and property values have not begun to recover , problem assets decreased to $ 136.8 million , or 11.0 % of total assets at december 31 , 2011. the corporation monitors the allowance for loan and lease losses ( alll ) and the values of the oreo each quarter , making adjustments when necessary . we believe that the alll adequately provides for the losses in the portfolio and that the reported oreo value is accurate as of december 31 , 2011. we expect the recovery of the local economic environment to continue to slowly along with the rest of the country in 2012. this may result in continued high unemployment and low property values in our market area . however , loans that were 30-89 days past due decreased from $ 27.9 million , or 3.70 % of loans , as of december 31 , 2010 to $ 15.6 million , or 2.29 % of loans as of december 31 , 2011. delinquency is one of the indications of potential problems with a loan , and this second consecutive decrease in early delinquencies may be an indication that the problem asset level will continue to improve in 2012. we also expect the provision for loan losses to improve again in 2012 , although it is still expected to remain above our normal levels . cash flow – cash flows provided by operations decreased compared to 2010 as the impact of the smaller loss and the increase in interest payables and other liabilities was offset by the smaller decrease in interest receivable and other assets and the change in the deferred tax asset . the increase in other liabilities was primarily due to the accrual of a death benefit payable of $ 1.6 million .
| the net charge offs exceeded the provision by $ 358,000 , causing a decrease of that amount in our allowance for loan losses . due to the decrease in the size of the portfolio , the allowance as a percent of loans increased from 2.82 % as of december 31 , 2010 to 3.07 % as of december 31 , 2011. other income decreased 6.2 % from $ 19.4 million in 2010 to $ 18.2 million in 2011. service charges and other fees decreased $ 603,000 , or 11.4 % as nsf fee income decreased due to lower overdraft activity . security gains decreased $ 2.2 million due to the large amount of gains on sales of securities in 2010 that were the result of selling investments to pay off federal home loan bank advances . the gains recorded in 2011 were primarily the result of bonds owned at discounts being called at par . mortgage loan origination income decreased 32.8 % from 2010 as the weak real estate market conditions had a negative impact on the amount of sales and refinance activity . income from bank owned life insurance increased $ 1.7 million , or 85.5 % , due to the proceeds of a death claim for one of our directors in 2011. other non-interest income increased 6.6 % due to an increase in atm and debit card interchange income . 19 other expenses decreased $ 1.7 million , or 3.7 % in 2011 compared to 2010. salaries and benefits expense increased $ 369,000 , or 1.9 % as small reductions in salaries and retirement benefits were offset by increases in insurance costs and payroll taxes . occupancy expense increased 8.2 % as property taxes , utilities , and maintenance expenses all increased . the increase in maintenance expense includes an accrual of $ 340,000 for additional environmental cleanup costs at our temperance branch location . equipment expense decreased $ 229,000 , or 7.2 % , due
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in august 2019 , we entered into a preclinical research collaboration with the jain foundation to study edasalonexent in dysferlinopathy , which includes limb-girdle muscular dystrophy type 2b and miyoshi myopathy , a serious rare disease that causes progressive muscle weakness for which there is currently no approved treatment option . in dysferlinopathy , muscles lack dysferlin and as a result nf-kb is chronically activated . under our collaboration , we and the jain foundation are conducting a preclinical study to evaluate the potential of edasalonexent as a therapeutic intervention for dysferlinopathy by measuring disease progression in dysferlin-deficient mice treated with edasalonexent . initial results are expected in the first half of 2020. in addition to edasalonexent , we have developed cat-5571 as a potential treatment for cystic fibrosis , or cf . cat-5571 is an oral small molecule that is designed to activate autophagy , a mechanism for recycling cellular components and digesting pathogens , which is important for host defenses and is depressed in cf . we have completed investigational new drug , or ind , application-enabling activities for cat-5571 . since our inception in june 2008 , we have devoted substantially all of our resources to developing our proprietary platform technology , identifying potential product candidates , undertaking preclinical studies and conducting clinical trials for three clinical-stage compounds , building our intellectual property portfolio , organizing and staffing our company , business planning , raising capital , and providing general and administrative support for these operations . to date , we have primarily financed our operations through private placements of our preferred stock , registered offerings of our common stock , including our initial public offering , or ipo , as well as a secured debt financing . from our inception through december 31 , 2019 , we raised an aggregate of $ 272.7 million through various private placements of preferred stock , our ipo , debt financing as well as various other registered equity offerings , including underwritten public offerings , at-the-market , or atm , offerings , and stock option and warrant exercises . following december 31 , 2019 , we raised an additional $ 26.5 million in gross proceeds from an underwritten public offering of common stock in january 2020 , or our january 2020 financing , and an additional $ 1.1 million in gross proceeds from our atm offering program . financial overview revenue as of december 31 , 2019 , we have not generated any revenue from product sales . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , and the development of our product candidates , which include : employee-related expenses including salaries , benefits and stock-based compensation expense ; 85 expenses incurred under agreements with third parties , including contract research organizations that conduct clinical trials and research and development and preclinical activities on our behalf ; the cost of consultants ; the cost of lab supplies and acquiring , developing and manufacturing study materials ; and facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . the following summarizes our most advanced current research and development programs : edasalonexent for the treatment of dmd edasalonexent is a conjugate of salicylic acid and the omega-3 fatty acid docosahexaenoic acid , or dha , a naturally occurring unsaturated fatty acid with anti-inflammatory properties , based on our proprietary safely metabolized and rationally targeted linker , or smart linker , drug discovery platform . we designed edasalonexent to inhibit nf- k b. in dmd the loss of dystrophin leads to chronic activation of nf- k b , which is a key driver of skeletal and cardiac muscle disease progression . we reported results from the phase 1 portion of the movedmd trial in january 2016 and reported top-line safety and efficacy results for the 12-week placebo-controlled phase 2 portion of the trial in january 2017. in july 2016 , we initiated an open-label extension of the movedmd trial , and we reported efficacy and safety results from the open-label extension in october 2017 , february 2018 , april 2018 , october 2018 , february 2019 and april 2019 reflecting data through 24 , 36 , 48 , 60 and 72 weeks of edasalonexent treatment . in march 2019 , we launched the galaxydmd open-label extension trial . the remaining boys participating in the movedmd trial open-label extension transitioned to the galaxydmd trial , which is designed to provide longer term safety data to support registration filings . in september 2018 , we initiated the global phase 3 polarisdmd trial of edasalonexent for the treatment of dmd , regardless of mutation type , and completed enrollment in september 2019. we expect to report top-line results from the phase 3 polarisdmd trial in the fourth quarter of 2020. the phase 3 trial is designed to evaluate the efficacy and safety of edasalonexent in patients with dmd and is intended to support an application for commercial registration of edasalonexent . when boys complete the 12-month phase 3 trial , they are given the option to receive open-label edasalonexent in the galaxydmd trial . edasalonexent for the treatment of becker muscular dystrophy , or bmd we are evaluating the potential benefits of edasalonexent treatment in bmd and investigating potential approaches for clinical trials in bmd . edasalonexent for the treatment of dysferlinopathy we are evaluating the potential benefits of edasalonexent treatment in dysferlinopathy , which includes limb-girdle muscular dystrophy type 2b and miyoshi myopathy , through a preclinical study in collaboration with the jain foundation . story_separator_special_tag cat-5571 cat-5571 is a smart linker conjugate that contains cysteamine , a naturally occurring molecule that is a degradation product of the amino acid cysteine , and dha . cat-5571 is a potential oral therapy to treat cf . cat-5571 is a small molecule designed to activate autophagy , a mechanism for recycling cellular components and digesting pathogens , which is important for host defenses and is depressed in cf . we have completed ind-enabling activities for cat-5571 . 86 we typically use our employee , consultant and infrastructure resources across our development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs , other internal costs or external consultant costs to specific product candidates or development programs . we record our research and development expenses net of any research and development tax incentives we are entitled to receive from government authorities . the following table summarizes our research and development expenses by program ( in thousands ) : replace_table_token_1_th since inception of the edasalonexent and the cat-5571 programs , total direct expenses to support the programs have been $ 49.4 million and $ 4.2 million , respectively . the successful development of our product candidates is highly uncertain . accordingly , at this time , we can not reasonably estimate the nature , timing and costs of the efforts that will be necessary to complete the remainder of the development of these product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from edasalonexent or any of our other current or potential product candidates . this is due to our need to raise additional capital to fund further clinical trials of our product candidates and the numerous risks and uncertainties associated with developing medicines , including the uncertainties of : establishing an appropriate safety profile with ind-enabling toxicology studies ; successful enrollment in , and completion of clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , whether alone or in collaboration with others ; and a continued acceptable safety profile of the products following approval . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate . 87 research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect to incur significant research and development costs for the foreseeable future . we expect that our research and development expenses will increase significantly in the near term in connection with the substantial activities required to conduct our phase 3 polarisdmd trial and prepare for registration of edasalonexent for the treatment of dmd . 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 . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , commercial , business development , legal and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters , and fees for accounting and consulting services . we anticipate that in the near term our general and administrative expenses will remain relatively consistent with their current levels . as we approach the anticipated read out of top-line results from our phase 3 polarisdmd trial in the fourth quarter of 2020 , we may increase our general and administrative expenditures to hire personnel to support potential commercialization of edasalonexent , dependent on our available capital resources and our prospects for obtaining additional financing . restructuring in april 2018 , we announced a strategic shift to focus resources on our lead program edasalonexent . consequently , we reduced our workforce by 40 % during the quarter ended june 30 , 2018. charges for employee severance , employee benefits , consolidation of facilities and contract terminations of $ 0.9 million were recorded in the year ended december 31 , 2018 , all of which was paid by december 31 , 2019. of these costs , $ 0.4 million was recorded in the general and administrative section and $ 0.5 million was recorded in the research and development section of the accompanying consolidated statement of operations . we also recorded a net gain in other income , net of $ 0.3 million in connection with the sale or exchange of assets disposed of during the consolidation and relocation of facilities . other income ( expense ) other income ( expense ) , net consists of gains and losses on sale and disposal of property and equipment , interest income earned on our cash , cash equivalents , and short-term investments , interest expense incurred on debt instruments , amortized deferred financing costs and amortized debt discount and net amortization expense on short-term investments . critical accounting policies and significant judgments and estimates this discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with united states generally accepted accounting principles .
| these decreases were partially offset by a $ 0.4 million increase in consulting and professional services associated with commercialization activities , and a $ 0.2 million increase in the general and administrative portion of insurance expense . other income ( expense ) , net other income ( expense ) , net increased by $ 0.3 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 due to a decrease in interest expense of $ 0.1 million following to the maturity of our now expired credit facility in september 2018 and an increase of $ 0.4 million in interest and investment income due to an increase in our interest-bearing assets following our february 2019 financing . these increases were partially offset by a $ 0.2 million decrease in other income due to the net gain realized on assets sold in consolidation of our facilities in 2018 . 90 liquidity and capital resources from our inception through december 31 , 2019 , we raised an aggregate of $ 272.7 million , through various private placements of preferred stock , our ipo , a secured debt financing as well as various other registered equity offerings , including underwritten public offerings , atm offerings , and stock option and warrant exercises . as of december 31 , 2019 , we had $ 36.2 million in cash , cash equivalents and short-term investments . subsequent to december 31 , 2019 , we raised an additional $ 26.5 million in gross proceeds from the january 2020 financing and an additional $ 1.1 million in gross proceeds from our atm offering program . we have not generated any revenue from product sales to date . we have incurred significant annual net operating losses in every year since our inception and expect to incur net operating losses in 2020 and for the foreseeable future . as of december 31 , 2019 , we had an accumulated deficit of $ 223.6 million . our net losses may fluctuate significantly from quarter to quarter and year to year .
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as homes close , we compare the home construction budget to actual recorded costs to date to estimate the additional costs to be incurred from our subcontractors related to the home . we record a liability and a corresponding charge to cost of sales for the amount we estimate will ultimately be paid related to that home . we monitor the accuracy of such estimates by comparing actual costs incurred in subsequent months to the estimate . although actual costs to complete a home in the future could differ from our estimates , our method has historically produced consistently accurate estimates of actual costs to complete closed homes . the company assesses inventory for recoverability on a quarterly basis if events or changes in local or national economic conditions indicate that the carrying amount of an asset may not be recoverable . in conducting our quarterly review for indicators of impairment on a community level , we evaluate , among other things , margins on sales contracts in backlog , the margins on homes that have been delivered , expected changes in margins with regard to future home sales over the life of the community , expected changes in margins with regard to future land sales , the value of the land itself as well as any results from third-party appraisals . from the review of all of these factors , we identify communities whose carrying values may exceed their estimated undiscounted future cash flows and run a test for recoverability . for those communities whose carrying values exceed the estimated undiscounted future cash flows and which are deemed to be impaired , the impairment recognized is measured by the amount by which the carrying amount of the communities exceeds the estimated fair value . due to the fact that the company 's cash flow models and estimates of fair values are based upon management estimates and assumptions , unexpected changes in market conditions and or changes in management 's intentions with respect to the inventory may lead the company to incur additional impairment charges in the future . for all of the categories listed below , the key assumptions relating to the valuations are dependent on project-specific local market and or community conditions and are inherently uncertain . because each inventory asset is unique , there are numerous inputs and assumptions used in our valuation techniques . market factors that may impact these assumptions include : historical project results such as average sales price and sales pace , if closings have occurred in the project ; competitors ' market and or community presence and their competitive actions ; project specific attributes such as location desirability and uniqueness of product offering ; potential for alternative product offerings to respond to local market conditions ; and current economic and demographic conditions and related trends and forecasts . these and other market factors that may impact project assumptions are considered by personnel in our homebuilding divisions as they prepare or update the forecasts for each community . quantitative and qualitative factors other than home sales prices could significantly impact the potential for future impairments . the sales objectives can differ between communities , even within a given sub-market . for example , facts and circumstances in a given community may lead us to price our homes with the objective of yielding a higher sales absorption pace , while facts and circumstances in another community may lead us to price our homes to minimize deterioration in our gross margins , although it may result in a slower sales absorption pace . furthermore , the key assumptions included in our estimated future undiscounted cash flows may be interrelated . for example , a decrease in estimated base sales price or an increase in home sales incentives may result in a corresponding increase in sales absorption pace or a reduction in base house costs . changes in our key assumptions , including estimated average selling price , construction and development costs , absorption pace ( reflecting any product mix change strategies implemented or to be implemented ) , selling strategies , alternative land uses ( including disposition of all or a portion of the land owned ) , or discount rates , could materially impact future cash flow and fair value estimates . as of december 31 , 2013 , our projections generally assume a gradual improvement in market conditions . if communities are not recoverable based on estimated future undiscounted cash flows , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets . the fair value of a community is estimated by discounting management 's cash flow projections using an appropriate risk-adjusted interest rate . as of december 31 , 2013 , we utilized discount rates ranging from 13 % to 16 % in our valuations . the discount rate used in determining each asset 's estimated fair value reflects the inherent risks associated with the related estimated cash flow stream , as well as current risk-free rates available in the market and estimated market risk premiums . for example , construction in progress inventory , which is closer to completion , will generally require a lower discount rate than land under development in communities consisting of multiple phases spanning several years of development . operating communities . if an indicator for impairment exists for existing operating communities , the recoverability of assets is evaluated by comparing the carrying amount of the assets to estimated future undiscounted net cash flows expected to be generated by the assets 25 based on home sales . these estimated cash flows are developed based primarily on management 's assumptions relating to the specific community . story_separator_special_tag the significant assumptions used to evaluate the recoverability of assets include : the timing of development and or marketing phases ; projected sales price and sales pace of each existing or planned community ; the estimated land development , home construction , and selling costs of the community ; overall market supply and demand ; the local market ; and competitive conditions . management reviews these assumptions on a quarterly basis . while we consider available information to determine what we believe to be our best estimates as of the end of a reporting period , these estimates are subject to change in future reporting periods as facts and circumstances change . we believe the most critical assumptions in the company 's cash flow models are projected absorption pace for home sales , sales prices , and costs to build and deliver homes on a community by community basis . in order to estimate the assumed absorption pace for home sales included in the company 's cash flow models , the company analyzes the historical absorption pace in the community as well as other communities in the geographic area . in addition , the company considers internal and external market studies and trends , which may include , but are not limited to , statistics on population demographics , unemployment rates , foreclosure sales , and availability of competing products in the geographic area where a community is located . when analyzing the company 's historical absorption pace for home sales and corresponding internal and external market studies , the company places greater emphasis on more current metrics and trends such as the absorption pace realized in its most recent quarters and management 's most current assessment of sales pace . in order to estimate the sales prices included in its cash flow models , the company considers the historical sales prices realized on homes it delivered in the community and other communities in the geographic area , as well as the sales prices included in its current backlog for such communities . in addition , the company considers internal and external market studies and trends , which may include , but are not limited to , statistics on sales prices in neighboring communities , which include the impact of short sales , if any , and sales prices on similar products in non-neighboring communities in the geographic area where the community is located . when analyzing its historical sales prices and corresponding market studies , the company places greater emphasis on more current metrics and trends such as the sales prices realized in its most recent quarters and the sales prices in current backlog . based upon this analysis , the company sets a sales price for each house type in the community which it believes will achieve an acceptable gross margin and sales pace in the community . this price becomes the price published to the sales force for use in its sales efforts . the company then considers the average of these published sales prices when estimating the future sales prices in its cash flow models . in order to arrive at the company 's assumed costs to build and deliver homes , the company generally assumes a cost structure reflecting contracts currently in place with its vendors and subcontractors , adjusted for any anticipated cost reduction initiatives or increases in cost structure . with respect to overhead included in the cash flow models , the company uses forecasted rates included in the company 's annual budget adjusted for actual experience . future communities . if an indicator of impairment exists for raw land , land under development , or lots that management anticipates will be utilized for future homebuilding activities , the recoverability of assets is evaluated by comparing the carrying amount of the assets to the estimated future undiscounted cash flows expected to be generated by the assets based on home sales , consistent with the evaluations performed for operating communities discussed above . for raw land , land under development , or lots that management intends to market for sale to a third party , but that do not meet all of the criteria to be classified as land held for sale as discussed below , the estimated fair value of the assets is determined based on either the estimated net sales proceeds expected to be realized on the sale of the assets or the estimated fair value determined using cash flow valuation techniques . if the company has not yet determined whether raw land , land under development , or lots will be utilized for future homebuilding activities or marketed for sale to a third party , the company assesses the recoverability of the inventory using a probability-weighted approach . land held for sale . land held for sale includes land that meets all of the following six criteria : ( 1 ) management , having the authority to approve the action , commits to a plan to sell the asset ; ( 2 ) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets ; ( 3 ) an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated ; ( 4 ) the sale of the asset is probable , and transfer of the asset is expected to qualify for recognition as a completed sale , within one year ; ( 5 ) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value ; and ( 6 ) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn . the company records land held for sale at the lower of its carrying value or estimated fair value less costs to sell .
| the strong results our financial services operations experienced during 2013 resulted from higher profit margins on our loan sales and servicing retained transactions as supply and demand factors were favorable . our results in 2013 also benefited from a strong refinance market . the impact of both of these market factors on our operating results declined in the second half of 2013 , and we do not expect to benefit as greatly from these factors in 2014 as we did in 2013 . 30 total gross margin increased $ 58.6 million in 2013 compared to 2012 as a result of a $ 53.3 million improvement in the gross margin of our homebuilding operations and a $ 5.3 million improvement in the gross margin of our financial services operations . the improvement in the gross margin of our homebuilding operations was primarily due to a $ 55.6 million improvement in homebuilding gross margin compared to 2012 , partially offset by a $ 2.3 million increase in land impairments . the increase in homebuilding gross margin resulted primarily from the 8 % increase in the average sales price of homes delivered ( $ 22,000 per home delivered ) and the 707 unit increase in homes delivered in 2013 . the increased sales prices were driven primarily by the performance of our newer communities , the strategic shift in our geographic footprint , which resulted in more homes delivered in our better performing markets , a shift in the mix of homes delivered to higher priced and larger homes , and improving market conditions . we also experienced better pricing leverage in select locations and submarkets . the pricing and unit improvements were partially offset by higher lot and construction costs related to both the mix of homes delivered as well as cost increases associated with improving homebuilding industry conditions and normal supply and demand dynamics . in 2013 , we were able to pass a majority of
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at december 31 , 2015 , the aggregate contractual obligations and commitments are : replace_table_token_22_th * the amounts provided as interest on advances from federal home loan bank and interest on long-term debt assume the liabilities will not be prepaid and interest is calculated to their individual maturities . the interest on $ 61.3 million in long-term debt is calculated based on the three-month libor plus 1.59 % until its maturity of june 1 , 2037. the three-month libor rate is projected using the most likely rate forecast from assumptions incorporated in the interest rate risk model and is determined two business days prior to the interest payment date . these assumptions are uncertain , and as a result , the actual payments will differ from the projection due to changes in economic conditions . replace_table_token_23_th commitments to extend credit and standby letters of credit do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon . refer to note 18 to the consolidated financial statements for additional information regarding other commitments . liquidity and market risk the objective of ctbi 's asset/liability management function is to maintain consistent growth in net interest income within our policy limits . this objective is accomplished through management of our consolidated balance sheet composition , liquidity , and interest rate risk exposures arising from changing economic conditions , interest rates , and customer preferences . the goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or deposit withdrawals . this is accomplished by maintaining liquid assets in the form of cash and cash equivalents and investment securities , sufficient unused borrowing capacity , and growth in core deposits . as of december 31 , 2015 , we had approximately $ 187.6 million in cash and cash equivalents and approximately $ 594.9 million in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $ 105.5 million and $ 640.2 million at december 31 , 2014. additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans . in addition to core deposit funding , we also have a variety of other short-term and long-term funding sources available . we also rely on federal home loan bank advances for both liquidity and management of our asset/liability position . federal home loan bank advances were $ 101.1 million at december 31 , 2015 compared to $ 61.2 million at december 31 , 2014. as of december 31 , 2015 , we had a $ 218.3 million available borrowing position with the federal home loan bank compared to $ 312.3 million at december 31 , 2014. we generally rely upon net inflows of cash from financing activities , supplemented by net inflows of cash from operating activities , to provide cash for our investing activities . as is typical of many financial institutions , significant financing activities include deposit gathering , use of short-term borrowing facilities such as repurchase agreements and federal funds purchased , and issuance of long-term debt . at december 31 , 2015 and december 31 , 2014 , we had $ 44 million in lines of credit with various correspondent banks available to meet any future cash needs . our primary investing activities include purchases of securities and loan originations . we do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs . included in our cash and cash equivalents at december 31 , 2015 were federal funds sold of $ 0.8 million compared to $ 4.9 million at december 31 , 2014 , and deposits with the federal reserve were $ 130.6 million at december 31 , 2015 compared to $ 40.9 million at december 31 , 2014. additionally , we project cash flows from our investment portfolio to generate additional liquidity over the next 90 days . the investment portfolio consists of investment grade short-term issues suitable for bank investments . the majority of the investment portfolio is in u.s. government and government sponsored agency issuances . at the end of 2015 , available-for-sale ( `` afs '' ) securities comprised approximately 99.7 % of the total investment portfolio , and the afs portfolio was approximately 125.1 % of equity capital . ninety-two percent of the pledge eligible portfolio was pledged . interest rate risk we consider interest rate risk one of our most significant market risks . interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates . consistency of our net interest revenue is largely dependent upon the effective management of interest rate risk . we employ a variety of measurement techniques to identify and manage our interest rate risk including the use of an earnings simulation model to analyze net interest income sensitivity to changing interest rates . the model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities . assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model . these assumptions are inherently uncertain , and as a result , the model can not precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income . actual results will differ from simulated results due to timing , magnitude , and frequency of interest rate changes as well as changes in market conditions and management strategies . ctbi 's asset/liability management committee ( alco ) , which includes executive and senior management representatives and reports to the board of directors , monitors and manages interest rate risk within board-approved policy limits . our current exposure to interest rate risks is determined by measuring the anticipated change in net interest income spread evenly over the twelve-month period . story_separator_special_tag the following table shows our estimated earnings sensitivity profile as of december 31 , 2015 : change in interest rates ( basis points ) percentage change in net interest income ( 12 months ) +400 7.54 % +300 5.46 % +200 3.33 % +100 1.35 % -25 ( 0.30 ) % the following table shows our estimated earnings sensitivity profile as of december 31 , 2014 : change in interest rates ( basis points ) percentage change in net interest income ( 12 months ) +400 2.42 % +300 1.79 % +200 1.11 % +100 0.51 % -25 ( 0.14 ) % the simulation model used the yield curve spread evenly over a twelve-month period . the measurement at december 31 , 2015 estimates that our net interest income in an up-rate environment would increase by 7.54 % at a 400 basis point change , 5.46 % increase at a 300 basis point change , 3.33 % increase at a 200 basis point change , and a 1.35 % increase at a 100 basis point change . in a down-rate environment , a 25 basis point decrease in interest rates would decrease net interest income by 0.30 % over one year . in order to reduce the exposure to interest rate fluctuations and to manage liquidity , we have developed sale procedures for several types of interest-sensitive assets . virtually all long-term , fixed rate single family residential mortgage loans underwritten according to federal home loan mortgage corporation guidelines are sold for cash upon origination or originated under terms where they could be sold . periodically , additional assets such as commercial loans are also sold . in 2015 and 2014 , $ 80.6 million and $ 51.2 million , respectively , was realized on the sale of fixed rate residential mortgages . we focus our efforts on consistent net interest revenue and net interest margin growth through each of the retail and wholesale business lines . we do not currently engage in trading activities . the preceding analysis was prepared using a rate ramp analysis which attempts to spread changes evenly over a specified time period as opposed to a rate shock which measures the impact of an immediate change . had these measurements been prepared using the rate shock method , the results would vary . our static repricing gap as of december 31 , 2015 is presented below . in the 12 month repricing gap , rate sensitive liabilities ( `` rsl '' ) exceeded rate sensitive assets ( `` rsa '' ) by $ 250.8 million . replace_table_token_24_th capital resources we continue to grow our shareholders ' equity while also providing an annual dividend yield for the year 2015 of 3.55 % to shareholders . shareholders ' equity increased 6.2 % from december 31 , 2014 to $ 475.6 million at december 31 , 2015. our primary source of capital growth is the retention of earnings . cash dividends were $ 1.220 per share for 2015 and $ 1.181 per share for 2014. we retained 54.1 % of our earnings in 2015 compared to 52.8 % in 2014. regulatory guidelines require bank holding companies , commercial banks , and savings banks to maintain certain minimum capital ratios and define companies as `` well-capitalized '' that sufficiently exceed the minimum ratios . the banking regulators may alter minimum capital requirements as a result of revising their internal policies and their ratings of individual institutions . to be `` well-capitalized '' banks and bank holding companies must maintain a tier 1 leverage ratio of no less than 5 % , a common equity tier 1 capital ratio of no less than 6.5 % , a tier 1 risk based ratio of no less than 8 % , and a total risk based ratio of no less than 10 % . our ratios as of december 31 , 2015 were 12.40 % , 14.58 % , 16.70 % , and 17.75 % , respectively , all exceeding the threshold for meeting the definition of `` well-capitalized . '' see note 21 to the consolidated financial statements for further information . as of december 31 , 2015 , we are not aware of any current recommendations by banking regulatory authorities which , if they were to be implemented , would have , or are reasonably likely to have , a material adverse impact on our liquidity , capital resources , or operations . basel iii on july 2 , 2013 , the federal reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to ctbi and ctb . the fdic subsequently approved these rules . the final rules implement the `` basel iii '' regulatory capital reforms and changes required by the dodd-frank act . the rules include new risk-based capital and leverage ratios , which are being phased in from 2015 to 2019 , and refine the definition of what constitutes `` capital '' for purposes of calculating those ratios . the new minimum capital level requirements applicable to ctbi and ctb under the final rules are : ( i ) a new common equity tier 1 capital ratio of 4.5 % ; ( ii ) a tier 1 capital ratio of 6 % ( increased from 4 % ) ; ( iii ) a total capital ratio of 8 % ( unchanged from previous rules ) ; and ( iv ) a tier 1 leverage ratio of 4 % for all institutions . the final rules also establish a `` capital conservation buffer '' above the new regulatory minimum capital requirements , which must consist entirely of common equity tier 1 capital . the capital conservation buffer will be phased-in over four years beginning on january 1 , 2016. the final rules also implement revisions and clarifications consistent with basel iii regarding the various components of tier 1 capital , including common equity , unrealized gains and losses , as well as certain instruments that will no longer qualify as tier 1 capital , some of which will be phased out over time .
| our cost of interest bearing funds remained flat to prior year . average loans to deposits , including repurchase agreements , for the year ended december 31 , 2015 were 87.2 % compared to 84.4 % for the year ended december 31 , 2014. net interest income for the year ended december 31 , 2014 decreased $ 2.6 million , or 1.9 % , from prior year . our yield on average earning assets decreased 17 basis points from prior year . our cost of interest bearing funds decreased 6 basis points from prior year . average loans to deposits , including repurchase agreements , for the year ended december 31 , 2014 were 84.4 % compared to 82.5 % for the year ended december 31 , 2013. provision for loan losses the provision for loan losses that was added to the allowance for 2015 of $ 8.7 million was a $ 0.1 million decrease from prior year . this provision represented a charge against current earnings in order to maintain the allowance at an appropriate level determined using the accounting estimates described in the critical accounting policies and estimates section . the provision for loan losses that was added to the allowance for 2014 of $ 8.8 million was a $ 0.2 million increase from 2013. noninterest income noninterest income for the year ended december 31 , 2015 increased $ 1.7 million , or 3.8 % , from prior year as a result of increases in gains on sales of loans ( $ 0.5 million ) , deposit service charges ( $ 0.4 million ) , trust revenue ( $ 0.3 million ) , and loan related fees ( $ 0.3 million ) and decreased securities losses ( $ 0.1 million ) . year over year , we had a $ 0.5 million fluctuation in the fair value adjustments of our mortgage servicing rights . noninterest income for the year ended december 31 , 2014 decreased $ 4.2 million , or 8.6 % from 2013. the year over year decrease was primarily attributable to a
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the critical accounting estimates and assumptions in the accompanying consolidated financial statements include the provision for unpaid loss and loss adjustment expenses , valuation of fixed maturities and equity investments , valuation of deferred tax assets , valuation of other intangible assets and goodwill recoverability , deferred policy acquisition costs , and fair value assumptions for debt obligations . provision for unpaid loss and loss adjustment expenses a significant degree of judgment is required to determine amounts recorded in the consolidated financial statements for the provision for unpaid loss and loss adjustment expenses . the process for establishing the provision for unpaid loss and loss adjustment expenses reflects the uncertainties and significant judgmental factors inherent in predicting future results of both known and unknown loss events . as such , the process is inherently complex and imprecise and estimates are constantly refined . the process of establishing the provision for unpaid loss and loss adjustment expenses relies on the judgment and opinions of a large number of individuals , including the opinions of the company 's actuaries . further information regarding estimates used in determining our provision for unpaid loss and loss adjustment expenses is discussed in the “ unpaid loss and loss adjustment expenses ” section of part i , item 1 of this annual report and note 12 , `` unpaid loss and loss adjustment expenses , '' to the consolidated financial statements . factors affecting the provision for unpaid loss and loss adjustment expenses include the continually evolving and changing regulatory and legal environment , actuarial studies , professional experience and expertise of the company 's claims departments ' personnel and independent adjusters retained to handle individual claims , the quality of the data used for projection purposes , existing claims management practices including claims handling and settlement practices , the effect of inflationary trends on future loss settlement costs , court decisions , economic conditions and public attitudes . during 2010 , the company moved responsibility for evaluating and setting the provision for unpaid loss and loss adjustment expenses to an internal process , with the objective of increasing consistency and accountability relating to variability of the provision . the provision is evaluated by the company 's actuaries with the results then shared with management , which is responsible for establishing the provision recorded in the consolidated balance sheets . in the year-end actuarial review process , an analysis of the provision for unpaid loss and loss adjustment expenses is completed for each insurance subsidiary . unpaid losses , allocated loss adjustment expenses and unallocated loss adjustment expenses are separately analyzed by line of business or coverage by accident year . a wide range of actuarial methods are utilized in order to appropriately measure ultimate loss and loss adjustment expense costs . these methods include paid loss development , incurred loss development , paid bornhuetter-ferguson , incurred bornhuetter-ferguson , berquist-sherman paid method , berquist-sherman reported method and frequency-severity method . reasonability tests such as average outstanding provision for loss and loss adjustment expenses , ultimate loss trends and ultimate allocated loss adjustment expense to ultimate loss are also performed prior to selection of the final provision . the provision is indicated by line of business or coverage and is separated into case reserves , ibnr reserves and a provision for unallocated loss adjustment expenses . replace_table_token_34_th because the establishment of the provision for unpaid loss and loss adjustment expenses is an inherently uncertain process involving estimates , current provisions may need to be updated . adjustments to the provision , both favorable and unfavorable , are reflected in the consolidated statements of operations for the periods in which such estimates are updated . the company 's actuaries develop a range of reasonable estimates and a point estimate of unpaid loss and loss adjustment expenses . the actuarial point estimate is intended to represent the actuaries ' best estimate and will not necessarily be at the mid-point of the high and low estimates of the range . valuation of fixed maturities and equity investments our equity investments are recorded at fair value using quoted prices from active markets . for fixed maturities , we use observable inputs such as quoted prices in inactive markets , quoted prices in active markets for similar instruments , benchmark interest rates , broker quotes and other relevant inputs . we do not have any investments in our portfolio which require us to use unobservable inputs . any change in the estimated fair value of our investments could impact the amount of unrealized gain or loss we have recorded , which could change the amount we have recorded for our investments and other comprehensive loss on our consolidated balance sheets . gains and losses realized on the disposition of investments are determined on the first-in first-out basis and credited or charged to the consolidated statements of operations . premium and discount on investments are amortized and accredited using the interest method and charged or credited to net investment income . the establishment of an other-than-temporary impairment on an investment requires a number of judgments and estimates . we perform a quarterly analysis of the individual investments to determine if declines in market value are other-than-temporary . the analysis includes some or all of the following procedures , as applicable : identifying all unrealized loss positions that have existed for at least six months ; identifying other circumstances which management believes may impact the recoverability of the unrealized loss positions ; obtaining a valuation analysis from third-party investment managers regarding the intrinsic value of these investments based on their knowledge and experience together with market-based valuation techniques ; reviewing the trading range of certain investments over the preceding calendar period ; assessing if declines in market value are other-than-temporary for debt instruments based on the investment grade credit ratings from third-party rating agencies ; assessing if declines in market value are other-than-temporary for any debt instrument with a non-investment grade credit rating based on the continuity of its debt service record ; determining the necessary provision for declines in market value that story_separator_special_tag are considered other-than-temporary based on the analyses performed ; and assessing the company 's ability and intent to hold these investments at least until the investment impairment is recovered . the risks and uncertainties inherent in the assessment methodology used to determine declines in market value that are other-than-temporary include , but may not be limited to , the following : the opinions of professional investment managers could be incorrect ; the past trading patterns of individual investments may not reflect future valuation trends ; the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company 's financial situation ; and the debt service pattern of non-investment grade instruments may not reflect future debt service capabilities and may not reflect a company 's unknown underlying financial problems . the company did not recognize any impairment related to its fixed maturities or equity investments that was considered other-than-temporary for the years ended december 31 , 2011 and 2010 . valuation of deferred income tax assets the provision for income taxes is calculated based on the expected tax treatment of transactions recorded in our consolidated financial statements . in determining our provision for income taxes , we interpret tax legislation in a variety of jurisdictions and make assumptions about the expected timing of the reversal of deferred income tax assets and liabilities and the valuation of deferred income tax assets . replace_table_token_35_th a valuation allowance is established when it is more likely than not that all or a portion of the deferred income tax asset balance will not be realized . the ultimate realization of the deferred income tax asset balance is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible . in making this determination , management considers all available positive and negative evidence affecting specific deferred income tax asset balances , including the company 's past and anticipated future performance , the reversal of deferred income tax liabilities , and the availability of tax planning strategies . objective positive evidence is necessary to support a conclusion that a valuation allowance is not needed for all or a portion of a company 's deferred income tax asset balances when significant negative evidence exists . cumulative losses are the most compelling form of negative evidence considered by management in this determination . to the extent a valuation allowance is established in a period , an expense must be recorded within the income tax provision in the consolidated statements of operations . as of december 31 , 2011 , the company maintains a valuation allowance of $ 260.1 million , $ 258.9 million of which relates to its u.s. deferred income taxes . the largest component of the u.s. deferred income tax asset balance relates to tax loss carryforwards that have arisen as a result of the continued losses of the company 's u.s. operations . uncertainty over the company 's ability to utilize these losses over the short-term has led the company to record a valuation allowance . future events may result in the valuation allowance being adjusted , which could materially impact our financial position and results of operations . if sufficient positive evidence were to arise in the future indicating that all or a portion of the deferred income tax assets would meet the more likely than not standard , the valuation allowance would be reversed in the period that such a conclusion were reached . valuation of other intangible assets and goodwill recoverability goodwill and intangible assets with an indefinite life are assessed for impairment annually as of december 31 , or more frequently if events or circumstances indicate that the carrying value may not be recoverable , by applying a fair value-based test . in determining fair value , valuation models such as price-to-earnings ratios and other multiples are used . management must make estimates and assumptions in determining the fair value of a reporting unit that may affect any resulting impairment write-down . this includes assumptions regarding fluctuations in future earnings from the reporting units . management then compares the fair value of a reporting unit to the carrying amount . if the carrying amount of a reporting unit exceeds the fair value of that reporting unit , a second step of impairment is performed to compare the implied fair value of the reporting unit with the carrying amount . in connection with the annual impairment assessment performed as of december 31 , 2011 , all reporting units were tested . based on the assessment , an impairment provision of $ 2.8 million has been recorded against the goodwill of the company related to the itasca acquisition described in the `` acquisitions , discontinued operations and dispositions '' section in item 1 of this 2011 annual report . the company concluded that the carrying amount of goodwill related to the itasca acquisition exceeded its fair value and , therefore , was not recoverable . the determination that the fair value of the goodwill was less than its carrying value resulted primarily from a decline in the quoted value of kingsway 's common stock as compared to the book value per share of the company at december 31 , 2011 . additional information regarding our goodwill and intangible assets accounting is included in note 10 , `` goodwill and intangible assets , '' to the consolidated financial statements . deferred policy acquisition costs deferred policy acquisition costs represent the deferral of expenses that we incur acquiring new business or renewing existing business . policy acquisition costs , primarily commissions , advertising , premium taxes and underwriting and agency expenses related to issuing policies , are deferred and charged against income ratably over the terms of the related policies . management regularly reviews the categories of acquisition costs that are deferred and assesses the recoverability of this asset .
| net premiums written decrease d 37.0 % to $ 126.9 million for the year ended december 31 , 2011 compared with $ 201.3 million for the year ended december 31 , 2010 . net premiums earned decrease d 28.9 % to $ 156.4 million for the year ended december 31 , 2011 compared with $ 220.0 million for the year ended december 31 , 2010 . the decrease in premiums written and earned is due to significant reductions in premium volumes in the non-standard automobile line of business . insurance underwriting has withdrawn from a number of states , increased its rate adequacy in the states where replace_table_token_38_th it continues to actively produce business and discontinued unprofitable programs and unaffiliated managing general agent relationships . also contributing to the reduction in non-standard automobile premium is the continuing poor economic conditions in much of the united states . the non-standard automobile insurance market tends to contract during periods of high unemployment as was experienced in the united states throughout 2011. the insurance underwriting operating loss decrease d to $ 37.1 million for the year ended december 31 , 2011 compared with $ 60.3 million for the year ended december 31 , 2010 . the decrease is primarily attributed to a decrease in loss and loss adjustment expenses , as reflected in the loss ratio , against a smaller volume of net premiums earned . the insurance underwriting loss ratio for 2011 was 91.5 % compared to 97.3 % for 2010 due to decreasing ultimate loss estimates for current and prior accident years . this improvement was primarily driven by two factors . first , unfavorable development of $ 7.9 million recorded during 2011 in the provision for unpaid loss and loss adjustment expenses for losses incurred as of december 31 , 2010 was less than the unfavorable development of $ 14.4 million recorded during 2010 for losses incurred as of december 31 , 2009. second , the increased premium rate adequacy which insurance underwriting implemented throughout 2011 is having a positive influence on the loss ratio for losses incurred during 2011. the insurance underwriting
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first for our clients as an expected uptick in technology investments , inventory expansion , and other capital expenditures resulting in loan growth and second , for our shareholders , in the way of increased earnings as a result of reduced corporate taxes that management will evaluate using a longer time horizon . this anticipated loan growth will be supported by the strength of our low-cost core deposit franchise . while we do not see any major adverse cyclical shifts in our loan portfolios , we will remain diligent to our risk profile and underwriting standards . our fee-based business continues to take advantage of the rising market and strong sales production . we expect this trend to continue and further build out these fee-based product sets in our minnesota market . we will continue to invest and focus on improving the client experience and reducing our operating cost at the same time by enhancing technology and processes . as we adapt to changing customer behaviors , we will continue to evaluate our franchise for additional consolidation opportunities in 2018. our appetite for future partnerships is such that we remain an active looker and a selective , disciplined buyer . we believe our ability to bring a larger balance sheet with better capital and an enhanced product set allows a potential new market partner to better serve their clients . however , given the quality old national franchise that exists today , we do not feel compelled to enter into a partnership . we remain optimistic as we look ahead to 2018 given the strength of our franchise and remain diligent on growing our pretax pre-provisioned income as well as continuing our expense discipline . we are reaffirming our commitment to driving and sustaining positive operating leverage . 32 financial highlights the following table sets forth certain financial highlights of old national : replace_table_token_6_th n/m = not meaningful ( 1 ) calculated using the federal statutory tax rate in effect of 35 % for all periods . ( 2 ) cash dividends per share divided by net income per share ( basic ) . ( 3 ) represents a non-gaap financial measure . refer to the non-gaap financial measures section for reconciliations to gaap financial measures . 33 non-gaap financial measures non-gaap financial measures exclude certain items that are included in the financial results presented in accordance with gaap . management believes these non-gaap financial measures enhance an investor 's understanding of the financial results of old national by providing a meaningful basis for period-to-period comparisons , assisting in operating results analysis , and predicting future performance . the following table presents gaap to non-gaap reconciliations . replace_table_token_7_th 34 non-gaap financial measures have inherent limitations , are not required to be uniformly applied , and are not audited . although these non-gaap financial measures are frequently used by investors to evaluate a company , they have limitations as analytical tools , and should not be considered in isolation , or as a substitute for analyses of results as reported under gaap . these non-gaap measures are not necessarily comparable to similar measures that may be represented by other companies . story_separator_special_tag 7 basis points from 0.50 % in 2016 to 0.57 % in 2017. average earning assets increased by $ 1.397 billion , or 12 % . the increase in average earning assets consisted of a $ 1.257 billion increase in loans , a $ 137.0 million increase in lower yielding investment securities , and a $ 2.9 million increase in money market and other interest-earning investments . average interest-bearing liabilities increased $ 1.160 billion , or 13 % . the increase in average interest-bearing liabilities consisted of a $ 780.9 million increase in interest-bearing deposits , a $ 49.4 million increase in federal funds purchased and interbank borrowings , a $ 359.9 million increase in fhlb advances , and a $ 2.1 million increase in other borrowings , partially offset by a $ 32.2 million decrease in securities sold under agreements to repurchase . average noninterest-bearing deposits increased by $ 335.5 million . the increase in average earning assets in 2017 compared to 2016 was primarily due to our acquisitions of anchor ( wi ) in may 2016 and anchor ( mn ) in november 2017. including loans held for sale , the loan portfolio , which generally has an average yield higher than the investment portfolio , was approximately 72 % of average interest earning assets in 2017 compared to 70 % in 2016. average loans including loans held for sale increased $ 1.257 billion in 2017 compared to 2016 reflecting loans acquired from anchor ( wi ) in may 2016 and anchor ( mn ) in november 2017 , along with $ 377.3 million of average organic loan growth . loans including loans held for sale attributable to the anchor ( wi ) acquisition totaled $ 1.647 billion as of the closing date of the acquisition , which was may 1 , 2016. loans including loans held for sale attributable to the anchor ( mn ) acquisition totaled $ 1.595 billion as of the closing date of the acquisition , which was november 1 , 2017. the increases in average investments and average deposits also reflected the anchor ( wi ) and anchor ( mn ) acquisitions . average non-interest bearing deposits increased $ 335.5 million in 2017 compared to 2016 reflecting the anchor ( wi ) and anchor ( mn ) acquisitions . average interest bearing deposits increased $ 780.9 million in 2017 compared to 2016 reflecting the anchor ( wi ) and anchor ( mn ) acquisitions . average borrowed funds increased $ 379.2 million in 2017 compared to 2016 primarily due to increased funding needed as a result of growth in our loan portfolio that outpaced deposit growth . story_separator_special_tag 38 the following table shows fluctuations in taxable equivalent net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended december 31. replace_table_token_11_th the variance not solely due to rate or volume is allocated equally between the rate and volume variances . ( 1 ) interest on investment securities and loans includes the effect of taxable equivalent adjustments of $ 15.6 million and $ 7.5 million , respectively , in 2017 ; $ 15.2 million and $ 6.2 million , respectively , in 2016 ; and $ 13.7 million and $ 5.9 million , respectively , in 2015 ; using the federal statutory rate in effect of 35 % for all periods . provision for loan losses the provision for loan losses was an expense of $ 3.1 million in 2017 , compared to an expense of $ 1.0 million in 2016. net charge-offs totaled $ 2.5 million in 2017 , compared to net charge-offs of $ 3.4 million in 2016. the higher provision for loan losses is the result of a change in specific allocations on impaired loans . continued loan growth in future periods , a decline in our current level of recoveries , or an increase in charge-offs could result in an increase in provision expense . for additional information about non-performing loans , charge-offs , and additional items impacting the provision , refer to the risk management credit risk section of item 7 , management 's discussion and analysis of financial condition and results of operations. noninterest income we generate revenues in the form of noninterest income through client fees , sales commissions , and other gains and losses from our core banking franchise and other related businesses , such as wealth management , investment consulting , and investment products . this source of revenue as a percentage of total revenue was 30 % in 2017 compared to 39 % in 2016 . 39 the following table details the components of noninterest income for the years ended december 31. replace_table_token_12_th ( 1 ) total revenue includes the effect of a taxable equivalent adjustment of $ 23.1 million in 2017 , $ 21.3 million in 2016 , and $ 19.5 million in 2015. n/m = not meaningful the decrease in noninterest income in 2017 when compared to 2016 was primarily due to a pre-tax gain of $ 41.9 million resulting from the sale of oni in may 2016 , lower insurance premiums and commissions , and lower recognition of deferred gain on sale leaseback transactions . wealth management fees increased $ 2.7 million in 2017 compared to 2016 reflecting market appreciation and strong sales production . service charges and overdraft fees decreased $ 0.2 million in 2017 compared to 2016 primarily due to lower overdraft charges , partially offset by higher service charges and overdraft fees attributable to the anchor ( wi ) and anchor ( mn ) acquisitions . mortgage banking revenue decreased $ 1.8 million in 2017 compared to 2016 primarily due to the industry-wide reduction in refinance activity and higher interest rates in 2017. insurance premiums and commissions decreased $ 19.9 million in 2017 reflecting the sale of oni in may 2016. investment product fees increased $ 2.2 million in 2017 compared to 2016 primarily due to higher investment product fees attributable to the anchor ( wi ) and anchor ( mn ) acquisitions . capital markets income is comprised of customer interest rate swap fees , foreign currency exchange fees , and net gains ( losses ) on foreign currency adjustments . capital markets income increased $ 3.3 million in 2017 compared to 2016 primarily due to higher customer interest rate swap fees resulting from strong commercial loan production during 2017. net securities gains increased $ 3.3 million in 2017 compared to 2016 primarily due to higher realized gains on sales of available-for-sale securities in 2017. recognition of deferred gain on sale leaseback transactions decreased $ 14.0 million in 2017 compared to 2016. old national purchased 23 properties during 2016 that it had previously leased , resulting in the recognition of approximately $ 12.0 million of pre-tax deferred gains . 40 in 2016 , we recorded a $ 41.9 million pre-tax gain resulting from the sale of oni in may 2016. the after-tax gain related to the sale totaled $ 17.6 million . other income decreased $ 3.9 million in 2017 when compared to 2016 reflecting lower recoveries on loans originated by anchorbank ( wi ) that had been fully charged off prior to the acquisition . recoveries on loans originated by anchorbank ( wi ) totaled $ 4.0 million in 2017 , compared to $ 7.6 million in 2016. noninterest expense the following table details the components of noninterest expense for the years ended december 31. replace_table_token_13_th n/m = not meaningful noninterest expense decreased $ 5.3 million in 2017 when compared to 2016 primarily due to the reduction of costs associated with the divestiture of oni in may 2016. offsetting these decreases was $ 11.7 million of amortization of tax credit investments in 2017. in addition , noninterest expense in 2017 included $ 12.3 million of acquisition and integration costs associated with anchor ( mn ) , compared to $ 15.9 million in 2016 of acquisition and integration costs associated with anchor ( wi ) . salaries and benefits is the largest component of noninterest expense . salaries and benefits decreased $ 6.2 million in 2017 compared to 2016. impacting salaries and benefits expense were the acquisitions of anchor ( wi ) and anchor ( mn ) , and the divestiture of oni described above .
| for analytical purposes , net interest income is also presented in the table that follows , adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset . we used the federal statutory tax rate in effect of 35 % for all periods . this analysis portrays the income tax benefits associated in tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets . management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis . therefore , management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons . 35 replace_table_token_9_th net interest income was $ 437.2 million in 2017 , a $ 34.5 million increase from $ 402.7 million in 2016. taxable equivalent net interest income was $ 460.3 million in 2017 , a 9 % increase from $ 424.0 million in 2016. the net interest margin on a fully taxable equivalent basis was 3.48 % in 2017 , a 10 basis point decrease compared to 3.58 % in 2016. the increase in net interest income in 2017 when compared to 2016 was primarily due to higher average earning assets of $ 1.397 billion in 2017. partially offsetting higher average earning assets were higher average interest bearing liabilities of $ 1.160 billion and a decrease in accretion income of $ 17.3 million . net interest income in both 2017 and 2016 included accretion income ( interest income in excess of contractual interest income ) associated with acquired loans . accretion income totaled $ 40.8 million in 2017 , compared to $ 58.1 million in 2016. we expect accretion income on our pci loans to decrease over time , but this may be offset by future acquisitions . with the new 21 % statutory federal tax rate , the conversion factor to a fully taxable equivalent basis will
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agreements with hfc and alon we serve hfc 's refineries under long-term pipeline , terminal , tankage and refinery processing unit throughput agreements expiring from 2019 to 2036. under these agreements , hfc agrees to transport , store , and process throughput volumes of refined product , crude oil and feedstocks on our pipelines , terminal , tankage , loading rack facilities and refinery processing units that result in minimum annual payments to us . these minimum annual payments or revenues are subject to annual rate adjustments on july 1st each year based on the ppi or the ferc index . as of december 31 , 2016 , these agreements with hfc require minimum annualized payments to us of $ 321.0 million . if hfc fails to meet its minimum volume commitments under the agreements in any quarter , it will be required to pay us the amount of any shortfall in cash by the last day of the month following the end of the quarter . under certain of the agreements , a shortfall payment may be applied as a credit in the following four quarters after minimum obligations are met . we have a pipelines and terminals agreement with alon expiring in 2020 under which alon has agreed to transport on our pipelines and throughput through our terminals volumes of refined products that result in a minimum level of annual revenue that is also subject to annual tariff rate adjustments . we also have a capacity lease agreement under which we lease alon space on our orla to el paso pipeline for the shipment of refined product . the terms under this lease agreement expire beginning in 2018 through 2022. as of december 31 , 2016 , these agreements with alon require minimum annualized payments to us of $ 32.6 million . a significant reduction in revenues under these agreements could have a material adverse effect on our results of operations . under certain provisions of an omnibus agreement that we have with hfc ( “ omnibus agreement ” ) , we pay hfc an annual administrative fee ( $ 2.5 million in 2016 ) , for the provision by hfc or its affiliates of various general and administrative services to us . this fee does not include the salaries of personnel employed by hfc who perform services for us on behalf of hls or the cost of their employee benefits , which are separately charged to us by hfc . we also reimburse hfc and its affiliates for direct expenses they incur on our behalf . under hls 's secondment agreement with hfc , certain employees of hfc are seconded to hls to provide operational and maintenance services for certain of our processing , refining , pipeline and tankage assets at the el dorado and cheyenne refineries , and hls reimburses hfc for its prorated portion of the wages , benefits , and other costs of these employees for our benefit . we have a long-term strategic relationship with hfc . our current growth plan is to continue to pursue purchases of logistic and other assets at hfc 's existing refining locations in new mexico , utah , oklahoma , kansas and wyoming . we also expect to work with hfc on logistic asset acquisitions in conjunction with hfc 's refinery acquisition strategies . furthermore , we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues . - 41 - results of operations income , distributable cash flow and volumes the following tables present income , distributable cash flow and volume information for the years ended december 31 , 2016 , 2015 and 2014 . these results have been adjusted to include the combined results of our predecessor . see notes 1 and 2 to the consolidated financial statements of hep for discussion of the basis of this presentation . replace_table_token_12_th - 42 - replace_table_token_13_th - 43 - ( 1 ) net income attributable to hep is allocated between limited partners and the general partner interest in accordance with the provisions of the partnership agreement . hep net income allocated to the general partner includes incentive distributions that are declared subsequent to quarter end . after the amount of incentive distributions and other priority allocations are allocated to the general partner , the remaining net income attributable to hep is allocated to the partners based on their weighted average ownership percentage during the period . ( 2 ) earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) is calculated as net income attributable to hep plus ( i ) interest expense and loss on early extinguishment of debt , net of interest income ( ii ) state income tax and ( iii ) depreciation and amortization excluding predecessor . ebitda is not a calculation based upon generally accepted accounting principles ( “ gaap ” ) . however , the amounts included in the ebitda calculation are derived from amounts included in our consolidated financial statements . ebitda should not be considered as an alternative to net income attributable to holly energy partners or operating income , as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . ebitda is not necessarily comparable to similarly titled measures of other companies . ebitda is presented here because it is a widely used financial indicator used by investors and analysts to measure performance . ebitda is also used by our management for internal analysis and as a basis for compliance with financial covenants . see our calculation of ebitda under item 6 , “ selected financial data. ” ( 3 ) distributable cash flow is not a calculation based upon gaap . however , the amounts included in the calculation are derived from amounts presented in our consolidated financial statements , with the general exception of maintenance capital expenditures . story_separator_special_tag distributable cash flow should not be considered in isolation or as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . distributable cash flow is not necessarily comparable to similarly titled measures of other companies . distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance . it is also used by management for internal analysis and for our performance units . we believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating . see our calculation of distributable cash flow under item 6 , “ selected financial data. ” results of operations — year ended december 31 , 2016 compared with year ended december 31 , 2015 summary net income attributable to hep for the year ended december 31 , 2016 , was $ 158.2 million , a $ 21.0 million increase compared to the year ended december 31 , 2015 . the increase in earnings is primarily due to the newly constructed and acquired woods cross refinery processing units and recent acquisitions including interests in the osage and cheyenne pipelines , the tulsa crude tanks acquired in the first quarter of 2016 , and the el dorado refinery process units dropped down in the fourth quarter of 2015 as well as increased earnings from our 75 % interest in the unev products pipeline , offset by higher interest expense associated with our private placement of $ 400 million in aggregate principal amount of 6 % senior unsecured notes due in 2024 , which we issued in july and the proceeds of which were used to partially fund our woods cross processing units acquisition . our major shippers are obligated to make deficiency payments to us if they do not meet their minimum volume shipping obligations . revenues for the year ended december 31 , 2016 , include the recognition of $ 10.0 million of prior shortfalls billed to shippers in 2016 and 2015 . as of december 31 , 2016 , deferred revenue on our consolidated balance sheet related to shortfalls billed was $ 5.6 million . such deferred revenue will be recognized in earnings either as ( a ) payment for shipments in excess of guaranteed levels , if and to the extent the pipeline system will have the necessary capacity for shipments in excess of guaranteed levels , or ( b ) when shipping rights expire unused over the contractual make-up period . revenues revenues for the year ended december 31 , 2016 , were $ 402.0 million , a $ 43.2 million increase compared to the same period of 2015 . the revenue increase was primarily due to the woods cross processing units acquired in the fourth quarter of 2016 , the el dorado processing units acquired in the fourth quarter of 2015 , higher unev pipeline revenues , and revenues from the tulsa crude tanks acquired in the first quarter of 2016. revenues from our refined product pipelines were $ 135.3 million , an increase of $ 3.0 million , primarily due to increased revenue from the unev pipeline of $ 4.0 million offset by ppi driven tariff rates decreases . shipments averaged 204.0 mbpd compared to 197.6 mbpd for the year ended december 31 , 2015 , largely due to higher volumes on our unev pipeline . - 44 - revenues from our intermediate pipelines were $ 27.0 million , a decrease of $ 1.9 million , on shipments averaging 137.4 mbpd compared to 142.5 mbpd for the year ended december 31 , 2015 . the decrease in revenue is mainly due to lower volumes from pipelines servicing hfc 's navajo refinery and a $ 0.7 million decrease in previously deferred revenue realized . revenues from our crude pipelines were $ 70.3 million , an increase of $ 3.3 million , on shipments averaging 277.2 mbpd compared to 291.5 mbpd for the year ended december 31 , 2015 . revenues increased largely due to an increase in deferred revenue recognized and to a surcharge on our beeson expansion . volumes were lower due to lower throughput at hfc 's navajo refinery . revenues from terminal , tankage and loading rack fees were $ 136.4 million , an increase of $ 8.8 million compared to the year ended december 31 , 2015 . this increase is due principally to increased revenues from the el dorado tanks and the newly acquired tulsa crude tanks . refined products and crude terminalled in our facilities increased to an average of 485.8 mbpd compared to 469.7 mbpd for the year ended december 31 , 2015 , largely due to the inclusion of volumes from our tulsa crude tanks acquired in the first quarter of 2016 and our el dorado crude tanks acquired late in the first quarter of 2015 , offset by the transfer of the el paso terminal to hfc in the first quarter of 2016. revenues from refinery processing units were $ 33.0 million , an increase of $ 30.1 million on throughputs averaging 51.8 mbpd compared to 6.8 mbpd for 2015. this increase in revenue is primarily due to the woods cross refinery processing units acquired in the fourth quarter of 2016 and an increase in revenue from the el dorado refinery units acquired late in 2015. operations expense operations ( exclusive of depreciation and amortization ) expense for the year ended december 31 , 2016 , increased by $ 18.4 million compared to the year ended december 31 , 2015 . the increase is mainly due to operating expenses from the newly constructed and acquired woods cross processing units and el dorado refinery processing units . depreciation and amortization depreciation and amortization for the year ended december 31 , 2016 , increased by $ 7.1 million compared to the year ended december 31 , 2015 .
| revenues from our refined product pipelines were $ 132.3 million , an increase of $ 11.1 million compared to the year ended december 31 , 2014 , primarily due to increased volumes and annual tariff increases . shipments averaged 197.6 mbpd compared to 183.2 mbpd for 2014 , largely due to higher spot volumes on our unev pipeline and increased volumes from hfc 's navajo refinery as well as lower volumes in the second quarter of 2014 resulting from major maintenance at alon 's big spring refinery . revenues from our intermediate pipelines were $ 28.9 million , a decrease of $ 0.9 million on shipments averaging 142.5 mbpd compared to 138.3 mbpd for the year ended december 31 , 2014. the decrease in revenue is principally due to the effects of a $ 1.9 million decrease in deferred revenue realized offset by increased volumes and annual tariff increases . revenues from our crude pipelines were $ 67.1 million , an increase of $ 10.3 million on shipments averaging 291.5 mbpd compared to 199.6 mbpd for the year ended december 31 , 2014. revenues increased primarily due to the annual tariff increases and $ 5.8 million in increased revenue from the new mexico gathering system expansion completed in 2014. revenues from terminal , tankage and loading rack fees were $ 127.6 million , an increase of $ 2.9 million compared to the year ended december 31 , 2014. the increase in revenues is largely due to annual fee increases and increased volumes . refined products terminalled in our facilities increased to an average of 469.7 mbpd compared to 331.0 mbpd for 2014 , largely due to the el dorado crude tanks acquired in 2015 and higher volumes at our unev and el paso terminals as well as our cheyenne and tulsa loading racks . operations expense operations expense for the year ended december 31 , 2015 , decreased by $ 0.6 million compared to the year ended december 31 , 2014. this decrease is primarily due to lower employee costs of $ 5.4 million as a result of the secondment of employees in el dorado
| 13,757 |
we expect our effective tax rate to be approximately 38–39 % for 2012. net income net income was $ 40,611,492 in 2011 compared to $ 6,917,300 in 2010 and $ 2,798,952 in 2009. the increases in net income were driven by higher production levels and higher average sales prices received during each successive period . partially offsetting the higher oil and gas revenues were increased production expense , production taxes , general and administrative expenses and depletion expenses in each of the respective periods as described above . higher net income levels increased diluted net income per common share to $ 0.65 , $ 0.14 and $ 0.08 in 2011 , 2010 and 2009 , respectively . non-gaap financial measures pre-tax pv10 % value may be considered a non-gaap financial measure as defined by the sec and is derived from the standardized measure of discounted future net cash flows , which is the most directly comparable standardized financial measure . pre-tax pv10 % value is computed on the same basis as the standardized measure of discounted future net cash flows but without deducting future income taxes . as of december 31 , 2011 , our discounted future income taxes were $ 262.6 million and our standardized measure of after-tax discounted future net cash flows was $ 838.7 million . we believe pre-tax pv10 % value is a useful measure for investors for evaluating the relative monetary significance of our crude oil and natural gas properties . we further believe investors may utilize pre-tax pv10 % value as a basis for comparison of the relative size and value of our reserves to other companies because many factors that are unique to each individual company impact the amount of future income taxes to be paid . our management uses this measure when assessing the potential return on investment related to our crude oil and natural gas properties and acquisitions . however , pre-tax pv10 % value is not a substitute for the standardized measure of discounted future net cash flows . our pre-tax pv10 % value and the standardized measure of discounted future net cash flows do not purport to present the fair value of our crude oil and natural gas reserves . our non-gaap net income , which excludes unrealized mark-to-market derivative gains and losses net of tax , for the year ended december 31 , 2011 , was $ 38,762,263 ( representing approximately $ 0.62 per diluted share ) as compared to our non-gaap net income , which excludes unrealized mark-to-market hedging gains and losses net of tax of $ 15,813,777 ( representing approximately $ 0.31 per diluted share ) for the year ended december 31 , 2010. the increase in non-gaap net income is primarily due to our continued addition of crude oil and natural gas production from new wells and higher realized commodity prices in 2011 compared to 2010 . 37 we define adjusted ebitda as net income before ( i ) interest expense , ( ii ) income taxes , ( iii ) depreciation , depletion and amortization , ( iv ) accretion of discount on asset retirement obligations , ( v ) gain ( loss ) on mark-to-market of derivative instruments and ( vii ) non-cash expenses relating to share based payments recognized under asc topic 718. adjusted ebitda for the year ended december 31 , 2011 was $ 112,294,487 , compared to adjusted ebitda of $ 47,114,199 for the year ended december 31 , 2010. the increase in adjusted ebitda is primarily due to our continued addition of crude oil and natural gas production from new wells and higher realized commodity prices in 2011 compared to 2010. we believe the use of these non-gaap financial measures provides useful information to investors to gain an overall understanding of our current financial performance . specifically , we believe the non-gaap financial measures included herein provide useful information to both management and investors by excluding certain expenses and unrealized commodity gains and losses that our management believes are not indicative of our core operating results . in addition , these non-gaap financial measures are used by management for budgeting and forecasting as well as subsequently measuring our performance , and we believe that we are providing investors with financial measures that most closely align to our internal measurement processes . we consider these non-gaap measures to be useful in evaluating our core operating results as they more closely reflect our essential revenue generating activities and direct operating expenses ( resulting in cash expenditures ) needed to perform these revenue generating activities . our management also believes , based on feedback provided by the investment community , that the non-gaap financial measures are necessary to allow the investment community to construct its valuation models to better compare our results with our competitors and market sector . the non-gaap financial information is presented using consistent methodology from year to year . these measures should be considered in addition to results prepared in accordance with gaap . in addition , these non-gaap financial measures are not based on any comprehensive set of accounting rules or principles . we believe that non-gaap financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with gaap and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding gaap financial measures . net income excluding unrealized mark-to-market derivative gains and losses and adjusted ebitda are non-gaap measures . a reconciliation of these measures to gaap is included below : 38 northern oil and gas , inc. reconciliation of gaap net income to non-gaap net income excluding unrealized mark-to-market derivative gains and losses replace_table_token_17_th northern oil and gas , inc. reconciliation of adjusted ebitda replace_table_token_18_th 39 2012 operation plan we expect to spend $ 325 million in 2012 with associated drilling capital expenditures . the 2012 wells are expected to target both the bakken and three forks formations . story_separator_special_tag drilling capital expenditures are expected to increase in 2012 due to the continued success of longer laterals and additional fracture stimulation stages . we currently expect to drill wells during 2012 at an average completed cost of $ 6.5 million to $ 7.5 million per well , which represents a 10 % to 15 % increase in drilling costs for 2012 compared to 2011. based on evolving conditions in the field , we expect to continue to evaluate further strategic acreage acquisitions during 2012. additionally , we expect to spend approximately $ 60 million to $ 80 million on acreage capital expenditures during 2012. northern has the ability to adjust capital expenditures by reducing the number of projects we elect to participate in . we currently expect to fund all 2012 commitments using a combination of cash-on-hand , cash flow generated by operations , bank borrowings and potential debt financings . our future financial results will depend primarily on : ( i ) the ability to continue to source and screen potential projects ; ( ii ) the ability to discover commercial quantities of crude oil and natural gas ; ( iii ) the market price for crude oil and natural gas ; and ( iv ) the ability to fully implement our exploration and development program , which is dependent on the availability of capital resources . there can be no assurance that we will be successful in any of these respects , that the prices of crude oil and natural gas prevailing at the time of production will be at a level allowing for profitable production , or that we will be able to obtain additional funding if necessary . as of february 15 , 2012 , we controlled the rights to mineral leases covering approximately 170,000 net acres prospective for the bakken and three forks . in the first quarter of 2012 through february 15 , 2012 , we acquired approximately 2,900 net acres at an average price of $ 2,029 per acre . our goal is to continue to explore for and develop hydrocarbons within the mineral leases we control as well as continue to expand our acreage position should opportunities present themselves . to accomplish our objectives we must achieve the following : ▪ continue to develop our substantial inventory of high quality core bakken acreage with results consistent with those to-date ; ▪ retain and attract talented personnel ; ▪ continue to be a low-cost producer of hydrocarbons ; ▪ actively manage our cost structure and focus on accretive acquisitions ; and ▪ continue to manage our financial obligations to access the appropriate capital needed to develop our position of primarily undrilled acreage . liquidity and capital resources our main sources of liquidity and capital resources are internally generated cash flow from operations , a credit facility and access to the debt and equity capital markets . we continue to take steps to ensure adequate capital resources and liquidity to fund our capital expenditure program . in the future , we anticipate we will be able to provide the necessary liquidity by the revenues generated from the sales of our crude oil and natural gas reserves in our existing properties , credit facility borrowings and potential equity or debt issuances . however there is no guarantee the capital markets will be available to us on favorable terms or at all . our opinions concerning liquidity and our ability to avail ourselves in the future of the financing options mentioned in the above forward-looking statements are based on currently available information . if this information proves to be inaccurate , future availability of financing may be adversely affected . factors that affect the availability of financing include our performance , crude oil and natural gas prices , the value of our reserves , the state of the worldwide debt and equity markets , investor perceptions and expectations of past and future performance , the global financial climate and , in particular , with respect to borrowings , the level of our working capital or outstanding debt and credit ratings by rating agencies . 40 overview at december 31 , 2011 , our debt to total capitalization ratio was 12 % , we had $ 69.9 million of debt outstanding , $ 496.6 million of stockholders ' equity , and $ 6.3 million of cash on hand . at december 31 , 2010 , we had no debt , $ 435.4 million of stockholders ' equity , $ 152.1 million of cash on hand and $ 39.7 million in short-term investments . in 2011 , we generated $ 85.1 million of cash provided by operating activities , an increase of $ 11.8 million from 2010. cash provided by operating activities increased primarily due to increased investment in oil and gas properties ( 32.3 net wells added in 2011 ) , higher crude oil production volumes and higher average sales prices for both crude oil and natural gas in 2011. these positive factors were partially offset by increased production expenses , production taxes and general and administrative expenses during 2011 as compared to 2010. cash flows from operating activities and advances under our revolving credit facility were used to partially fund approximately $ 300 million of drilling and development expenditures and $ 80 million of acreage acquisition expenditures in 2011. cash flow cash flows from operations are primarily affected by production volumes and commodity prices , net of the effects of settlements of our derivatives . our cash flows from operations also are impacted by changes in working capital . we generally maintain low cash and cash equivalent balances because we use available funds to fund our development activities or reduce our bank debt . short-term liquidity needs are satisfied by borrowings under our revolving credit facility . we generally use derivatives to economically hedge a significant , but varying portion of our anticipated future oil production for the next 12 to 24 months . any payments due to counterparties under our derivative contracts are funded by proceeds received from the sale of our production .
| 33 the following table sets forth selected operating data for the periods indicated . production volumes and average sales prices are derived from accrued accounting data for the relevant period indicated . replace_table_token_14_th results of operations for 2011 , 2010 and 2009 crude oil , natural gas and ngl sales , production and realized price calculations our revenues vary from year to year as a result of changes in realized commodity prices and production volumes . in 2011 , crude oil , natural gas and ngl sales increased 168 % from 2010 , driven primarily by a 117 % increase in production and partially aided by a 14 % increase in realized prices taking into account the effect of settled derivatives . in 2010 , crude oil and natural gas sales increased 292 % from 2009 due to a 29 % increase in realized prices , and a 215 % increase in production . 34 our production continues to grow through drilling success as we place new wells into production and through additions from acquisitions , partially offset by the natural decline of our crude oil and natural gas sales from existing wells . for 2011 , our production volumes increased 117 % as compared to 2010. for 2010 , our production volumes increased 215 % as compared to 2009. the production primarily increased due to the addition of 32.3 and 16.8 net productive wells in 2011 and 2010 , respectively . our production for each of the last three years is set forth in the following table : replace_table_token_15_th ( 1 ) represents volumes produced . ( 2 ) natural gas and ngls are converted to boe at the rate of one barrel equals six mcf based upon the approximate relative energy content of crude oil and natural gas , which is not necessarily indicative of the relationship of crude oil and natural gas prices . we enter into derivative instruments to manage the price risk attributable to future crude oil production . for 2011 , we incurred a loss
| 13,758 |
we follow u.s. gaap for revenue recognition as per unit royalty products are distributed or licensed by our customers . for technology license arrangements that do not require significant modification or customization of the underlying technology , we recognize technology license revenue when : ( 1 ) we enter into a legally binding arrangement with a customer for the license of technology ; ( 2 ) the customer distributes or licenses the products ; ( 3 ) the customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties ; and ( 4 ) collection is reasonably assured . our customers report to us the quantities of products distributed or licensed by them after the end of the reporting period stipulated in the contract , generally 30 to 45 days after the end of the month or quarter . effective october 16 , 2013 , we determined it was appropriate to recognize licensing revenue in the period in which royalty reports are received , rather than the period in which the products are distributed or to which the license relates . explicit return rights are not offered to customers . there were no returns through december 31 , 2014. engineering services : we may sell engineering consulting services to our customers on a flat rate or hourly rate basis . we recognize revenue from these services when all of the following conditions are met : ( 1 ) evidence existed of an arrangement with the customer , typically consisting of a purchase order or contract ; ( 2 ) our services were performed and risk of loss passed to the customer ; ( 3 ) we completed all of the necessary terms of the contract ; ( 4 ) the amount of revenue to which we were entitled was fixed or determinable ; and ( 5 ) we believed it was probable that we would be able to collect the amount due from the customer . to the extent that one or more of these conditions has not been satisfied , we defer recognition of revenue . generally , we recognize revenue as the engineering services stipulated under the contract are completed and accepted by our customers . engineering services performed under a signed statement of work ( “ sow ” ) with a customer are accounted for under the completed contract method , as these sow 's are short-term in nature and our total contract costs are difficult to estimate . estimated losses on sow projects are recognized in full as soon as they become evident . accounts receivable and allowance for doubtful accounts our accounts receivable are stated at net realizable value . our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments . credit limits are established through a process of reviewing the financial history and stability of each customer . where appropriate , we obtain credit rating reports and financial statements of the customer when determining or modifying its credit limits . we regularly evaluate the collectability of our trade receivable balances based on a combination of factors . when a customer 's account balance becomes past due , we initiate dialogue with the customer to determine the cause . if it is determined that the customer will be unable to meet its financial obligation , such as in the case of a bankruptcy filing , deterioration in the customer 's operating results or financial position or other material events impacting its business , we record a specific allowance to reduce the related receivable to the amount we expect to recover . should all efforts fail to recover the related receivable , we will write-off the account . we also record an allowance for all customers based on certain other factors including the length of time the receivables are past due and historical collection experience with customers . projects in process projects in process consist of costs incurred toward the completion of various projects for certain customers . these costs are primarily comprised of direct engineering labor costs and project-specific equipment costs . these costs are capitalized on our balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy . property and equipment property and equipment are stated at cost , net of accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows : estimated useful lives computer equipment 3 years furniture and fixtures 5 years 21 equipment purchased under capital leases is amortized on a straight-line basis over the estimated useful life of the asset or the term of the lease , whichever is shorter . upon retirement or sale of property and equipment , cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the consolidated statement of operations . maintenance and repairs are charged to expense as incurred . long-lived assets we assess any impairment by estimating the future cash flow from the associated asset in accordance with relevant accounting guidance . if the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated , we may incur charges for impairment of these assets . as of december 31 , 2014 , we believe there was no impairment of our long-lived assets . there can be no assurance , however , that market conditions will not change or sufficient demand for our products and services will continue , which could result in impairment of long-lived assets in the future . research and development research and development ( “ r & d ” ) costs are expensed as incurred . r & d costs consist mainly of personnel related costs in addition to some external consultancy costs such as testing , certifying and measurements . story_separator_special_tag stock-based compensation expense we measure the cost of employee services received in exchange for an award of equity instruments , including share options , based on the estimated fair value of the award on the grant date , and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award , usually the vesting period , net of estimated forfeitures . we account for equity instruments issued to non-employees at their estimated fair value . the measurement date for the fair estimated value for the equity instruments issued is determined at the earlier of ( 1 ) the date at which a commitment for performance by the consultant or vendor is reached , or ( 2 ) the date at which the consultant or vendor 's performance is complete . in the case of equity instruments issued to consultants , the estimated fair value of the equity instruments is primarily recognized over the term of the consulting agreement . the estimated fair value of the stock-based compensation is periodically re-measured and income or expense is recognized during the vesting term . when determining stock-based compensation expense involving options and warrants , we determine the estimated fair value of options and warrants using the black-scholes option pricing model . foreign currency translation and transaction gains and losses the functional currency of our foreign subsidiaries is the applicable local currency , the swedish krona , the japanese yen and the south-korean won . the translation from swedish krona , japanese yen or south-korean won to u.s. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income statement accounts using a weighted average exchange rate during the period . gains or ( losses ) resulting from translation are included as a separate component of accumulated other comprehensive income ( loss ) . gains or ( losses ) resulting from foreign currency transactions are included in general and administrative expenses in the accompanying consolidated statements of operations and were ( $ 37,000 ) , ( $ 155,000 ) and ( $ 50,000 ) during the years ended december 31 , 2014 , 2013 and 2012 , respectively . foreign currency translation gains or ( losses ) were $ 138,000 , $ 6,000 and ( $ 8,000 ) during the years ended december 31 , 2014 , 2013 and 2012 , respectively . net loss per share net loss per share amounts have been computed based on the weighted-average number of shares of common stock outstanding during the years ended december 31 , 2014 , 2013 and 2012. net loss per share , assuming dilution amounts from common stock equivalents , is computed based on the weighted average number of shares of common stock and potential common stock equivalents outstanding during the period . the weighted average number of shares of common stock and potential common stock equivalents used in computing the net loss per share for years ended december 31 , 2014 , 2013 and 2012 exclude the potential common stock equivalents , as the effect would be anti-dilutive . 22 comprehensive loss our comprehensive loss includes foreign currency translation gains and losses . the cumulative amount of translation gains and losses are reflected as a separate component of stockholders ' equity in the consolidated balance sheets , as accumulated other comprehensive income . cash flow information cash flows in foreign currencies have been converted to u.s. dollars at an approximate weighted average exchange rate for the respective reporting periods . the weighted average exchange rate for the consolidated statements of operations was 6.86 , 6.51 and 6.78 swedish krona to one u.s. dollar for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the exchange rate for the consolidated balance sheets was 7.80 and 6.48 swedish krona to one u.s. dollar as of december 31 , 2014 and 2013 , respectively . the weighted-average exchange rate for the consolidated statement of operations and of comprehensive loss was 105.84 and 97.58 japanese yen to one u.s. dollar for the year ended december 31 , 2014 and 2013 , respectively . the exchange rate for the consolidated balance sheet was 119.93 and 105.22 japanese yen to one u.s. dollar as of december 31 , 2014 and 2013 , respectively . the weighted-average exchange rate for the consolidated statement of operations and of comprehensive loss was 1,050.63 south korean won to one u.s. dollar for the year ended december 31 , 2014. the exchange rate for the consolidated balance sheet was 1,096.73 south korean won to one u.s. dollar as of december 31 , 2014. deferred revenue s from time-to-time , we receive pre-payments from our customers related to future services or future license fee revenues . we defer the license fees until we have met all accounting requirements for revenue recognition as per unit royalty products are distributed or licensed by our customers and the engineering development fee revenue until such time as the engineering work has been completed and accepted by our customers . as of december 31 , 2014 and 2013 , we have $ 3.0 million and $ 2.5 million , respectively , of deferred license fee revenue related to prepayments for future license fees from five and three customers , respectively and a total of $ 0.4 million and $ 1.2 million , respectively , of deferred engineering development fees from five and twenty-one customers , respectively . new accounting pronouncements in july 2013 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2013-11 , “ presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists ” . asu 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists .
| for the years ended december 31 , 2014 , 2013 and 2012 , $ 596,000 , $ 258,000 and $ 536,000 in license fees related to units licensed or distributed were recognized as revenue , respectively , and as of december 31 , 2014 , $ 3.0 million remained in deferred revenues from customers ' license fee prepayments . as of december 31 , 2014 , we had thirty-five technology license agreements with global oems . this compares with thirty-three and twenty-four technology license agreements with global oems as of december 31 , 2013 and 2012 , respectively . sixteen of our customers are currently shipping products and we anticipate others will initiate product shipments as they complete their final product development and manufacturing cycle throughout 2015 and onwards . gross margin gross margin was $ 3.2 million for the year ended december 31 , 2014 compared to $ 2.1 million and $ 5.7 million for the years ended december 31 , 2013 and 2012 , respectively . our cost of revenues includes the direct cost of production of certain customer prototypes , costs of company employed engineering personnel and engineering consultants to complete the engineering design contract . our gross margin has increased due to the increase in our total revenue , particularly our non-recurring engineering services revenue . there has also been a small decrease in cost of revenues in 2014 compared to 2013 resulting from a shift from external consultants and external prototype services to more internal resources in 2014 , including an in-house prototype lab and milling-machine . the gross margin related to our license fees is 100 % . as license fees as a percentage of our total revenue increase , our gross margin will increase . 24 research and development research and development ( “ r & d ” ) expenses for each of the years ended december 31 , 2014 were $ 7.4 million compared to $ 7.2 million and $ 5.7 million for the years ended december 31 , 2013 and 2012. r & d costs mainly consist of personnel related costs , in addition to some
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27 overview of financial results total revenues for fiscal 2016 were $ 881.4 million , an increase of 5 % from $ 838.8 million in fiscal 2015 . revenue in each of our segments increased , with our scores segment the primary driver increasing by 16 % in fiscal 2016 compared to fiscal 2015 . our applications and decision management software segments increased by 1 % and 2 % in fiscal 2016 compared to fiscal 2015 , respectively . we derive a significant portion of revenue internationally , and 36 % and 40 % of total consolidated revenues were derived from clients outside the u.s. during fiscal 2016 and 2015 , respectively . a significant portion of our revenues are derived from the sale of products and services within the banking ( including consumer credit ) industry , and 72 % and 69 % of our revenues were derived from within this industry during fiscal 2016 and 2015 , respectively . in addition , we derive a significant share of revenue from transactional or unit-based software license fees , transactional fees derived under scoring , network service or internal hosted software arrangements , annual software maintenance fees and annual license fees under long-term software license arrangements . arrangements with transactional or unit-based pricing accounted for 69 % and 67 % of our revenues during fiscal 2016 and 2015 , respectively . revenue fluctuations in our business are primarily driven by changes in the transactional volume and license fees . operating income for fiscal 2016 was $ 169.6 million , an increase of 23 % from $ 137.5 million in fiscal 2015 . operating margin increased to 19 % from 16 % . the margin increase was primarily attributable to a higher percentage of revenues derived from our higher-margin products including revenues generated from our experian agreement , no restructuring cost in the current year following the write-down of facilities in the prior year and a decrease in our professional services delivery cost . net income increased 27 % to $ 109.4 million in fiscal 2016 from $ 86.5 million in fiscal 2015 primarily due to the increase in operating margin , partially offset by lower income tax expense in fiscal 2015 , largely driven by a favorable tax adjustment . diluted earnings per share for fiscal 2016 was $ 3.39 , an increase of 28 % from $ 2.65 in fiscal 2015 . bookings management regards the volume of bookings achieved as an important indicator of future revenues , but they are not comparable to nor a substitute for an analysis of our revenues . bookings represent contracts signed in the current reporting period that generate current and future revenue streams . we estimate bookings as of the end of the period in which a contract is signed and initial booking estimates are not updated in future periods for changes between estimated and actual results . our calculations have varying degrees of certainty depending on the revenue type and individual contract terms . they are subject to a number of risks and uncertainties concerning timing and contingencies affecting product delivery and performance , and estimates consider contract terms , knowledge of the marketplace and experience with our customers , among other factors . actual revenue and the timing thereof could differ materially from our initial estimates . although many of our contracts contain non-cancelable terms , most of our bookings are transactional or service related that depend upon estimates such as volume of transactions , number of active accounts , or number of hours incurred . since these estimates can not be considered fixed or firm , we do not believe it is appropriate to characterize bookings as backlog . the following paragraphs discuss the key assumptions used to calculate bookings and the susceptibility of these assumptions to variability for each revenue type . transactional and maintenance bookings we calculate transactional bookings as the total estimated volume of transactions or number of accounts under contract , multiplied by the contractual rate . transactional contracts generally span multiple years and require estimates of future transaction volumes or number of active accounts . we develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements . differences between estimated bookings and actual results occur due to variability in the volume of transactions or number of active accounts estimated . this variability is primarily caused by the economic trends in our customers ' industries ; individual performance of our customers relative to their competitors ; and regulatory and other factors that affect the business environment in which our customers operate . we calculate maintenance bookings directly from the terms stated in the contract . professional services bookings we calculate professional services bookings as the estimated number of hours to complete a project multiplied by the rate per hour . we estimate the number of hours based on our understanding of the project scope , conversations with customer personnel and our experience in estimating professional services projects . estimated bookings may differ from actual results primarily due to differences in the actual number of hours incurred . license bookings licenses are sold on a perpetual or term basis and bookings generally equal the fixed amount stated in the contract . 28 bookings trend analysis replace_table_token_4_th ( 1 ) bookings yield represents the percentage of revenue recognized from bookings for the periods indicated . ( 2 ) weighted-average term of bookings measures the average term over which bookings are expected to be recognized as revenue . ( a ) nm - measure is not meaningful as our estimate of bookings is as of the end of the period in which a contract is signed , and we do not update our initial booking estimates in future periods for changes between estimated and actual results . transactional and maintenance bookings were 35 % and 31 % of total bookings for the years ended september 30 , 2016 and 2015 , respectively . story_separator_special_tag professional services bookings were 45 % and 47 % of total bookings for the years ended september 30 , 2016 and 2015 , respectively . license bookings were 20 % and 22 % of total bookings for the years ended september 30 , 2016 and 2015 , respectively . results of operations we are organized into the following three reportable segments : applications , scores and decision management software . although we sell solutions and services into a large number of end user product and industry markets , our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance . comparative segment revenues , operating income , and related financial information for the years ended september 30 , 2016 , 2015 and 2014 are set forth in note 17 to the accompanying consolidated financial statements . revenues the following tables set forth certain summary information on a segment basis related to our revenues for fiscal 2016 , 2015 and 2014 : replace_table_token_5_th replace_table_token_6_th 29 applications replace_table_token_7_th applications segment revenues increased $ 6.4 million in fiscal 2016 from 2015 primarily due to an $ 11.3 million increase in our originations solutions , a $ 10.9 million increase in our customer communication services , and a $ 5.1 million increase in our compliance solutions , partially offset by a $ 19.2 million decrease in our fraud solutions . the increase in originations solutions was primarily attributable to an increase in services revenue . the increase in customer communication services was primarily attributable to an increase in transactional revenues as a result of our growth in the mobile communication market . the increase in compliance solutions was primarily attributable to our acquisition of tonbeller in january 2015. the decrease in fraud solutions was primarily attributable to a decrease in software revenues mainly driven by decreased number of large multi-year license deals occurring during our fiscal 2016. applications segment revenues increased $ 22.0 million in fiscal 2015 from 2014 primarily due to an $ 11.1 million increase in our compliance solutions , a $ 10.0 million increase in our fraud solutions , and a $ 4.1 million increase in our customer communication services , partially offset by a $ 3.3 million decrease in our marketing solutions . the increase in compliance solutions was attributable to our acquisition of tonbeller in january 2015. the increase in fraud solutions was primarily attributable to increased number of large multi-year license transactions during fiscal 2015 , as well as an increase in transactional revenues driven by increased volumes . the increase in customer communication services was primarily attributable to an increase in transactional revenues as a result of our growth in the mobile communication market . the decrease in marketing solutions was primarily attributable to terminations of several customers in fiscal 2015. scores replace_table_token_8_th scores segment revenues increased $ 34.1 million in fiscal 2016 from 2015 due to a $ 17.8 million increase in our business-to-consumer services revenues and a $ 16.3 million increase in our business-to-business scores revenue . the increase in business-to-consumer services was primarily attributable to revenue generated from the agreement with experian that launched in december 2014 and made fico ® scores available to consumers on experian.com . the increase in business-to-business scores was primarily attributable to an increase in our transactional scores driven by new originations , account management and prescreen . scores segment revenues increased $ 20.5 million in fiscal 2015 from 2014 due to a $ 20.6 million increase in our business-to-consumer services revenues , partially offset by a decrease of $ 0.1 million in our business-to-business scores revenue . the increase in business-to-consumer services was primarily attributable to revenue generated from the agreement with experian that launched in december 2014 and made fico ® score available to consumers on experian.com . the decrease in our business-to-business scores was primarily attributable to decreased software revenue related to our global fico ® score , and a royalty true-up during fiscal 2014 , partially offset by an increase in our transactional scores driven by new originations and prescreen . 30 during fiscal 2016 , 2015 and 2014 , revenues generated from our agreements with equifax , transunion and experian , collectively accounted for approximately 19 % , 16 % and 15 % , respectively , of our total revenues , including revenues from these customers recorded in our other segments . decision management software replace_table_token_9_th decision management software segment revenues increased $ 2.2 million in fiscal 2016 from 2015 primarily attributable to an increase in services revenue , largely due to an increase in our fico ® decision management platform product partially offset by a decrease in our fico ® blaze advisor product . decision management software segment revenues increased $ 7.2 million in fiscal 2015 from 2014 primarily due to an increase in our fico ® decision management platform license sales as well as related services and transactional revenues , a one-time settlement with a customer related to under-reported royalties from a multi-year period , as well as increased transactional revenues from our infocentricity acquisition in april 2014. the increase was partially offset by a decrease in optimization tools primarily attributable to decreased license sales on our fico ® decision optimizer and fico ® xpress optimization products . 31 operating expenses and other income ( expense ) , net the following tables set forth certain summary information related to our consolidated statements of income and comprehensive income for the fiscal 2016 , 2015 and 2014 : replace_table_token_10_th replace_table_token_11_th 32 cost of revenues cost of revenues consists primarily of employee salaries and benefits for personnel directly involved in developing , installing and supporting revenue products ; travel costs ; overhead costs ; outside services ; internal network hosting costs ; software royalty fees ; and credit bureau data and processing services . cost of revenues as a percentage of revenues decreased to 30 % during fiscal year 2016 from 32 % during fiscal 2015. the $ 5.4 million decrease was primarily attributable to a $ 12.9
| 38 cash flows from financing activities net cash used in financing activities totaled $ 165.0 million in fiscal 2016 compared to $ 58.6 million in fiscal 2015. the $ 106.4 million increase was primarily due to a $ 110.0 million decrease in proceeds , net of payments from our revolving line of credit and a $ 10.5 million increase in taxes paid related to net share settlement of equity awards , partially offset by an $ 11.0 million decrease in payment on our senior notes . net cash used in financing activities totaled $ 58.6 million in fiscal 2015 compared to $ 130.4 million in fiscal 2014. the $ 71.8 million decrease was primarily due to an $ 86.3 million decrease in common stock repurchased and a $ 49.0 million increase in proceeds , net of payments from our revolving line of credit , partially offset by a $ 63.0 million increase in payment on our senior notes . repurchases of common stock in july 2016 , our board of directors approved a stock repurchase program following the termination of the previously authorized program . this program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $ 250.0 million in the open market or in negotiated transactions . as of september 30 , 2016 , we had $ 230.0 million remaining under this authorization . during fiscal 2016 , 2015 and 2014 , we expended $ 138.4 million , $ 130.7 million and $ 214.9 million , respectively , under this and previously authorized stock repurchase programs . dividends we paid quarterly dividends of $ 0.02 per share during each of fiscal 2016 , 2015 and 2014 . our dividend rate is set by the board of directors on a quarterly basis taking into account a variety of factors , including among others , our operating results and cash flows , general economic and industry conditions , our obligations , changes in applicable tax laws and other factors deemed relevant by the board . although we expect to continue to pay dividends at the current rate , our
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the accident year loss and lae ratio is calculated by dividing the losses and lae , regardless of when such loss and lae are incurred , for insured events that occurred during a particular year by the net premiums earned for that year . the accident year losses and lae ratio is calculated using premiums and losses and lae that are net of amounts ceded to reinsurers . the accident year loss and lae ratio for a particular year can decrease or increase when recalculated in subsequent periods as the reserves established for insured events occurring during that year develop favorably or unfavorably ; and is an operating ratio based on our statutory financial statements and is not derived from our gaap financial information . we analyze our calendar year loss and lae ratio to measure our profitability in a particular year and to evaluate the adequacy of our premium rates charged in a particular year to cover expected losses and lae from all periods , including development ( whether favorable or unfavorable ) of reserves established in prior periods . in contrast , we analyze our accident year loss and lae ratios to evaluate our underwriting performance and the adequacy of the premium rates we charged in a particular year in relation to ultimate losses and lae from insured events occurring during that year . the loss and lae ratios provided in this report are calendar year basis , except where they are expressly identified as accident year loss and lae ratios . losses and lae represents our largest expense item and includes claim payments made , amortization of the deferred gain , 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 . our indemnity claims frequency ( the number of claims expressed as a percentage of payroll ) has increased year-over-year and our loss experience indicates an upward trend in medical and indemnity costs per claim that are reflected in our current accident year loss estimate . specifically , we experienced increased costs associated with claims litigation , driven by a nearly eight percentage point increase in the number of claims that are litigated in our southern california operations during the fourth quarter of 2013 , compared to a six percentage point increase during the first three quarters of the year . these trends are consistent with those reported by the workers ' compensation insurance rating bureau in california through the third quarter of 2013. 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. ” overall , losses and lae were $ 463.6 million , $ 287.9 million , and $ 262.5 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the increase from 2012 to 2013 was primarily due to higher net premiums earned in 2013. the increase from 2011 to 2012 was primarily due to an increase in net earned premiums . additionally , there was a $ 73.3 million favorable lpt reserve adjustment and $ 9.6 million in lpt contingent commission adjustments that decreased losses and lae by those amounts in 2012. unfavorable prior accident year development in 2013 included $ 5.0 million related to california loss reserves for the 2009 through 2011 accident years and $ 1.9 million related to our assigned risk business . prior accident year loss development in 2012 and 2011 was primarily related to our assigned risk business . our current accident year loss estimates were 77.0 % , 77.0 % , and 77.2 % for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the trend in the current accident year loss estimates reflects the impact of higher net rate , which is being offset by increasing loss costs . 31 excluding the impact from the lpt agreement , losses and lae would have been $ 501.5 million , $ 387.8 million , and $ 281.8 million , or 78.1 % , 77.3 % , and 77.5 % of net premiums earned , for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the table below reflects losses and lae reserve adjustments . replace_table_token_18_th underwriting and other operating expenses ratio . the underwriting and other operating expenses ratio is the ratio of underwriting and other operating expenses to net premiums earned and measures an insurance company 's operational efficiency in producing , underwriting , and administering its insurance business . underwriting and other operating expenses are those costs that we incur to underwrite and maintain the insurance policies we issue , excluding commission . these expenses include premium taxes and certain other general expenses that vary with , and are primarily related to , producing new or renewal business . other underwriting expenses include policyholder dividends , changes in estimates of future write-offs of premiums receivable , general administrative expenses such as salaries and benefits , rent , office supplies , depreciation , and all other operating expenses not otherwise classified separately . policy acquisition costs are variable based on premiums earned ; however , other operating costs are more fixed in nature and become a smaller percentage of net premiums earned as premiums increase . story_separator_special_tag our underwriting and other operating expenses ratio was 19.5 % , 24.8 % , and 28.7 % , and our underwriting and other operating expenses was $ 125.3 million , $ 124.6 million , and $ 104.1 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . during the year ended december 31 , 2013 , premium taxes and assessments increased $ 4.2 million , and information technology expenses increased $ 2.3 million , compared to 2012. during the year ended december 31 , 2012 , bonus and equity compensation expenses increased $ 7.2 million , our premium taxes and assessments increased $ 1.7 million ( including a $ 1.4 million change in estimate for guarantee fund assessments ) , and bad debt expense increased $ 2.1 million , partially offset by a $ 1.6 million decrease in professional fees , compared to 2011. additionally , implementation of the new accounting guidance for deferred policy acquisition costs ( dac ) resulted in a $ 7.1 million increase in our underwriting and other operating expenses for the year ended december 31 , 2012. excluding the impact of the new dac guidance and the change in estimate for guarantee fund assessments , underwriting and other operating expenses would have increased $ 6.4 million for the year ended december 31 , 2013 compared to 2012 and $ 14.8 million for the year ended december 31 , 2012 compared to 2011. commission expense ratio . the commission expense ratio is the ratio of commission expense to net premiums earned and measures the cost of compensating agents and brokers for the business we have underwritten . commission expense includes direct commissions to our agents and brokers for the premiums that they produce for us , as well as incentive payments , other marketing costs , and fees . our commission expense ratio was 12.2 % , 13.1 % , and 13.0 % , while our commission expense was $ 78.3 million , $ 65.6 million , and $ 47.3 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . while our commission expense is up over the past three years , primarily due to higher net premiums earned , our commission expense ratio decreased in 2013 , primarily due to lower base commissions and agency incentives as a percentage of premiums earned , compared to 2012 and 2011. interest expense we incur interest expenses on notes payable . interest expense was $ 3.2 million , $ 3.5 million , and $ 3.6 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the decrease in interest expense from 2011 to 2013 was primarily due to the reduction in principal balance on our credit facility with wells fargo by $ 10 million in the fourth quarters of each of 2013 and 2012 . 32 income tax benefit income tax benefit was $ 10.7 million , $ 9.3 million , and $ 2.1 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the effective tax rate was ( 20.0 ) % , ( 9.6 ) % , and ( 4.5 ) % for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . the increased tax benefit for the year ended december 31 , 2013 , compared to 2012 , was primarily due to the reallocation of $ 27.2 million in reserves from non-taxable periods prior to january 1 , 2000 , during 2013 , which reduced our effective tax rate by 13.9 percentage points for the year ended december 31 , 2013. the increased tax benefit for the year ended december 31 , 2012 , compared to 2011 , was primarily due to increases in tax exempt income as a percentage of pre-tax net income , resulting from a $ 73.3 million favorable lpt reserve adjustment and a $ 15.0 million increase to the lpt contingent profit commission in 2012. liquidity and capital resources parent company operating cash and cash equivalents . we are a holding company and our ability to fund our operations is contingent upon existing capital and the ability of our insurance subsidiaries ' to pay dividends up to the holding company . payment of dividends by our insurance subsidiaries is restricted by state insurance laws and regulations , including laws establishing minimum solvency and liquidity thresholds . we require cash to pay stockholder dividends , repurchase common stock , make interest and principal payments on our outstanding debt obligations , provide additional surplus to our insurance subsidiaries , and fund our operating expenses . in september 2013 , ehi made a cash capital contribution totaling $ 40 million to its operating subsidiaries to support future growth and maintain the subsidiaries ' financial strength ratings . based on reported capital , surplus , and dividends paid within the last 12 months , the maximum dividends that may be paid by eicn and epic in 2014 , without prior approval by the respective state insurance regulator , are $ 32.7 million and $ 25.4 million , respectively . the holding company had $ 56.5 million of cash and cash equivalents and fixed maturity securities maturing within the next 24 months at december 31 , 2013 . principal payments of $ 10 million and $ 60 million on our line of credit are payable on december 31 , 2014 and 2015 , respectively . we believe that the liquidity needs of the holding company over the next 24 months will be met with cash , investments , and dividends from our insurance subsidiaries . outstanding debt .
| effective tax rate by 13.9 percentage points , or $ 7.4 million , in 2013. collectively , these items increased net income by $ 23.8 million for the year ended december 31 , 2013. our 2012 results of operations were also impacted by : ( 1 ) favorable development in the estimated reserves ceded under the lpt agreement , which resulted in a $ 73.3 million lpt reserve adjustment ; ( 2 ) an increase in the contingent commission receivable under the lpt agreement that resulted in a $ 9.6 million lpt contingent commission adjustment ; and ( 3 ) guidance issued by the financial accounting standards board that , beginning in 2012 , changed the definition of policy acquisition costs which may be capitalized , resulting in a $ 7.1 million increase in our underwriting and other operating expenses during 2012. collectively , these items increased net income by $ 75.8 million for the year ended december 31 , 2012 . 28 a primary measure of our performance is our ability to increase stockholders ' equity , including the impact of the deferred gain , over the long-term ; however , during periods of rising interest rates , the fair value of the fixed income component of our investment portfolio may be negatively impacted , thereby reducing stockholders ' equity . for the year ended december 31 , 2013 , the unrealized gain in our portfolio , net of deferred tax expense , declined by $ 39.1 million , principally as a result of the upward movement in interest rates during the year . the following table shows our stockholders ' equity including the deferred gain , stockholders ' equity on a gaap basis , and number of common shares outstanding at december 31 : replace_table_token_14_th ( 1 ) stockholders ' equity , including the deferred gain , is a non-gaap measure that is defined as total stockholders ' equity plus the deferred gain , which we believe is an important supplemental measure of our capital position . our goal is to maintain our focus on disciplined
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advanced materials ( divested ) as discussed above , on march 29 , 2013 , we exited this business . during 2012 and through the date of sale , this business manufactured inorganic products using unrefined cobalt and other metals for the mobile energy storage , renewable energy , automotive systems , construction and mining , and industrial markets . it also had a 55 % interest in a joint venture ( gtl ) in the democratic republic of congo ( drc ) . following the sale , to assist in the transition of the downstream business , we entered into two agreements with the buyer pursuant to which : ( 1 ) we act as intermediary in a supply agreement between gtl and the buyer , in back-to-back arrangements for a period of two years . we met the cobalt feed supply target under that agreement as of early october 2014 and the supply agreement will terminate in march 2015 . ( 2 ) we served as the u.s. distributor for refined cobalt products in primarily back-to-back arrangements until december 31 , 2013. these agreements will be reported in the advanced materials segment until the supply agreement expires or is terminated . executive overview in 2014 , we completed the acquisition of yardney , returned $ 44.5 million to stockholders in the form of share repurchases and a regular quarterly cash dividend that we initiated in q1 2014 , and developed and initiated a set of actions to improve growth , margins and returns , including replacing four of our five business unit leaders . we believe these new leaders , in magnetic technologies and all three of our specialty chemicals businesses , have the abilities and experience to execute our initiatives and accelerate the pace of our competitive repositioning and cost optimization opportunities . consolidated net sales decreased by $ 90.0 million in 2014 compared to 2013 , due primarily to the divestiture of the advanced materials business ( $ 63.7 million impact ) and lower sales at magnetic technologies ( $ 27.6 million impact ) . excluding the advanced materials business , net sales decreased 2.7 % in 2014 compared to 2013. sales in magnetic technologies were down 5.3 % compared to a year earlier , due primarily to weakening business conditions in europe and lower rare earth prices , which are generally passed-through to customers in our selling prices . battery technologies sales increased by 2.3 % due to favorable price/mix and higher volumes in defense and medical applications . specialty chemicals sales were essentially flat to a year ago . during the fourth quarter of 2014 , in response to deteriorating european macroeconomic conditions and increasing competition , the magnetic technologies management team conducted a strategic evaluation of the business , led by the new business leader who joined in the third quarter of 2014. the evaluation included an assessment of business strengths and challenges and the consideration of various alternatives to improve business performance , including competitive repositioning and cost optimization opportunities . as a result of this evaluation , including a projection of future business results and consideration of the anticipated costs and benefits from business improvement opportunities , we determined that certain intangible assets of the business were impaired , and recorded goodwill and intangible asset non-cash impairment charges totaling $ 195.4 million . throughout 2014 , we recorded charges of $ 10.0 million related to cost reduction and business improvement initiatives across the enterprise , including a non-cash charge of $ 3.2 million related to a pension settlement in battery technologies , severance related to headcount 13 reductions in specialty chemicals , severance and other charges related to reducing operations at our medical battery facility in vancouver in response to the loss of a key customer contract , and charges related to the business leadership changes discussed above . excluding the impact of the special charges noted above and the results of advanced materials in both years , adjusted operating profit and ebitda were $ 45.9 million and $ 113.4 million , respectively , in 2014 compared to $ 51.2 million and $ 121.0 million , respectively , in 2013. a reconciliation of these adjusted numbers to us gaap is contained on pages 17 and 18. the decrease in earnings in 2014 resulted from lower sales volumes and higher operating expenses in magnetic technologies , and $ 3.7 million of insurance proceeds in specialty chemicals in 2013 that did not repeat in 2014. these factors were partially offset by higher profitability in 2014 in battery technologies due to favorable price/mix and higher sales volumes , as well as lower corporate expenses . consolidated operating results for 2014 , 2013 and 2012 set forth below is a summary of the statements of consolidated operations for the years ended december 31 , replace_table_token_5_th 14 in this report we provide adjusted operating profit ( loss ) , adjusted ebitda , and adjusted earnings per common share attributable to om group , inc. common stockholders - assuming dilution , which are non-gaap financial measures . the tables below present reconciliations of these amounts to the comparable us gaap amounts . we believe that the non-gaap financial measures presented in the tables facilitate a comparative assessment of the company 's operating performance and enhance investors ' understanding of the performance of the company 's operations . the non-gaap financial information set forth in the tables below are not alternatives to reported results determined in accordance with us gaap . replace_table_token_6_th ( a ) $ 0.2 million of accelerated software amortization is included in corporate charges related to cost-reduction initiatives and excluded from corporate depreciation and amortization in the table above for the twelve months ended december 31 , 2013 . 15 replace_table_token_7_th ( a ) because the reported loss from continuing operations is income on a adjusted basis , we used diluted shares to calculate eps the 2014 items in the above table are described more fully in the executive overview above . story_separator_special_tag the 2013 charges related to enterprise-wide cost-reduction initiatives , including headcount reductions , minor facility consolidations , supply chain optimization , corporate cost reductions , and other structural changes to improve profitability . these actions increased pre-tax profit by $ 17.3 million in 2013. in 2013 , we incurred charges of $ 9.7 million associated with these actions . magnetic technologies acquisition-related charges in 2012 totaled $ 55.9 million ( net of related tax benefit ) , representing the step-up value for inventory in purchase accounting that turned through cost of goods sold after the business was acquired . other items impacting operating profit included a land sale gain of $ 2.9 million ( net of tax ) in specialty chemicals , and expense of $ 2.5 million ( net of tax ) related to a settlement charge associated with lump-sum cash settlements to certain participants in one of our u.s. defined benefit pension plans . other income ( expense ) included a $ 6.0 million ( net of tax ) benefit for a fourth quarter 2012 receipt of cash from an escrow account related to the 2010 battery technologies acquisition , and it included interest expense of $ 1.0 million ( net of tax ) in the second half of 2012 related to accelerated amortization of deferred financing fees as a result of early repayments of debt . 2014 compared with 2013 the following table identifies , by segment , the components of change in net sales and operating profit in 2014 compared with 2013 : replace_table_token_8_th excluding the impact of the divested advanced materials business ( $ 63.7 million ) , net sales in 2014 were $ 26.3 million , or 2.7 % , lower than 2013. this decrease is due primarily to lower net sales in our magnetic technologies business 16 and resulted from lower rare earth prices in 2014 , which are generally passed-through to our customers in our selling prices , as well as weakening business conditions in europe and increased competition and lower prices . this decrease was partially offset by a sales increase of $ 3.4 million , or 2.3 % , in our battery technologies business , which was driven by favorable price/mix and higher volumes in defense and medical applications . net sales in specialty chemicals were roughly flat in 2014 compared to 2013. gross profit decreased to $ 238.2 million in 2014 , compared with $ 258.4 million in 2013. the largest factors affecting the $ 20.2 million decrease were the sale of advanced materials ( $ 12 million impact ) , and lower sales and rare-earth price impacts in magnetic technologies . selling , general and administrative expenses ( “ sg & a ” ) decreased to $ 207.9 million in 2014 compared with $ 217.3 million in 2013 due primarily to the advanced materials divestiture ( $ 6 million impact ) . excluding the advanced materials business , sg & a as a percentage of net sales was 21 % in both 2014 and 2013. the intangible impairment charge of $ 195.4 million in 2014 relates to goodwill and intangible assets in magnetic technologies and is described more fully in the executive overview above . the following table summarizes the components of other expense , net : replace_table_token_9_th the decrease in interest expense is due to lower debt outstanding in 2014 compared to 2013 , as we repaid our debt in the first half of 2013. the 2013 accelerated amortization of deferred financing fees is related to the debt paydown . the foreign exchange loss in 2014 is primarily related to movements in euro/u.s . dollar exchange rates and the resulting impact on the revaluation of non-functional currency cash and debt balances . during 2014 , the euro weakened against the dollar from 1.38 at december 31 , 2013 to 1.21 at december 31 , 2014 , resulting in a foreign exchange loss . during 2013 , the opposite occurred when the euro strengthened from 1.32 at december 31 , 2012 to 1.38 at december 31 , 2013 , resulting in a foreign exchange gain . other income in 2013 is primarily comprised of a $ 13 million reduction of the contingent consideration liability associated with our 2011 acquisition of rahu catalytics limited ( `` rahu '' ) in 2011. we recorded an income tax benefit of $ 0.5 million on a pre-tax loss of $ 172.8 million in 2014. the effective income tax rate for the year ended december 31 , 2014 is impacted by the magnetic technologies impairment charges of $ 195.4 million and other special charges totaling $ 10.0 million described more fully above . there is no tax benefit for the $ 168.7 million goodwill portion of the impairment charges due to its permanent nature . excluding the impairment charge , the other special items and the advanced materials results , our effective income tax rate was 22.7 % . this rate is lower than the u.s. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the u.s. and our financing structure , partially offset by losses and carry-forwards in certain jurisdictions ( including the u.s. and germany ) with no corresponding tax benefit . we recorded an income tax expense of $ 10.7 million on pre-tax loss of $ 62.8 million for 2013. the effective tax rate was impacted by the loss on the divestiture of advanced materials , which had no income tax benefit , and other special items . excluding these special items , our effective income tax rate would have been 25.6 % . this rate is lower than the u.s. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the u.s. , and our financing structure , partially offset by losses and carry-forwards in certain jurisdictions ( including the u.s. and germany ) with no corresponding tax benefit .
| in addition , we made payments of $ 16.2 million to the seller of vac in 2014. we remain in discussions with the seller regarding the remainder of the withheld consideration of $ 46.2 million . the cash used in financing activities in 2013 was primarily for prepayment of long-term debt using proceeds from divestitures of our advanced materials and upc businesses , additional pre-payment of long-term debt utilizing cash on hand , repurchases of common stock , and payments made to the seller of vac . net cash used in financing activities in 2012 included $ 466.5 million of debt repayments . financial condition cash balances are held in numerous locations throughout the world . as of december 31 , 2014 , most of our cash and cash equivalents were held outside the united states , primarily in germany . most of the amounts held outside the u.s. could be repatriated to the u.s. but , under current law , would be subject to u.s. income taxes , less applicable foreign tax credits . our intent is to retain the majority of our cash balances where generated and to meet u.s. liquidity needs through cash generated from operations in the u.s. , limited repatriation of future foreign earnings , and external borrowings . we expect our available cash , 2015 operating cash flows and availability under our credit facility described below to be adequate to fund 2015 operating needs and capital expenditures . debt and other financing activities on september 4 , 2013 we entered into a five -year senior secured revolving credit facility ( “ the facility ” ) , and terminated our previous credit facility dated august 2 , 2011 that was scheduled to expire in august 2016. the facility provides for $ 350 million of revolving borrowing capacity and includes an expansion option of up to an additional $ 150 million , subject to certain conditions . the borrowers under the agreement are
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factors that have caused volatility in our raw material prices in the past , and which may do so in the future include : the availability of feedstock from shale gas and oil drilling ; supply and demand for crude oil ; shortages of raw materials due to increasing demand ; ethane and liquefied natural gas exports ; 29 capacity constraints due to higher construction costs for investments , construction delays , strike action or involuntary shutdowns ; the general level of business and economic activity ; and the direct or indirect effect of governmental regulation . significant volatility in raw material costs tends to put pressure on product margins as sales price increases could lag behind raw material cost increases . conversely , when raw material costs decrease , customers may seek immediate relief in the form of lower sales prices . we currently use derivative instruments to reduce price volatility risk on feedstock commodities and lower overall costs . normally , there is a pricing relationship between a commodity that we process and the feedstock from which it is derived . when this pricing relationship deviates from historical norms , we have from time to time entered into derivative instruments and physical positions in an attempt to take advantage of this relationship . our historical results have been significantly affected by our plant production capacity , our efficient use of that capacity and our ability to increase capacity . since our inception , we have followed a disciplined growth strategy that focuses on plant acquisitions , new plant construction and internal expansion . we evaluate each expansion project on the basis of its ability to produce sustained returns in excess of our cost of capital and its ability to improve efficiency or reduce operating costs . we also regularly look at acquisition opportunities that would be consistent with or complimentary to our overall business strategies . depending on the size of the acquisition , any such acquisitions could require external financing . as noted above in item 1a , `` risk factors , '' we are subject to extensive environmental regulations , which may impose significant additional costs on our operations in the future . further , concern about ghg emissions and their possible effects on climate change has led to the enactment of regulations , and to proposed legislation and additional regulations , that could affect us in the form of increased cost of feedstocks and fuel , other increased costs of production and decreased demand for our products . while we do not expect any of these enactments or proposals to have a material adverse effect on us in the near term , we can not predict the longer-term effect of any of these regulations or proposals on our future financial condition , results of operations or cash flows . recent developments in february 2015 , we entered into an agreement to acquire ineos chlor vinyls holdings b.v. 's 35.7 % interest in suzhou huasu plastics co. , ltd. , a pvc joint venture based near shanghai . we currently own a 59 % interest in this joint venture . the completion of this acquisition is subject to government approvals . in march 2014 , we formed westlake partners to operate , acquire and develop ethylene production facilities and related assets . on august 4 , 2014 , westlake partners completed its initial public offering of 12,937,500 common units at a price of $ 24.00 per unit . net proceeds to westlake partners from the sale of the units was approximately $ 286.1 million , net of underwriting discounts , structuring fees and estimated offering expenses of approximately $ 24.4 million . westlake partners ' assets consist of a 10.6 % limited partner interest in opco , as well as the general partner interest in opco . prior to the ipo , opco 's assets were wholly owned by us . opco 's assets include ( 1 ) two ethylene production facilities at our lake charles site ; ( 2 ) one ethylene production facility at our calvert city site ; and ( 3 ) a 200-mile common carrier ethylene pipeline that runs from mont belvieu to our longview site . we retained an 89.4 % limited partner interest in opco , a 52.2 % limited partner interest in westlake partners ( common and subordinated units ) , a general partner interest in westlake partners and incentive distribution rights . opco used the net proceeds from the purchase of its limited partner interest to establish a cash reserve of approximately $ 55.4 million for turnaround expenditures , to reimburse us approximately $ 151.7 million for capital expenditures incurred with respect to certain of the assets contributed to opco and to repay intercompany debt of approximately $ 78.9 million . the initial public offering represented the sale of 47.8 % of the common units in westlake partners . on july 31 , 2014 , we acquired vinnolit from several entities associated with advent international corporation . vinnolit is headquartered in ismaning , germany and is an integrated global leader in specialty pvc resins , with a combined annual capacity of 1.7 billion pounds of pvc , including specialty paste and suspension grades , 1.5 billion pounds of vcm and 1.0 billion pounds of caustic soda . in april 2014 , we completed a feedstock conversion and ethylene expansion project at opco 's calvert city ethylene plant . with the completion of this project , opco 's calvert city ethylene plant now utilizes relatively low-cost ethane feedstock and increased its capacity by approximately 180 million pounds annually . this expansion and feedstock conversion project enables us , through opco , to enhance our vinyl chain integration and leverage relatively low-cost ethane being developed in the marcellus shale area . 30 on february 14 , 2014 , our board of directors authorized a two-for-one split of our common stock . stockholders of record as of february 28 , 2014 were entitled to one additional share for every share outstanding , which was distributed on march 18 , 2014. story_separator_special_tag story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; font-style : normal ; font-weight : normal ; text-decoration : none ; '' > 2014 was negatively impacted by lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs associated with the maintenance turnaround at our calvert city and gendorf facilities and opco 's calvert city ethylene plant 's feedstock conversion and expansion project . selling , general and administrative expenses . selling , general and administrative expenses increased $ 45.4 million , or 30.7 % , in 2014 as compared to 2013 . the increase was mainly attributable to general and administrative costs incurred by vinnolit for the period from july 31 , 2014 to december 31 , 2014 , an increase in payroll and related labor costs , including incentive compensation , and an increase in consulting and professional fees , partially offset by a decrease in the provision for doubtful accounts . interest expense . interest expense increased by $ 19.3 million to $ 37.4 million in 2014 from $ 18.1 million in 2013 , largely due to decreased capitalized interest on major capital projects in 2014 as compared to 2013 . debt balances during 2014 remained relatively unchanged compared to 2013 . other ( expense ) income , net . other ( expense ) income , net was net expense of $ 2.7 million in 2014 compared to net income of $ 6.8 million in 2013 , primarily attributable to higher losses on foreign exchange and the partial impairment of an equity method investment , partially offset by higher income from our other equity method investments and net realized gains from the sales and maturities of available-for-sale securities . income taxes . the effective income tax rate was 36.8 % in 2014 as compared to 35.2 % in 2013 . the effective income tax rate for 2014 was above the u.s. federal statutory rate of 35.0 % primarily due to state income taxes , partially offset by state tax credits and the domestic manufacturing deduction . the effective income tax rate for 2013 was above the u.s. federal statutory rate of 35.0 % primarily due to state income taxes , mostly offset by state tax credits and the domestic manufacturing deduction . olefins segment net sales . net sales increased by $ 170.0 million , or 6.7 % , to $ 2,723.7 million in 2014 from $ 2,553.7 million in 2013 , mainly due to higher sales prices and sales volumes for most of our major products , partially offset by lower styrene sales volumes . average sales prices for the olefins segment increased by 7.4 % in 2014 as compared to 2013 , while average sales volumes decreased marginally by 0.8 % in 2014 as compared to 2013 . income from operations . income from operations was $ 1,013.8 million in 2014 as compared to $ 833.2 million in 2013 . this increase was predominantly driven by improved olefins integrated product margins , primarily as a result of the increased ethylene production at our lake charles facility after the first quarter 2013 completion of the petro 2 ethylene unit expansion and its conversion to 100 % ethane feedstock capability . in addition , olefins integrated product margins benefited from an increase in sales prices that outpaced increases in feedstock and energy costs as average sales prices for the olefins segment increased by 7.4 % in 2014 as compared to 2013 . trading activity for 2014 resulted in a loss of $ 9.7 million as compared to a gain of $ 5.4 million for 2013 . income from operations for 2013 was negatively impacted by the lost production and the expensing of $ 19.9 million related to unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of the petro 2 ethylene unit . vinyls segment net sales . net sales increased by $ 485.9 million , or 40.3 % , to $ 1,691.7 million in 2014 from $ 1,205.8 million in 2013 . this increase was primarily attributable to sales contributed by vinnolit and north american specialty products , higher caustic sales volumes and higher pvc resin sales prices , partially offset by lower opco ethylene co-products sales volumes . opco 's ethylene co-products sales volumes were lower in 2014 , as compared to 2013 , primarily due to the planned shutdown of opco 's calvert city ethylene plant as a result of the feedstock conversion and ethylene expansion project and the ethane feedstock currently utilized at opco 's calvert city ethylene plant following the completion of such project . average sales prices for the vinyls segment increased marginally by 0.6 % in 2014 as compared to 2013 , while average sales volumes increased by 39.7 % in 2014 as compared to 2013 . income from operations . income from operations was $ 142.7 million in 2014 as compared to $ 154.7 million in 2013 . this decrease was mainly caused by lost sales , lower production rates and the expensing of $ 27.1 million related to unabsorbed 33 fixed manufacturing costs and other costs associated with the maintenance turnaround at our gendorf and calvert city facilities and opco 's calvert city ethylene plant 's feedstock conversion and expansion project . in addition , income from operations for 2014 was negatively impacted by the effect of selling higher cost vinnolit inventory recorded at fair value and the severe winter weather experienced in early 2014 , which resulted in significantly higher propane feedstock costs . the decrease was partially offset by lower feedstock costs at opco 's calvert city ethylene plant following the completion of the feedstock conversion and ethylene expansion project and the change in feedstock utilized from propane feedstock to lower-cost ethane feedstock , as compared to the prior year . 2013 compared with 2012 net sales .
| net income for the year ended december 31 , 2014 was negatively impacted by westlake partners formation and initial public offering costs and the vinnolit acquisition and associated costs aggregating approximately $ 26.0 million , after tax , and the recognition of the tax impact of current changes in state tax rates and other discrete tax items of $ 14.8 million . net sales for the year ended december 31 , 2014 increased $ 655.9 million to $ 4,415.4 million compared to net sales for 2013 of $ 3,759.5 million , primarily due to sales contributed by vinnolit , our specialty pvc resin business , and north american specialty products , our specialty pvc pipe business , which we acquired in july 2014 and may 2013 , respectively , higher sales prices for most of our major products and higher ethylene , caustic and polyethylene sales volumes , partially offset by lower ethylene co-products and styrene sales volumes . income from operations was $ 1,124.0 million for the year ended december 31 , 2014 as compared to $ 953.5 million for 2013 , an increase of $ 170.5 million . income from operations benefited mainly from improved olefins integrated product margins , primarily as a result of higher polyethylene sales prices and the increased ethylene production at our lake charles facility after the first quarter 2013 completion of the petro 2 ethylene unit expansion and its conversion to 100 % ethane feedstock capability . the increase in income from operations for the year ended december 31 , 2014 was partially offset by lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs associated with the maintenance turnaround at our calvert city and gendorf facilities and opco 's calvert city ethylene plant 's feedstock conversion and expansion project . 2014 compared with 2013 net sales . net sales increased by $ 655.9 million , or 17.4 % , to $ 4,415.4 million in 2014 from $ 3,759.5 million in 2013 . this increase was mainly attributable to sales contributed by vinnolit and
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we expect our expenses will increase substantially in connection with our ongoing activities , as we : add personnel to support our product development and commercialization efforts ; continue our research and development efforts ; seek regulatory approval for mridian in certain foreign countries ; and operate as a public company . accordingly , we may seek to fund our operations through public or private equity , debt financings or other sources . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop enhancements to and integrate new technologies into mr image-guided radiation therapy systems . august 2018 public offering of common stock on august 14 , 2018 , we entered into an underwriting agreement with morgan stanley & co. llc and jefferies llc , as representatives of several underwriters , or the underwriters , in connection with the issuance and sale of 16,216,217 shares of our common stock at a public offering price of $ 9.25 per share , or the august 2018 public offering of common stock . in addition , we granted the underwriters a 30-day option to purchase up to 2,432,432 additional shares of common stock on the same terms , which the underwriters exercised in full . we completed the offering on august 17 , 2018 and received aggregate net proceeds of approximately $ 161.9 million , after deducting underwriting discounts and commissions and offering expenses payable by us . march 2018 direct registered offering in february 2018 , we entered into a securities purchase agreement pursuant to which we sold ( i ) 4,090,000 shares of our common stock ; ( ii ) 3,000,581 shares of our series a convertible preferred stock and ( iii ) warrants to purchase 1,418,116 shares of our common stock , or the 2018 offering warrants , for total gross proceeds of $ 59.1 million , or the march 2018 direct registered offering . we completed the march 2018 direct registered offering on march 5 , 2018. the 2018 offering warrants have an exercise price of $ 8.31 per share , became exercisable upon issuance and expire in march 2025. all outstanding shares of series a convertible preferred stock were converted into common stock at a conversion ratio of 1:1 on april 19 , 2018. october 2017 direct registered offering in october 2017 , we entered into securities purchase agreements pursuant to which we sold an aggregate of 8,382,643 shares of common stock for total gross proceeds of $ 49.9 million , or the october 2017 direct registered offering . we completed the closing of the october 2017 direct registered offering on october 25 , 2017 . 2017 private placement in january 2017 , we entered into a securities purchase agreement pursuant to which we sold an aggregate of 10,323,101 shares of common stock consisting of 8,602,589 shares of common stock and warrants to purchase 1,720,512 shares of common stock , or the 2017 placement warrants , for total gross proceeds of $ 26.1 million , or the 2017 private placement . we completed the closing of the 2017 private placement on january 18 , 2017. the 2017 placement warrants have a per share exercise price of $ 3.17 per share , and became exercisable in july 2017 and expire seven years from the date of issuance . 68 2016 private placement on august 19 , 2016 , we entered into a securities purchase agreement pursuant to which we sold an aggregate of 5,983,251 shares of common stock consisting of 4,602,506 shares of common stock and warrants to purchase 1,380,745 shares of common stock , or the 2016 placement warrants , for aggregate proceeds of $ 13.2 million , net of offering cost , or the 2016 private placement . we completed the initial closing of the 2016 private placement on august 22 , 2016 with the final closing on september 9 , 2016. the 2016 placement warrants have an exercise price of $ 2.95 per share , are exercisable at any time at the option of the holder and expire seven years from the date of issuance . svb term loan in december 2018 , we entered into a term loan agreement , or the svb term loan , with silicon valley bank , for a principal amount of $ 56.0 million . the svb term loan has a maturity date of december 1 , 2023 and bears interest at a rate of 6.30 % per annum to be paid monthly over the term of the loan . beginning on december 1 , 2020 ( or june 1 , 2021 , if the company achieves a trailing twelve-month revenue of at least $ 215.0 million from january 1 , 2019 to december 1 , 2020 and elects to apply such later date ) , the company will make thirty-six equal monthly payments of principal ( or thirty equal payments , if the company so elects ) . in addition , upon repayment of the svb term loan in full , the company will make a final payment equal to 3.15 % of the original aggregate principal amount of the svb term loan . the svb term loan is secured by substantially all our assets , except that the collateral does not include any intellectual property held by us , provided , however , the collateral shall include all accounts and proceeds from the sale or license of such intellectual property . story_separator_special_tag additional details regarding the svb term loan are included in the section entitled “ notes to consolidated financial statements – note 5 – debt ” in the consolidated financial statements included elsewhere in this form 10-k. crg term loan in june 2015 , we entered into our long-term debt facility from capital royalty ii l.p. , capital royalty partners ii—parallel fund “ a ” l.p. , capital royalty partners ii ( cayman ) l.p. and parallel investment opport unities partners ii l.p. , or together with their successors by assignment , crg , and such loan , the crg term loan , for up to $ 50.0 million , of which $ 30.0 million was made available to us upon closing with the remaining $ 20.0 million to be available on or before june 26 , 2016 upon meeting certain milestones . we drew down the first $ 30.0 million on the closing date in june 2015. in march 2016 , the crg term loan was amended with regard to the conditions for borrowing the remaining $ 20.0 million available under the crg term loan . we achieved one milestone at march 31 , 2016 and borrowed an additional $ 15.0 million in may 2016. in december 2018 , we used the proceeds of the svb term loan and cash on hand to repay in full our obligations under the outstanding crg term loan and no amounts remain outstanding as of december 31 , 2018. at-the-market offering of common stock in january 2017 , we filed a registration statement with the sec which covers the offering , issuance and sale of up to a maximum aggregate offering price of $ 75.0 million of our common stock , preferred stock , debt securities , warrants , purchase contracts and or units ; and we entered into a sales agreement with fbr capital markets & co. , or fbr , under which we may sell up to $ 25.0 million of our common shares pursuant to an at-the-market offering program in accordance with rule 415 ( a ) ( 4 ) under the securities act . fbr acted as sales agent on a best efforts basis and used commercially reasonable efforts to sell on our behalf all of the shares of common stock requested to be sold by us , consistent with its normal trading and sales practices , on mutually agreed terms between fbr and us . there is no arrangement for funds to be received in any escrow , trust or similar arrangement . in may 2018 , we agreed to sell up to an additional $ 25.0 million of our common stock in accordance with the terms of a sales agreement with fbr and pursuant to an at- the-market offering program in accordance with rule 415 ( a ) ( 4 ) under the securities act . fbr is entitled to compensation of up to 3.0 % of the gross sales price per share sold . during fiscal year 2017 , we sold an aggregate of approximately 6.6 million shares of our common stock at an average market price of $ 6.10 per share under the at-the-market offering program , resulting in aggregate gross proceeds of approximately $ 40.1 million . during fiscal year 2018 , we sold 33,097 shares of our common stock at an 69 average market price of $ 8.41 under the at-the-market offering program , resulting in aggregate gross proceeds of approximat ely $ 0.3 million . as of december 31 , 2018 , there was approximately $ 9.5 million left under this program for future stock issuance . in january 2019 , we filed a registration statement with the sec which covers the offering , issuance and sale of up to a maximum aggregate offering price of $ 250.0 million of our common stock , preferred stock , debt securities , warrants , purchase contracts and or units , including up to $ 100.0 million of our common shares pursuant to our at-the-market offering program with fbr . new orders and backlog new orders are defined as the sum of gross product orders , representing mridian contract price , recorded in backlog during the period . backlog is the accumulation of all orders for which revenue has not been recognized and which we consider valid . backlog includes customer deposits or letters of credit , except when the sale is to a customer where a deposit is not deemed necessary or customary . deposits received are recorded in a customer deposit liability account on the balance sheet . orders may be revised or cancelled according to their terms or upon mutual agreement between the parties . therefore , it is difficult to predict with certainty the amount of backlog that will ultimately result in revenue . the determination of backlog includes objective and subjective judgment about the likelihood of an order contract becoming revenue . we perform a quarterly review of backlog to verify that outstanding orders in backlog remain valid , and based upon this review , orders that are no longer expected to result in revenue are removed from backlog . among other criteria to consider for a transaction to be in backlog , we must possess both an outstanding and effective written agreement for the delivery of a mridian signed by a customer with a minimum customer deposit or a letter of credit requirement except when the sale is to a customer where a deposit is not deemed necessary or customary ( i.e . sale to a government entity , a large hospital , group of hospitals or cancer care group that has sufficient credit , sales via tender awards , or indirect channel sales that have signed contracts with end-customers ) .
| product cost of revenue increased by $ 41.0 million , or 161.0 % , in fiscal year 2018 compared to fiscal year 2017. the increase was primarily due to costs of two systems upgrades and 13 mridian systems sold in fiscal year 2018 compared to costs of six mridian systems sold in fiscal year 2017. service cost of revenue . service cost of revenue increased by $ 5.6 million , or 252.7 % , in fiscal year 2018 compared to fiscal year 2017. the increase in service cost of revenue was primarily due to the larger installed base in fiscal year 2018 and service personnel being fully utilized for service purposes in the second half of the year . historically , we allocated a percentage of total service personnel expense to service cost of revenue based on the time service personnel spent on servicing installed units . unallocated service personnel expense was included in general and administrative expenses . over time , the allocation percentage has consistently increased as a result of our growing installed base and related utilization of service personnel . starting in the third quarter of 2018 , all service personnel expense is allocated to service cost of revenue . operating expenses replace_table_token_7_th research and development . research and development expenses increased by $ 1.8 million , or 12.3 % , in fiscal year 2018 compared to fiscal year 2017. this increase was primarily attributable to a $ 2.4 million increase in personnel expense and a $ 0.9 million increase in facility expense due to higher average headcount . in addition , travel and office expense also increased by $ 0.5 million . the increase was partially offset by a decrease of $ 2.1 million in outside services and product development cost due to decreased usage of consultants and contractors . selling and marketing . selling and marketing expenses increased by $ 6.7 million , or 79.1 % , in fiscal year 2018 compared to fiscal year 2017. this increase was primarily attributable to a $ 5.2 million increase in personnel expense due to higher average headcount in fiscal 2018 , $ 0.6 million increase in travel expense , $ 0.5 million increase in
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asset impairment expense 2018 2017 change asset impairment expense $ 82.6 $ 0.1 * * measure not meaningful asset impairment expense for the year ended december 31 , 2018 was $ 82.6 million compared to $ 0.1 million for the year ended december 31 , 2017. the increase is primarily due to a $ 82.2 million goodwill impairment charge that was recorded in the euraf reporting unit . see further detail at note 9 , “ goodwill and other intangible assets ” to the consolidated financial statements . restructuring expense 2018 2017 change restructuring expense $ 12.9 $ 27.2 ( 52.6 ) % restructuring expense for the year ended december 31 , 2018 totaled $ 12.9 million compared to $ 27.2 million in 2017. the costs for 2018 related primarily to severance costs for the departure of an executive officer , costs associated with training of skilled labor as a result of the transfer of crawler production to shady grove , pa and costs associated with headcount reductions in europe . the costs for 2017 related primarily to the closure of manufacturing operations in manitowoc , wi and passo fundo , brazil and severance costs associated with headcount reductions in north america . see further detail at note 20 , “ restructuring ” to the consolidated financial statements . interest expense & amortization of deferred financing fees replace_table_token_10_th interest expense for the year ended december 31 , 2018 totaled $ 39.1 million versus $ 39.2 million for the year ended december 31 , 2017. interest expense was relatively flat due to a consistent average debt balance and interest rate . amortization expense for deferred financing fees was $ 1.8 million for the year ended december 31 , 2018 as compared to $ 1.9 million in 2017. see further detail at note 11 , “ debt ” to the consolidated financial statements . other expense – net 2018 2017 change other expense - net $ ( 11.5 ) $ ( 6.8 ) 69.1 % other expense - net for the year ended december 31 , 2018 was $ 11.5 million compared to $ 6.8 million for the year ended december 31 , 2017. this increase was primarily due to a $ 4.5 million non-cash pension settlement charge and $ 3.2 million of unfavorable changes in foreign currency exchange rates compared to 2017. this was partially offset by a $ 2.3 million decrease in other components of net periodic pension costs year over year . 29 income taxes replace_table_token_11_th * measure not meaningful due to the company 's historic losses , impacts from u.s. tax reform and full valuation allowances , the effective annual tax rate is not a meaningful measure of the company 's cash tax position or performance of the business . the 2018 effective tax rate was favorably impacted by the release of the unrecognized tax benefits reserve of $ 6.9 million and the release of the u.k valuation allowance of $ 12.3 million . in addition , the u.s. recognized a tax benefit of $ 7.8 million during the year related to deferred tax assets for which a valuation allowance was not recorded . the 2017 effective tax rate was favorably impacted by the release of the french valuation allowance , internal revenue service audit closure , and u.s. tax reform . see further detail at note 13 , “ income taxes ” to the consolidated financial statements . year ended december 31 , 2017 compared to 2016 net sales 2017 2016 change net sales $ 1,581.3 $ 1,613.1 ( 2.0 ) % consolidated net sales decreased 2.0 % in 2017 compared to 2016. the decrease in net sales was primarily due to lower shipments of vpc crawler cranes delivered in 2017 as a significant portion of the americas ' backlog entering 2016 was comprised of vpc crawler cranes which had been booked in 2016 and previous years , lower demand for mobile cranes in meap and euraf . this was partially offset by higher demand for tower cranes in euraf . consolidated net sales were also favorably impacted by approximately $ 18.4 million from changes in foreign currency exchange rates . gross profit replace_table_token_12_th gross profit for the year ended december 31 , 2017 increased by 11.3 % to $ 281.9 million compared to $ 253.3 million for the year ended december 31 , 2016. this change was primarily due to manufacturing cost reduction initiatives such as the consolidation of the manitowoc , wi facility into the shady grove , pa facility . as a result of these cost reductions , the gross profit percentage increased in 2017 to 17.8 % from 15.7 % in 2016. engineering , selling and administrative expenses 2017 2016 change engineering , selling and administrative expenses $ 245.3 $ 270.4 ( 9.3 ) % engineering , selling and administrative expenses for the year ended december 31 , 2017 decreased $ 25.1 million to $ 245.3 million compared to $ 270.4 million for the year ended december 31 , 2016. this change was driven primarily by decreases in wages and benefits due to headcount reductions and discretionary cost controls , partially offset by higher short-term incentive compensation costs . 30 asset impairment expense 2017 2016 change asset impairment expense $ 0.1 $ 96.9 * * measure not meaningful asset impairment expense for the year ended december 31 , 2017 was $ 0.1 million compared to $ 96.9 million for the year ended december 31 , 2016. in conjunction with the decision to close the manitowoc , wisconsin facility , the company permanently suspended implementation of the sap enterprise resource planning ( “ erp ” ) platform and recorded a write-off of $ 58.6 million related to sap construction-in-progress and $ 18.6 million related to sap and other information technology assets . this amount also included a $ 13.8 million write-down to fair value of the company 's fixed assets at the manitowoc , wisconsin manufacturing facility . story_separator_special_tag restructuring expense 2017 2016 change restructuring expense $ 27.2 $ 23.4 16.2 % restructuring expense for the year ended december 31 , 2017 totaled $ 27.2 million compared to $ 23.4 million in 2016. these costs primarily related to employee termination benefits associated with workforce reductions . the workforce reductions in 2017 and 2016 were part of manufacturing and operations rationalization programs in the u.s. and europe . during 2017 , the company completed the relocation of its crawler crane manufacturing operations located in manitowoc , wisconsin to shady grove , pennsylvania . see further detail at note 20 , “ restructuring ” to the consolidated financial statements . interest expense & amortization of deferred financing fees replace_table_token_13_th interest expense for the year ended december 31 , 2017 totaled $ 39.2 million versus $ 39.6 million for the year ended december 31 , 2016. the decrease in interest expense of $ 0.4 million for the year ended december 31 , 2017 compared to the prior year was caused by a lower average debt balance in 2017 as compared to the prior year , partly offset by a higher average interest rate . amortization expense for deferred financing fees was $ 1.9 million for the year ended december 31 , 2017 as compared to $ 2.2 million in 2016. the decrease in amortization expense for deferred financing fees was related to the lower balance of deferred financing fees as a result of the redemption of certain prior notes during the spin-off . see further detail at note 11 , “ debt ” to the consolidated financial statements . loss on debt extinguishment 2017 2016 change loss on debt extinguishment $ — $ 76.3 * * measure not meaningful loss on debt extinguishment for the year ended december 31 , 2017 totaled $ 0.0 million , compared to $ 76.3 million in 2016. the loss on debt extinguishment for 2016 consisted of : $ 31.5 million related to the march 3 , 2016 redemption of the prior 2020 notes , which included $ 24.6 million related to the redemption premium and $ 6.9 million related to the write-off of deferred financing fees ; $ 34.6 million on the redemption of the prior 2022 notes , comprised of $ 31.2 million related to the redemption premium and $ 3.4 million related to the write-off of deferred financing fees ; $ 5.9 million on the termination of the prior senior credit facility as a result of the write-off of deferred financing expenses ; and $ 4.3 million loss on the termination of interest rate swaps related to the prior senior credit facility . 31 other expense – net 2017 2016 change other expense - net $ ( 6.8 ) $ ( 7.0 ) * * measure not meaningful other expense - net for the year ended december 31 , 2017 was $ 6.8 million compared to $ 7.0 million for the year ended december 31 , 2016. the change was primarily due to $ 2.7 million of unfavorable changes in foreign currency exchange rates and a $ 1.4 million reduction in interest income . this was partially offset by an increase of $ 0.7 million of gains on the disposal of property , plant and equipment and a $ 3.0 million decrease in other components of net periodic pension costs year over year . income taxes replace_table_token_14_th * measure not meaningful due to the company 's historic losses and full valuation allowances , the effective annual tax rate is not a meaningful measure of the company 's cash tax position or performance of the business . the 2017 effective tax rate was favorably impacted by the release of the french valuation allowance , internal revenue service audit closure , and u.s. tax reform . the 2016 effective tax rate was unfavorably impacted by the establishment of valuation allowance reserves against the company 's deferred tax assets in several jurisdictions , most notably the united states , as these jurisdictions moved to cumulative three-year loss positions during the year . see further detail at note 13 , “ income taxes ” to the consolidated financial statements . loss from discontinued operations 2017 2016 change loss from discontinued operations $ ( 0.6 ) $ ( 7.2 ) * * measure not meaningful the results from discontinued operations was a loss of $ 0.6 million and $ 7.2 million , net of income taxes , for the years ended december 31 , 2017 and 2016 , respectively . the activity from discontinued operations in 2017 and 2016 are primarily the result of the spin-off . see additional discussion at note 4 , “ discontinued operations ” to the consolidated financial statements . 32 non-gaap measures the company uses ebitda , adjusted ebitda and adjusted operating income ( loss ) , which are financial measures that are not prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) , as additional metrics to evaluate the company 's performance . the company defines ebitda as earnings before interest , taxes , depreciation and amortization . the company defines adjusted ebitda as ebitda plus the addback of restructuring expense , asset impairment expense , loss on long-term dong yue receivable and other expense - net . the company defines adjusted operating income ( loss ) as adjusted ebitda excluding the addback of depreciation . the company believes these non-gaap measures provide important supplemental information to readers regarding business trends that can be used in evaluating its results of operations because these financial measures provide a consistent method of comparing financial performance and are commonly used by investors to assess performance . these non-gaap financial measures should be considered together with the gaap financial information provided herein . the company 's adjusted ebitda and adjusted operating income for the year ended december 31 , 2018 was $ 116.2 million and $ 80.1 million , respectively .
| americas operating income increased 118.3 % in 2017 to $ 6.8 million from a loss of $ 37.1 million in 2016. this change was primarily due to lower engineering , selling and administrative costs of $ 18.4 million as a result of headcount reductions during the latter half of 2016 and early 2017 and asset impairment charges of $ 14.6 million in 2016 related to the closure of the manitowoc , wisconsin manufacturing location . this was partially offset by lower net sales year over year as discussed above . euraf replace_table_token_7_th * measure not meaningful euraf net sales increased 8.2 % in 2018 to $ 680.6 million from $ 628.9 million in 2017. this change was primarily due to higher demand for cranes in the commercial construction end market . euraf net sales were also favorably impacted by approximately $ 24.0 million from changes in foreign currency exchange rates . euraf operating income decreased in 2018 to a loss of $ 68.2 million from income of $ 5.1 million in 2017. this change was mainly due to a goodwill asset impairment charge of $ 82.2 million ( see further detail at note 9 , “ goodwill and other intangible assets ” to the consolidated financial statements ) . excluding this item , operating income increased $ 8.9 million or 174.5 % . this increase was primarily due to increased revenues as discussed above , strategic pricing actions on crane sales and $ 5.5 million from favorable changes in foreign currency exchange rates . this was partially offset by $ 2.0 million of increased es & a costs due to trade shows in 2018 that did not occur in 2017 and increased raw material input costs of $ 8.0 million . euraf net sales increased 12.2 % in 2017 to $ 628.9 million from $ 560.4 million in 2016. this change was primarily due to higher demand for cranes in the commercial construction end market . euraf net sales were also favorably impacted by approximately $ 13.8 million from changes in foreign currency exchange rates . 27 euraf operating income
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while we began to resume some normal operating activities in the third quarter of fiscal 2020 , including resuming workforce rehiring , increasing our inventory purchasing activities and resuming rent payments that were previously deferred , we again became subject to greater restrictions from federal , state and local authorities implemented late in the fourth quarter of fiscal 2020 as covid-19 concerns escalated , which required the temporary closure of in-store shopping at our new mexico stores during the period surrounding the thanksgiving holiday . as we adjusted to these restrictions , during the third and fourth quarters of fiscal 2020 , our sales continued to benefit from increased consumer demand for certain product categories as a result of the covid-19 pandemic , including fitness , firearm-related products and outdoor recreation . this benefit was partially offset by reduced sales in team sports and back-to-school products as a result of limitations on those activities related to covid-19 . our higher sales , reduced store operating hours and reduced advertising and promotional programs during the third and fourth quarters of fiscal 2020 as a result of covid-19 contributed to higher profitability . 24 with our favorable operating results in the second half of fiscal 2020 , we were able to fully repay our borrowings while increasing our levels of cash and cash equivalents . as of january 3 , 2021 , we had paid down our long-term revolving credit borrowings to zero , compared to $ 124.3 million and $ 66.6 million outstanding as of the first quarter ended march 29 , 2020 and fiscal year ended december 29 , 2019 , respectively . as of january 3 , 2021 , we had cash and cash equivalents of $ 64.7 million compared to cash of $ 44.2 million and $ 8.2 million as of the first quarter ended march 29 , 2020 and fiscal year ended december 29 , 2019 , respectively . in response to the strength of our balance sheet , operations and cash flow generation , in the third quarter of fiscal 2020 our board of directors reinstated our previously suspended quarterly cash dividend at the previous rate of $ 0.05 per share of outstanding common stock and paid an additional $ 0.05 per share of outstanding common stock in recognition that we did not pay a dividend in the second quarter of fiscal 2020. in the fourth quarter of fiscal 2020 , our board of directors increased our cash dividend to $ 0.10 per share of outstanding common stock . overview we are a leading sporting goods retailer in the western united states , operating 430 stores and an e-commerce platform under the name “ big 5 sporting goods ” as of january 3 , 2021. we provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet . through our e-commerce platform , we also offer selected products online . e-commerce sales for fiscal 2020 and 2019 were not material . our product mix includes athletic shoes , apparel and accessories , as well as a broad selection of outdoor and athletic equipment for team sports , fitness , camping , hunting , fishing , home recreation , tennis , golf , and winter and summer recreation . we supplement our traditional sports merchandise mix with an assortment of other products that we purchase through opportunistic buys of vendor over-stock or close-out merchandise . we believe that over our 66-year history we have developed a reputation with the competitive and recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise . our stores carry a wide range of products at competitive prices from well-known brand name manufacturers , including adidas , coleman , columbia , everlast , new balance , nike , rawlings , skechers , spalding , under armour and wilson . we also offer brand name merchandise produced exclusively for us , private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-out merchandise . we reinforce our value reputation through digital marketing and print advertising in major and local newspapers , and direct mailers , designed to generate customer traffic , drive sales and build brand awareness . we also maintain social media sites to enhance distribution capabilities for our promotional offers and to enable communication with our customers . throughout our history , we have emphasized controlled growth . our store openings during recent years reflect our cautious approach toward store expansion in the current retail environment , which includes increasing e-commerce competition , especially in response to changing consumer buying habits resulting from concerns surrounding the covid-19 pandemic . the following table summarizes our store count for the periods presented : replace_table_token_5_th ( 1 ) stores that are relocated are classified as new stores . sales from the prior location are treated as sales from a closed store and thus are excluded from same store sales calculations . for fiscal 2021 , we anticipate opening approximately five new stores and closing one store . 25 story_separator_special_tag style= '' text-align : justify ; margin-top:2pt ; margin-bottom:0pt ; font-size:9pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > ( 1 ) fiscal 2020 and 2019 included 53 weeks and 52 weeks , respectively . ( 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 . story_separator_special_tag ( 4 ) same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior-year period and sales from e-commerce . for purposes of reporting same store sales comparisons to the prior year for fiscal 2020 and 2019 , we used comparable 53-week periods . net sales . net sales increased by $ 44.7 million , or 4.5 % , to $ 1,041.2 million for fiscal 2020 from $ 996.5 million for fiscal 2019. the change in net sales was primarily attributable to the following : same store sales increased by $ 30.2 million , or 3.0 % , for fiscal 2020 versus the comparable prior-year period . the increase in same store sales reflected the following : o due to the covid-19 pandemic , state and local shelter orders were issued in our various market areas that led to the temporary closure of more than one-half of our stores that began on march 20 , 2020 and significantly impacted the first and second fiscal quarters of fiscal 2020 , resulting in reduced same store sales versus the prior year . over the first half of the second fiscal quarter , when the impacts of the covid-19 pandemic forced us to operate with a significantly reduced store count , our same store sales decreased by 28.2 % compared to the prior-year period . however , as we began reopening stores , we recognized significant shifts in consumer demand and rapidly evolved our product assortment , and for the second half of the second fiscal quarter our same store sales increased by 15.5 % compared to the prior year . this positive sales trending continued throughout the remainder of fiscal 2020 , as our same store sales increased 12.7 % in the second half of fiscal 2020 due to strong consumer demand for various products as a result of the covid-19 pandemic , including fitness , firearm-related products and outdoor recreation , partially offset by reduced sales in team sports and back-to-school products as a result of limitations on those activities related to the pandemic . o same store sales in the first quarter of fiscal 2020 were negatively impacted by challenging winter-weather conditions compared with the same period in the prior year . in the first quarter of fiscal 2019 , strong sales of winter-related products were driven by highly favorable cold and wet winter weather conditions across our markets compared with warm and dry winter-weather conditions in the first quarter of fiscal 2020. o sales for our major merchandise category of hardgoods increased during fiscal 2020 , partially offset by decreases in our categories of footwear and apparel , due largely to reduced team sports and back-to-school sales as a result of the covid-19 pandemic . o the increase in same store sales compares to a 1.2 % increase in same store sales for fiscal 2019. the increase in same store sales in fiscal 2019 was based on a 52-week comparison to the prior fiscal year . 27 o same store sales for a period normally consist of sales for stores that operated throughout the period and the full corresponding prior-year period , along with sales from e-commerce . despite the same store sales increase , our same store sales for fiscal 2020 included the negative impact of sales declines resulting from the temporary store closures during the year as a result of the covid-19 pandemic . same store sales comparisons exclude sales from stores permanently closed , or stores in the process of closing , during the comparable periods . sales from e-commerce in fiscal 2020 and 2019 were not material . net sales in fiscal 2020 reflected an additional $ 19.3 million in sales that resulted from one extra week of activity compared with fiscal 2019 as a result of the 53-week fiscal year in 2020. a reduction in sales from permanently closed stores , including a store temporarily closed for the first half of fiscal 2020 due to a fire , was partially offset by added sales from new stores opened since december 30 , 2018. we experienced a higher average sale per transaction and decreased customer transactions , due primarily to the impact of the covid-19 pandemic , in fiscal 2020 compared to fiscal 2019. gross profit . gross profit increased by $ 37.2 million to $ 349.2 million , or 33.5 % of net sales , in fiscal 2020 from $ 312.0 million , or 31.3 % of net sales , in fiscal 2019. the change in gross profit was primarily attributable to the following : net sales increased by $ 44.7 million , or 4.5 % , in fiscal 2020 compared to the prior year . merchandise margins , which exclude buying , occupancy and distribution expense , increased by a favorable 190 basis points compared with fiscal 2019 , when merchandise margins increased by a favorable 66 basis points over the prior year . this increase primarily reflected a shift in our product sales mix along with lower promotional activity . store occupancy expense decreased by $ 1.3 million , or a favorable 55 basis points , year over year in fiscal 2020 primarily as a result of the favorable impact in the second quarter from negotiated lease concessions in the amount of $ 3.1 million in response to the covid-19 pandemic . distribution expense , including costs capitalized into inventory , increased by $ 7.8 million , or an unfavorable 53 basis points , compared to the prior year . the increase primarily reflected lower costs capitalized into inventory corresponding to the decrease in merchandise inventories compared with fiscal 2019. selling and administrative expense .
| gross profit for fiscal 2020 represented 33.5 % of net sales , compared with 31.3 % in the prior year . merchandise margins were 190 basis points higher than the prior year , due primarily to a shift in our product sales mix along with reduced promotions , and occupancy expense as a percentage of net sales was lower in fiscal 2020 compared with the prior year . these favorable impacts were partially offset by higher distribution expense , including costs capitalized into inventory , as a percentage of net sales compared with fiscal 2019. selling and administrative expense for fiscal 2020 decreased 7.3 % to $ 275.4 million , or 26.5 % of net sales , compared to $ 297.2 million , or 29.8 % of net sales , for fiscal 2019. the decrease in selling and administrative expense primarily reflects lower print advertising costs and lower employee labor expense , partially offset by higher company performance-based incentive accruals in fiscal 2020. net income for fiscal 2020 was $ 55.9 million , or $ 2.58 per diluted share , compared to net income of $ 8.4 million , or $ 0.40 per diluted share , for fiscal 2019. the increase was driven primarily by increased net sales and merchandise margins and decreased selling and administrative expense in fiscal 2020. our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash and cash equivalents , cash flows from operations and borrowings from our revolving credit facility . operating cash flow for fiscal 2020 was a positive $ 148.7 million compared to a positive $ 14.3 million in the prior year . the increase in operating cash flow primarily reflected decreased funding for merchandise inventory as a result of lower inventory levels due to strong consumer demand for various products , combined with higher net income in fiscal 2020. capital expenditures for fiscal 2020 decreased to $ 7.3 million from $ 9.4 million in fiscal 2019 reflecting our initial
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therefore , the key drivers of our revenue include growth in the number of physicians and other health care providers working within our client accounts , the collections of these physicians and providers , and the number of services purchased . to provide these services , we incur expenses in several categories , including direct operating , selling and marketing , research and development , general and administrative , and depreciation and amortization expense . in general , our direct operating expense increases as our volume of work increases , whereas our selling and marketing expense increases in proportion to our intended growth rate of adding new accounts to our network of physician and hospital clients . our research and development , general and administrative , and depreciation and amortization expense categories are less directly related to growth of revenues and relate more to our planning for the future , our overall business management activities , and our infrastructure . we manage our cash and our use of credit facilities to ensure adequate liquidity and to ensure adherence to related financial covenants . during 2014 , we began to sell go-live and training support services separately from the required implementation services . fees associated with required implementation services are included in our ongoing monthly rate ; therefore , they are being recognized ratably over the customer life . go-live and training support services can be purchased by the customer from us or third-party vendors , and therefore , are recognized upon delivery of service . previously deferred revenue balances related to implementation services , including go-live and training support services , will continue to be amortized over those remaining customer lives . the effect of this change was not significant , nor do we expect that it will ever be significant , to our consolidated revenue . critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . in connection with the preparation of our consolidated financial statements , we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . we base our assumptions , estimates and judgments on historical experience , current trends , and other factors we believe to be relevant at the time we prepare our consolidated financial statements . the accounting estimates used in the preparation of our consolidated financial statements will change as new events occur , as more experience is acquired , as additional information is obtained , and as our operating environment changes . on a regular basis , we review the accounting policies and assumptions , and update our assumptions , estimates , and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . we may employ outside experts to assist in our evaluations . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . our significant accounting policies are discussed in note 1 – nature of operations and summary of significant accounting policies , to our accompanying consolidated financial statements . we believe the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results , as they require management to make difficult , subjective or complex judgments , and to make estimates about the effect of matters that are inherently uncertain . we have reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors . 40 description judgment and uncertainties effect if actual results differ from assumptions revenue recognition all revenue , other than initial implementation and provider adds revenue , is recognized when the service is performed . we recognize revenue when there is evidence of an arrangement , the service has been provided to the client , the collection of the fees is reasonably assured , and the amount of fees to be paid by the client is fixed or determinable . we derive the majority of our revenue from business services associated with our integrated services and from subscriptions to and sponsored clinical information and decision support services for our point of care medical application . our integrated services consist of revenue cycle and practice management , ehr , patient engagement , and order transmission . our clients typically purchase one-year service contracts related to our integrated services that renew automatically . in most cases , our clients may terminate their agreements with 90 days notice without cause . we typically retain the right to terminate client agreements in a similar timeframe . our clients are billed monthly , in arrears , based upon a percentage of collections posted to our network , athenanet ; minimum fees ; flat fees ; or per-claim fees , where applicable . we do not recognize revenue for business services until these collections are made , as the fees are not fixed and determinable until such time . invoices are generated within the first two weeks of the subsequent month and delivered to clients primarily by e-mail . for most of our clients , amounts due are then deducted from a pre-defined bank account one week after invoice receipt via an auto-debit transaction . unbilled amounts that have been earned are accrued and recorded as revenue or deferred revenue , as appropriate , and are included in our accounts receivable balances . determining whether and when some of our revenue recognition criteria have been satisfied often involves judgments that can have a significant impact on the timing and amount of revenue we report . story_separator_special_tag for example , our assessment of the likelihood of collection is a critical element in determining the timing of revenue recognition . if we do not believe that collection is reasonably assured , revenue is not recognized . multiple element arrangements require judgments as to how to allocate the arrangement consideration to each deliverable . we maintain a standard price list by service ; however , certain incentives , such as discounts , may be offered to clients . due to the variability in the amount of discount offered for individual services across multiple contracts , we have not been able to conclude that a consistent number of stand-alone sales of a deliverable have been priced within a reasonably narrow range in order to assert that we have established vendor-specific objective evidence ( “ vsoe ” ) of fair value . when we can not establish vsoe of fair value , we determine if we can establish third-party evidence ( “ tpe ” ) of fair value . tpe is determined based on competitor prices for similar deliverables when sold separately . our services differ significantly from that of our peers and our offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality can not be obtained . furthermore , we are unable to reliably determine what similar competitor products ' selling prices are on a stand-alone basis . therefore , we are unable to determine tpe . although we believe that our approach to estimates and judgments is reasonable , actual results could differ , and we may be exposed to increases or decreases in revenue that could be material . our calculation of besp may prove to be inaccurate , in which case we may have understated or overstated the revenue recognized in an accounting period . for example , if our besp is too high or too low for an individual deliverable or group of deliverables , the amount of revenue recognized within each reporting period would be inaccurate . the amount of deferred revenue related to separable deliverables with besp is $ 23.1 million and $ 22.6 million as of december 31 , 2015 and 2014 , respectively . our estimate of the expected performance period may prove to be inaccurate , in which case we may have understated or overstated the revenue recognized in an accounting period . for example , if , in the future , we need to increase our expected performance period to a period longer than 12 years , the amount we would recognize in each accounting period would decrease . on the other hand , if , in the future , we need to decrease our expected performance period to a period shorter than 12 years , the amount we would recognize in each accounting period would increase . the amount of deferred revenue related to initial implementation and provider add fees is $ 62.9 million and $ 60.4 million as of december 31 , 2015 and 2014 , respectively . 41 description judgment and uncertainties effect if actual results differ from assumptions subscriptions to the epocrates point of care medical application are entered into by members via an internal or third-party digital distribution platform or through a redeemable license code which expires within six to 12 months of issuance . basic subscriptions are free and do not expire . premium subscription fees are assessed on the length of the subscription period , typically one year , and payment occurs at the time of order , which is in advance of the services being performed ; such payments are therefore recorded as deferred revenue . premium subscriptions are recognized ratably over the contracted term of delivery . if a license code expires before it is redeemed , revenue is recognized upon expiration . sponsored clinical information and decision support service clients typically enter into one-year arrangements containing various services . these clients are charged a fee for the group of services to be provided and are typically billed a portion of the contracted fee upon signing of the agreement with the balance billed upon one or more future milestones . because billings typically occur in advance of services being performed , these amounts are recorded as deferred revenue when billed . each service deliverable within these multiple element arrangements is accounted for as a separate unit if the delivered item or items have value to the customer on a stand-alone basis . our revenue arrangements do not include a general right of return , as we deliver services and not products . we consider a deliverable to have stand-alone value if we sell this item separately or if the item is sold by another vendor or could be resold by the customer . since vsoe and tpe do not exist , we use besp to establish fair value and to allocate total consideration to each element in the arrangement . we determine besp for a service by performing an analysis of recent stand-alone sales of that service , which takes into account market conditions , competitive landscape , internal costs , gross margin objectives , and pricing practices . multiple element arrangements require judgment as to whether deliverables meet the criteria to be separated into separate units of accounting . we consider a deliverable to have stand-alone value if we sell this item separately or if the item is sold by another vendor or could be resold by the client . we concluded that our past go to market strategy of charging initial implementation services , as well as subsequent provider add fees , related to our integrated services was not separable from the ongoing business services , as these services did not have value to the customer on a stand-alone basis . as these services did not have stand-alone value , they were recognized ratably over the longer of the life of the agreement or the expected customer life . during 2014 , we began to sell initial go-live and training support services separate from the initial required implementation services .
| in addition , costs associated with our business partner outsourcing and clearing house activities increased $ 14.2 million , as the number of claims that we processed on behalf of our clients increased during the year ended december 31 , 2015 . the total claims submitted on behalf of clients were as follows : replace_table_token_7_th replace_table_token_8_th selling and marketing expense . selling and marketing expense increased for the year ended december 31 , 2015 , primarily due to increases in compensation costs and other general selling and marketing-related costs . the increase in compensation , which included commissions and stock-based compensation , for the year ended december 31 , 2015 was $ 25.0 million , and was largely due to a 15 % increase in headcount from december 31 , 2014 . we hired additional sales personnel to focus on adding new customers and increasing penetration within new and existing markets . additionally , other general selling and marketing-related costs increased $ 15.3 million ( including increases in online media of $ 8.2 million and offline media of $ 2.2 million ) 50 for the year ended december 31 , 2015 . research and development expense . the increase in research and development expense was primarily due to higher compensation costs , including stock-based compensation expense , which increased $ 19.0 million for the year ended december 31 , 2015 , largely due to a 34 % increase in headcount from december 31 , 2014 . the additional research and development personnel were necessary in order to upgrade and expand our service offerings and develop new technologies . general and administrative expense . general and administrative expense increased in the year ended december 31 , 2015 , primarily due to compensation costs , including stock-based compensation expense , and lease termination costs . compensation costs increased $ 9.6 million for the year ended december 31 , 2015 , largely due to a 23 % increase in headcount from december 31 , 2014 . additionally , general and administrative expense increased $ 4.6 million in the year ended december 31 , 2015 due to lease termination costs incurred as a result
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in this respect , we began the construction of the following large high rise residential projects in hanzhong city and yang county : liangzhou road related projects in september 2013 , the company entered into an agreement ( “ liangzhou agreement ” ) with the hanzhong local government on the liangzhou road reformation and expansion project ( liangzhou road project ” ) . pursuant to the agreement , the company is contracted to reform and expand the liangzhou road , a commercial street in downtown hanzhong city , with a total length of 2,080 meters and width of 30 meters and to resettle the existing residences in the liangzhou road area . the government 's original road construction budget was approximately $ 33 million in accordance with the liangzhou agreement . the company , in return , is being compensated by the local government to have an exclusive right on acquiring at least 394.5 mu land use rights in a specified location of hanzhong city . the liangzhou road project 's road construction started at the end of 2013. in 2014 , the original scope and budget on the liangzhou road reformation and expansion project was extended , because the local government included more area and resettlement residences into the project , which resulted in additional investments from the company . in return , the company is authorized by the local government to develop and manage the commercial and residential properties surrounding the liangzhou road project . as of september 30 , 2018 , the main liangzhou road construction is substantially completed and is expected to be approved by the local government in fiscal 2019. the company 's development cost incurred on liangzhou road project is treated as the company 's deposit on purchasing the related land use rights , as agreed by the local government . 27 as of september 30 , 2018 , the actual costs incurred by the company was $ 135,011,975 ( 2017 - $ 133,941,504 ) and the incremental cost related to residence resettlement was approved by the local government . the company determined that the company 's investment in liangzhou road project in exchange for interests in future land use rights is a barter transaction with commercial substance . for the years ended september 30 , 2018 and 2017 , the company did not receive government 's subsidies for its shanty area reform project surrounding liangzhou road located in hantai district , hanzhong city , respectively and the company recorded the subsidies to offset against the development cost of liangzhou road project . the liangzhou road related projects mainly consists oriental garden phase ii , liangzhou mansion and pearl commercial plaza surrounding the liangzhou road area . oriental garden phase ii oriental garden phase ii project is planned to consist of 8 high-rise residential buildings and 6 commercial buildings with total planned gfa of 370,298 square meters . the project will also include a farmer 's market . liangzhou mansion liangzhou mansion project is planned to consist of 7 high-rise building and commercial shops on the first floor with total planned gfa of 160,000 square meters . pearl commercial plaza pearl commercial plaza is planned to consist one office building , one service apartment ( or hotel ) , classical architecture style of chinese traditional houses and shopping malls with total planned gfa of 124,191 square meters . the company plans to start these three real estate projects in spring of 2019 after the road construction is fully completed and passes local government 's inspection and approval . these related projects may take 2-3 years to fully complete . yangzhou palace the company is currently constructing 9 high-rise residential buildings and 16 sub-high-rise residential and multi-layer residential buildings with total gfa of 285,244 square meters in yangzhou palace located in yang county . the construction started in the fourth quarter of fiscal 2013 and is expected to be completed by the beginning of calendar year 2019. the company has obtained pre-sale license in september 2016 and started to sell the residential units in yangzhou palace during fiscal 2017. for the year ended september 30 , 2018 , 79,913 square meters have been sold , resulting $ 36,653,913 revenue has been recognized under the percentage of completion method for the year ended september 30 , 2018 . 28 road construction other road construction projects mainly included a yang county east 2nd ring road construction project . the company was engaged by the yang county local government to construct the east 2nd ring road with a total length of 2.15 km and a budgeted price of approximately $ 24.5 million ( or rmb 168 million ) , which was approved by the local yang county government in march 2014. the local government is required to repay the company 's project investment costs within 3 years with interest at the interest rate based on the commercial borrowing rate with the similar term published by china construction bank ( september 30 , 2018 and 2017 - 4.75 % ) . the local government has approved a refund to the company by reducing local surcharges or taxes otherwise required in the real estate development . the road construction was substantially completed as of september 30 , 2018 and in process of government review and approval . in september 2012 , the company was approved by the hanzhong local government to construct four municipal roads with a total length of approximately 1,192 meters . the project was deferred and then restarted during the quarter ended march 31 , 2014. as of september 30 , 2018 , the local government was still in the process of assessing the budget for these projects . story_separator_special_tag summary of real estate projects completion status actual ( estimated ) completion time of construction estimated time to sell of the property development completed hanzhong city mingzhu garden ( mingzhu nanyuan & mingzhu beiyuan ) majority was completed in the third quarter of fiscal year 2012 2019 hanzhong city nan dajie ( mingzhu xinju ) phase i completed in fiscal year 2010 and phase ii completed in fiscal year 2011 2019 hanzhong city mingzhu garden phase ii completed in fiscal year 2015 2019 hanzhong city oriental pearl garden completed in fiscal year 2016 2019 yang county yangzhou pearl garden phase ii completed in fiscal year 2015 2019 yang county yangzhou pearl garden majority completed in fiscal year 2011 and 2012 2019 under development : estimated completion time of construction yang county yangzhou palace to be completed in early 2019 hanzhong city shijin project under planning stage hanzhong city hanfeng beiyuan east road to be delivered to the government in early 2019 hanzhong city liangzhou road related projects the road construction was substantially completed in september 2018 , the other related projects will be completed in 2019 and later years . hanzhong city beidajie project under planning stage yang county east 2 nd ring road to be completed in early 2019 29 story_separator_special_tag the buyer defaults on his or her monthly mortgage payment for three consecutive months , we are required to refund the loan proceeds back to the bank , although we have the right to keep the customer 's deposit and resell the property to a third party . once the certificate of property has been issued by the relevant government authority , our loan guarantee terminates . if the buyer then defaults on his or her mortgage loan , the bank has the right to take the property back and sell it and use the proceeds to pay off the loan . the company is not liable for any shortfall that the bank may incur in this event . to date , no buyer has defaulted on his or her mortgage payments during the mortgage loan guarantee period and the company has not had to refund any loan proceeds pursuant to its mortgage loan guarantees . for municipal road construction projects , fees are generally recognized by the full accrual method at the time of the projects are completed . revenue recognized under full accrual method the following table summarizes revenue recognized under full accrual method from sales of completed real estate projects for the years ended september 30 , 2018 and 2017 , respectively : replace_table_token_5_th our revenues are derived from the sale of residential buildings , commercial store-fronts and parking spaces in projects that we have developed . comparing to fiscal 2017 , revenues before sales tax decreased by 36.4 % to approximately $ 28.8 million for the year ended september 30 , 2018 from approximately $ 45.3 million . the total gfa sold during fiscal 2018 was 48,108 square meters , representing a significant decrease from the 86,248 square meters completed and sold during fiscal 2017. our mingzhu garden phase i and phase ii , yangzhou pearl garden phase i and phase ii and oriental garden phase i have all been completed in prior years , only limited models are available for customer selection , which resulted in lower revenue reported for the fiscal 2018. the sales tax for fiscal 2018 was approximately $ 0.5 million , decreased 4.1 % from last year due to less revenue recognized under full accrual method reported in fiscal 2018 . 31 revenue recognized under percentage completion method replace_table_token_6_th we started to recognize revenue under the percentage of completion method for yangzhou palace real estate property since second quarter of fiscal 2017. for yangzhou palace real estate property under development , total qualified contract sales as of september 30 , 2018 were $ 58,534,656 ( 2017 - $ 16,770,130 ) . total gfa sold under qualified contract sales as of september 30 , 2018 was 79,913 square meters ( september 30 , 2017 – 36,133 ) . the average unit price under contract sales was $ 504 per square meters ( september 30 , 2017 - $ 464 ) . replace_table_token_7_th ( 1 ) percentage of completion is calculated by dividing total costs incurred by total estimated costs for the relevant buildings in each real estate building , estimated as of the date of our financial statements as of and for the year indicated . ( 2 ) qualified contract sales only include all contract sales with customer deposits balance as of september 30 , 2018 and 2017 equal or greater than 30 % of contract sales amount and related individual of buildings were sold over 20 % . ( 3 ) the actual gfa will be re-measured when the real estate project is completed , which could be slightly different from the estimated gfa at the beginning of the real estate projects . 32 cost of sales the following table sets forth a breakdown of our cost of revenues for the years indicated . replace_table_token_8_th our cost of sales consists primarily of costs associated with land use rights and construction costs . cost of sales are capitalized and allocated to development projects using a specific identification method . costs are allocated to specific units within a project based on the ratio of the sales area of units to the estimated total sales area of the project or phase of the project times the total cost of the project or phase of the project .
| revenue recognized to date in excess of amounts received from customers is classified as current assets under cost and earnings in excess of billings , whose balance is $ 12,582,965 as of september 30 , 2018 ( 2017 - $ 12,673,349 ) . amounts received from customers in excess of revenue recognized to date are classified as current liabilities under billings in excess of cost and earnings , whose balance is $ 5,844,189 as of september 30 , 2018 ( 2017 - $ 4,247,477 ) . any changes in significant judgments and or estimates used in determining construction and development revenue could significantly change the timing or amount of construction and development revenue recognized . changes in total estimated project costs or losses , if any , are recognized in the period in which they are determined . changes of estimated gross profit margins related to revenue recognized under the percentage of completion method are made in the period in which circumstances requiring the revisions become known . for the year ended september 30 , 2018 , real estate development projects with gross profits recognized in 2018 had changes in their estimated revenue and related gross profit margins . the company increased its prior estimates related to selling prices and total estimated sales values which led to a decrease in the recognized costs of sales under percentage completion revenue recognition approach . as a result of these changes in gross profit margins , net income for the year ended september 30 , 2018 increased by $ 3,278,037 ( 2017 decreased by $ 138,594 ) and basic and diluted earnings per share for the year ended september 30 , 2018 increased by $ 0.07 ( 2017- decreased by $ 0.003 ) . 30 full accrual method revenue from the sales of short term development properties , where the construction period is expected to be 18 months or less is recognized by the full accrual method at the time of the closing of an individual unit sale . this occurs when title to or possession of
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for more information on risks associated with the company 's operations , including tariffs , please see the risk factors within part i , item 1a , “ risk factors ” in this annual report on for m 10-k. emerson has taken active steps to further streamline its operations to reduce and control its operating costs . the operating costs for fiscal 2019 were reduced to $ 3.8 million , which included $ 346,000 in legal fees related to a trademark infringement suit initiated by the company , as compared to $ 4.9 million for fiscal 2018 which included $ 489,000 in legal fees related to a trademark infringement suit initiated by the company . licensing revenue — licensing revenue in fiscal 2019 was $ 0.4 million as compared to $ 0.7 million for fiscal 2018 , a decrease of $ 0.3 million , or 38.5 % , driven by lower year-over-year sales by the company 's licensees of emerson ® branded product . one of the company 's licensees chose not renew its agreement when it expired on december 31 , 2018. net revenues — as a result of the foregoing factors , the company 's net revenues were $ 9.0 million for fiscal 2019 as compared to $ 15.0 million for fiscal 2018 , a decrease of $ 6.0 million , or 40.2 % . cost of sales — cost of sales includes those components as described in note 1 “ cost of sales ” of the notes to the consolidated financial statements . in absolute terms , cost of sales decreased $ 5.1 million , or 37.1 % , to $ 8.8 million in fiscal 2019 as compared to $ 13.9 million in fiscal 2018. the decrease in absolute terms for fiscal 2019 as compared to fiscal 2018 was primarily related to the reduced net product sales and lower year-over-year gross cost of sales as a percentage of gross sales . other operating costs and expenses — other operating costs and expenses include those components as described in note 1 “ other operating costs and expenses ” of the notes to the consolidated financial statements . other operating costs and expenses as a percentage of net product sales were 0.3 % in fiscal 2019 and 0.4 % in fiscal 2018. in absolute terms , other operating costs and expenses were $ 27,000 in fiscal 2019 as compared to $ 60,000 in fiscal 2018. selling , general and administrative expenses ( “ s , g & a ” ) — s , g & a , as a percentage of net revenues , was 42.8 % in fiscal 2019 as compared to 32.8 % in fiscal 2018. fiscal 2019 s , g & a , in absolute terms , was $ 3.8 million and fiscal 2018 s , g & a , in absolute terms , was $ 4.9 million , a decrease of $ 1.1 million , or 21.9 % . the decrease in s , g & a was due to reductions in compensation costs , legal fees and directors fees . interest income , net — interest income , net , was $ 859,000 in fiscal 2019 as compared to $ 492,000 in fiscal 2018 , resulting from an increase in interest rates earned on investments in certificates of deposit during fiscal 2019 . ( benefit ) provision for income tax expense — the company recorded an income tax benefit of $ 0.4 million in fiscal 2019 as compared to income tax expense of $ 3.5 million in fiscal 2018 resulting from the enactment of the tax cuts and jobs act and a one-time transition tax on the deemed repatriation of the company 's undistributed earnings of its foreign subsidiaries . see note 5 “ income taxes ” of the notes to the consolidated financial statements . net ( loss ) — as a result of the foregoing factors , the company recorded a net loss of $ 2.4 million for fiscal 2019 as compared to a net loss of $ 6.9 million for fiscal 2018. liquidity and capital resources general as of march 31 , 2019 , the company had cash and cash equivalents of approximately $ 7.9 million as compared to approximately $ 25.1 million at march 31 , 2018. working capital decreased to $ 40.3 million at march 31 , 2019 as compared to $ 46.0 million at march 31 , 2018. the decrease in cash and cash equivalents of approximately $ 17.2 million is set out in “ cash flows ” below . cash flows 19 net cash used by operating activities was approximately $ 2.2 million for fiscal 2019 resulting from a $ 2.4 million loss generat ed during the period , a $ 0.7 million decrease in income taxes payable , a $ 0.4 million increase in inventory , a $ 0.3 million decrease in accounts payable and other current liabilities , a $ 0.2 million increase in asset allowances partially offset by a $ 1.5 m illion decrease in accounts receivable , a $ 0.1 million increase in deferred revenue , a $ 0.1 million decrease in deferred tax assets and a $ 0.1 million decrease in prepaid expenses and other current assets . net cash used by investing activities was $ 12.4 million primarily due to an increase of investments in short term certificates of deposit . net cash used by financing activities was approximately $ 2.6 million resulting from treasury stock purchases made during fiscal 2019 under the company 's $ 10.0 million stock repurchase program authorized by the company 's board of directors . story_separator_special_tag the repurchase program expired on december 31 , 2018. credit arrangements letters of credit — the company utilizes the services of one of its banks to issue secured letters of credit on behalf of the company , as needed , on a 100 % cash collateralized basis . at march 31 , 2019 and march 31 , 2018 , the company had no letters of credit outstanding . short-term liquidity the company 's principal existing sources of cash are generated from operations . the company believes that its cash on hand and existing sources of cash will be sufficient to support its existing operations over the next 12 months . historically , a significant percentage of the company 's product sales were made under the direct import program . the direct importation of product by the company to its customers can significantly benefit the company 's liquidity because this inventory does not need to be financed by the company . in fiscal 2019 , there were approximately $ 41,000 of product sales imported directly to the company 's customers due to changes in the company 's key customers . as of march 31 , 2019 , there were no capital expenditure or other commitments other than the normal purchase orders used to secure product . off-balance sheet arrangements as of march 31 , 2019 , the company did not have any off-balance sheet arrangements as defined under the rules of the securities and exchange commission . critical accounting policies the discussion and analysis of the company 's financial condition and results of operations are based upon its consolidated financial statements , which have been prepared in accordance with accounting principles that are generally accepted within the united states . the preparation of the company 's financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . management considers certain accounting policies related to inventories , trade accounts receivables , impairment of long-lived assets , valuation of deferred tax assets , sales return reserves and sales allowance accruals to be critical policies due to the estimation processes involved in each . revenue recognition : sales to customers and related cost of sales are primarily recognized at the point in time when control of goods transfers to the customer . under the direct import program , title passes in the country of origin . under the domestic program , title passes primarily at the time of shipment . under both programs , the company recognizes revenues at the time title passes to the customer as this is when the company satisfies its performance obligation under the contracts with its customers . estimates for future expected returns are based upon historical return rates and netted against revenues . revenue is measured as the amount of consideration the company expects to receive in exchange for transferring goods . revenue is recorded net of customer discounts , promotional allowances , volume rebates and similar charges . when the company offers the right to return product , historical experience is utilized to establish a liability for the estimate of expected returns . sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue . management must make estimates of potential future product returns related to current period product revenue . management analyzes historical returns , current economic trends and changes in customer demand for the company 's products when evaluating the 20 adequacy of the reserve for sales returns . management judgments and estimates must be made and used in connection with establishing the sales return reserves i n any accounting period . additional reserves may be required if actual sales returns increase above the historical return rates . conversely , the sales return reserve could be decreased if the actual return rates are less than the historical return rates , w hich were used to establish the reserve . the company adopted asc topic 606 effective april 1 , 2018. sales allowances , marketing support programs , promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized . prior to the adoption of asc topic 606 , the company followed the provisions of asc topic 605 in prior periods . the adoption of asc topic 606 did not have a material impact on revenue recognition as compared to revenue recognition provided under asc topic 605. if additional marketing support programs , promotions and other volume-based incentives are required to promote the company 's products subsequent to the initial sale , then additional reserves may be required and are accrued for when such support is offered . inventories . inventories are stated at the lower of cost or net realizable value . cost is determined using the first-in , first-out basis . the company records inventory reserves to reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory reserves may be required . conversely , if market conditions improve , such reserves are reduced . trade accounts receivable . the company extends credit based upon evaluations of a customer 's financial condition and provides for any anticipated credit losses in the company 's financial statements based upon management 's estimates and ongoing reviews of recorded allowances .
| in the aggregate , these adjustments had the effect of increasing net product sales and operating income by approximately $ 16,000 and $ 195,000 for fiscal 2019 and fiscal 2018 , respectively . net product sales are comprised primarily of the sales of houseware and audio products which bear the emerson ® brand name . the major elements which contributed to the overall decrease in net product sales were as follows : i ) houseware product net sales decreased $ 6.5 million , or 64.5 % , to $ 3.6 million in fiscal 2019 as compared to $ 10.1 million in fiscal 2018 , principally driven by a decrease in sales of microwave ovens , compact refrigerators and wine products partially offset by an increase in toaster ovens . the year-over-year decreases were driven by lower year-over-year retail sell through on existing models and competitive pricing activity . ii ) audio product net sales were $ 5.0 million in fiscal 2019 compared to $ 4.3 million in fiscal 2018 , an increase of $ 0.7 million , or 16.8 % , resulting from increased net sales of clock radios . business operations — the company expects to continue to expand its existing distribution channels and to develop and promote new products to regain shelf spaces with retailers in the usa . the company is also investing in products and marketing activities to expand its sales through internet and ecommerce channels . these efforts require investments in appropriate human resources , media marketing and development of products in various categories in addition to the traditional home appliances and audio products on which the company has historically focused . the company also is continuing its efforts to identify strategic courses of action related to its licensing activities , including seeking new licensing relationships . the company has engaged lmca as an agent to assist in identifying and procuring potential licensees . emerson 's success is dependent on its ability to anticipate and respond to changing consumer demands and trends in a timely manner , as well
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the ge secured lending facility also has minimum liquidity covenants that require us to maintain minimum levels of cash , cash equivalents and availability under the revolving credit facility , which can restrict our ability to use our cash and cash equivalents . we were in default of this liquidity covenant in november 2013 , and , in december 2013 , we amended the terms of the ge secured lending facility to allow for a temporary waiver , effective from november 1 , 2013 through january 31 , 2014 , of the liquidity covenant under the agreement for a fee of $ 860,000 , payable in march 2014. in addition , we agreed to an additional credit reserve in the amount of $ 0.5 million , bringing the total reserve to $ 1.0 million . on january 28 , 2014 , we obtained an additional waiver of the liquidity covenant from ge capital through february 28 , 2014 and agreed to increase the credit reserve under this facility by an additional $ 0.5 million , bringing the total reserve to $ 1.5 million . the total accrued amendment fees at december 31 , 2013 were $ 1.1 million . we also agreed to pay ge capital a fee of $ 200,000 on march 31 , 2014 in connection with 52 the january 28 , 2014 waiver if the ge secured lending facility is not repaid on or before march 31 , 2014. accordingly , we expect to pay the $ 1.3 million in amendment fees in april 2014. although we were in compliance with the liquidity covenant at february 28 , 2014 , we anticipate that we will be unable to comply with the liquidity covenant prior to december 31 , 2014 , and have therefore classified the entire obligation as a current liability . going concern our ability to access capital when needed is not assured and , if not achieved on a timely basis , will materially harm our business , financial condition and results of operations . these uncertainties create substantial doubt about our ability to continue as a going concern . our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in their report on our annual financial statements for the fiscal year ended december 31 , 2013. the financial information throughout this annual report have been prepared on a basis which assumes that we will continue as a going concern , which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business . this financial information and statements do not include any adjustments that may result from the outcome of this uncertainty . cash flows the following table summarizes , for the periods indicated , cash flows from operating , investing and financing activities ( in thousands ) : replace_table_token_5_th net cash used in operating activities net cash used in operating activities was $ 9.9 million in 2013 , compared to $ 9.7 million used in 2012 , an increase of $ 0.2 million , or 2 % . the cash used in operating activities for 2013 was primarily attributable to a $ 4.2 million increase in the change in prepaid expenses and other current assets primarily due to the deferred offering costs and a $ 2.6 million increase in the change in inventory as we built up our inventory . these amounts were partially offset by a $ 1.2 million decrease in trade accounts receivable mostly due to improved collection and cash management efforts and a $ 3.3 million increase in accounts payable and accrued liabilities . net cash provided by investing activities net cash provided by investing activities was $ 0.3 million in 2013 , compared to $ 4.3 million provided in 2012 , a decrease of $ 4.0 million , or 93 % . the decrease in net cash provided by investing activities was primarily attributable to a $ 7.5 million decrease in the proceeds from maturities of marketable securities and a $ 1.7 million increase in the purchase of property and equipment , which were partially offset by a $ 5.1 million decrease in purchases of marketable securities . net cash provided by financing activities net cash provided by financing activities was $ 9.2 million in 2013 , compared to $ 4.9 million provided in 2012 , an increase of $ 4.3 million , or 90 % . this increase in net cash provided by financing activities was primarily attributable to an $ 8.9 million increase in net proceeds from the issuance of convertible preferred stock and a $ 2.9 million increase in proceeds from the issuance of common stock in connection with the exercise of common stock warrants and options , partially offset by a $ 4.8 million decrease in net proceeds from the issuance of convertible debt and a $ 3.1 million increase in net payments on our ge secured lending facility . indebtedness in december 2012 , we entered into the ge secured lending facility , which consists of a $ 18.0 million term loan and up to $ 3.5 million revolving credit facility with ge capital , as agent and lender , and zions first national bank , as lender . we pledged all of our assets as collateral for the loans . the revolving line of credit is secured by our accounts receivable , based on certain defined criteria . the term loan consisted of interest only payments until january 1 , 2014. beginning in january 2014 , monthly interest payments as well as principal payments of approximately $ 600,000 each are required for a period of 30 months . we were in default of the liquidity covenant under the ge secured lending facility in november 2013 , and , in december 2013 , we amended the terms of the ge secured lending facility to allow for a temporary waiver effective from november 1 , 2013 story_separator_special_tag the ge secured lending facility also has minimum liquidity covenants that require us to maintain minimum levels of cash , cash equivalents and availability under the revolving credit facility , which can restrict our ability to use our cash and cash equivalents . we were in default of this liquidity covenant in november 2013 , and , in december 2013 , we amended the terms of the ge secured lending facility to allow for a temporary waiver , effective from november 1 , 2013 through january 31 , 2014 , of the liquidity covenant under the agreement for a fee of $ 860,000 , payable in march 2014. in addition , we agreed to an additional credit reserve in the amount of $ 0.5 million , bringing the total reserve to $ 1.0 million . on january 28 , 2014 , we obtained an additional waiver of the liquidity covenant from ge capital through february 28 , 2014 and agreed to increase the credit reserve under this facility by an additional $ 0.5 million , bringing the total reserve to $ 1.5 million . the total accrued amendment fees at december 31 , 2013 were $ 1.1 million . we also agreed to pay ge capital a fee of $ 200,000 on march 31 , 2014 in connection with 52 the january 28 , 2014 waiver if the ge secured lending facility is not repaid on or before march 31 , 2014. accordingly , we expect to pay the $ 1.3 million in amendment fees in april 2014. although we were in compliance with the liquidity covenant at february 28 , 2014 , we anticipate that we will be unable to comply with the liquidity covenant prior to december 31 , 2014 , and have therefore classified the entire obligation as a current liability . going concern our ability to access capital when needed is not assured and , if not achieved on a timely basis , will materially harm our business , financial condition and results of operations . these uncertainties create substantial doubt about our ability to continue as a going concern . our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in their report on our annual financial statements for the fiscal year ended december 31 , 2013. the financial information throughout this annual report have been prepared on a basis which assumes that we will continue as a going concern , which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business . this financial information and statements do not include any adjustments that may result from the outcome of this uncertainty . cash flows the following table summarizes , for the periods indicated , cash flows from operating , investing and financing activities ( in thousands ) : replace_table_token_5_th net cash used in operating activities net cash used in operating activities was $ 9.9 million in 2013 , compared to $ 9.7 million used in 2012 , an increase of $ 0.2 million , or 2 % . the cash used in operating activities for 2013 was primarily attributable to a $ 4.2 million increase in the change in prepaid expenses and other current assets primarily due to the deferred offering costs and a $ 2.6 million increase in the change in inventory as we built up our inventory . these amounts were partially offset by a $ 1.2 million decrease in trade accounts receivable mostly due to improved collection and cash management efforts and a $ 3.3 million increase in accounts payable and accrued liabilities . net cash provided by investing activities net cash provided by investing activities was $ 0.3 million in 2013 , compared to $ 4.3 million provided in 2012 , a decrease of $ 4.0 million , or 93 % . the decrease in net cash provided by investing activities was primarily attributable to a $ 7.5 million decrease in the proceeds from maturities of marketable securities and a $ 1.7 million increase in the purchase of property and equipment , which were partially offset by a $ 5.1 million decrease in purchases of marketable securities . net cash provided by financing activities net cash provided by financing activities was $ 9.2 million in 2013 , compared to $ 4.9 million provided in 2012 , an increase of $ 4.3 million , or 90 % . this increase in net cash provided by financing activities was primarily attributable to an $ 8.9 million increase in net proceeds from the issuance of convertible preferred stock and a $ 2.9 million increase in proceeds from the issuance of common stock in connection with the exercise of common stock warrants and options , partially offset by a $ 4.8 million decrease in net proceeds from the issuance of convertible debt and a $ 3.1 million increase in net payments on our ge secured lending facility . indebtedness in december 2012 , we entered into the ge secured lending facility , which consists of a $ 18.0 million term loan and up to $ 3.5 million revolving credit facility with ge capital , as agent and lender , and zions first national bank , as lender . we pledged all of our assets as collateral for the loans . the revolving line of credit is secured by our accounts receivable , based on certain defined criteria . the term loan consisted of interest only payments until january 1 , 2014. beginning in january 2014 , monthly interest payments as well as principal payments of approximately $ 600,000 each are required for a period of 30 months . we were in default of the liquidity covenant under the ge secured lending facility in november 2013 , and , in december 2013 , we amended the terms of the ge secured lending facility to allow for a temporary waiver effective from november 1 , 2013
| the following table sets forth , for the periods indicated , our product revenue by geographic area ( in thousands ) : replace_table_token_4_th product revenue attributable to sales in the united states was $ 22.2 million in 2013 , an increase of $ 0.4 million , or 2 % , as compared to 2012. product revenue attributable to international sales was $ 0.1 million in 2013 , a decrease of $ 1.1 million , or 91 % , as compared to 2012. the decrease was primarily attributable to a one-time sale of non-silicon nitride products to an international customer in 2012 . 50 cost of revenue cost of revenue was $ 7.0 million in 2013 as compared to $ 6.5 million in 2012 , an increase of $ 0.5 million , or 8 % . this increase was primarily related to an increase in excess and obsolete inventory costs of $ 0.3 million related to our first generation valeo products and the new 2.3 % medical device excise tax in the united states , which totaled $ 0.4 million in 2013. the increases were partially offset by lower costs of our orthobiologic products in 2013 as compared to 2012. gross profit gross profit as a percentage of product revenue decreased by 4 % to 68 % for 2013 from 72 % for the same period in 2012 , primarily as a result of the u.s. medical device excise tax of 2.3 % on product revenue which became effective in january 2013 and an increase in excess and obsolete inventory costs of $ 0.3 million related to our first generation valeo products . research and development expenses research and development expenses were $ 3.5 million in 2013 as compared to $ 6.0 million in 2012 , a decrease of $ 2.5 million , or 42 % . this decrease was primarily due to our allocation , in 2013 , of an additional $ 2.9 million of overhead costs to inventory as a result of the ramp-up phase for our second generation valeo products , which overhead costs had been allocated to research and development expenses in 2012. general and administrative expenses general and administrative expenses were $ 5.8 million in 2013 as compared to $ 7.3 million in 2012 , a decrease of $ 1.5 million , or 21 % . this decrease was primarily due to decreases of $ 1.4 million in amortization expense and $ 1.1 million in legal and patent expense , partially offset by a $ 0.8 million increase in employee compensation and
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for further information , refer to note 32 in our consolidated financial statements . as more fully described in our discussion of critical accounting estimates , goodwill , jefferies recognized goodwill impairment losses of $ 54.0 million in its stand-alone financial statements for 2014 based on an evaluation performed on the basis of its reporting units . in accordance with u.s. gaap , we have not recognized these losses on a consolidated basis . the discussion below is presented on a detailed product and expense basis . net revenues presented for equity and fixed income businesses include allocations of interest income and interest expense as jefferies assesses the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective sales and trading activities , which is a function of the mix of each business 's associated assets and liabilities and the related funding costs . 30 the following provides a summary of net revenues by source included in the years ended december 31 , 2015 and 2014 and for the period from the jefferies acquisition through december 31 , 2013 ( in thousands ) : replace_table_token_8_th net revenues net revenues for 2015 reflect the impact of challenging market conditions throughout the year on jefferies fixed income business , partially offset by increased revenues in jefferies equities business . almost all of jefferies fixed income credit businesses were impacted by lower levels of liquidity due to the expectations of interest rate increases by the federal reserve and deterioration in the global energy and distressed markets . there were a number of periods of extreme volatility , which were followed by periods of low trading volume . jefferies 2015 results include a net gain of $ 49.1 million from its investment in kcg holdings , inc. ( “ kcg ” ) net revenues for 2014 reflect record investment banking revenues , partially offset by lower revenue due to challenging trading environments in jefferies fixed income business , particularly in the fourth quarter of 2014. jefferies core equities business performed relatively well during 2014. jefferies 2014 results include a loss of $ 14.7 million from its investment in kcg and a gain of $ 19.9 million from its investment in hrg . net revenues for the period from the jefferies acquisition through december 31 , 2013 reflect solid performance in jefferies equity sales and trading business and continued strength in its investment banking platform . jefferies fixed income businesses experienced difficult trading conditions for a portion of the period as a result of a change in expectations for interest rates surrounding the federal reserve 's plans for tapering its asset purchase program ; though fixed income performance significantly improved during the fourth quarter of 2013. results include gains of $ 89.3 million in aggregate within equities principal transaction revenues from jefferies investments in kcg and hrg . equities revenue equities revenue is comprised of equity commissions , principal transactions and net interest revenue relating to cash equities , electronic trading , equity derivatives , convertible securities , prime brokerage , securities finance and alternative investment strategies . equities revenue is heavily dependent on the overall level of trading activity of its clients . equities revenue also includes jefferies share of the net earnings from jefferies joint venture investments in jefferies finance , llc and jefferies loancore , llc , which are accounted for under the equity method , as well as any changes in the value of its investments in kcg and hrg , which are accounted for at fair value . equities revenue for the year ended december 31 , 2015 include a net gain of $ 49.1 million from jefferies investment in kcg , and for the year ended december 31 , 2014 include a loss of $ 14.7 million from jefferies investment in kcg and a gain of $ 19.9 million 31 from its investment in hrg , and for the period from the acquisition of jefferies to december 31 , 2013 include a gain of $ 19.5 million from its investment in kcg and a gain of $ 69.8 million from its investment in hrg . additionally , during the first quarter of 2014 , jefferies recognized a gain of $ 12.2 million in connection with its investment in corecommodity management llc . for the years ended december 31 , 2015 and 2014 and the period from the acquisition of jefferies to december 31 , 2013 , included within interest expense allocated to jefferies equities business is positive income of $ 48.9 million , $ 45.1 million and $ 33.7 million , respectively , related to the amortization of premiums arising from the adjustment of jefferies long-term debt to fair value as part of acquisition accounting . u.s. equity market conditions during the 2015 period were characterized by instability in stock prices and moderate economic growth . in the equity markets , the nasdaq composite index increased 6.6 % and the s & p 500 index increased 0.6 % , while the dow jones industrial average decreased by 0.6 % during the fiscal year . in europe and asia , the recovery remains gradual and economic developments vary across regions . strong revenues , as a result of increased trading volumes , from jefferies electronic trading platform contributed to higher commissions revenues . total equities revenue also includes higher revenues from the asia equity cash desk and net mark-to-market gains from equity investments , as well as growth from jefferies wealth management platform . this was partially offset by lower revenues from equity block trading results from jefferies u.s. equity cash desk and lower commissions in its europe equity cash desk . equities revenue from the jefferies loancore joint venture during the year ended december 31 , 2015 includes higher revenues from an increase in loan closings and securitizations by the venture over the comparable prior year period . story_separator_special_tag equities revenue from the jefferies finance joint venture during the year ended december 31 , 2015 includes lower revenues as a result of syndicate costs associated with the sell down of commitments , as well as reserves taken on certain loans held for investment as compared with the prior year period . for 2014 , u.s. stock prices continued an overall upward trend with company earnings and economic data largely meeting expectations and the outlook for monetary policy remaining favorable . while the markets in the fourth quarter were relatively unsettled , the s & p 500 index was up 14.5 % for the fiscal year and exchange trading volumes increased generally , which contributed to increased commission revenue . similarly , european exchange volumes grew significantly throughout the 2014 year . additionally , the performance from jefferies electronic trading platform and prime brokerage business has continued to increase . equities revenue from the jefferies finance joint venture during the nine months ended december 31 , 2014 were comparable to those from the joint venture during the same period in 2013. equities revenue from jefferies loancore joint venture decreased during 2014 as compared to the 2013 period due to fewer securitizations . u.s. equity market conditions during the 2013 period were characterized by continually increasing stock prices as the u.s. government maintained its monetary stimulus program . in the equity markets , the nasdaq composite index , the s & p 500 index and the dow jones industrial average increased by 28 % , 19 % and 14 % , respectively , with the s & p index registering a series of record closing highs . however , economic data in the u.s. continued to indicate a slow recovery and geopolitical concerns regarding the middle east and a u.s. federal government shutdown added volatility in the u.s. and international markets . despite the rally in the equity markets in 2013 , overall market volumes were subdued moderating customer flow in jefferies u.s. cash equity business , although jefferies benefited from certain block trading opportunities during the period . in europe , during the 2013 period , liquidity returned to the market as the european central bank convinced investors that it would not allow the eurozone to breakup aiding results to both jefferies cash and option desks , although the results were still impacted by relatively low trading volumes given the region 's fragile economy . additionally , asian equity commissions were stronger , particularly in japan with new monetary policies increasing trading volumes on the nikkei exchange . jefferies securities finance desk also contributed solidly to equities revenue for the 2013 period and the performance of certain strategic investment strategies were strong . revenue from jefferies sales and trading of convertible securities is reflective of increased market share as jefferies has expanded its team in this business . net earnings from jefferies finance and loancore joint ventures reflect a solid level of securitization deals and loan closings during the 2013 period . fixed income revenue fixed income revenue includes commissions , principal transactions and net interest revenue from investment grade corporate bonds , mortgage- and asset-backed securities , government and agency securities , municipal bonds , emerging markets debt , high yield and distressed securities , bank loans , foreign exchange and commodities trading activities . included within interest expense for the years ended december 31 , 2015 and 2014 and for the 2013 period is positive income of $ 51.3 million , $ 55.5 million and $ 40.1 million , respectively , from the allocation to jefferies fixed income business of a portion of the amortization of premiums arising from adjusting jefferies long-term debt to fair value as part of acquisition accounting . 32 the lower revenues during the 2015 period were primarily due to tighter trading conditions across most core businesses and losses in jefferies high yield distressed sales and trading business and international mortgages business , partially offset by higher revenues in its u.s. and international rates businesses , as well as its u.s. investment grade corporate credit business . the fixed income markets during 2015 were impacted at various points by the expectations of and uncertainty related to interest rate increases by the federal reserve , deterioration in the global energy markets , the slowdown of china 's economic growth , geopolitical concerns in the middle east , the potential of a greece default , and economic uncertainty , which led to volatility in currency markets . the uncertainty as to the timing of the interest rate increases by the federal reserve and extremely low rates globally drove investors to seek spread and yield primarily in more liquid investments . the higher revenues in jefferies u.s. and international rates businesses , as well as its u.s. investment grade corporate credit business , resulted from higher transaction volumes as volatility caused attractive yields and interest in new issuances . however , that same volatility negatively impacted the municipal securities business as prices declined and the sector experienced overall net cash outflows . most of jefferies credit fixed income businesses were negatively impacted during 2015 by periods of extreme volatility and market conditions , as investors focused on liquidity , resulting in periods of low trading volume during the year . in addition , results in jefferies distressed trading businesses were negatively impacted by its position in the energy sector and led to mark-to-market write-downs in its inventory and results in its emerging markets business were lower due to slower growth in the emerging markets during the year . revenues from futures sales and trading were also lower for 2015 as jefferies exited this business activity . jefferies mortgages business was also negatively impacted by market volatility as credit spreads tightened for these asset classes and expectations of future rate increases resulted in lower trading volumes and revenues .
| million in insurance payments covering previously expensed legal fees . selling , general and other expenses for 2014 include a charge relating to the agreement to settle certain litigation related to the jefferies acquisition for an aggregate payment of $ 70.0 million plus legal fees . selling , general and other expenses for 2013 include costs related to the acquisition of jefferies of $ 7.0 million and consent fees of $ 2.3 million paid to amend a covenant in our senior note indenture to permit additional borrowings by material subsidiaries . income related to associated companies is comprised of our share of various investee 's underlying net income or loss , none of which is significant during the three year period . 37 other financial services businesses and investments a summary of results of operations for other financial services businesses and investments for the three years in the period ended december 31 , 2015 is as follows ( in thousands ) : replace_table_token_11_th our other financial services businesses and investments include the consolidated results of certain leucadia asset management fund managers , the returns on our investments in these funds , the consolidated results of foursight capital and chrome capital ( vehicle finance ) , our share of the income of berkadia , the results of our investment in fxcm , our share of the income of homefed , and prior to the jefferies acquisition , the results of jefferies high yield holdings , llc ( “ jhyh ” ) and our investment in jefferies . as more fully discussed in note 5 to our consolidated financial statements , in january 2015 , we entered into a credit agreement with fxcm , for a $ 300 million two-year senior secured term loan with rights to a variable proportion of certain distributions in connection with an fxcm sale of assets or certain other events , and our right to require a sale of fxcm beginning in january 2018. fxcm is an online provider
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our net income for the fiscal year ended june 30 , 2018 was favorably impacted by gross profit expansion of $ 33.4 million and reduced other expense , net of $ 12.4 million , primarily attributable to decreases in the amortization of debt discount costs upon the maturity of our convertible senior notes ( notes ) and the contribution of $ 6.1 million of other income associated with the sale of a cost method investment during fiscal 2018. the increase in gross margins was driven by increases in revenue in our cloud solutions and banking solutions segments . our operating expenses increased $ 6.4 million in the fiscal year ended june 30 , 2018 compared to the prior fiscal year , primarily due to an increase in sales and marketing costs of $ 8.4 million , increased product development and engineering costs of $ 4.3 million and increased general and administrative costs of $ 3.3 million , partially offset by the absence of a goodwill impairment charge of $ 7.5 million we incurred during the prior fiscal year . our operating expenses in the fiscal year ended june 30 , 2018 were unfavorably impacted by $ 2.1 million due to the impact of foreign currency exchange rates primarily related to the british pound sterling which appreciated against the u.s. dollar as compared to the prior fiscal year . in fiscal 2018 we recorded a non-recurring income tax benefit of $ 8.0 million as a result of u.s. federal income tax changes enacted during the year . in the fiscal year ended june 30 , 2018 , we derived approximately 39 % of our revenue from customers located outside of north america , principally in the united kingdom , continental europe and the asia-pacific region . we expect future revenue growth to be driven primarily by our banking , legal spend management and settlement network solutions . over the past several years we have made strategic investments in innovative new technology offerings that we believe will enhance our competitive position , help us win new business , drive subscription revenue growth and expand our operating margins . we expect to continue to make investments in our suite of products so that we can continue to offer innovative , feature-rich technology solutions to our customers . revenue sources our revenues are derived from multiple sources and are reported under the following classifications : s ubscriptions and transactions fees . we derive subscription and transaction fees from a number of sources , principally our saas offerings . subscription revenues are typically recognized on a ratable basis over the subscription period . transaction revenues are typically recorded at the time transactions are processed . some of our saas products require customers to pay upfront integration or implementation fees . in these cases , since the up-front fees do not represent a separate revenue earnings process , they are deferred and recognized as revenue over the estimated life of the customer relationship , which is generally between five and ten years . a significant part of our focus remains on growing the revenue contribution from our saas offerings and subscriptions and transactions based revenue streams . software license fees . software license revenues , which we derive from our software applications , are generally based on the number of software applications and user licenses purchased . fees from the sale of perpetual software licenses are generally recognized upon delivery of the software to the customer , assuming that payment from the customer is probable and there are no extended payment terms . some of our software arrangements , particularly those related to financial institution customers , are 29 recognized on a percentage of completion basis over the life of the project because they require significant customization and modification and involve extended implementation periods . recently however , the number of percentage of completion arrangements we enter into has declined as we have continued to de-emphasize large , highly customized projects in lieu of standard product deployments and our cloud-based solutions . service and maintenance fees . our service and maintenance revenues consist of professional services fees and customer support and maintenance fees . revenues relating to professional services not associated with highly customized software solutions are normally recognized at the time services are rendered . professional services revenues associated with software license arrangements that include significant customization and modification are generally recognized on a percentage of completion basis over the life of the project . software maintenance fees are recognized as revenue ratably over the respective maintenance period , which is typically one year . other revenues . we derive other revenues from the sale of printers , check paper and magnetic ink character recognition toners . these revenues are normally recognized at the time of delivery . critical accounting policies and significant judgments and estimates we believe that several accounting policies are important to understanding our historical and future performance . we refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate , and different estimates - which also would have been reasonable - could have been used . these critical accounting policies and estimates relate to revenue recognition , the valuation of goodwill and intangible assets , the valuation of acquired deferred revenue and income taxes . these critical policies and our procedures related to these policies are discussed below . in addition , refer to note 2 significant accounting policies to our consolidated financial statements included in item 8 of this annual report on form 10-k for further details regarding this matter . revenue recognition software arrangements we recognize revenue on our software license arrangements when four basic criteria are met : persuasive evidence of an arrangement exists , delivery of the product has occurred , the fee is fixed and determinable and collectability is probable . we consider a fully executed agreement or a customer purchase order to be persuasive evidence of an arrangement . story_separator_special_tag delivery is deemed to have occurred upon transfer of the product to the customer or the completion of services rendered . we consider the arrangement fee to be fixed and determinable if it is not subject to adjustment and if the customer has not been granted extended payment terms . excluding our long term contract arrangements for which revenue is recorded on a percentage of completion basis , extended payment terms are deemed to be present when any portion of the software license fee is due in excess of 90 days after the date of product delivery . in arrangements that contain extended payment terms , software revenue is recorded as customer payments become contractually due , assuming all other revenue recognition criteria have been met . we consider the arrangement fee to be probable of collection if our internal credit analysis indicates that the customer will be able to pay contractual amounts as they become due . our software arrangements often contain multiple revenue elements , such as software licenses , professional services and post-contract customer support . for multiple element software arrangements which qualify for separate element treatment , revenue is recognized for each element when each of the four basic criteria is met which , excluding post-contract customer support , is typically upon delivery . revenue for post-contract customer support agreements is recognized ratably over the term of the agreement , which is generally one year . revenue is allocated to each element , excluding the software license , based on vendor specific objective evidence ( vsoe ) . vsoe is limited to the price charged when the element is sold separately or , for an element not yet being sold separately , the price established by management having the relevant authority . we do not have vsoe for our software licenses since they are seldom sold separately . accordingly , revenue is allocated to the software license using the residual value method . under the residual value method , revenue equal to vsoe 30 of each undelivered element is recognized upon delivery of that element . any remaining arrangement fee is then allocated to the software license . this has the effect of allocating any sales discount inherent in the arrangement to the software license fee . certain of our software arrangements require significant customization and modification and involve extended implementation periods . these arrangements do not qualify for separate element revenue recognition treatment as described above , and instead must be accounted for under contract accounting . under contract accounting , companies must select from two generally accepted methods of accounting : the completed contract method and the percentage of completion method . the completed contract method recognizes revenue and costs upon contract completion , and all project costs and revenues are reported as deferred items in the balance sheet until that time . the percentage of completion method recognizes revenue and costs on a contract over time , as the work progresses . we use the percentage of completion method of accounting for our long-term contracts , as we believe that we can make reasonably reliable estimates of progress toward completion . progress is measured based on labor hours , as measured at the end of each reporting period , as a percentage of total expected labor hours . accordingly , the revenue we record in any reporting period for arrangements accounted for on a percentage of completion basis is dependent upon our estimates of the remaining labor hours that will be incurred in fulfilling our contractual obligations . our estimates at the end of any reporting period could prove to be materially different from final project results , as determined only at subsequent stages of project completion . to mitigate this risk , we solicit the input of our project professional staff on a monthly basis , as well as at the end of each financial reporting period , for purposes of evaluating cumulative labor hours incurred and verifying the estimated remaining effort to completion ; this ensures that our estimates are always based on the most current projections available . non-software arrangements for arrangements governed by general revenue recognition literature , such as with our saas offerings or equipment and supplies only sales , we recognize revenue when four basic criteria are met . these criteria are similar to those governing software transactions : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the arrangement fee is fixed or determinable and collectability is reasonably assured . for our saas offerings , revenue is generally recognized on a subscription or transaction basis over the period of performance . for arrangements consisting of multiple elements , revenue is allocated to each element based on a selling price hierarchy . the selling price of each element is based on vsoe if available , third-party evidence ( tpe ) if vsoe is not available or estimated selling price ( esp ) if neither vsoe nor tpe are available . the residual method of allocation in a non-software arrangement is not permitted and , instead , arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method . the relative selling price method allocates any discount in the arrangement proportionately to each deliverable based on the proportion of each deliverable 's selling price to the total arrangement fee . we are typically unable to establish tpe , which is based on the selling price charged by unrelated third-party vendors for similar deliverables when they are sold separately , as we are generally unable to obtain sufficient information on actual vendor selling prices to substantiate tpe . the objective of esp is to estimate the price at which we would transact if the deliverable were sold separately rather than as part of a multiple element arrangement . our determination of esp considers several factors , including actual selling prices for similar transactions , gross margin expectations and our ongoing pricing strategy .
| million and increased operating expenses of $ 7.9 million primarily related to increased sales and marketing costs . we expect revenue and profit for the cloud solutions segment to increase in fiscal year 2019 as a result of increased revenue from both our legal spend management solutions and settlement network solutions . banking solutions revenues from our banking solutions segment increased $ 12.6 million for the fiscal year ended june 30 , 2018 as compared to the prior fiscal year , due primarily to increased services revenue of $ 5.3 million as a result of our continued deployment of our newer banking solutions and increased subscriptions and transactions revenue as we continued to expand the number of customers on our saas platforms , of $ 3.3 million . the banking solutions segment also recorded other revenues of $ 2.6 million , which represented the one-time buyout of a revenue share arrangement . segment profit increased $ 6.8 million for the fiscal year ended june 30 , 2018 as compared to the prior fiscal year , due primarily to the revenue increase described above , partially offset by increased cost of revenues of $ 4.1 million and increased sales and marketing expenses of $ 1.1 million . we expect revenue and profit for the banking solutions segment to remain relatively consistent in fiscal year 2019 . 35 payments and transactional documents revenues from our payments and transactional documents segment increased $ 3.2 million for the fiscal year ended june 30 , 2018 as compared to the prior fiscal year , inclusive of a favorable impact of foreign currency exchange rates of $ 4.0 million , due primarily to increased subscription and transaction revenue of $ 9.3 million from our european payments and transactional documents solutions , partially offset by decreased software license revenue of $ 3.3 million and decreased service and maintenance revenue of $ 1.7 million . the segment profit decrease of
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in july 2014 , fox completed a secondary offering in which we sold a 12 % interest in fox , reducing our ownership 73 interest to 41 % and resulting in the deconsolidation of fox from our financial results . we subsequently sold our remaining shares of fox and now hold no ownership interest in fox . we recognized total net proceeds from the sale of our fox shares of approximately $ 465.1 million . ( 5 ) the total purchase price of sterno includes the acquisition of rimports in february 2018 for a purchase price of $ 154.4 million . dispositions replace_table_token_15_th ( 1 ) codi portion of the net proceeds from disposition includes debt and equity proceeds and reflects the accounting for the redemption of the sold business 's minority shareholders and transaction expenses . ( 2 ) gain ( loss ) recognized on sale of our businesses is calculated by deducting our total invested capital from the net sale proceeds received . ( 3 ) sale price of manitoba harvest was c $ 370 million . translation to usd is as of the date of sale . * we made loans to and purchased a controlling interest in fox on january 4 , 2008 , for approximately $ 80.4 million . in august 2013 , fox completed an initial public offering of its common stock . as a result of the initial public offering , our ownership interest in fox was reduced to approximately 53.9 % . no gain was reflected as a result of the sale of our fox shares in the initial public offering because our majority classification of fox did not change . fox used a portion of their net proceeds received from the sale of their shares as well as proceeds from a new external fox credit facility to repay $ 61.5 million in outstanding indebtedness to us under their existing credit facility with us . in july 2014 , through a secondary offering , our ownership in fox was lowered from approximately 53 % to approximately 41 % , and as a result we deconsolidated fox as of july 10 , 2014. in march and august 2016 , through two more secondary offerings and a share repurchase by fox , our ownership in the outstanding common stock of fox was further lowered to approximately 23 % as of september 30 , 2016. in november 2016 , through another secondary offering , our ownership in the outstanding common stock of fox was further lowered to approximately 14 % . on march 13 , 2017 , fox closed on a secondary public offering of 5,108,718 shares of fox common stock held by codi , which represented codi 's remaining investment in fox . we recognized total net proceeds from the sales of our fox shares of approximately $ 465.1 million , plus proceeds from the repayment of the fox credit facility of $ 61.5 million upon completion of their initial public offering , and a total gain of $ 428.7 million . we are dependent on the earnings of , and cash receipts from , the businesses that we own in order to meet our corporate overhead and management fee expenses and to pay distributions . the earnings and distributions of our businesses are generally lowest in the first quarter , and strongest in the third and fourth quarter , of each fiscal year . these earnings and distributions , net of any non-controlling interest in these businesses , are available to : meet capital expenditure requirements , management fees and corporate overhead charges ; fund distributions from the businesses to the company ; and be distributed by the trust to shareholders . 74 2019 highlights and recent events repayment of 2018 term loan during the year ended december 31 , 2019 , we repaid $ 193.8 million of the 2018 term loan in july 2019 , and the remaining $ 298.8 million balance due under the 2018 term loan in november 2019. in connection with the repayment , we recorded $ 8.9 million in expense associated with the deferred financing costs that we had previously capitalized associated with the 2018 term loan , and $ 3.4 million in expense associated with the original issue discount on the 2018 term loan . we had an interest rate swap with a notional amount of $ 220 million that was effective april 1 , 2016 through june 6 , 2021 , the original termination date of our 2014 term loan . we terminated the interest rate swap in connection with the repayment of the 2018 term loan , resulting in a payment of $ 4.9 million . trust preferred share issuance in the fourth quarter of 2019 , the trust issued 4,600,000 7.875 % series c preferred shares for gross proceeds of $ 115.0 million , or $ 111.0 million net of underwriters ' discount and issuance costs . distributions on the series c preferred shares will be payable quarterly in arrears , when and as declared by the company 's board of directors on january 30 , april 30 , july 30 , and october 30 of each year , beginning on january 30 , 2020. distributions on the series c preferred shares are cumulative . sale of clean earth on may 8 , 2019 , the company , as majority stockholder of cehi acquisition corporation ( `` clean earth '' or “ cehi ” ) and as sellers ' representative , entered into a definitive stock purchase agreement ( the “ purchase agreement ” ) with calrissian holdings , llc ( “ buyer ” ) , cehi , the other holders of stock and options of cehi and , as buyer 's guarantor , harsco corporation , pursuant to which buyer would acquire all of the issued and outstanding securities of cehi , the parent company of the operating entity , clean earth , inc. on june 28 , 2019 , buyer completed the acquisition of all of the issued and outstanding securities of cehi pursuant to the purchase agreement . story_separator_special_tag the sale price for clean earth was based on an aggregate total enterprise value of $ 625 million and is subject to customary working capital adjustments . after the allocation of the sale proceeds to clean earth non-controlling equity holders and the payment of transaction expenses of approximately $ 10.7 million , we received approximately $ 552 million of total proceeds at closing related to our debt and equity interests in clean earth . we recognized a gain on the sale of clean earth of $ 209.3 million during the year ended december 31 , 2019. refer to `` note l - stockholders ' equity `` for a discussion of the profit allocation associated with the sale of clean earth . sale of manitoba harvest on february 19 , 2019 , we entered into a definitive agreement with tilray , inc. ( `` tilray '' ) and a wholly-owned subsidiary of tilray , 1197879 b.c . ltd. ( “ tilray subco ” ) , to sell to tilray , through tilray subco , all of the issued and outstanding securities of our majority owned subsidiary , manitoba harvest for total consideration of up to c $ 419 million . the completion of the sale of manitoba harvest was subject to approval by the british columbia supreme court , which occurred on february 21 , 2019. the sale closed on february 28 , 2019. subject to certain customary adjustments , the shareholders of manitoba harvest , including the company , received the following from tilray as consideration for their shares of manitoba harvest : ( i ) c $ 150 million in cash to the holders of preferred shares of manitoba harvest and the holders of common shares of manitoba harvest ( “ common holders ” ) and c $ 127.5 million in shares of class 2 common stock of tilray ( “ tilray common stock ” ) to the common holders on the closing date of the sale ( the “ closing date consideration ” ) , and ( ii ) c $ 50 million in cash and c $ 42.5 million in tilray common stock to the common holders on the date that was six months after the closing date of the arrangement ( the “ deferred consideration ” ) . the sale consideration also included a potential earnout of up to c $ 49 million in tilray common stock to the common holders , if manitoba harvest achieved certain levels of u.s. branded gross sales of edible or topical products containing broad spectrum hemp extracts or cannabidiols prior to december 31 , 2019. the threshold for the earnout was not achieved and no additional amount was recorded related to sale of manitoba harvest at december 31 , 2019. the cash portion of the closing date consideration was reduced by the amount of the net indebtedness ( including accrued interest ) of manitoba harvest on the closing date of c $ 71.3 million ( $ 53.7 million ) and transaction expenses of approximately c $ 5.0 million . we recognized a gain on the sale of manitoba harvest of $ 121.7 million in the first quarter of 2019. refer to `` note l - stockholders ' equity `` for a discussion of the profit allocation associated with the sale of manitoba harvest . our share of the net proceeds after accounting for the redemption of the noncontrolling shareholders and the payment of net indebtedness of manitoba harvest and transaction expenses was approximately $ 124.2 million in cash proceeds and in tilray common stock . in august 2019 , the company received the deferred 75 consideration related to the sale . the company 's portion of the deferred consideration totaled $ 28.4 million in cash proceeds and $ 19.6 million in tilray common stock . the tilray common stock consideration was issued in reliance on the exemption from the registration requirements of the securities act and pursuant to exemptions from applicable securities laws of any state of the united states , such that any shares of tilray common stock received by the common holders were freely tradeable . we sold the tilray common stock received as part of the closing consideration during march 2019 , recognizing a net loss of $ 5.3 million in other income ( expense ) during the quarter ended march 31 , 2019. in august 2019 , the company sold the tilray common stock received as part of the deferred consideration , recognizing a loss of $ 4.9 million in other income/ ( expense ) during the quarter ended september 30 , 2019 . 2019 distributions common shares - for the 2019 fiscal year we declared distributions to our common shareholders totaling $ 1.44 per share . preferred shares - for the 2019 fiscal year we declared distributions to our preferred shareholders totaling $ 1.8125 per share on our series a preferred shares and $ 1.96875 on our series b preferred shares . we also declared a distribution to our preferred shareholders of $ 0.38281 per share on our series c preferred shares . the distribution on the series c preferred shares covers the period from , and including , november 20 , 2019 , the original issue date of the series c preferred shares , up to , but excluding , january 30 , 2020 . 2020 outlook and significant trends during 2019 , the middle market continued to be an active segment for deal flow , with continued strong deal flow expected in 2020. high valuation levels continue to be driven by the availability of debt capital with favorable terms and financial and strategic buyers seeking to deploy available equity capital . we believe that companies will focus on expanding their customer bases by diversifying their products and services in existing geographic areas during 2020. we remain focused on marketing the company 's attractive ownership and management attributes to potential sellers of middle market businesses and intermediaries . in addition , we continue to pursue opportunities for add-on acquisitions by certain of our existing subsidiary companies , which can be particularly attractive from a strategic perspective .
| the decrease in selling , general and administrative expense is primarily due to decreased commissions paid in fiscal year 2019 as a result of the decrease in sales . selling , general and administrative expenses represented 16.3 % of net sales for both the year ended december 31 , 2019 and the year ended december 31 , 2018. income from operations income from operations for the year ended december 31 , 2019 was approximately $ 25.7 million compared to $ 26.3 million in the same period in 2018 , a decrease of approximately $ 0.7 million , as a result of the factors described above . year ended december 31 , 2018 compared to the year ended december 31 , 2017 net sales net sales for the year ended december 31 , 2018 were approximately $ 92.5 million compared to approximately $ 87.8 million for the same period in 2017 , an increase of approximately $ 4.7 million or 5.4 % . the increase in net sales was due to increased sales in quick-turn production pcbs by approximately $ 1.3 million , long-lead time pcbs by approximately $ 2.4 million , subcontract by approximately $ 1.0 million , and decreased promotion by approximately $ 0.8 million . this was partially offset by decreases in assembly sales by approximately $ 0.1 million and quick-turn small-run pcbs by approximately $ 0.7 million . on a consolidated basis at aci , quick-turn small-run pcbs comprised approximately 18.9 % of gross sales and quick-turn production pcbs represented approximately 33.0 % of gross sales for the year ended december 31 , 2018. quick-turn small-run pcbs comprised approximately 20.4 % of gross sales and quick-turn production pcbs represented approximately 33.0 % of gross sales for the year ended december 31 , 2017. gross profit gross profit as a percentage of net sales increased 130 basis points during the year ended december 31 , 2018 ( 46.7 % in 2018 compared to 45.4 % in 2017 ) primarily as a result
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our buyer partners include : dsps , which are technology-based firms that programmatically purchase ad impressions on behalf of advertisers , and include firms such as google 's display & video 360 platform ( “ dv360 ” ) and the trade desk ; agencies and agency trading desks , which consist of firms that provide advertising-related services to advertisers , such as managing the programmatic purchase of advertising inventory , including dentsu , havas , interpublic group , omnicom , publicis , and wpp ; and advertisers , who are increasingly taking portions of the media buying process in-house to better control and optimize their digital ad investment and derive superior outcomes . our ability to efficiently add and monetize valuable impressions on our platform has led to revenue growth , profitability , and operating cash flow ( gaap net cash provided by operating activities ) . by focusing on valuable ad impressions , investing in our own specialized cloud software and hardware infrastructure , optimizing platform utilization , and implementing workflow automation , we have achieved strong gross margins . for the year ended december 31 , 2020 and the year ended december 31 , 2019 , our gross margin was 72 % and 68 % , our net income margin ( net income as a percentage of revenue ) was 18 % and 6 % , our adjusted ebitda margin ( adjusted ebitda as a percentage of revenue ) was 34 % and 20 % , and operating cash flow margin ( operating cash flows as a percentage of revenue ) was 16 % and 31 % , respectively . for the year ended december 31 , 2020 and the year ended december 31 , 2019 , we derived approximately 67 % and 69 % of our revenue from americas-based publishers , respectively , 23 % and 21 % from europe-based publishers , middle east and africa-based ( “ emea ” ) publishers , respectively , and 10 % and 10 % from asia-pacific ( “ apac ” ) -based publishers , respectively . we are focused on expanding outside the united states and expect to increase our proportion of revenue from non-u.s. geographies in the future . we classify publishers by geography based on the billing address of the publisher transacting with us . in the fourth quarter of 2020 , mobile ( including mobile video ) and video ( including ott/ctv ) combined comprised approximately 65 % of our revenue . we anticipate mobile to continue increasing as a percentage of our 68 total impressions and revenue in the future . we further expect video to constitute an increasingly important component of our business . covid-19 the covid-19 pandemic has resulted in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services , including those provided by certain of the advertisers on our platform . this situation could also potentially limit our ad buyers ' budgets or disrupt sales channels and advertising and marketing activities generally . the duration of these disruptive effects will continue for an unknown period of time until the virus is contained or economic activity normalizes . with the decline in economic activity , our revenue growth slowed and turned negative in the second quarter of 2020. although our revenue has subsequently returned to growth , the impact of the pandemic on our future growth and our results of operations is unknown and we are unable to accurately predict the future impact . the extent of the impact of the covid-19 pandemic on our operational and financial performance will depend on a variety of factors , including the duration and spread of the virus and its impact on our publishers , ad buyers , industry , and employees , all of which are uncertain at this time and can not be accurately predicted . see “ risk factors ” for further discussion of the adverse impacts of the covid-19 pandemic on our business . the table below summarizes the financial highlights of our business : replace_table_token_5_th _ ( 1 ) for a definition of adjusted ebitda , an explanation of our management 's use of this measure , and a reconciliation of adjusted ebitda to net income , see “ selected consolidated financial data—non-gaap financial measures. ” key factors affecting our performance we believe our growth and financial performance are dependent on many factors , including those described below . growing access to valuable ad impressions our recent growth has been driven by a variety of factors including increased access to mobile web ( display and video ) and mobile app ( display and video ) impressions and desktop video impressions . our performance is affected by our ability to maintain and grow our access to valuable ad impressions from current publishers as well as through new relationships with publishers . the number of ad impressions processed on our platform was approximately 5.9 trillion , 6.3 trillion , 7.0 trillion , 8.6 trillion , 9.0 trillion , 10.3 trillion , 11.8 trillion and 15.8 trillion , for each of the three months ended march 31 , 2019 , june 30 , 2019 , september 30 , 2019 and december 31 , 2019 , march 31 , 2020 , june 30 , 2020 , september 30 , 2020 , december 31 , 2020 , respectively . monetizing ad impressions for publishers and buyers we focus on monetizing digital impressions by coordinating daily over a hundred billion real-time auctions and nearly a trillion bids globally , using our specialized cloud software , machine learning algorithms , and scaled 69 transaction infrastructure . valuable ad impressions are transparent and data rich , viewable by humans , and verifiable . each ad impression we auction consists of over 300 independent data parameters , which can yield valuable insights if recorded and analyzed properly . this processing of voluminous data for each ad impression must occur in less than half a second as consumers expect a seamless digital ad experience . story_separator_special_tag by deploying our specialized software and hardware and continuously optimizing our machine learning algorithms , we are able to derive superior outcomes by increasing advertiser return on investment ( “ roi ” ) and publisher revenue , while increasing the cost efficiency of our platform and our customers ' businesses . we continually assess impressions from new and existing publishers through a rigorous validation process . we add or remove impressions from our platform based on an assessment of the projected value of the impressions , which is influenced by the type of publisher and its related consumers , as well as the potential volume of monetizable impressions and ad format types , such as digital video . we continuously create and iterate algorithms that leverage vast datasets flowing through our infrastructure to improve the liquidity in our marketplace . our ability to drive successful outcomes in the real-time auction process on behalf of our publishers and buyers will affect our operating results . identifying valuable ad impressions that we can profitably monetize at scale we continuously review our available inventory from existing publishers across every format ( mobile , desktop , digital video , ott , ctv , and rich media ) . the factors we consider to determine which impressions we process include transparency , viewability , and whether or not the impression is human sourced . by consistently applying these criteria , we believe that the ad impressions we process will be valuable and marketable to advertisers . in addition , using a combination of proprietary analysis driven by machine learning algorithms that are continuously updated along with specialized third-party tools , we aim to exclude low value impressions from our platform and , in some cases , may suspend certain publishers , or particular publisher sites and apps , from using our platform if they do not meet our standards . our confidence in our ability to achieve our quality goals is backed by a fraud-free guarantee to all of our buyers which we introduced in 2017. we believe that this rigorous commitment to quality helps us maintain our reputation as a leader in the programmatic advertising ecosystem . our financial performance depends in part on how efficiently and effectively we can conduct these activities at scale . increasing revenue from publishers and advertising spend from buyers we leverage our extensive platform capabilities and the subject matter expertise of our team members to grow revenue from our publishers and increase advertising spending from our buyers . our sales and marketing team includes customer success pods to enhance customer knowledge and implementation of best practices . once we onboard a new customer , we seek to expand our relationship with existing publishers by establishing multiple header bidding integrations by leveraging our omnichannel capabilities to maximize our access to publishers ' ad formats and devices , and expanding into the various properties that a publisher may own around the world . we may also up-sell additional products to publisher customers including our header bidding management , identity , and audience solutions . we automate workflow processes whenever feasible to drive predictable and value-added outcomes for our customers and increase productivity of our organization . net dollar-based retention rate is an important indicator of publisher satisfaction and usage of our platform , as well as potential revenue for future periods . we calculate our net dollar-based retention rate at the end of each year . we calculate our net dollar-based retention rate by starting with the revenue from publishers in the last prior year ( “ prior period revenue ” ) . we then calculate the revenue from these same publishers in the current year ( “ current period revenue ” ) . current period revenue includes any upsells and is net of contraction or attrition , but excludes revenue from new publishers . our net dollar-based retention rate equals the current period revenue divided by prior period revenue . our net dollar-based retention rate was 122 % for 2020 , and 109 % for 2019. our growth in the period ended december 31 , 2020 and 2019 was primarily attributable to an increase in the number of ad impressions processed from our publishers , upselling additional products , penetration of header bidding for mobile app and digital video , and increased demand from the growth of our buyer relationships primarily through spo agreements . we work with dsps to help them reduce their costs and improve advertiser roi , which in turn makes us the specialized cloud infrastructure platform of choice for many of our buying partners . as buyers increasingly 70 consolidate their spending with fewer larger technology platforms , we seek to bring an increased proportion of their digital ad spending to our platform through direct deals . we have entered into spo agreements directly with buyers , advertisers and agencies through various arrangements ranging from custom data and workflow integrations , product features , and volume-based business terms . the effect of these spo agreements is to increase the volume of ad spend on our platform without corresponding increases in technology costs . managing industry dynamics we operate in the rapidly evolving digital advertising industry . due to the scale and complexity of the digital advertising ecosystem , direct sales via manual , person-to-person processes are insufficient for delivering a real-time , personalized ad experience , creating the need for programmatic advertising . in turn , advances in programmatic technologies have enabled publishers to auction their ad inventory to more buyers , simultaneously , and in real time through a process referred to as header bidding . header bidding has also provided advertisers with transparent access to ad impressions . as advertisers keep pace with ongoing changes in the way that consumers view and interact with digital media there will be further innovation and we anticipate that header bidding will be extended into new areas such as ott/ctv .
| million increase in equipment upgrades . these increases were partially offset by a $ 0.9 million decrease in guaranteed inventory purchases related to a test program that was cancelled in the first quarter of 2019 , a $ 0.7 million impairment expense related to internal use software of a discontinued product offering , and a $ 0.1 million decrease in travel expenses due to the covid-19 virus outbreak . overall , our cost of revenue per impression processed in 2020 declined by 32 % compared to 2019. our gross margin of 72 % in 2020 increased compared to 2019 of 68 % due to greater utilization of our platform offset by investments for capacity expansion . we expect the cost of revenue to be higher in 2021 compared to 2020 in absolute dollars primarily due to costs associated with the continued expansion of our capacity to process impressions to support revenue growth . technology and development replace_table_token_10_th the decrease in technology and development costs was primarily due to an increase of $ 1.3 million in the capitalization of internal use software principally as a result of new product development offset by a $ 1.1 million increase in personnel costs . while our technology and development headcount increased 15 % , our personnel costs only increased 7 % as a result of lower personnel costs in india where the majority of the incremental hires were based . we expect technology and development expenses to increase in 2021 compared to 2020 in absolute dollars , primarily due to the additional headcount investment in our key growth opportunities . sales and marketing replace_table_token_11_th sales and marketing costs increased primarily due to a $ 7.9 million increase in personnel costs as headcount increased by 21 % . these increased costs were partially offset by reduced spending of $ 0.9 million for travel and entertainment due to the impact of the covid-19 pandemic and $ 0.3 million on marketing . we expect sales
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this benefit reflects the revaluation of our net deferred tax liability based on a u.s. federal tax rate of 21 percent , partially offset by a one-time transition tax on our unremitted foreign earnings and profits . excluding the effect of tax reform and the release of the valuation allowance , the effective tax rate was 39.5 % for 2017 . 20 2016 compared to 2015 replace_table_token_10_th consolidated net revenue was negatively affected in 2016 by the previously announced exit of a large domestic customer and unfavorable foreign exchange impacts . revenue in 2017 was negatively affected by this customer exit as well . in the domestic segment , growth with our other large healthcare provider customers contributed to the year over year change . in the international segment , excluding the impact of a u.k.-based customer exit in 2015 and the negative impact of foreign exchange , revenues increased 0.8 % compared to last year . the decline in proprietary products revenue was largely attributed to a short-term customer contract in late 2015 which did not recur in 2016 and production challenges in capacity and workforce availability which continued into 2017. cost of goods sold . for the years ended december 31 , change ( dollars in thousands ) 2016 2015 $ % cost of goods sold $ 8,536,121 $ 8,558,373 $ ( 22,252 ) ( 0.3 ) % cost of goods sold includes the cost of the product ( net of supplier incentives and cash discounts ) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor , bear risk of general and physical inventory loss and carry all credit risk associated with sales . these are sometimes referred to as distribution or buy/sell contracts . cost of goods sold also includes direct and certain indirect labor , material and overhead costs associated with our proprietary products business . there is no cost of goods sold associated with our fee-for-service arrangements . as a result of the factors discussed above which affected sales activity , cost of goods sold decreased from prior year by $ 22.3 million . replace_table_token_11_th the decrease in gross margin compared to the prior year was largely attributable to lower income from manufacturer product price changes , the previously announced exit of a large domestic customer in september 2016 and the unfavorable impact of foreign currency translation of $ 11.9 million . the exit of a u.k.-based customer in july 2015 also negatively affected the year-to-date comparison . with increasing customer cost pressures and competitive dynamics in healthcare , we believe the current trend of increased gross margin pressure will continue . we value domestic segment inventory under the lifo method . had inventory been valued under the first-in , first-out ( fifo ) method , gross margin as a percentage of net revenue would have been 1 basis point lower in 2016 and the same in 2015. replace_table_token_12_th 21 distribution , selling and administrative ( ds & a ) expenses include labor and warehousing costs associated with our distribution and logistics services and all costs associated with our fee-for-service arrangements . shipping and handling costs are included in ds & a expenses and include costs to store , move , and prepare products for shipment , as well as costs to deliver products to customers . the costs to convert new customers to our information systems are included in ds & a and are generally incurred prior to the recognition of revenues from the new customers . depreciation and amortization , previously reported as a separate financial statement line item in the consolidated statements of income is now included in distribution , selling and administrative expenses for all periods presented . the decrease in ds & a expenses compared to prior year reflected the decreased sales activity in the year , benefits of cost control initiatives , lower fuel costs and improved operational efficiency as well as favorable foreign currency translation impacts of $ 12.3 million . the decrease in other operating income , net was attributed primarily to foreign currency transactional losses in 2016. a discussion of the acquisition-related and exit and realignment charges is included above in the overview section . replace_table_token_13_th interest expense was consistent with prior year . replace_table_token_14_th the change in the effective tax rate compared to 2015 resulted from a higher percentage of the company 's pretax income earned in lower tax rate jurisdictions compared to prior year and the non-deductibility of certain prior year acquisition-related charges for income tax purposes . 22 financial condition , liquidity and capital resources financial condition . we monitor operating working capital through days sales outstanding ( dso ) and merchandise inventory turnover . we estimate a hypothetical increase ( decrease ) in dso of one day would result in a decrease ( increase ) in our cash balances , an increase ( decrease ) in borrowings against our revolving credit facility , or a combination thereof of approximately $ 26 million . the majority of our cash and cash equivalents are held in cash depository accounts with major banks in the united states and europe or invested in high-quality , short-term liquid investments . changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases , collection of accounts receivable , and payment to suppliers . our working capital metrics , including dso and inventory turnover , have also been affected by changes in business mix along with changes in contractual terms with certain customers and suppliers . replace_table_token_15_th ( 1 ) based on year end accounts receivable and net revenue for the fourth quarter ( 2 ) based on average annual inventory and costs of goods sold for the years ended december 31 , 2017 and 2016 liquidity and capital expenditures . story_separator_special_tag the following table summarizes our consolidated statements of cash flows : replace_table_token_16_th cash provided by ( used for ) operating activities in 2017 , 2016 and 2015 reflected fluctuations in net income along with changes in working capital . cash used for investing activities in 2017 , 2016 and 2015 included capital expenditures of $ 50.7 million , $ 30.1 million and $ 36.6 million for our strategic and operational efficiency initiatives , particularly initiatives relating to information technology enhancements and optimizing our distribution network . cash used for investing activities in 2017 included cash paid for the acquisition of byram healthcare of approximately $ 367 million . cash used for investing activities in 2016 was partially offset by $ 5.4 million in proceeds from the sale of property . cash used in financing activities included dividend payments of $ 63.2 million , $ 63.4 million and $ 63.7 million and repurchases of common stock under our share repurchase programs for $ 5.0 million , $ 71.0 million and $ 20.0 million in the years ended december 31 , 2017 , 2016 and 2015. in 2017 , cash provided by financing activities included proceeds from borrowings of $ 354.6 million under our new credit agreement . financing activities in 2015 also included the repayment of $ 33.7 million in borrowings on our amended credit agreement . 23 capital resources . our sources of liquidity include cash and cash equivalents and a revolving credit facility . on july 27 , 2017 , we entered into a new credit agreement replacing the amended credit agreement with wells fargo bank , n.a. , jpmorgan chase bank , n.a. , bank of america , n.a . and a syndicate of financial institutions ( the credit agreement ) . the credit agreement provides borrowing capacity of $ 600 million and a $ 250 million term loan . we make principal payments under the term loan on a quarterly basis with the remaining outstanding principal due in five years . the revolving credit facility has a five-year maturity . under the credit agreement , we have the ability to request two one-year extensions and to request an increase in aggregate commitments by up to $ 200 million . the interest rate on the credit agreement , which is subject to adjustment quarterly , is based on the eurocurrency rate , the federal funds rate or the prime rate , plus an adjustment based on the better of our debt ratings or leverage ratio ( credit spread ) as defined by the credit agreement . we are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility . the terms of the credit agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage , including on a pro forma basis in the event of an acquisition . we may utilize the revolving credit facility for long-term strategic growth , capital expenditures , working capital and general corporate purposes . if we were unable to access the revolving credit facility , it could impact our ability to fund these needs . based on our credit spread , the interest rate under the credit facility at december 31 , 2017 is eurocurrency rate plus 1.375 % . at december 31 , 2017 , we had borrowings of $ 104.6 million and letters of credit of approximately $ 5.1 million outstanding under the credit agreement , leaving $ 490.3 million available for borrowing . we also have a $ 1.3 million and $ 1.1 million letter of credit outstanding as of december 31 , 2017 and 2016 which supports our facilities leased in europe . we have $ 275 million of 3.875 % senior notes due 2021 ( the “ 2021 notes ” ) and $ 275 million of 4.375 % senior notes due 2024 ( the “ 2024 notes ” ) . the 2021 notes were sold at 99.5 % of the principal amount with an effective yield of 3.951 % . the 2024 notes were sold at 99.6 % of the principal amount with an effective yield of 4.422 % . interest on the 2021 notes and 2024 notes is payable semiannually in arrears , which commenced on march 15 , 2015 and december 15 , 2014 , respectively . we have the option to redeem the 2021 notes and 2024 notes in part or in whole prior to maturity at a redemption price equal to the greater of 100 % of the principal amount or the present value of the remaining scheduled payments discounted at the treasury rate plus 30 basis points . we paid quarterly cash dividends on our outstanding common stock at the rate of $ 0.2575 per share during 2017 , $ 0.255 per share during 2016 and $ 0.2525 per share during 2015. in january 2018 , the board of directors approved the first quarter dividend of $ 0.26 per common share , an increase of 1.0 % compared to 2017. we anticipate continuing to pay quarterly cash dividends in the future . however , the payment of future dividends remains within the discretion of the board of directors and will depend upon our results of operations , financial condition , capital requirements and other factors . in october 2016 , the board of directors authorized a share repurchase program of up to $ 100 million of our outstanding common stock to be executed at the discretion of management over a three-year period , expiring in december 2019. the program is intended to offset shares issued in conjunction with our stock incentive plan and return capital to shareholders , and may be suspended or discontinued at any time . during 2017 , we repurchased approximately 0.2 million shares for $ 5.0 million under this program . at december 31 , 2017 , the remaining amount authorized for repurchase under this program was $ 94.0 million .
| in general , the measures exclude items and charges that ( i ) management does not believe reflect our core business and relate more to strategic , multi-year corporate activities ; or ( ii ) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends . management uses these non-gaap financial measures internally to evaluate our performance , evaluate the balance sheet , engage in financial and operational planning and determine incentive compensation . management provides these non-gaap financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results and in comparing our performance to that of our competitors . however , the non-gaap financial measures used by us may be calculated differently from , and therefore may not be comparable to , similarly titled measures used by other companies . the non-gaap financial measures disclosed by us should not be considered a substitute for , or superior to , financial measures calculated in accordance with gaap , and the financial results calculated in accordance with gaap and reconciliations to those financial statements set forth above should be carefully evaluated . the following items have been excluded in our non-gaap financial measures : ( 1 ) acquisition-related intangible amortization includes amortization of certain intangible assets established during purchase accounting for business combinations . these amounts are highly dependent on the size and frequency of acquisitions and are being excluded to allow for a more consistent comparison with forecasted , current and historical results and the results of our peers . we have begun to exclude these charges from our non-gaap results in the second quarter of 2017 and thus prior year amounts have been recast on the same basis . ( 2 ) acquisition-related charges , pre-tax , were $ 17.3 million in 2017 , $ 1.2 million in 2016 and $ 9.8 million in 2015. current year charges were primarily transaction and transition costs associated with the acquisition of byram and the upcoming halyard s & ip transaction . charges in 2016 consisted of costs incurred to settle certain
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contracts entered into at or near the same time with the same customer are combined and accounted for as a single contract if the contracts have a single commercial objective , the amount of consideration is dependent on the price or performance of the other contract , or the services promised in the contracts are a single performance obligation . contract amendments are routine in the performance of our das , wholesale wi-fi , and advertising contracts . contracts are often amended to account for changes in contract specifications or requirements to expand network access services . in most instances , our das and wholesale wi-fi contract amendments are for additional goods or services that are distinct , and the contract price increases by an amount that reflects the standalone selling price of the additional goods or services ; therefore , such contract amendments are accounted for as separate contracts . contract amendments for our advertising contracts are also generally for additional goods or services that are distinct ; however , the contract price does not increase by an amount that reflects the standalone selling price of the additional goods or services . advertising contract amendments are therefore generally accounted for as contract modifications under the prospective method . contract amendments to transaction prices with no change in remaining services are accounted for as contract modifications under the cumulative catch-up method . a performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in asc 606. a contract 's transaction price is allocated to each distinct performance obligation and is recognized as revenue when , or as , the performance obligation is satisfied , which typically occurs when the services are rendered . determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment . our contracts with customers may include multiple performance obligations . for such arrangements , we allocate revenue to each performance obligation based on its relative standalone selling price . we generally determine standalone selling prices based on the prices charged to customers . judgment may be used to determine the standalone selling prices for items that are not sold separately , including services provided at no additional charge . most of our performance obligations are satisfied over time as services are provided . we generally recognize revenue on a gross basis as we are primarily responsible for fulfilling the promises to provide the specified goods or services , we are responsible for paying all costs related to the goods or services before they have been transferred to the customer , and we have discretion in establishing prices for the specified goods or services . revenue is presented net of any sales and value added taxes . payment terms vary on a contract-by-contract basis , although terms generally include a requirement of payment within 30 to 60 days for non-recurring payments , the first day of the monthly or quarterly billing cycle for recurring payments for das and wholesale wi-fi contracts , and the first day of the 43 month prior to the month that services are provided for multifamily contracts . we apply a practical expedient for purposes of determining whether a significant financing component may exist for our contracts if , at contract inception , we expect that the period between when we transfer the promised good or service to the customer and when the customer pays for that good or service will be one year or less . in instances where the customer pays for a good or service one year or more in advance of the period when we transfer the promised good or service to the customer , we have determined our contracts generally do not include a significant financing component . the primary purpose of our invoicing terms is not to receive financing from our customers or to provide customers with financing but rather to maximize our profitability on the customer contract . specifically , inclusion of non-refundable upfront fees in our long-term customer contracts increases the likelihood that the customer will be committed through the end of the contractual term and ensures recoverability of the capital outlay that we incur in expectation of the customer fulfilling its contractual obligations . we may also provide service credits to our customers if we fail to meet contractual monthly system uptime requirements and we account for the variable consideration related to these service credits using the most likely amount method . for contracts that include variable consideration , we estimate the amount of consideration at contract inception under the expected value method or the most likely amount method and include the amount of variable consideration that is not considered to be constrained . significant judgment is used in constraining estimates of variable consideration . we update our estimates at the end of each reporting period as additional information becomes available . timing of revenue recognition may differ from the timing of invoicing to customers . we record unbilled receivables ( contract assets ) when revenue is recognized prior to invoicing , deferred revenue ( contract liabilities ) when revenue is recognized after invoicing , and receivables when we have an unconditional right to consideration to invoice and receive payment in the future . we present our das , multifamily , and wholesale wi-fi contracts in our consolidated balance sheet as either a contract asset or a contract liability with any unconditional rights to consideration presented separately as a receivable . our other customer contracts generally do not have any significant contract asset or contract liability balances . generally , a significant portion of the billing for our das contracts occurs prior to revenue recognition , resulting in our das contracts being presented as contract liabilities . in contrast , our wholesale wi-fi contracts that contain recurring fees with annual escalations are generally presented as contract assets as revenue is recognized prior to invoicing . story_separator_special_tag our multifamily contracts can be presented as either contract liabilities or contract assets primarily as a result of timing of invoicing for the network installations . we recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year . we have determined that certain sales incentive programs meet the requirements to be capitalized . total capitalized costs to obtain a contract were immaterial during the year ended december 31 , 2018 and are included in prepaid expenses and other current assets and non-current other assets on our consolidated balance sheets . we apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less , the most significant of which relates to sales commissions related to obtaining our advertising customer contracts . contract costs are evaluated for impairment in accordance with asc 310 , receivables . das we enter into long-term contracts with telecom operators at our managed and operated locations . the initial term of our contracts with telecom operators generally range from five to twenty years and the agreements generally contain renewal options . some of our contracts provide termination for convenience clauses that may or may not include substantive termination penalties . we apply judgment in determining the contract term , the period during which we have present and enforceable rights and 44 obligations . our das customer contracts generally contain a single performance obligation provide non-exclusive access to our das or small cell networks to provide telecom operators ' customers with access to the licensed wireless spectrum , together with providing telecom operators with construction , installation , optimization/engineering , maintenance services and agreed-upon storage space for the telecom operators ' transmission equipment , each related to providing such licensed wireless spectrum to the telecom operators . the performance obligation is considered a series of distinct services as the performance obligation is satisfied over time and the same time-based input method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer . our contract fee structure generally includes a non-refundable upfront fee and we evaluated whether customer options to renew services give rise to a material right that should be accounted for as a separate performance obligation because of those non-refundable upfront fees . we believe that a material right generally does not exist for our das customer contracts that contain renewal options because the telecom operators ' decision to renew is highly dependent upon our ability to maintain our exclusivity as the das service provider at the venue location and our limited operating history with venue and customer renewals . the telecom operators will make the decision to incur the capital improvement costs at the venue location irrespective of our remaining exclusivity period with the venue as the telecom operators expect that the assets will continue to be serviced regardless of whether we will remain such exclusive das service provider . our contracts also provide our das customers with the option to purchase additional future services such as upgrades or enhancements . this option is not considered to provide the customer with a material right that should be accounted for as a separate performance obligation since the cost of the additional future services depends entirely on the market rate of such services at the time such services are requested and we are not automatically obligated to stand ready to deliver these additional goods or services as the customer may reject our proposal . periodically , we install and sell das networks to customers where we do not have service contracts or remaining obligations beyond the installation of those networks and we recognize build-out fees for such projects as revenue when the installation work is completed , and the network has been accepted by the customer . our contract fee structure may include varying components of an upfront build-out fee and recurring access , maintenance , and other fees . the upfront build-out fee is generally structured as a firm-fixed price or cost-plus arrangement and becomes payable as certain contract and or construction milestones are achieved . our das and small cell networks are neutral-host networks that can accommodate multiple telecom operators . some of our das customer contracts provide for credits that may be issued to existing telecom operators for additional telecom operators subsequently joining the das network . the credits are generally based upon a fixed dollar amount per additional telecom operator , a fixed percentage amount of the original build-out fee paid by the telecom operator per additional telecom operator , or a proportionate share based upon the split among the relevant number of telecom operators for the actual costs incurred by all telecom operators to construct the das network . in most cases , there is significant uncertainty on whether additional telecom operator contracts will be executed at inception of the contract with the existing telecom operator . we believe that the upfront build-out fee is fixed consideration once the build-out is complete and any subsequent credits that may be issued would be accounted for in a manner similar to a contract modification under the prospective method because ( i ) the execution of customer contracts with additional telecom carriers is at our sole election and ( ii ) we would not execute agreements with additional telecom carriers if it would not increase our revenues and gross profits at the venue level . further , the credits issued to the existing telecom operator changes the transaction price on a go-forward basis , which corresponds with the decline in service levels for the existing telecom operator once the neutral-host das network can be accessed by the additional telecom operator . the recurring access , maintenance , and other fees generally escalate on an annual basis .
| 56 years ended december 31 , 2018 and 2017 revenue replace_table_token_13_th ( 3 ) as noted in item 6 , prior period amounts have not been adjusted upon adoption of asc 606 under the modified retrospective method . das . das revenue increased $ 14.7 million , or 18.2 % , in 2018 , as compared to 2017 , due to a $ 12.5 million increase from new build-out projects in our managed and operated locations , which is inclusive of a $ 6.4 million increase resulting from the adoption of asc 606 as of january 1 , 2018 , and a $ 2.2 million increase in access fees , net of certain credits granted , from our telecom operators . military/multifamily . military/multifamily revenue increased $ 22.6 million , or 41.0 % in 2018 , as compared to 2017 , primarily due to a $ 11.2 million increase in multifamily revenues resulting from our elauwit acquisition in august 2018 , and a $ 11.4 million increase in military subscriber revenue , which was driven primarily by the increase in military subscribers and a 11.1 % increase in the average monthly revenue per military subscriber in 2018 compared to 2017. wholesalewi-fi . wholesale wi-fi revenue increased $ 16.0 million , or 50.6 % in 2018 , as compared to 2017 , due to a $ 9.9 million increase in partner usage-based fees and a $ 6.1 million increase in fees primarily earned from our venue partners who pay us to provide a wi-fi infrastructure that we install , manage and operate at their venues . retail . retail revenue decreased $ 7.3 million , or 29.3 % , in 2018 , as compared to 2017 , due to a $ 4.2 million decrease in retail subscriber revenue , which was driven primarily by the decrease in retail subscribers , and a $ 3.1 million decrease in retail single-use revenue . advertising and other . advertising and other revenue increased $ 0.5 million , or 4.4 % in 2018 , as compared to 2017 , primarily due to a $
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to a limited extent , the company also competes with other providers of financial services , such as money market mutual funds , brokerage firms , consumer finance companies and insurance companies . competition is based on a number of factors , including prices , interest rates , services , availability of products and geographic location . effect of economic trends the twelve months ended december 31 , 2011 continued to reflect the tumultuous economic conditions which have negatively impacted the liquidity and credit quality of financial institutions in the united states . concerns regarding increased credit losses from the weakening economy have negatively affected capital and earnings of most financial institutions . financial institutions have experienced significant declines in the value of collateral for real estate loans and heightened credit losses , which have resulted in record levels of non-performing assets , charge-offs and foreclosures . in addition , hundreds of financial institutions failed or merged with other institutions during the last three years , and two of the government sponsored housing enterprises were placed into conservatorship with the u.s. government in 2008. liquidity in the debt markets remains low in spite of efforts by treasury and the federal reserve to inject capital into financial institutions . the federal funds rate set by the federal reserve has remained at 0.25 % since december 2008 , following a decline from 4.25 % to 0.25 % during 2008 through a series of seven rate reductions . the treasury department , the fdic and other governmental agencies continue to enact rules and regulations to implement the eesa , the tarp , the recovery act and related economic recovery programs , many of which contain limitations on the ability of financial institutions to take certain actions or to engage in certain activities if the financial institution is a participant in the cpp or related programs . future regulations , or enforcement of the terms of programs already in place , may require financial institutions to raise additional capital and result in the conversion of preferred equity issued under tarp or other programs to common equity . there can be no assurance as to the actual impact of the eesa , the dodd-frank act or any other governmental program on the financial markets . 33 the weak economic conditions are expected to continue into 2012. financial institutions likely will continue to experience heightened credit losses and higher levels of non-performing assets , charge-offs and foreclosures . in light of these conditions , financial institutions also face heightened levels of scrutiny from federal and state regulators . these factors negatively influenced , and likely will continue to negatively influence , earning asset yields at a time when the market for deposits is intensely competitive . as a result , financial institutions experienced , and are expected to continue to experience , pressure on credit costs , loan yields , deposit and other borrowing costs , liquidity , and capital . results of operations the following presents management 's discussion and analysis of the financial condition of the company at december 31 , 2011 and 2010 , and results of operations for the company for the years ended december 31 , 2011 , 2010 and 2009. this discussion should be read in conjunction with the company 's audited financial statements and the notes thereto appearing elsewhere in this annual report . income statement analysis story_separator_special_tag statistical data were calculated using daily average balances . we have no tax exempt assets for the periods presented . 36 replace_table_token_4_th interest income and interest expense are affected by changes in both average interest rates and average volumes of interest-earning assets and interest-bearing liabilities . the following table analyzes changes in net interest income attributable to changes in the volume of interest-sensitive assets and liabilities compared to changes in interest rates . nonaccrual loans are included in average loans outstanding . the changes in interest due to both rate and volume have been allocated to changes due to volume and changes due to rate in proportion to the relationship of the absolute dollar amounts of the changes in each . 37 rate/volume analysis ( in thousands ) 2011 vs. 2010 2010 vs. 2009 increase ( decrease ) increase ( decrease ) due to changes in due to changes in volume rate total volume rate total interest income loans $ ( 1,555 ) $ ( 904 ) $ ( 2,459 ) $ ( 291 ) $ ( 2,380 ) $ ( 2,671 ) investment securities 365 ( 143 ) 222 142 ( 513 ) ( 371 ) fed funds sold and other 38 ( 2 ) 36 19 9 28 total interest income ( 1,152 ) ( 1,049 ) ( 2,201 ) ( 130 ) ( 2,884 ) ( 3,014 ) interest expense deposits interest checking 32 ( 138 ) ( 106 ) 279 ( 385 ) ( 106 ) money market accounts ( 117 ) ( 381 ) ( 498 ) ( 2,066 ) 1,902 ( 164 ) savings accounts 13 ( 8 ) 5 ( 24 ) 19 ( 5 ) certificates of deposit ( 109 ) ( 1,224 ) ( 1,333 ) ( 1,097 ) ( 3,965 ) ( 5,062 ) total deposits ( 182 ) ( 1,750 ) ( 1,932 ) ( 2,908 ) ( 2,429 ) ( 5,337 ) borrowings long-term debt - 7 7 - ( 46 ) ( 46 ) fhlb advances ( 833 ) 779 ( 54 ) 87 ( 193 ) ( 106 ) other borrowings ( 560 ) - ( 560 ) ( 34 ) - ( 34 ) total interest expense ( 1,575 ) ( 963 ) ( 2,539 ) ( 2,855 ) ( 2,668 ) ( 5,523 ) net interest income $ 423 $ ( 86 ) $ 338 $ 2,725 $ ( 216 ) $ 2,509 note : the combined effect on interest due to changes in both volume and rate , which can not be separately identified , has been allocated proportionately to the change due to volume and the change due to rate . story_separator_special_tag provision for loan losses the amount of the loan loss provision is determined by an evaluation of the level of loans outstanding , the level of non-performing loans , historical loan loss experience , delinquency trends , underlying collateral values , the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions . the level of the allowance reflects changes in the size of the portfolio or in any of its components as well as management 's continuing evaluation of industry concentrations , specific credit risks , loan loss experience , current loan portfolio quality , present economic , and political and regulatory conditions . portions of the allowance may be allocated for specific credits ; however , the entire allowance is available for any credit that , in management 's judgment , should be charged off . while management utilizes its best judgment and information available , the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the company 's control , including the performance of the company 's loan portfolio , the economy , changes in interest rates and the view of the regulatory authorities toward loan classifications . profitability has been negatively impacted by historic provisions for loan losses the last three years . the provision for loan losses increased to $ 18,764,000 in 2011 from $ 4,842,000 in 2010 and $ 13,220,000 in 2009. the significant increase in the provision for loan losses in 2011 reflects management 's determination that continuing depressed market conditions in 2011 as well as some financial difficulties experienced by some of our more significant borrowers warranted the addition of a significant provision for loan losses . the significant provisions for loan losses the last three years reflect the impact of the recessionary economy and borrowers ' ability to repay loans . although we believe that the allowance for loan losses of $ 16,071,000 at december 31 , 2011 , which represents 38 3.75 % of loans outstanding , is adequate to absorb potential losses in the company 's loan portfolio at that date , we can make no assurance that significant provisions for loan losses will not be necessary in the future . the continuation of depressed economic conditions , especially in our primary market area , will have a negative effect on the collectability of our loan portfolio . noninterest income noninterest income includes service charges and fees on deposit accounts , fee income related to loan origination , and gains and losses on sale of mortgage loans and securities held for sale . over the last three years the most significant noninterest income item has been gain on loan sales generated by village bank mortgage , representing 70 % in 2009 , 63 % in 2010 and 60 % in 2011 of total noninterest income . noninterest income amounted to $ 8,285,000 in 2009 , $ 10,991,000 in 2010 and $ 10,844,000 in 2011. the decrease in noninterest income in 2011 of $ 147,000 is primarily attributable to a decrease in gain on sale of loans of $ 481,000 , the decreased gain on sale of loans resulted from a decrease in loan production by our mortgage company , from $ 285 million in 2010 to $ 238 million in 2011. the increase in noninterest income in 2010 of $ 2,706,000 is primarily attributable to an increase in gain on sale of loans of $ 1,176,000 and gains on sale of assets ( land behind one of our branches and sales and calls of investment securities available for sale ) of $ 1,012,000. the increased gain on sale of loans resulted from an increase in loan production by our mortgage company from $ 252 million in 2009 to $ 285 million in 2010. noninterest expense noninterest expense includes all expenses of the company with the exception of interest expense on deposits and borrowings , provision for loan losses and income taxes . some of the primary components of noninterest expense are salaries and benefits , occupancy and equipment costs and expenses related to foreclosed real estate . over the last three years , the most significant noninterest expense item has been salaries and benefits , representing 50 % , 53 % and 53 % of noninterest expense ( excluding the write-off of goodwill in 2009 ) in 2009 , 2010 and 2011 , respectively . noninterest expense decreased from $ 28,338,000 in 2009 , to $ 23,303,000 in 2010 and increased to $ 23,961,000 in 2011. in 2009 the write-off of all goodwill of $ 7,422,141 was included in noninterest expense . this was a one time expense as we no longer have any goodwill . the increase in noninterest expense of $ 658,000 in 2011 resulted primarily from increases in salaries and benefits of $ 288,000 , audit and accounting expense of $ 206,000 and occupancy expense of $ 181,000. the decrease in noninterest expense of $ 5,035,000 in 2010 resulted from the goodwill write-off of $ 7,422,000 in 2009. not taking the goodwill write-off into consideration noninterest expense increased by $ 2,387,000. the increase resulted primarily from increases in salaries and benefits of $ 1,861,000 and other real estate owned expenses of $ 218,000. income taxes applicable tax benefit on the 2011 loss amounted to $ 426,000 , resulting in an effective tax rate of 3.49 % , compared to income tax expense on 2010 earnings of $ 712,000 , resulting in an effective tax rate of 33.2 % , and an income tax benefit of $ ( 3,879,000 ) , or 23.5 % , in 2009. the effective tax rate of the benefit in 2009 was lower due to the non-deductibility of the goodwill impairment charge of $ 7,422,000. the net operating loss is limited by irs section 382 to $ 908,000 per year . the net deferred tax asset is included in other assets on the balance sheet .
| net interest income can be affected by changes in market interest rates as well as the level and composition of assets , liabilities and shareholders ' equity . net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net yield on interest-earning assets ( “ net interest margin ” ) is calculated by dividing tax equivalent net interest income by average interest-earning assets . generally , the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources , principally noninterest-bearing deposits and shareholders ' equity . net interest income increased to $ 19,635,000 in 2011 from $ 19,296,000 in 2010 and $ 16,788,000 in 2009. while the increase in net interest income in 2011 is not significant , changes to the components of net interest income are worthy of note . yields on average interest-earning assets declined from 5.59 % in 2010 to 5.11 % in 2011 resulting in a decline in interest income of $ 1,049,000 , and the amount of average interest-earning assets declined by $ 7,145,000 resulting in a decline in interest income of $ 1,152,000. this decline in yields on average interest-earning assets is a result of a strategic shift by management in the makeup of our average interest-earning assets , from loans to investment securities and federal funds sold , primarily to increase liquidity . yields on loans are generally higher than yields on more liquid assets such as investment securities and federal funds sold . additionally , an increase in nonaccrual loans has had a negative effect on asset yields . rates paid on average interest-bearing liabilities declined from 2.15 % in 2010 to 1.68 % in 2011 resulting in a decline in interest expense of $ 1,750,000. reducing our cost of funds has been strategic focus of management the last three years which has been aided by the historic low
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· net interest and dividend income ( tax equivalent basis ) increased $ 1,520,000 or 7.6 % . earnings per common share excluding one-time expenses related to strategic initiatives of $ 1.7 million ( net of taxes ) , or $ 0.94 per share , would have been $ 2.26 per share or a slight decrease of $ 0.04 compared to 2013 . · non-interest expense increased $ 3,203,000 , or 16.9 % . the following discussion and analysis of salisbury 's consolidated results of operations should be read in conjunction with the consolidated financial statements and footnotes . story_separator_special_tag cellspacing= '' 0 '' style= '' width : 100 % ; font : 10pt times new roman , times , serif '' > business activities loans replace_table_token_5_th acquired loans replace_table_token_6_th the following table sets forth the allocation of the allowance for loan losses among the broad categories of the loan portfolio and the percentage of loans in each category to total loans . although the allowance has been allocated among loan categories for purposes of the table , it is important to recognize that the allowance is applicable to the entire portfolio . furthermore , future charge-offs may not necessarily occur in these amounts or proportions . replace_table_token_7_th ( a ) percent of loans in each category to total loans . the allowance for loan losses represents management 's estimate of the probable credit losses inherent in the loan portfolio as of the reporting date . the allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off , and is reduced by loan charge-offs . loan charge-offs are recognized when management determines a loan , or portion of a loan , to be uncollectible . the allowance for loan losses is computed by segregating the portfolio into three components : ( 1 ) loans collectively evaluated for impairment : general loss allocation factors for non-impaired loans are segmented into pools of loans based on similar risk characteristics such as loan product , collateral type and loan-to-value , loan risk rating , historical loss experience , delinquency factors and other similar economic indicators , ( 2 ) loans individually evaluated for impairment : individual loss allocations for loans deemed to be impaired based on discounted cash flows or collateral value , and ( 3 ) unallocated : general loss allocations for other environmental factors . 25 impaired loans and certain potential problem loans , where warranted , are individually evaluated for impairment . impairment is measured for each individual loan , or for a borrower 's aggregate loan exposure , using either the fair value of the collateral , if the loan is collateral dependent , or the present value of expected future cash flows discounted at the loan 's effective interest rate . an allowance is established when the collateral value or discounted cash flows of the loan is lower than the carrying value of that loan . the component of the allowance for loan losses for loans collectively evaluated for impairment is estimated by stratifying loans into segments and credit risk ratings and then applying management 's general loss allocation factors . the general loss allocation factors are based on expected loss experience adjusted for historical loss experience and other qualitative factors , including levels or trends in delinquencies ; trends in volume and terms of loans ; effects of changes in risk selection and underwriting standards and other changes in lending policies , procedures and practices ; experience/ability/depth of lending management and staff ; and national and local economic trends and conditions . the qualitative factors are determined based on the various risk characteristics of each loan segment . there were no significant changes in salisbury 's policies or methodology pertaining to the general component of the allowance for loan losses during 2014. the unallocated component of the allowance is maintained to cover uncertainties that could affect management 's estimate of probable losses . it reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio . determining the adequacy of the allowance at any given period is difficult , particularly during deteriorating or uncertain economic periods , and management must make estimates using assumptions and information that are often subjective and changing rapidly . the review of the loan portfolio is a continuing event in light of a changing economy and the dynamics of the banking and regulatory environment . should the economic climate deteriorate , borrowers could experience difficulty and the level of non-performing loans , charge-offs and delinquencies could rise requiring increased provisions . in management 's judgment , salisbury remains adequately reserved both against total loans and non-performing loans at december 31 , 2014. management 's loan risk rating assignments , loss percentages and specific reserves are subjected annually to an independent credit review by an external firm . in addition , the bank is examined annually on a rotational process by one of its two primary regulatory agencies , the fdic and ctdob . as an integral part of their examination process , the fdic and ctdob review the adequacy and methodology of the bank 's credit risk ratings and allowance for loan losses . non-interest income the following table details the principal categories of non-interest income . replace_table_token_8_th non-interest income decreased $ 53,000 , or 0.8 % , in 2014 versus 2013. trust and wealth advisory revenues increased $ 221,000 primarily due to increased market values and slightly higher estate fee income . service charges and fees increased $ 175,000 due to increased interchange , deposit and loan servicing fees . gains on sales of mortgage loans decreased $ 515,000 due to significantly lower mortgage volume of loans sold to the fhlbb mortgage partnership finance program . mortgage loans sales totaled $ 4.4 million in 2014 versus $ 18.7 million in 2013. income from servicing of mortgage loans increased $ 59,000 due primarily to a slow-down in amortization . story_separator_special_tag loans serviced under the fhlbb mortgage partnership finance program totaled $ 138.1 million and $ 146.3 million at december 31 , 2014 and 2013 , respectively . boli income increased $ 11,000 due to an increase in coverage held by the bank . 26 non-interest expense the following table details the principal categories of non-interest expense . replace_table_token_9_th non-interest expense increased $ 3.2 million , or 16.9 % , in 2014 versus 2013. salary expense increased $ 562,000 due to changes in staffing levels and mix , merit increases , and expenses related to the riverside bank acquisition . employee benefit expense increased $ 332,000 primarily as a result of incurring $ 208,000 ( pre-tax ) of expenses related to the termination of the bank 's previously frozen defined benefit pension plan . premises and equipment expense increased $ 433,000 primarily as a result of the opening of the great barrington , massachusetts branch as well as the relocation , consolidation and renovation of the sharon , connecticut branch as a result of the acquisition of the union savings bank branch in sharon , connecticut . data processing expense decreased $ 12,000. professional fees increased $ 119,000 primarily due to increased consulting , legal and other professional services . collections and oreo expenses decreased $ 61,000 due to lower appraisal costs and lower oreo write-downs , offset partially by higher collection costs . amortization of intangible assets increased $ 69,000 reflecting the increased intangible asset related to the sharon branch acquisition and the riverside bank merger . printing supplies increased $ 35,000 for the additional supplies needed at our new and acquired branches . merger and acquisition related expenses were primarily related to legal fees , consulting , and data conversion expenses . all other operating expenses increased $ 64,000. income taxes the effective income tax rates for 2014 and 2013 were 19.49 % and 18.21 % , respectively . fluctuations in the effective tax rate result from changes in the mix of taxable and tax exempt income . salisbury 's effective tax rate was less than the 34 % federal statutory rate due to tax-exempt income , primarily from municipal bonds , tax advantaged loans and bank-owned life insurance . for further information on income taxes , see note 12 of notes to consolidated financial statements . salisbury did not incur connecticut income tax in 2014 or 2013 , other than minimum state income tax , as a result of a connecticut law that permits banks to shelter certain mortgage income from the connecticut corporation business tax through the use of a special purpose entity called a passive investment company or pic . in 2004 , salisbury availed itself of this benefit by forming a pic , sbt mortgage service corporation . salisbury 's income tax provision reflects the full impact of the connecticut legislation . salisbury does not expect to pay other than minimum state income tax in the foreseeable future unless there is a change in connecticut tax law . comparison of the years ended december 31 , 2013 and 2012 net interest and dividend income net interest and dividend income ( presented on a tax-equivalent basis ) increased $ 429,000 in 2013 over 2012. the net interest margin increased 12 basis points to 3.57 % from 3.45 % , due to a 26 basis point decline in the average cost of interest-bearing liabilities , offset partially by a 9 basis point decline in the average yield on interest-earning assets . the net interest margin is affected by changes in the mix of interest-earning assets and funding liabilities , asset and liability growth , and the effects of changes in market interest rates on the pricing and re-pricing of assets and liabilities . interest and dividend income tax equivalent interest and dividend income decreased $ 0.8 million , or 3.3 % , to $ 23.0 million in 2013. loan income increased $ 97,000 , or 0.5 % , primarily due to a $ 37.3 million , or 9.8 % , increase in average loans . this increase in volume was partially offset by a 40 basis point decline in average yield , due to lower market interest rates and their effect on new loan rates , loan re-pricing and loan re-financing activity in 2013. tax equivalent interest and dividend income from securities decreased $ 856,000 , or 15.5 % , in 2013 , as a result of a $ 28.2 million decrease in average security balances , offset partially by a 28 basis point increase in average yield . contributing factors to the higher yield includes the maturity , call or pay down of lower yielding securities resulting in a remaining mix of higher yielding securities in the portfolio . interest from short term funds decreased $ 23,000 in 2013 as a result of a $ 15.6 million decrease in average short term balances , which was offset partially by a 4 basis points increase in average yield . 27 interest expense interest expense decreased $ 1.2 million , or 28.5 % , to $ 3.1 million in 2013 primarily as a result of decreases in deposit rates and maturities , and prepayments in the prior period of fhlbb advances , offset in part by higher average balances of interest bearing deposits . interest expense on interest bearing deposit accounts decreased $ 601,000 , or 24.9 % , in 2013 , as a result of a 16 basis point decline in the average rate , to 0.45 % , offset in part by a $ 5.6 million , or 1.4 % , increase in average interest bearing deposits . the decline in average rate was due to the decline in interest rates and changes in product mix . interest on retail repurchase agreements decreased $ 17,000 , or 73.9 % , as a result of a 20 basis point decline in average rate , to 0.19 % , while the average balance decreased $ 2.8 million .
| net interest income can be affected by changes in interest rate levels , changes in the volume of assets and liabilities that are subject to re-pricing within different future time periods , and in the level of non-performing assets . interest and dividend income tax equivalent interest and dividend income increased $ 1.2 million , or 5.1 % , to $ 24.2 million in 2014. loan income increased $ 1.8 million , or 9.8 % , primarily due to a $ 54.5 million , or 13.0 % , increase in average loans . this increase in volume was partially offset by a 12 basis point decline in average yield , due to lower market interest rates and their effect on new loan rates , loan re-pricing and loan re-financing activity in 2014. tax equivalent interest and dividend income from securities decreased $ 670,000 , or 14.4 % , in 2014 , as a result of a $ 19.6 million decrease in average security balances , offset partially by a 22 basis point increase in average yield . contributing factors to the higher yield includes the maturity , call or pay down of lower yielding securities resulting in a remaining mix of higher yielding securities in the portfolio . interest from short term funds decreased $ 9,000 in 2014 as a result of a $ 1.9 million decrease in average short term balances and by a 1 basis point decrease in average yield . interest expense interest expense decreased $ 358,000 , or 11.7 % , to $ 2.7 million in 2014. interest expense on interest bearing deposit accounts decreased $ 348,000 , or 19.2 % , in 2014 , as a result of a 10 basis point decline in the average rate , to 0.35 % , offset in part by a $ 20.2 million , or 5.1 % , increase in average interest bearing deposits . the decline in average rate was due to the decline in interest rates and changes in product mix . interest expense on fhlbb advances decreased $ 59,000 , or 4.7 % , due to a $ 962,000 , or 3.1 % ,
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certain transactions between the company and its subsidiaries , which have historically been eliminated upon consolidation , are shown on a gross basis in the accompanying financial statements as such transactions have occurred between discontinued operations and those operations which the company has continued to utilize following the closing of the asset sale . these items include surplus notes in the amount of $ 18 million plus accrued interest , all of which were settled upon the closing of the asset sale . interest associated with these surplus notes has been recorded as part of net investment income from continuing operations as well as interest expense as part of discontinued operations on the company 's consolidated statement of operations for the year ended december 31 , 2020. all other significant intercompany balances and transactions have been eliminated upon consolidation . valuation of investments the company 's equity securities are recorded at fair value using observable inputs such as quoted prices in inactive markets , quoted prices in active markets for similar instruments , benchmark interest rates , broker quotes and other relevant inputs . any change in the estimated fair value of its investments could impact the amount of unrealized gain or loss the company has recorded , which could change the amount the company has recorded for its investments and on its consolidated balance sheets and statements of income . gains and losses realized on the disposition of investments are determined on the first-in first-out basis and credited or charged to the consolidated statements of income and comprehensive income . premium and discount on investments are amortized and accreted using the interest method and charged or credited to net investment income . the company performs a quarterly analysis of its investment portfolio to determine if declines in market value are other-than-temporary . further information regarding its detailed analysis and factors considered in establishing an other-than-temporary impairment on an investment is discussed within note 5 – investments , to the consolidated financial statements . variable interest entities the determination of whether or not to consolidate a variable interest entity under gaap requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interests . to make these judgments , management has conducted an analysis , on a case-by-case basis , of whether we are the primary beneficiary and are therefore required to consolidate the entity . management continually reconsiders whether we should consolidate a variable interest entity . upon the occurrence of certain events , such as modifications to organizational documents and investment management agreements , management will reconsider its conclusion regarding the status of an entity as a variable interest entity . 19 fg financial group , inc. valuation of net deferred income taxes the provision for income taxes is calculated based on the expected tax treatment of transactions recorded in the company 's consolidated financial statements . in determining its provision for income taxes , the company interprets tax legislation in a variety of jurisdictions and makes assumptions about the expected timing of the reversal of deferred income tax assets and liabilities and the valuation of net deferred income taxes . the ultimate realization of the deferred income tax asset balance is dependent upon the generation of future taxable income during the periods in which the company 's temporary differences reverse and become deductible . a valuation allowance is established when it is more likely than not that all or a portion of the deferred income tax asset balance will not be realized . in determining whether a valuation allowance is needed , management considers all available positive and negative evidence affecting specific deferred income tax asset balances , including the company 's past and anticipated future performance , the reversal of deferred income tax liabilities , and the availability of tax planning strategies . to the extent a valuation allowance is established in a period , an expense must be recorded within the income tax provision in the consolidated statements of income and comprehensive income . stock-based compensation expense the company uses the fair-value method of accounting for stock-based compensation awards granted . the company determines the fair value of the stock options on their grant date using the black-scholes option pricing model and determines the fair value of restricted stock units ( “ rsus ” ) on their grant date using the fair value of the company 's common stock on the date the rsus were issued ( for those rsu which vest solely based upon the passage of time ) , as well as using multiple monte carlo simulations for those rsus with market-based vesting conditions . the fair value of these awards is recorded as compensation expense over the requisite service period , which is generally the expected period over which the awards will vest , with a corresponding increase to additional paid-in capital . when the stock options are exercised , or correspondingly , when the rsus vest , the amount of proceeds together with the amount recorded in additional paid-in capital is recorded in shareholders ' equity . recent accounting pronouncements see item 8 , note 3 – recently issued accounting standards in the notes to the consolidated financial statements for a discussion of recent accounting pronouncements and their effect , if any , on the company . analysis of financial condition as of december 31 , 2020 compared to december 31 , 2019 investments the table below summarizes , by type , the company 's investments as of december 31 , 2020 and 2019. replace_table_token_0_th 20 fg financial group , inc. fednat common stock on december 2 , 2019 , the company received 1,773,102 shares of fednat holding company common stock ( nasdaq : fnhc ) , along with $ 25.5 million cash as consideration for the asset sale . story_separator_special_tag on july 14 , 2020 , the company transferred 156,000 shares of fednat common stock to fgre , a wholly-owned subsidiary of the company , as a capital contribution for no consideration , and , on september 15 , 2020 , the company transferred 330,231 shares of fednat common stock to the hale parties as further described under the heading “ related party transactions ” . following the transactions , the company directly holds 1,286,871 shares of fednat common stock . as of march 15 , 2021 , the estimated fair value of the 1,442,871 shares of fednat common stock held in the aggregate by the company and its subsidiary was $ 6.9 million . limited liability investments the company 's limited liability investments are comprised of investments in a limited partnership and a limited liability company which seek to provide equity and asset-backed debt investment in a variety of privately-owned companies . the company 's total investment in these two entities was approximately $ 638,000 as of december 31 , 2020. the limited liability company is managed by argo management group , llc , an entity which is wholly owned by kfsi . the company has accounted for these two investments at cost minus impairment , if any , as the investments do not have readily determinable fair values . for the years ended december 31 , 2020 and 2019 , the company has received profit distributions of $ 80,000 and $ 91,000 on these investments , respectively , which has been included in income . furthermore , both investments began the process of returning capital back to its investors in 2020. as of december 31 , 2020 , the company has received approximately 18 % of its initial $ 776,000 investment back from these investments . on june 18 , 2018 , the company invested approximately $ 2.2 million in fgi metrolina property income fund , lp ( “ metrolina ” ) , which invests in real estate through a real estate investment trust which is wholly owned by metrolina . the general partner of metrolina , fgi metrolina gp , llc , is managed , in part , by mr. cerminara , the chairman of the company 's board of directors . the company , a limited partner of metrolina , does not have a controlling interest , but exerts significant influence over the entity 's operating and financial policies as it owns an economic interest of approximately 53 % as of december 31 , 2020. accordingly , the company has accounted for this investment under the equity method of accounting , recognizing any unrealized holding gains or losses in income . on august 6 , 2020 , the company increased its total investment in metrolina to $ 4.0 million . as of december 31 , 2020 , metrolina 's carrying amount on the company 's balance sheet was approximately $ 4.7 million , including of $ 0.7 million in undistributed earnings . limited liability investment in consolidated vie in september 2020 , the company invested $ 5.0 million into its joint venture , fundamental global asset management , llc ( “ fgam ' ) , to capitalize fg special situations fund advisor , llc ( “ advisor ” ) , a delaware limited liability company formed on september 2 , 2020 , and to sponsor the launch of fg special situations fund , lp ( the “ fund ” ) , a delaware limited partnership formed on september 2 , 2020. the fund is wholly owned by fgam through the fund 's general partner and advisor , both of which are ultimately controlled by mr. cerminara , the chairman of the company 's board of directors . of the total $ 5.0 million invested into the fund , $ 4.0 million was used by fg new america investors , llc ( the “ sponsor ” ) as part of a total $ 8.6 million of risk capital used to launch fg new america acquisition corp ( nyse : fgna ) , a special purpose acquisition company which consummated its initial public offering on october 2 , 2020 , and entered into a definitive business combination with opportunity financial , llc , on february 10 , 2021. the fund 's specific investment consists of both class a and class a-1 interests of the sponsor , purchased for approximately $ 4.0 million . the interests represent a potential beneficial ownership of approximately 1.4 million common shares of fgna as well as approximately 0.4 million warrants to purchase common shares of fgna at a price of $ 11.50 per share . both the class a and class a-1 interests of the sponsor are subject to complete loss if fgna is not able to consummate a business combination in accordance with the terms of its initial public offering . the class a and class a-1 interests have not been registered under the securities act of 1933 , as amended , and are not transferrable , except as provided for in the operating agreement of the sponsor . the remaining $ 987,000 invested in fgam consists of cash equivalents owned by the fund as of december 31 , 2020 , which are expected to be invested by the fund in the future . mr. cerminara , the chairman of our board , is the president and a director of fgna and a manager of the sponsor . mr. swets , our chief executive officer , is the chief executive officer and a director of fgna and a manager of the sponsor . the company has determined that its investment in fgam represents an investment in a variable interest entity ( “ vie ” ) , in which the company is the primary beneficiary , and as such , has consolidated the financial results of fgam as of december 31 , 2020. the company evaluates whether it is the primary beneficiary of a vie at the time it becomes involved with a variable interest entity and continuously reconsiders that conclusion .
| these costs have been included in general and administrative expense for the year ended december 31 , 2020 , while employee and facility costs have been presented as part of discontinued operations for year ended december 31 , 2019. finally , the company incurred a charge of $ 0.2 million along with associated legal fees in the current year which were related to the share repurchase transaction , as previously described under the heading “ related party transactions. ” income tax expense ( benefit ) our actual effective tax rate varies from the statutory federal income tax rates as shown in the following table . replace_table_token_5_th as a result of the passage of the coronavirus aid , relief , and economic security act ( the “ cares act ” ) , the company recorded a credit of $ 214,000 against its income tax expense for the year ended december 31 , 2020 , due to a provision in the cares act that allows for the five-year carryback of net operating losses . prior to the passage of the cares act , these net operating losses were only available to offset future taxable income generated by the company . 27 fg financial group , inc. as a result of the share repurchase transaction , discussed under the heading “ related party transactions , ” the company has permanent non-deductible expenses of approximately $ 2.5 million which are comprised of the cost of purchasing the company 's own stock as well as the legal fees associated with the transaction . these are shown at the tax effected rate of 21 % , or $ 516,000 in the preceding table . for the year ended december 31 , 2020 , the company recorded an unrealized loss of approximately $ 12.2 million on its investment of fednat common stock , resulting in a deferred tax asset of approximately $ 2.5 million . the company 's gross deferred tax assets are $ 3.9 million as of december 31 , 2020 ; however the company has recorded a valuation allowance against all of its deferred tax assets , resulting in a net deferred income tax asset of $ 0 as of december
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